Cheap flights revolution comes to Africa.

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Author: Ford, Neil

South Africa and Kenya have joined the low-cost airlines phenomena that has revolutionised air travel in the developed world. By offering cheap, no-frills fares, the new airlines are cashing into a market waiting to be expoited.

A mid the turmoil which has been inflicted upon the global airline industry as the result of the 9/11 terrorist attacks upon the United States, the war in Iraq and the associated war on terrorism, a number of successes have been registered by the sector in Africa.

Perhaps somewhat surprisingly, Ethiopian Airlines has managed to boost profits and introduce new intercontinental flights at a time when other international airlines have been cutting services. At the same time, the low cost airline (LCA) model, which has proved so successful in Western Europe, has been transferred to Africa.

Southwest Airlines in the US was the original LCA but it was not until developments in IT enabled ticket-less travel that the model began to spread globally. The European airline industry has been revolutionised by the success of LCAs such as easyJet and Ryanair operating out of the UK and such companies are now rapidly expanding, partly at the expense of the formerly state owned established airlines. Moreover, LCAs have started up in South America and Australia over the past few years, while Gulf Air launched the first Middle Eastern version earlier this year.

African airlines have not been slow to take up the challenge and the continent's first two LCAs were launched in South Africa in 2001. Although Intensivair ceased flights after just one year, Kulula.com has gone from strength to strength, rapidly rolling out new routes and additional services. The company, which is owned by established South African airline Comair, has faithfully stuck to the LCA model of cutting out frills such as regular flyer loyalty schemes, business and first class sections, and free onboard meals and drinks.

It also operates a price structure sculpted to reflect demand and runs a single model fleet in order to cut maintenance costs and simplify operating procedures. The inspiration behind the company is readily apparent given that Kulula is the Zulu word for easy and in common with British company easyJet, Kulula.com has adopted a high profile, media savvy approach from the start.

The downturn in the global airline sector aside, the success of the new company is emphasised by the state of the South African market during the period of its inception. The number of airlines flying to and from the country had fallen to under 50 by the start of this year from 74 in 1998; while the total number of international flights involving South Africa has exhibited a corresponding decline.

Before Kulula.com's launch in 2001, South African Airways (SAA) dominated the domestic market and prices of up to R3,000 ($385) in economy class were high enough to exclude almost all consumers bar business travellers, despite the large distances that separate the country's main three urban centres of Johannesburg, Cape Town and Durban.

However, the existence of a large, relatively wealthy middle class in the country, including an increasing number of black South Africans, indicated the potential for much greater air travel for holidays and family visits. Kulula.com began life running a single Boeing 737-400 superjet on the Cape Town - Johannesburg route, with prices in the range of R400-R1,000 one way and it was perceived as a success right from the start. The total South African domestic market grew by 10% during the company's first month of operations and has grown by 40% over the past two years.

Comair managing director, Piet van Hoven, says: "We have done our homework and are confident that our new venture will grow the existing air travel market. We are targeting a new client base, one that is interested in the ease and affordability of air travel so they can make those trips that they previously could not afford, for example, flying home during university vacations or perhaps visiting a relative. In some parts of the world, namely Europe and Australia, no frills airlines have been successful in growing the domestic airline industry by up to 30%."

Following the success of the first route, the company has gradually increased the number of flights and has introduced new services on the Johannesburg - Durban, Cape Town - Durban and Johannesburg - Port Elizabeth routes. The fleet now numbers four aircraft with others in the pipeline, while occupancy rates stand at around 80% midweek and often approach 100% at weekends.

The lowest ticket price rose from R400 to R500 last year on the back of the depreciation of the South African Rand but a company spokesperson said that further rises would not be necessary as the result of the Rand's rapid recovery during the course of this year.

Gidon Novick, Comair's marketing manager and commercial executive, says that the importance of online booking was central to the company's business plan even at launch and during the first month of operations over half of all bookings were made on line. This proportion has now reached two-thirds, making the website the most financially lucrative in South Africa, although passengers are still permitted to book via telephone or at the airport.

Although the firm has adopted many of the same policies as the world's other no frills airlines, it has also introduced several innovations, such as allowing customers to change flight times online for a fee of R75, but in line with other LCA operators refunds are not provided. Novick says of the online alteration service: "This has not been done in the airline industry anywhere in the world until now, and we were surprised at that because we thought it was something airlines should be offering."

The decision to allow ticket changes to be made only online may prompt a further increase in online bookings. Novick says of the R75 fee: "We will make money, and more importantly take away a barrier to booking if people know they can change their plans."

Many observers doubted whether the LCA or no frills approach could be transferred to the African continent beyond South Africa, given that many small African airlines are already run on a shoestring. However, Kulula.com has demonstrated that it would be wrong to depict the low cost model as a combination of low fares and low investment costs, given the substantial expenditure required to purchase a new fleet of aircraft. Rather, it would be better to describe the model as one of minimising costs. The policy of many of Africa's smaller airlines of running an ageing fleet comprising a number of different models is not a cheap way to do business.

Although LCAs have only succeeded in industrial or rapidly developing major economies to date, Kenya Airways had enough confidence in the model to launch its new Flamingo Airlines LCA subsidiary this year. The company operates from both Wilson Airport and Jomo Kenyatta International Airport (JKIA) in Nairobi to Eldoret, Kisumu, Lamu, Malindi and Lokichoggio with standard single fares starting at $40 and special offers from around $20.

In line with other no frills airlines it has introduced electronic ticketing and focuses upon online sales but in comparison with Kulula.com a far greater proportion of Flamingo's flights are booked through travel agents rather than by customers at home. Any commission is paid by customers, as travel agents do not receive anything from the airline for the service. While many established airlines around the world are struggling to cope with falling passenger numbers and higher insurance premiums, the LCAs seem to have bucked the trend. Moreover, the African airline sector seems to be a case apart from the general pessimism surrounding the sector, partly because it is not yet a mature industry and perhaps because of the continent's relative dislocation from the rest of the international political economy.

However, the success of Kulula.com also appears to indicate that the number of potential airline consumers in Africa is greater than anyone expected. The numbers may be larger in the more developed economies of the continent, such as South Africa, but could be sizeable in other countries, providing ticket prices can be brought within the grasp of the growing middle classes. Ryanair's recent aircraft purchase deal in the UK indicates that LCAs can seize sizeable market share but it is difficult to determine how far Kulula.com can go in South Africa.

The company is currently considering the introduction of flights on new routes such as East London and George. A great deal of travel in South Africa involves long car journeys of up to two days' duration across featureless terrain and is considered a chore by many people. There therefore seems little doubt that there is plenty of room for new LCA routes and services in the country.

How far LCAs can succeed in the rest of the continent, however, will be a true test of the no-frills approach, so all eyes will be on Kenya over the next couple of years.

PHOTO (COLOR): Up and away, South Africa's low-cost kulula.com airline is filling the gap in the domestic market.

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Reported by Neil Ford