SAA may launch low cost carrier
Dikatso Mametse
Posted: Wed, 26 Oct 2005
SA Airways will decide soon whether to launch a low-cost airline to take on rivals Kulula.com and 1time.
SAA CEO Khaya Ngqula told Moneyweb Radio on Monday that the airline was considering bringing in a budget model to regional destinations such as Windhoek and Harare. (Click here to read/listen to the interview)
Ngqula said SAA was talking to its board and shareholders, and said that it ‘makes sense to go that route’. He said plans were still secret at this stage.
Gidon Novick, Kulula.com’s executive director, said that they wouldn’t be threatened by such a move, but that it would be a big challenge for the taxpayer.
“The SA taxpayers are already subsidising two airlines - SAA and SAA Express. I don’t think they’ll subsidise a third airline,” he said.
Rodney James, marketing manager for the other low cost airline in South Africa, 1time, agrees.
“The airline is already using R6bn of taxpayers money. As a taxpayer, I would be subsidising an airline with which I compete against. I think that’s unfair.
“They basically don’t need to make a profit. This would kill low cost carrier competition – we would not be on a level playing field. The government needs to privatise SAA,” he said.
The airline business’s biggest challenge this year has been the rise of fuel prices.
In the past six months crude prices have gone up by almost 50% to over $60 a barrel, which makes it difficult for airlines to be viable.
But there have been some airlines that have made it work, Ngqula says.
“Some of them are not the low fare, like you find in South Africa, because some of them have got plans of twenty-five years and older. But South West in the US does well, Ryan Air is doing well, Easyjet, Virgin Blue in Australia are doing well. And these are no-frills. They have cut costs down to the bone. People are packed like sardines. But it works,
Ngqula said that in South Africa, about 20% of the public don’t seem to mind flying in rough conditions. The market share of the low-cost or low-fare carriers is growing significantly which shows that there is an existing market, which doesn’t care about the frills.
“There is also the new market which has never flown before, which travels on buses from Johannesburg to East London, Jo’burg to Cape Town, Jo’burg to Durban.
“And that new market is saying, yes, the low-cost carriers are competitive, and people are starting to use that. So you’ve got new entrants into the market, and you’ve got some people who are moving from the existing market joining the low-cost carriers. It is a big challenge. It’s something we are dealing with, very aggressively,” Ngqula said.
The company has a dual strategy to compete with low cost carriers.
“We have to maintain the successful SAA, which has an image as one of the biggest and best airlines in the world. For the long hauls, from Johannesburg to Lagos, Johannesburg even to Angola, to New York, you can’t use low-cost, because there’s the question of inconvenience.
“But we need to simplify prices in the regional sphere. Johannesburg-Harare, Johannesburg-Windhoek, or even to Botswana, there you can look at coming up with low-cost carriers which can compete fairly with everybody else. We have been speaking to our board and obviously to our shareholders, Transnet and the government – I think it’s no secret.
there
“The other option is to sit back and do nothing and hope for the best. And the best might never come. We will just disappear as an airline. So we’ve taken the high road. Look at the original structure, look at the low-cost carriers, improve and upgrade the product, better our service at the existing SAA…market better.”
Moneyweb