Pulled this off avcom.
National airline expands into profitable new business
Jeff Chaucer has the scoop on an unnamed African airline that's found a new way to offset massive losses
Jeff Chaucer*
17 February 2009 13:56
SOMEWHERE IN AFRICA - In response to criticism and some dissatisfaction at the allocation of R1,6bn in government's 2009 Budget to the ailing national airline, the carrier has announced its intention to introduce "contraband transport" as a new service that it hopes will catapult the beleaguered airline into profitability.
Speaking at a media conference held earlier this week, Vanya Kruschek, the newly appointed Russian head of corporate strategy and business planning at the national airline, revealed that the audacious strategy was arrived at after a four-day brain-storming session by senior executives at a suitably plush South African coastal golfing resort.
According to Kruschek: "We were nearing the end of the second day and starting to wonder where we could find double cheeseburgers, when Andrew Coleman had the breakthrough idea. He pointed out that what we really needed to do was find a higher margin business than just moving around people and ordinary cargo. After that, for some reason, the answer seemed obvious."
The summary business plan distributed to media in briefing packs shows a two-year implementation horizon after which the airline expects the business to be fully profitable.
Initially the airline will focus on routes from South Africa to Europe and the United States as a McKinsey study had revealed that this was where there was greatest demand for the offering. When asked about the impact of the global recession on demand, especially in developed countries, Ms Kruschek responded that the McKinsey study had found there was a relatively inelastic demand curve for the types of product that the national carrier would be transporting.
"Somehow, people will always find money for these goods, even if it means not making the payments on the house that month." On certain routes, such as the flight to Amsterdam, the national carrier was apparently in discussions with "Proudly South African" about the use of the brand to promote the cargo.
In response to a question from the press, Kruschek reassured all loyal clients that passenger transport would remain a key part of the offering. In an innovative extension of the existing loyalty programme, passengers would, from the start of 2010, be able to earn extra points if they were willing to carry a parcel in their luggage or strapped to their body.
While analysts agree that the plan might be just what the airline needs to save it from perpetual reliance on government handouts, Chris Tyson from Credit-Suisse expressed some concern about implementation progress.
"The national airline might be in danger of being tripped up as another African airline which, since implementing a similar plan of action, had 30 crew members have been arrested at Heathrow in a couple of months .
"It's all fine and well to identify a high-margin business but if you don't pay attention to the details, you're never going to earn that margin. As so often in the past with the national carrier, our major concern is around their ability to execute their strategy."
The national carrier's head of corporate affairs, Juan Martinez, admitted that there had been some teething problems, but that they were looking at ways of using the government funding to "smooth the process" with border authorities in target jurisdictions: "The economic crisis works to our advantage here as everyone is being more innovative about how to supplement their income."
When asked how they felt about the plan, the umbrella trade union body expressed tentative support "as long as then national carrier continues hiring our countrymen and doesn't try to bring in Nigerians or Columbians just because they are supposed to have superior skills in this field."
The finance minister could not be reached for comment but it's widely believed that as long as there wasn't another budget with money allocated to te national carrier in his lifetime, he would feel it was a job well done.
The national carrier revealed that R200m of the R1.6bn had already been paid to Andrew Coleman for his participation in the strategy session and that the airline regarded it as "money well spent".
*Jeff is a member of the Moneyweb community who claims to be a direct descendant of the father of English Literature, Geoffrey Chaucer (1343 - 1400). He says any similarity to real people or companies is co-incidental.