Business

Africa's New Airlines Push for Low Fares

By Lucy Siebert, Routes News

posted: 12 June 2008 2:26 p.m. ET

: Painted in eye-catching patterns in green, kulula's Boeing 737-400 'camoplanes' and its low-fare leadership have rapidly brought the airline a respectable share of South Africa's air transport market. But thanks to restrictive air service agreements between African nations, kulula feels its sister carrier Comair, as a British Airways franchisee, might have better opportunities elsewhere in Africa than kulula itself. Credit: Comair Limited
: The advent of South African Airways' low-cost, low-fare subsidiary Mango has helped the 'golden triangle' routes linking South Africa's three biggest cities to become some of the fastest-growing major routes in the world. Now Mango wants to grow elsewhere in Africa, but it will need African countries to liberalize their air service agreements before it can do so. Credit: Mango/Wes Lindenberg

In a continent with massive distances between cities, a poor road network and growing demand from business travellers for new routes, there should be good potential in Africa for legacy airlines and low-cost carriers alike — if greater liberalization of services can be realized.

It has taken longer for the low-cost-carrier (LCC) model to take root in Africa than elsewhere, due to the closed nature of many key markets, as well as infrastructure challenges. But a number of aggressive players have now emerged in southern and eastern Africa who are keen to bring affordable fares to African passengers.

The first true African LCC, South Africa’s kulula (from the Zulu word for ‘easy’), took to the skies in 2000, armed with a lime-green livery and a fierce determination to take domestic market share from national carrier South African Airways (SAA).

Today, kulula has made massive inroads into the South African market. It operates more than 300 flights a week, has 12 routes including three regional destinations and holds 16 percent of the total South African airline market. It is South Africa’s biggest online retailer and recently upgraded its fleet to the tune of 800 million rand ($100 million) with Boeing 737-400 aircraft.

Despite having largely conquered the South African domestic market, kulula's joint CEO, Gidon Novik, believes there are not many opportunities for regional expansion of the low-cost brand. However, he says, there is great potential throughout the rest of Africa for kulula’s sister brand BA/Comair (Comair is a franchise partner of British Airways for South African domestic and regional routes), particularly in destinations where British Airways already operates long-haul.

“Regional opportunities for LCCs are limited because of the highly regulated environment," explained Novik. "Many markets are also not yet developed enough for direct distribution, but they are keen on brands with links to international carriers. Our BA brand expansion can fit in nicely with this.”

Upping the competition

Hot on kulula’s heels in the South African domestic market is arch-rival 1time, which has upped the competition with a network of nine domestic routes and one regional destination. It operates a fleet of eight MD-82s, MD-83s and MD-87s along with a charter fleet of four DC-9s, and has a market share of 11 percent. While 1time’s operations on the 'golden triangle’ routes linking Johannesburg, Cape Town and Durban are booming, it continues to hanker after regional expansion.

Glenn Orsmond, 1time's CEO, concurs that lack of liberalization is the airline’s biggest hurdle.

“The African LCC market is way behind the rest of the world due to the lack of open skies," said Orsmond. "This is undoubtedly the greatest challenge in the African market and if there was an open skies policy South African LCCs could extend into Africa, creating huge route growth and development. Growth would be phenomenal.”

Even SAA's low-cost subsidiary, Mango, is keen to see some regional action. Nico Bezuidenhout, Mango's CEO, said: “Africa is an untapped market, ready for significant growth. While there are many tight bilaterals in place at this point, hopefully the continent will consider an open skies agreement sooner rather than later.”

South Africa's fast-growing markets

Mango launched in November 2006 with a fleet of four Boeing 737-800s and its presence on the busy ‘golden triangle’ routes has helped push these up the list of the fastest-growing markets in the world. According to OAG figures, in 2007 Johannesburg-Cape Town was the world's fastest-growing established route in terms of total new scheduled services, while Johannesburg-Durham came in eighth.

However, these kinds of rankings will not be achieved elsewhere in the region or continent if protectionism continues to rule.

Clear Skies over Southern Africa, a report produced by economic consultants Genesis Analytics on behalf of the Southern African development agency Com-Mark Trust, states that opening up the air-transport market in the Southern African Development Community (SADC) region to competition would greatly boost growth and job creation. Complete liberalization could result in 500,000 more tourists visiting southern Africa every year, directly spending an additional $500 million and creating more than 70,000 new jobs, according to the report.

The benefits of liberal markets are clear in countries that have liberalized air service, such as Kenya and Egypt. On the Nairobi-Johannesburg route monthly passenger volumes rose by 69 percent between May 2000 and September 2005, despite there being only limited competition.

Fly540's pan-African aim

While there isn’t yet a low-cost airline operating between South Africa and Nairobi, Kenya does now have its own LCC in the form of Nairobi-based Fly540, which has made no secret of its aim to become a quality pan-African airline operation in the next five years.

Launched in late 2006, it is wholly owned by diversified investment group Lonrho Plc and aims to bring international standards of operation, cheaper airfares and greater accessibility throughout Africa.

Geoff White, CEO of Lonhro Plc, told Routes News: “In its first 12 months of operation Fly540 has become the second-biggest airline in the Kenyan market, with a larger domestic route network than Kenya Airways. It has had a big impact from day one and is providing a reliable and quality service. The delivery of the product sells itself. It is an airline with modern aircraft, modern standards and highly professional staff.”

Fly540 has a strong domestic network and recently began daily services from Nairobi to Entebbe, Uganda. Its business model is based on local partnerships in African markets, giving it greater access to bilaterals and routes, and this is a model the airline intends to take to other African markets very soon.

“We set up the Nairobi operation to service the domestic market and it went cash-positive in the first year, and we aim to do this again in other markets and to deliver similar results. We are now flying to Uganda and Tanzania and will soon be flying to Sudan and the Democratic Republic of Congo,” said White.

Four hubs planned

The long-term plan is for four Fly540 hubs in Africa, with Boeing 737-500 jets operating between them and the airline operating smaller aircraft on domestic routes. The next cog in this pan-African plan was to launch operations in Luanda, Angola by the end of May. Fly540 will operate as a joint venture with the Angolan Government, flying regional jets to 15 domestic destinations, said White.

Other plans include setting up operations in an additional 12 African countries, supported by Lonrho Plc’s acquisition of eight ATR 72-500 turboprops worth $145 million in all from Avions de Transport Regional. Four of the aircraft will be delivered this year and the remaining four in 2009.

White says the time has arrived when African travellers should finally be able to expect a good, reliable local airline. “The whole of Africa is ready for a quality airline — the continent needs an international, high quality, affordable product,” he said.

Judging by all of these airlines’ ambitious plans, the continent should not have to wait too much longer finally to get a competitive, reliable and affordable air transport system. If liberalization and infrastructure upgrades can be achieved, then it will be just a matter of time before more passengers can take to Africa’s legendary wide-open skies.