By Keith Mwanalushi
African airlines saw their passenger volumes increase by 20.7% year-on year in February 2024 and capacity rose 22.1% according to latest data from IATA, which is positive news for the region. However, the spotlight is turning to the challenges facing the low-cost airline sector where the cost of operations are high and for some, air fares are far from low.
Only a handful of low fare operators still exist is sub-Saharan Africa, the key players include Jambojet in Kenya, FastJet in Zimbabwe and FlySafair in South Africa – several others like Fly540, Mango and Kulula were grounded or ceased operations in dramatic circumstances.
Kirby Gordon, chief marketing officer at FlySafair, believes the LCC model has not failed in the Sub-Saharan region in terms of connections into the South African market, but he does see the challenges (and lack of LCCs in the market) outside of South Africa.
“The challenge, in my view is that many intra-African routes in Sub-Saharan Africa are perhaps a bit thin to get the kind of efficiencies one would really need to make the model work, especially on a classic B737 or A320 gauge,” he tells FINN.
“The LCC model could work if the tenets are applied to a smaller gauge operation but realistically the fares will never get as low because the cost per seat will be under pressure and then someone with a more efficient type choice can quite quickly pull the rug out from underneath your feet,” Gordon states.
The Airline Association of Southern Africa (AASA) say LCCs are being implemented at varying degrees and as such there are successes and there are also challenges. “The airlines have to persevere in line with their corporate objectives in order for them to achieve their desired outcomes. Just like in other jurisdictions across the globe, some of the LCCs will succeed and some will not, such is business,” comments Aaron Munetsi, AASA’s chief executive.
Fuel for thought
According to Gordon, domestic air travel in South Africa has become more expensive over the last two years, largely due to a drastic increase in jet fuel. AASA data suggest the average price of Jet A-1 in South Africa is currently hovering around US$84 per barrel.
FlySafair has felt the impact of higher fuel prices on costs. “In truth, it’s very hard to actually increase your fares in a linear fashion against the increasing input costs because our prices are really set by the market, especially where the route is highly traded as many of the domestic trunk routes like Johannesburg to Cape Town are,” says Gordon.
If one reviews average fares, Gordon thinks the market has not been able to achieve an average escalation in fares that is equivalent to that increase in jet fuel. “If you will indulge a quick napkin calculation, the price of fuel went up 75% in the first half of 2022. Fuel is about 55% of the direct operating cost of a flight so with half of your costs going up 75% the total operating cost goes up about 37%.”
Gordon estimates that fares went up by about 17% to 19% on average and he feels the gap has not yet closed, however, he says the airline cannot demand fare increases. “Some carriers on the international market have tried with things like fuel levies, but anything you add, and your competitors don’t just pushes you out of the market,” he adds.
Gordon reckons the solution lies within the classical LCC economics formula – “We have looked at our costs and tried to ensure that we operate as efficiently as possible and that applies right through the value chain and going back to basics.”
Seeking regulatory or government support
According to Munetsi, AASA actively advocates with all the regulatory authorities and stakeholders to ensure its airline members successfully contain costs in order for their businesses to remain economically sustainable, irrespective of the airline business model. “We have achieved significant progress in this regard, and we will continue with our lobbying efforts, Munetsi states.
Certainly, as Munetsi explains, each country in the SADC zone (Southern African Development Community) and in fact across the continent, has its own peculiarities which AASA deals with on a country-by-country basis. He says some countries are more aligned with the ICAO Standard and Recommended Practices (SARPs) and as such AASA is able to engage and resolve matters progressively. “On the other hand, there are some countries that are yet to get to the level recommended by ICAO, but we still continue to engage with them as we progress.”
Gordon, however, sees no level of government support locally in South Africa to help LCCs with high costs. “The South African government has not seen the need to offer financial support to the aviation industry in South Africa outside of investment in their own state-owned enterprises like the Airports Company of South Africa and the national carrier,” he indicates.
Gordon says the industry made informal requests for items such tax breaks during the COVID recovery, “but there was nothing forthcoming, so we have had to stand on our own feet. We negotiate terms where we can with various suppliers who want to see continued business from us, but none of this is really state funded,” he states.
Facing market realties
In South African context, the LCC model is far from new and Munetsi recalls previous successes like Kulula and Mango and apart from the exogenous factors that impact on the economies of the country of operation, he points to other considerations such as operating costs and restricted infrastructure that influence those costs. “In some countries there are no alternative or secondary airports that would be offered at low cost to airlines, and it is critical that airlines that seek to use the LCC model are able to determine where their costs will be lower. The opportunity to operate LCC operations in different countries is dependent on the availability of the requisite facilities and infrastructure,” he highlights.
Gordon adds: “The reality is that it might be challenging to have a low fare carrier in a high-cost environment, but it is very much possible to have a low-cost airline. The low-cost element speaks less to the absolute value of the costs and more to the principles of pursuing a model of ultimate efficiency.”
Godon also feels the market has responded well to a basic unbundled fare solution. “There is no challenge in pursuing efficiencies inherent to operating one aircraft type and there is nothing in Africa that prevents a business from pursuing the low-cost strategy. Will the result be the lowest fares in the world? Possibly not. But will they be as low as they can be given the circumstances and input costs: absolutely.”
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