1. Round table discussion moderated by:
Aziz Rattansey
Air Uganda
Aviation Festival 2015
Sandton Convention Centre, Johannesburg,
South Africa
Tuesday June 30 2015 - Wednesday July 1 2015
Are low cost carriers the next
chapter for Africa?
2. • INTRODUCTION TO LOW COST CARRIERS [LCC’S]
• BUSINESS MODEL FOR LCC’S
• WHAT ARE THE REASONS FOR THE SLOW GROWTH OF THE LCC’S IN
AFRICA TILL 2013?
• WHAT ARE THE RECENT DEVELOPMENTS FOR THE LCC’S IN AFRICA
POST 2013?
• WHAT FACTORS WOULD HAVE CONTRIBUTED TO THE RECENT
POSITIVE DEVELOPMENTS FOR LCC’S IN AFRICA?
• WHAT DOES THE FUTURE HOLD FOR THE LCC’S IN AFRICA?
DISCUSSION POINTS
3. • A low-cost carrier or low-cost airline (sometimes known as a no-frills, discount or
budget carrier or airline, or LCC) is an airline that generally has lower fares and
fewer comforts / paid benefits for the passengers. In order to compensate for the
revenue lost due to reduced ticket prices, the airline may charge for in-flight food,
priority boarding, seat allocating, and baggage etc.
• The business model for a low cost carrier differs from that of legacy carriers –
most LCC strive to maintain their operating costs within a tight range and in order
to do so, they usually manage their fleet strategy by operating a single type of
aircraft. This helps in reducing the aircraft procurement [acquisition / lease costs],
maintenance, training and operating expenditures.
• Other common features include:
-Removal of non-essential features [viz. frequent flyer programmes, minimal recline on the
seats, optional or no in-flight entertainment]
-Usage of secondary airports, where available
-Quick turnaround & flying point-to-point
-Charges to passengers for any changes to the travel date, etc. additional baggage.
-Minimize employment costs for the staff
-Hedge fuel costs, to minimize impact of fuel rate changes
-Maximize ancillary revenue from other hotel, transport, insurance bookings from their
website / web portal [which is a preferred mode of sale of tickets, v/s the traditional GDS /
travel agency].
-Adoption of customized technology platforms to reduce costs and minimize staff numbers.
Introduction and Business model
4. • Traditionally, Africa has been slow to embrace low cost carriers [LCC]– with a
abysmally low 0.2% of all international air travel within Africa being managed by
LCC’s as recent as mid-2013. Even for aviation, Africa accounts for only 3% of the
global air passenger traffic, despite having 15% of the world’s population.
• However, of late this has improved with the following recent developments:
- Fastjet improving its connectivity [from its base in Tanzania in East Africa] and also now
setting up a 2nd base in Zambia.
-Jambojet [a subsidiary of Kenya airways] setting up operations in Kenya from 2014
-Flydubai commencing flights to Tanzania, Uganda, Rwanda and Burundi.
-South African aviation market getting buoyed with entry of new LCC – Skywise airlines [in
2013], FlySafair [in 2013] and the growth of the existing LCC’s in SA viz. Mango and kulula.
• The following factors can be said to have contributed to this growth of
the LCC’s in Africa:
-The changing mindset of the African consumer / passenger who is now
embracing the LCC business model
-The realization of the legacy carriers [e.g. Kenya airways] that they require to
differentiate their produce to reach to the masses, with a lower cost of flying
[from point A to point B]
-The high cost of international air travel within Africa
Low-cost carriers in Africa–Slow growth
& changing pattern in recent times
5. • What does the future hold for LCC within Africa:
-As the success of Fastjet in Tanzania has proved, it is possible to reach out to the masses
[Fastjet now flies more than 65,000 passengers per month, as per its recently released data]
via the LCC model and keeping a low flying costs and keeping optional extras charged for
those who require / use the facility.
-More recently, flydubai’s successful entry into the East African countries proved that the
market is ready for LCC and will embrace the product, if it is well customized for the African
passenger [flydubai offers a meal on board its East Africa flights due to the longer distance
and a free 20 kgs check-in baggage allowance]. As at date, flydubai flies more than 96
destinations globally and is a recognized model for the LCC based out from its hub in Dubai.
-Recognition by the African governments of the LCC requirements – with secondary airports,
lower landing and other fees, wherever possible.
-Emergence of the middle class in Africa is noted and this could be a major contributor to the
growth for LCC’s.
-Impact on profitability – this is so crucial as the LCC are usually highly focused on
profitability and in case of them having to absorb high losses / keeping them away from
larger mass-market access [e.g. the long delays noted with the Fastjet application to initiate
flights to Kenya from Tanzania], it could cause them irreversible damage.
-Managing costs – this is tough in the African environment where costs have traditionally
been higher than in other countries, especially for fuel and maintenance operations.
Low cost carriers in Africa – the future
6. • Points to consider:
-Will the governments allow special privileges to the LCC?
-Will the governments of countries with mass market allow access to their
skies for the LCC?
-Will the resistance from some of the GDS and travel agents [who earn little
or no commission from LCC, due to website portal sales] be sustained in the
long term?
-Will the success of LCC in Asia [Indigo in India, Air Asia in Malaysia, along
with numerous others in other countries like China, Singapore, etc.] be
replicable in Africa?
-Will the African consumer take to the LCC model and will African airlines
adopt the LCC model?
-High growth forecasted for African aviation in the years ahead - average
growth of 6.2% for the coming 10 years, 4.9% in the following decade and
5.5% the decade after that.
-Turkish Airlines CE Temel Kotil earlier in May called Africa the "new China
next to Europe", and estimated activity in the African market of 1.2-billion
people had the potential to grow tenfold.
Are Low cost carriers the next
chapter for Africa?