No-frills carriers swoop on SAA’s bottom line as consumers benefit from price war

[Deanw]

No-frills carriers swoop on SAA’s bottom line as consumers benefit from price war
THE price war that played itself out between national carrier South African Airways (SAA) and the country’s low-cost carriers during the December holidays is likely to cut profits for the parastatal, if its previous performance is anything to go by.
Although intermittent low ticket prices allowed SAA to compete with low-cost carriers kulula.com and 1time, SAA has admitted that discounting is hurting its bottom line.
The airline says in its 2004-05 annual report that although its international routes are doing well, it continues to face tough competition from low cost-carriers.
“To remain competitive, SAA has offered competitive prices. This led to a decrease in the average yield (adjusted to foreign exchange rate impact) of 1,8%, said SAA’s chief financial officer, Tryphosa Ramano.
SAA said its domestic revenue remained flat in 2005, despite an increase in domestic passengers from 3,7-million to 3,9-million.
Moreover, SAA’s parent company, Transnet, said last year that its interim results for the six months ended September were “dampened” by SAA’s operating loss of R240m. The loss was attributed to tough competition, high fuel prices and labour strikes.
The advent of no-frills airlines in the domestic market, as in many parts of the world, has been welcomed by customers peeved about the high airfares charged by full- service carriers.
Low-cost carriers in SA have not only drawn customers away from SAA, Nationwide and British Airways (BA), which is operated by Comair in SA, but their entry has also encouraged more people to fly.
Analysts say the arrival of SA’s two no-frills airlines has increased the size of the domestic travel market 30% in the past three years.
Kulula.com says it enjoys between 20% and 36% of domestic market share, while 1time says it has 10%.
SAA’s market share is estimated at 50%, a fall from the 69% the Competition Commission found the airline enjoyed in 2001.
SAA’s dominance has been to the detriment of passengers and rivals in the past. Last year the Competition Tribunal fined SAA R45m for anticompetitive behaviour.
The tribunal said it had found conclusive evidence that SAA had abused its dominant position by offering incentive schemes to travel agents “to sell more SAA tickets and fewer of its rivals’ tickets”.
Such practices are in breach of the Competition Act.
The changes affecting SAA are not unique: the growth of budget carriers is causing headaches for many full-service airlines across the globe.
Wolfgang Kurth, CEO of low-cost carrier Hapag-Lloyd Express, said recently that budget airlines in Europe had “cannibalised” between 30% and 40% of the customers from full-service carriers such as BA and Lufthansa.
He predicted that low-cost carriers would win 25% of the European market by 2010.
Last month, SAA launched a “back to school” promotion on tickets between Johannesburg and coastal cities.
The price reductions followed a week after 1time lowered its one-way fares between Johannesburg and Durban to R199, including airport levies.
SAA sold its tickets on the same route for R114 one way.
CEO of the Association of South African Travel Agents, Marion McPherson, says price competition is “very healthy for the customer, and should be encouraged”.
McPherson says that although full-service airlines may run promotions with fares that beat their low-cost rivals, the no-frills airlines tend to offer lower prices for a more sustained period.
McPherson dismisses the notion that competitive prices offered by full-service carriers are designed to push low-cost carriers out of business.
In a bid to compete directly with the low-cost operators, SAA says it will consider launching its own no-frills carrier.
SAA CEO Khaya Ngqula said about 20% of the domestic market prefer to fly without the frills.
“The other option for us is to sit back, do nothing and hope for the best. And the best might never come ... meaning we will just disappear as an airline,” Ngqula said last November.
Meanwhile, BA says this week that it would launch its own budget airline service to compete with easyJet and Ryanair for the lucrative UK and European business market.
The new low-cost carrier, BA Connect, to be launched in March, will replace BA’s loss-making regional service CitiExpress.
“The move is a direct response to changing customer needs and the challenges that have emerged since the creation of CitiExpress,” says CitiExpress MD David Evans.

Business Day: 16 January 2006

[Deskjocky]

No secret that SAA has to fight all comers, the most interesting point in the article is the growth of the market- perhaps a little overstated by Kulula but its quite big- SAA hasnt really lost out to the locos in terms of current market share- as stated its passenger numbers also grew. Where SAA is loosing out is that its not getting a share of new entrants to the market.

fair bet SAA goes with its own loco, numbers crunched, board has to decide.

