Budget Airlines Get easyJet-Style Boost

Budget Airlines Get easyJet-Style Boost

The biggest scope for growth in the African airline market is in the low-cost sector. Low-cost airlines (LCAs), also known as budget or no-frills airlines, have already taken a huge slice of the market in many parts of the world.

By reducing the number of aircraft models, they are able to reduce maintenance costs, while online ticketing, the absence of free meals and the imposition of charges for any additional services enables LCAs to offer lower fares, although ticket prices are generally structured on an escalating scale, from very cheap to very expensive.

The experience of other sectors, such as mobile telecoms in Africa and the automotive sector in China, suggests that cutting prices by 50%, for example, can increase the size of a given market many times over, by bringing services and products within the economic reach of far more people.

On 13th July, Africa-focused conglomerate Lonrho announced that it had sold its African aviation operations, Lonrho Aviation, to British firm Rubicon Diversified Investments in a reverse takeover deal worth $85.7m.

Rubicon will use the assets to help set up a new LCA in Africa. In a statement, Lonrho revealed: “Under a licensing agreement with easyGroup, the airline will be branded FastJet and will use modern jet aircraft and operate to European standards.”

Lonrho’s existing fleet of 10 aircraft currently operate under the Fly540 brand, which generated income of $57m last year and a pre-tax loss of $19m, although $12.6m of this figure stemmed from start-up costs in Angola and Ghana. The company will initially focus on the four markets where Fly540 already operates: Angola, Ghana, Kenya and Tanzania, using Airbus SAS A319 airliners and Embraer E-190 jets. In the long term, however, it aims to establish itself as a pan-African airline.

FastJet will be listed on the London Stock Exchange’s Alternative Investment Market (AIM) and its aircraft will sport similar livery to the orange of easily recognisable UK airline easyJet. Indeed, former easyJet chief operating officer Ed Winter will become the first chief executive of FastJet and easyJet founder Stelios Haji-Ioannou, who still holds a 38% stake in his original airline, will act as an advisor to the project. Lonrho will now take a 73.7% stake in Rubicon, with easyGroup holding another 5% equity and an option for a further 10% stake. Average fares are expected to be in the range of $70-$80, lower than the $140 common in East Africa.

Ed Winter said: “The African aviation market is significantly underserved and there are major opportunities for growth in the aviation industry across Africa where current offerings are, with a few exceptions, sub-standard compared to international norms.

“With rising GDP and consumer spending, and changing demographics, Africa is ripe for a democratisation of air travel. We plan to achieve that through the launch of Fastjet, the first true pan-African low-cost airline operating to European standards of safety security and quality.”

More traditional airlines have claimed that the low-cost model can result in more frequent delays because there is usually little time between the arrival of an aircraft on one service and its departure on another.

However, South Africa’s 1time Airline recorded the best on-time performance of any airline in South Africa in May, with 96.09% of all flights on time, according to statistics released by Airports Company South Africa (ACSA). ACSA considers flights to be on time if they arrive within 15 minutes of their scheduled arrival time. The chief executive of 1time, Blacky Komani, commented: “Our goal moving forward is to return the carrier to basics and ensure that we are running a business that gets our passengers to their destinations, safely, comfortably and with all their luggage.”

The first LCA to make a big splash in the South African market, Kulula, concluded a distribution agreement with Sabre travel agents in July. All 350,000 agents using Sabre technology will be able to offer fare and schedule information, while offering ancillary services.

Kulula now operates 396 flights a week on 16 services within South Africa and a further five services further afield in Africa. Owned by Comair, it too is influenced by the success of easyJet, as Kulula translates as easily in Zulu.

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Written by African Business Magazine

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