11 April 2006:
SAA’s low-cost plans hit turbulence from rivals
Khulu Phasiwe
Kulula, 1time take dim view of Ngqula’s bid for low-end share
NATIONAL carrier South African Airways’ (SAA’s) move to launch a low-cost airline — announced yesterday — has met a turbulent reception from the domestic aviation industry, which says SA cannot afford a third government-owned airline.
Government, through its wholly owned transport and logistics company Transnet, already owns 95% of SAA and 100% of regional carrier SA Express.
SAA CEO Khaya Ngqula said yesterday the parastatal was “definitely going to launch its low-cost carrier before the end of this year”.
Speaking at the formal acceptance of SAA as the 18th member of the global airline group, Star Alliance, Ngqula said the planned airline would have its own management team and would operate at “arm’s length” from SAA.
The planned new entrant would compete with no-frills operators kulula.com and 1time for the growing low-end domestic flight market.
Ngqula said the domestic market had grown about 30% since the first low-cost carrier took off five years ago.
He said SAA had managed to capture only 5% of that market and this had prompted his executive team to change its business strategy.
But not everybody welcomed SAA’s plan.
Kulula.com said government needed to focus on deregulating the domestic aviation market, and leave the operation of airlines to the private sector.
Executive director Gidon Novick said governments in other parts of the world were relinquishing their ownership in the airline industry and SA should consider that option.
“I would be surprised if the South African taxpayers have an appetite to subsidise a third state-owned airline,” he said.
Novick said the cost base of kulula was half that of SAA’s and SAA’s proposed new low-cost airline would have to match that to compete.
Marketing and operations director at 1time Rodney James said the airline welcomed competition as long as it was based on the principle of fairness.
“Unfortunately, when competition comes from SAA, it won’t be fair because the taxpayers will be paying for it,” he said.
SAA had previously said that it had no intentions to launch a low-cost, no-frills airline.
It had said its customers were mostly discerning business people who valued flight frequency, convenience, punctuality and reliability.
In 2004 the national flag-carrier’s CEO said SAA would compete with SA’s low-cost carriers by reducing its prices from time to time. He said at the time that the airline would offer “all the frills at no-frill prices”.
But SAA admitted in its 2004-05 financial report that direct competition with budget airlines had negatively affected its bottom line.
The parastatal said it had lost 1,8% of its average yields due to its attempt to match the air- fares offered by the budget airlines.
Analysts said these losses and the cannibalisation of its market share by low-cost carriers had forced SAA to revise its strategy.
Business Day