[B Sousa]

Just as a little news to folks, Airlines in the U.S. are hitting bottom also. Not that it matters to those in Africa but is says something about the industry.
Most majors here are on the verge of/ or in bankruptcy and also have new no frills subsidiarys such as Delta now has Song, United now has Ted, etc.
Food for most during flight is a thing of the past, at least in Cattle Class. Although they do offer small packages to keep you sugared up on the longer flights.
Things are not very Rosy in this business.

[Deskjocky]

The world is slightly rosier here in that the africa market still has significant growth whereas the US market is mature, if not a little stagnent, in terms of growth prospects. Also most SA carriers have none of the legacy issues of the US carriers in terms of infrastructure/ pension funds etc so that puts them in a slightly better position. The only constraining factor is the strict bilatteral agreements in place in the region- this will improve over time and drive the next growth phase.

[REAL ORCA]

Deskjocky, you seem to well informed regarding this subject. What would you say is the market share of the different local airlines ( well known brands and no-frills)?

[Deskjocky]

Market share is difficult to predict as the loco's dont distribute through the GDS's and thus cannot be monitored but its safe to assume that the loco's are the ones that are growing in terms of pax numbers, the older brands are also growing just at a slower rate so in absolute terms one could say their market share is decreasing- it really depnds on whats the driving factor for your company- pax numbers or yeild. Ive seen in the media Kulula saying they had 30% of the market- this is just not possible if you do the analysis- its probably closer to 18-20 % 1Time are probabaly sitting at around 8% market share, the rest of the market is shared out on pretty much the same ratios it has always been. Again due to the high proportion of direct sales its always a bit of an educated guess. This is even true of SAA where now 35% of domestic passengers are derived from their direct sales activities

[ZERO3L]

Bottom line is that SAA is a loss making airline, surviving off the taxpayer.
They need to get their house in order first-stop competing with the LCC airlines with their state of the art equipment and decide which sector of the market they belong in.
How can they charge LCC prices and still present loss figures of R240 million-never mind the rest of it.
As I have said before, level the playing fields and compete WITHOUT wasting the taxpayers money.
This could only happen in Africa where poverty is on every goverment minister's lips, but the SAA coffers just keep on getting filled.:(

[Deskjocky]

Zero3l there is a lot of truth in what you say- a lot of SAA's woes are as a result of government forcing b/s policies/personelle/routes on the airline= result they have to keep forking out when these "experts" screw up! If the airline were left alone and allowed to recruit competent leadership- irrespective of political affiliation- then you would see a very different airline.

[Solid Rust Twotter]

DJ

No doubt. Unfortunately the government of SA are propping up their revisionist fantasies with taxpayer's money and there's no end in sight.


The best man for the job is the only way to recruit staff. Unfortunately the criteria are based on something which the current government purports to have got into the whole hair pulling excercise in the old days to stop, ie, skin colour/political affiliation. :yuk:

[Boeing Rules]

As a TAX payer WE have to keep SAA in the air, but now you ask why do 1Time and Kulula ask so little for their Tickets & are they making a profit.
1. Kulula Backed by BA comair-BEE scheme,
2. 1Time BEE Powered
3. Profitable Aircraft low on juice and crammed like hell (Eish not to worry we can squish in another 10 people in 2 seats It's oke the Taxy we can overload so can the plane, eish man):ok:

Kulula and 1Time are not SITA members which means they do not pay for the Airport facility, they do not pay to make use of the baggage belt system, and screws up every thing in the process, because why, they do not pay to make use of the scanners so (one label fits all).:ok:

They do not make use of a Check-in system, all manual so they do not have to pay for that either.

