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Speaker 1: Obviously the conflict in the Middle East and particularly higher

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Speaker 1: oil prices as an impact on everybody in all sorts

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Speaker 1: of different ways. Think of the paraffin price and how

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Speaker 1: dramatically that's happened. But perhaps the first impact that some

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Speaker 1: people would have felt, and maybe this affected someone in

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Speaker 1: maybe it affected you or someone in your life or

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Speaker 1: someone in your office, was in flight prices. All the

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Speaker 1: major airlines almost a couple of weeks in had to

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Speaker 1: either increase their ticket prices or add surcharges because aviation

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Speaker 1: fuel prices are currently so high for the moment. I

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Speaker 1: don't see that rarely changing, Guy Leeches, the aviation analyst. Guy,

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Speaker 1: A good evening. I mean, there are two issues, I suppose.

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Speaker 1: The one is the cost. The other is making sure

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Speaker 1: we have enough have gas in the country. Is there

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Speaker 1: any concern about supplies at the moment for planes?

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Speaker 2: Yeah, high Stephen, and nice to be with you. Well,

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Speaker 2: no fortune. They were not too worried about the actual

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Speaker 2: supply for two reasons. The first is that the amount

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Speaker 2: of food will that we get through the strait is

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Speaker 2: relatively small. Unfortunately, while we're not self sufficient, we have

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Speaker 2: much as forty percent of our fuel that our Tambo

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Speaker 2: comes from Cecil, from NATREF and then of course we

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Speaker 2: get oil from from Nigeria as well, So supply is

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Speaker 2: not a critical issue, but the the the long term

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Speaker 2: picture is significantly more bleak simply because the actually don't

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Speaker 2: have any any refineries left that I speak, or that

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Speaker 2: there is one small one in Capdown which is still

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Speaker 2: undergoing maintenance, and the pairs. And the real question is well,

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Speaker 2: how much will we be well, how much jet a

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Speaker 2: will we need going forward to important? And that's the

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Speaker 2: big question because there's been massive damage to the Middle

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Speaker 2: East refineries.

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Speaker 1: So I mean all of this means that a flight

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Speaker 1: tickets being where they are, I mean there'll be some

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Speaker 1: people will say, well, I'll wait a couple of weeks

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Speaker 1: before i buy a plane ticket because it'll be cheaper.

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Speaker 1: Then that would seem unlikely.

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Speaker 2: Absolutely are we? We heard Willie Walsh is the president

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Speaker 2: of my ART of the International Airlines Association, saying today

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Speaker 2: that he was expecting at least the six months today

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Speaker 2: before the supply gets back to normal, simply because of

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Speaker 2: the damage done to the Middle East refineries. And of

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Speaker 2: course there's also a lot of significant lag time because

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Speaker 2: oil just has to be transported as well through tankers,

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Speaker 2: which can take three or four weeks to get to

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Speaker 2: the destination.

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Speaker 1: The way jet engines are the engines that propelled us.

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Speaker 1: About every plane in South Africa, the where they consume

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Speaker 1: fuel has obviously changed, and I presume that newer planes

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Speaker 1: use less of it. The fuel consumption of our jet fleet,

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Speaker 1: how does that compare to fleets in other places.

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Speaker 2: That's an absolutely key question because So Africa at this

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Speaker 2: stage is still a one generation behind in jets, and

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Speaker 2: basically every time the generation switches, we get as much

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Speaker 2: as a fifteen to twenty percent increase in efficiency from

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Speaker 2: the jet engines. So our our aircraft are now as

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Speaker 2: much as twenty percent less efficient than the competitors. And

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Speaker 2: what we've seen over the past years, particularly since COVID,

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Speaker 2: is that the foreign operators have started operating directly to

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Speaker 2: South Africa's smaller cities like Durban and cap Town direct

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Speaker 2: which means that they are operating with much more efficient equipment,

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Speaker 2: and that's going to make it much more difficult for

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Speaker 2: South African airlines to be able to compete internationally. Here.

