in Air Transport / Features

Concrete foundations

Posted 30 October 2017 · Add Comment

Johannesburg-based South African regional operator, CemAir, is poised to be the host carrier for the Airlines Association of Southern Africa (AASA) annual general assembly. But what is CemAir and where is its niche? Victoria Moores has been finding out.

CemAir CEO Miles van der Molen cringes when quizzed on why his airline is called CemAir. “It’s amazing how often people ask,” he commented before being forced to reveal that CemAir stems from the words ‘Cement Air’.
Unsurprisingly, the story has odd roots. Van der Molen started CemAir with 50:50 partner Brian Bendall, whose other business was cement walling and floor finishes. It was called Cemcrete, from the words cement and concrete.
“When we started in aviation, CemAir was the logical name. You don’t want to be called Cement Air, but that’s where the name came from and we’re certainly not going to change it now,” explained van der Molen. The name is pronounced SemAir, not KemAir.
CemAir started life in 2001 as a lessor, placing a single Cessna Caravan on wet lease with Precision Air in Tanzania. “We grew from there and got involved in other stuff,” he said.
Around 2005, CemAir bought three Beech 1900s from a company that was being liquidated. These aircraft did contract work across the continent and as far afield as Afghanistan, performing missions for the US Agency for International Development (USAID). The Caravan left the fleet and another six Beech 1900s joined, taking the total to nine.
“In 2008, we had a bit of a wobble when my business partner (Bendall) passed away in an accident, so we needed to decide where to go next,” van der Molen explained. Those decisions were implemented in 2010. Against the backdrop of a saturated narrow-body market, CemAir picked regional flying as its niche.
“The [Bombardier] CRJ was the direction we wanted to go in, so we started collecting those between 2010 and 2016,” he said. “They mostly came from Delta [Air Lines]. We became a fairly significant CRJ100/200 operator and started developing in aircraft, crew, maintenance and insurance (ACMI) leases.”
By 2011, the US campaign in Afghanistan was beginning to wind down, releasing the Beech 1900s. There was a glut of small aircraft in the market, so CemAir used the Beech 1900s to serve obscure routes within South Africa. These included mining towns and a site where a power station was being built. This kept things ticking over.
“We were flying to a lot of places that weren’t served by other airlines. We built the business hand-by-hand. We found opportunities here and there and built capacity,” he said. This also marked CemAir’s scheduled flight debut.
Van der Molen said this was where the “alphabet soup” of certifications began, referring industry acronyms like IATA and IOSA. “It’s a long path for a small organisation. We learned a number of lessons about the difference between contract and scheduled flying and we collected approvals and routes one by one as we went,” he said.
Once a year, the airline would add a scheduled route, which would require additional infrastructure. That infrastructure demanded more routes to spread costs, and so that pattern continued.
By 2014, CemAir had run out of Beech 1900 capacity, but some of its destinations were not suitable for CRJ operations. “We traded the last two Beech 1900s to get a Bombardier Q100 and, a little later, we got two Q300s,” van der Molen said.
Two-and-a-half years ago CemAir listed on the global distribution services (GDSs) and, in February 2017, it secured IOSA certification and joined IATA.
“The scheduled side tends to attract contract work. We get enquiries from mainstream airlines that require IOSA certification. We wouldn’t have access to that if we hadn’t done scheduled services. We continue to grow the scheduled side on a managed basis.”
Today, CemAir operates 21 aircraft, which will be joined by a used Q400 by year-end, as well as a CRJ900 and two new Q400s scheduled for delivery in 2019. Beyond this, it has five ex-Delta CRJs in storage in the US, which it will either bring online or part out. “The CRJ 700/900 and the Q400 seat class is where we see ourselves over the next five years.” Meanwhile, the Beech-1900 fleet will remain stable at around 10 aircraft.
CemAir’s revenue is now evenly split between lower-yield but dependable domestic scheduled flying and less consistent, but higher-yield, contract work with greater geographical spread. “We’ve done contract work in some dodgy places, but exposure to both markets creates a nice balance, which tends to work quite well for us.”
This is a necessity in the South African market, which has a chequered history of government-backed goliaths and stagnant demand. This results in market cannibalisation between carriers, rather than market stimulation.
