Share of the week: Comair

Fresh from a disastrous week which saw its joint CEO resign, Comair's problems were compounded by its warning on Monday that it will make a loss in the six months to December.

This is due to rising costs - largely fuel increases caused by the weakening rand as well as a steep 70% tariff increase levied by Airports Company of SA .

The company, widely credited for introducing low-cost flights in SA through its kulula brand, this week got rid of joint CEO Gidon Novick, leaving Erik Venter as CEO.

Last week we reported that Novick had been nudged out by Brian Joffe, CEO of Bidvest, Comair's largest shareholder.

An airline analyst, who did not want to be named, stressed that the company was doing the best it could in a tough environment, saying: "I have utmost respect for Comair management, they are doing a decent job in what is a very tough environment. The airline industry is feeling a lot of pain, margins are decreasing in the whole sector.

"The increase in fuel prices is having a marked influence on margin contraction, Comair is the second best placed to withstand this as the company has the second-most- efficient fleet in the low-cost industry after Mango," he added.

Yet another factor that has affected Comair's ability to grow significantly and profitably has been the ending of its effective monopoly from flying out of Lanseria airport.

Mango recently started flying out of Lanseria and this has introduced some much-needed competition . "Technically, Comair never had exclusive access to Lanseria, but they were the only low-cost airline flying out of that airport. The introduction of Mango flights has obviously affected Comair's volume growth."

One would think the airline industry would have priced in all the bad news. Surprisingly, the share is not as cheap as one would have expected and analysts still expect it to drop some more.

According to Bloomberg, the consensus was a "sell" recommendation. The analyst said the share would have to fall a lot more before it can be called cheap.

The share price decreased to its 52-week low after the release of the trading update, closing at 180c.

It has lost 10% over the past 30 days. The share has traded as high as 257c in the past year.