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Speaker 2: I'm obviously thinking about SAA getting back into the international routes,

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Speaker 2: but even on regional routes, we're still operating with very

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Speaker 2: fuel inefficient aircraft. Fortunately, fly so Fare has ordered in

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Speaker 2: a new burying maxes, but they're still quite a long

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Speaker 2: way from being delivered. So the whole South African industry

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Speaker 2: is going to be on the back foot for another

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Speaker 2: couple of years while we try and work because of

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Speaker 2: the impact of higher fuel branches.

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Speaker 1: I mean that means what we've seen in the Middle

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Speaker 1: East could have a really big long term impact, could

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Speaker 1: almost change the structure of our industry. Certainly as we know,

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Speaker 1: SAA have had big plans to get back into the

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Speaker 1: international game. I mean, this could stop them almost in

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Speaker 1: their tracks. I suppose.

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Speaker 2: Yeah, you know, it's not just FAA, but the entire

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Speaker 2: African fuel industry has a really enastic demand curve in

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Speaker 2: the sense that a small change in price has a

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Speaker 2: large impact on the demand for seats. And that's because

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Speaker 2: the middle class, which does most of the flying, especially

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Speaker 2: the discretionary flying, is relatively small and is not very

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Speaker 2: adaptable in that case, so it will cause a significant

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Speaker 2: drop in demand, and that of course puts up prices

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Speaker 2: further as well. So there's a vicious cycle going on here,

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Speaker 2: and I think that we're going to see long term

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Speaker 2: strategic change or structural change, because the airline industry, which

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Speaker 2: was expected to go at six percent annum, is probably

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Speaker 2: going to struggle long at one in two percent growth,

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Speaker 2: and that's going to have a significant knock on effect

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Speaker 2: to obviously tourism and SOO Africa, which is a key industry.

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Speaker 2: So the knock on effects are huge, and the ability

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Speaker 2: of the whole airline industry to recover will be impacted

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Speaker 2: by this increasing oil prices.

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Speaker 1: And I mean what people had really been relying on

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Speaker 1: for long haul flights for quite a while for various

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Speaker 1: reasons was probably have flights in and out of Dubai

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Speaker 1: other hubs in the Middle East. Are you expecting a

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Speaker 1: longer term change to that model? I mean surely, and

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Speaker 1: I think you've told us this before. They will have

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Speaker 1: lost some of their attraction. I mean, the model that

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Speaker 1: we're used to might well change fundamentally.

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Speaker 2: Now. Yeah, there are two aspects to this one. The

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Speaker 2: first is that for the past fifteen to twenty years

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Speaker 2: we've seen the development of the hub and spoke bunnel,

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Speaker 2: which has led to the massive increase of the Middle

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Speaker 2: East flights, particularly to just hubs like Dubai and obviously

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Speaker 2: Emirates and so on. I think that people are be

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Speaker 2: much more weary of taking those options at this stage,

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Speaker 2: especially if reliability suffers, because for a hub to work,

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Speaker 2: you've got to have absolutely seenless connections. You don't want

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Speaker 2: to have to you don't want to worry about whether

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Speaker 2: you're going to miss your next flight. And so I

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Speaker 2: think that we're going to see a shift from hubbin

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Speaker 2: spoke flying to what is called point to point, so

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Speaker 2: people would rather fly direct from Joe Berg or Cape

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Speaker 2: Down or Durban whatever to let's say Paris or London

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Speaker 2: or wherever they're going to go to rather than through

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Speaker 2: the Middle East. And I also think that we're going

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Speaker 2: to see a shift in hubs. We're going to see

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Speaker 2: continual or expansion for Ethiopia, which has done really well.

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Speaker 2: For Adis, they're building a massively airport forty kilometers south

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Speaker 2: of Addis Abbana. We'll see growth in Nairobi, and I

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Speaker 2: expect to see a lot of growth in the stern

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Speaker 2: Bull as well as Turkish shirt takes up the slack

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Speaker 2: or the gap created by the fall off in the

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Speaker 2: mind for the Middle East.

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Speaker 1: Terns need loves to think about. Thanks very much, indeed,

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Speaker 1: the aviation analyst