“Growth in passenger numbers normally tracks economic growth. Since we don’t have much on the second, we’re not going to get much on the first. I don’t see our numbers growing much. The political situation in the country isn’t great and there are a lot of reasons why the market is stagnating. We are due a big correction at some point, it’s not sustainable in its current form.”
Van der Molen said the South African market is “very skewed” because government-owned South African Express (SAX) and South African Airways (SAA) can accrue on-going losses. “The driver is largely politics, not economics,” he said.
This makes survival extremely tough for independent airlines like CemAir and British Airways franchise carrier Comair, which van der Molen said is doing a “brilliant job”.
“There have been a lot of failures. I think 15 airlines have started over the last 20 years and there are only two left – us and Safair. It is a confidence battle when you are a new name to passengers. We’ve been around a long time, but we’re not high-profile, so we need to build confidence and capitalise on it. If you enter a market and then withdraw [from the route], it sends a negative signal. You have to be very cautious and fight it out to the bitter end, even if it’s expensive,” he said.
Contract work allows CemAir take on these battles, flexing the combined muscle of its two business areas. Using this strategy, CemAir has encroached on some of SAX’s routes and hired some of its rival’s employees. “To me, a company is nothing but a collection of people. People are the business. If you have good people, you will have a good company.”
Van der Molen said he “wouldn’t close the door” to the idea of acquiring SAX, but he thinks it is unlikely. However, he recognises the value of partnerships with other airlines. Capacity agreements, codeshares and interlines are all more likely now CemAir is IATA and IOSA registered.
“We have been an IATA member for six months, so we are at an early stage, but this is a direction we’d like to take,” he said. “We believe interlines could give us around a 20% increase in passenger numbers.”
CemAir carries around 130,000 scheduled passengers a year, rising to around 600,000 including its ACMI work. More importantly, the airline is seeing consistent growth in turnover and profits, and has had a “strong financial performance the whole way through.”
So would 100% shareholder van der Molen consider selling the business? “Quitting isn’t in my nature,” he said. “I could never close the door to any conversation that made sense, but I’m not sure I’d play well with others if you put me in a board room. You can’t corporatise me and I’m happy going it alone.”
Instead, he is looking at regional expansion and is seeking permission to fly between South Africa and Botswana, where CemAir has historically flown for Air Botswana. “We are looking to dip our toes in the market. We would probably be operating as ourselves, as CemAir. I see us operating under our own name in the next six months.”
Beyond this, CemAir plans to stick with what it knows. “We are not going into the narrow-body market, even in the long term. In terms of long-haul, we don’t have delusions of grandeur. We want to go with what we know and build depth, rather than jump into long-haul, which is a romanticised market that you enter more based on ego than economics. I see us as a bit more grounded than that. Jumping into a market that we know nothing about would be commercial suicide.”
That said, CemAir is looking to expand its regional work by seeking a Maltese air operator’s certificate (AOC) to broaden its geographical spread. It hopes to secure the AOC by February next year.
“We have a member of our team that moved there a month ago, so it is actively being pursued. We will use it to pursue ACMI work in Europe and North Africa. In time, a scheduled regional operation will be considered, but not for now,” he said.
Running a South African airline is not an easy career path, so why do it? For van der Molen, genetics were partly to blame.
“I grew up in aviation. My parents were involved in leisure aviation, so I used to bounce around small airports. Instead of getting a real job, I went into aviation. I started as a pilot on piston-engined charters, but I found the business side more exciting. At one point, I thought I’d go and do something else, but I got sucked back in. It’s my choice somehow, even if it adds to my grey hair collection.”
A tech aircraft tested van der Molen’s stress levels when planning this interview. “Problems come in bunches, like bananas,” he joked. “Obviously, it’s pretty stressful, but I have to put my best foot forward every day. Once it’s in your blood, it’s very difficult to leave.”
 

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