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LCCs feel the pinch
Friday, 10 February 2012
Sluggish consumer spend, high fuel costs, increases in airport charges and fierce competition have low-cost carriers in SA looking at new ways to stay in the game.

These factors are constraining growth and raising the overall cost of flying, which will likely cause a significant decline in passenger numbers, airline authorities say. “Because the cost of flying is directly comparable with road and rail costs, even a small increase in flight costs can direct significant volumes of business to other modes of transport,” says Gary Webb, COO of Velvet Sky Airlines.

As a result, airlines are being forced to find ways to further tighten their belts and review the profitability of routes and opportunities for growth and expansion.

“In 2012, I believe airlines will look at initiatives to even further reduce costs and improve operational efficiencies to counteract pressure on revenue. In addition, they will look to new business and market opportunities to grow their revenue base,” says Chris Zweigenthal, CEO of Airlines Association of Southern Africa.

While the ‘golden triangle’ has the largest proportion of domestic traffic and is traditionally viewed as the industry’s money spinner, it also offers the most capacity and competitive pricing, making margins extremely tight. With reduced growth and saturated supply, LCCs are looking to redeploy their equipment on other routes and are seeking new opportunities within the region.

“Sometimes a region looks attractive when in reality it is difficult and expensive. Regional expansion is like a carefully choreographed dance in terms of getting licences, acquiring the right region, availability, permanence and cost,” cautions Heidi Brauer, Marketing Director of kulula.com.

Carriers are also constrained by a lack of available frequencies for desirable destinations. “There are routes that have been allocated to SA carriers that are not being used, and authorities must apply the ‘use it or lose it’ rules more conscientiously,” says Webb.

Domestically most routes are already served, but with the exception of the ‘golden triangle’ there are often fewer frequencies and high fares due to the size of the market. “These thinner routes are mainly for business travel and, in many cases, compete with road transport, which keeps numbers down. Promotion of domestic tourism initiatives could enhance these markets and open up new opportunities,” says Zweigenthal.

However, despite the challenges, 1time is aggressively looking to expand into Africa. Following the success of its Tanzania flight it has just launched flights to Mombasa. Blacky Komani, 1time Holdings CEO, says: “While there are often huge barriers to entry, largely due to restricted bilateral agreements designed to protect carriers, often the most difficult places to gain entry are the places where the most opportunities exist.”

1time will also launch flights from Lanseria to Cape Town and Durban on March 5. Blacky maintains that the airline’s key focus remains its expansion plans, both regional and domestic, and it is also taking active steps to reduce operational costs. A home check-in service is a recent introduction and 30% of its passengers are now using the service.
 
Meanwhile, Comair is reviewing its fleet and looking to introduce more fuel-efficient aircraft. It is also in the final stages of implementing Sabre, a new airline management system that is expected to streamline communications and optimise operations. Other cost-saving initiatives include building its own catering facilities in Cape Town and Johannesburg and expanding its crew base in Cape Town, which will reduce accommodation costs by 80%.

Velvet Sky is considering the withdrawal or modification of value-add services that are currently provided at no charge to the customer, including baggage handling, catering and special needs facilities.

“In the current economic climate, anyone not reviewing their strategy is going to be in trouble. The airline industry is currently going through a consolidation phase and you have to take a look at what you’ve got and assess what’s working and what isn’t,” says Brauer.

Gia Kaplan
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