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Old 21st Sep 2005, 10:04
  #36 (permalink)  
Deskjocky
 
Join Date: May 2005
Location: Johannesburg
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George Tower,

You are indeed correct- the LLC's dont impliment the fuel levies like the other carriers do. There are 2 reasons for this:

1. They have a much lower cost structure than a traditional airline- reason for this:
-lower distribution costs. Right now the average LLC in SA is spending about 3% of turnover on distribution, while the traditional airlines spend between 6%(optimistic - assuming that the 0 commisision structure has fully taken effect) and 14%(this is where the only 1 domestic carrier sits as they are still paying comissions and over rides etc) In addition to this the LLC's have no "legacy" agreements with unions, service providors etc. In addition to the obveous agreements with labour etc- a good example of this is SAA's relationship with Equity Aviation. Equity charge SAA a heafty sum to handle their airside operations, the charges are mandated in the sale agreement that was drafted when Equity(Then Apron Services) was sold onto its new shareholders- so SAA has to sit tight until the contract period comes to an end and can terminate the deal. 1Time is also handled by Equity- their rate is much much cheaper than what SAA pays due to the fact that 1Time has a choice and could play one service providor off against the other. So it costs 1Time 50% less to board a passenger than it does say SAA and there is zip SAA can do about it for at least a few more years!

2. There seems to be a different approach in the market as to how to pass on the ever increasing fuel costs- the traditional carriers have gone the way of a fuel levy as its a more transparent way of indication the effect of the fuel price. It is also cheaper to go the levy route as the traditional carriers pay all sorts of charges to overseas intermediaries to have their published fares changed in the global distribution systems- this amounts to thousands of dollars each time you change a fare- so it makes a bad situation even worse. The LLC's do not publish their fares in the same way becuase they do not sell their inventory via GDS's and so dont need to file their fares in the same way as the other airlines do- so for them its easier to just increase the fare when the fuel price goes up- which they have done. They also percieve it to be a competitive advantage over the traditional carriers as they feel its more consumer friendly and they are right- one price is all the punter wants to see!

Hope that clears it up for you!
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