And that's why SAA/BA/CE cost more. And also who says 1Time and Kulula's Aircrafts are safe, as sure as hell i won't fly with them. It has been reported that MD82 and DC9, is designed unsafe, because of the Elevator with only 1 Jack screw, 1 Nut, 1 Motor, NO BACKUP,and HAS to be replaced every 600HRS, and serviced every 300HRS,

now if i am correct in saying that there was a MD82 that crashed in the US due to this, and guess what they were also a LOW cost airline and low cost means low safety, and you DO NOT play with safety, and low cost means cut of costs.:sad: oh sh$t

what a nice country hey.
correct me if i'm wrong.:{

[Solid Rust Twotter]

...And yet no word of all the Boeings that have fallen down.:hmm:

It's called an accident and can happen at any time and to anyone. The folks who do the maintenance for 1Time used to do Kulula's maintenance as well but that has now gone to another facility for commercial reasons. Both are extremely professional and have complied with the safety and maintenance standards and record keeping required so why the attempt to shoot them down?

Exactly who proved the DC9/MD80/82/83 is unsafe? Do you have documentary evidence you can post on here or is this just hearsay? If they're as unsafe as you claim, why have they not all been grounded?

Your choosing to fly with another carrier is a personal decision but claiming they're unsafe is another story entirely. Your PA28 only has one piston engine. How safe is that?

I await your answer to these questions with interest.

[beechbum]

now if i am correct in saying that there was a MD82 that crashed in the US due to this, and guess what they were also a LOW cost airline and low cost means low safety, and you DO NOT play with safety, and low cost means cut of costs. oh sh$t


Boeingrules, the actual accident involved an Alaskan Airlines MD......as for low cost.....am afraid not!!! Unfortunately it had to do with the lack of grease on the jack screw......unfortunate but it happened.
And as for your general statement with regards to the MD 82 i think they are purely unfounded. maybe as your title suggests you're a Boeing man, then so be it, but as SRT suggests forward some proof and then we can debate the safety of MD's versus other aircraft types.
I think media hype on the low cost carriers in our country has swayed your opinion....have another think about it and come back with some answers. Just to add, Safair at the moment are contracted to do Kululas' maintenance.
Till later.........look forward to some facts........and just the facts:ok:

[Shrike200]

As a TAX payer WE have to keep SAA in the air, but now you ask why do 1Time and Kulula ask so little for their Tickets & are they making a profit.
1. Kulula Backed by BA comair-BEE scheme,
2. 1Time BEE Powered
3. Profitable Aircraft low on juice and crammed like hell (Eish not to worry we can squish in another 10 people in 2 seats It's oke the Taxy we can overload so can the plain, eish man):ok:


I lost you somewhere..... :confused: Are you saying that because they're BEE financed (if indeed they are BEE compliant) that somehow the standards of maintenance are lower? I hardly think thats relevant. I think you'll find the standards of the engineers/pilots/staff etc are just as good as anybody else in SA....

[George Tower]

Boeing Rules,
I'm afraid with a post like yours you have just revealed to the world your doos-like qualities for all to see.
Two words spring to mind - Rudder hard overs, sorry thats three......do a search on google mate. There ain't no perfect aircraft china but I think if you're going to comment on either aircraft design philosophy or business strategy at least do from a rational and informed point of view.
For all 737 drivers and pax....my mention of rudder hard overs isn't implied critcism simply pointing out it hasnt been without fault.
A LCC is a business model, which has proven to have been successful. SAA if a business like anyother and subject to the same level playing field would have been bankrupt a few years ago.
Unfortunately I consider your opinion contemptuous, perhaps you post your credentials for all to see as I would be genuninely interested to see what position within the industry you hold.
3. Profitable Aircraft low on juice and crammed like hell (Eish not to worry we can squish in another 10 people in 2 seats It's oke the Taxy we can overload so can the plain, eish man)
For your homework may be you can tell us the difference between the P&W JT8D's fuel consumption and a CFM-56 or V2500? I think you'll find that all is not rosey regarding operating costs with the LCCs.


Having posted this may be I've just swallowed some juicy bait.....who knows:suspect:

[Boeing Rules]

[quote=beechbum]Boeingrules, the actual accident involved an Alaskan Airlines MD......as for low cost.....am afraid not!!! Unfortunately it had to do with the lack of grease on the jack screw......unfortunate but it happened.)

well I might be regarding a low cost airline with a low safety airline and i might be wrong but, what about the RUMOUR (not fact) that 1T... a while back on landing the elevator also failed and almost had an accident-does any body know any thing about this.

I do apologize if I was wrong and I do understand that it could happen to any aircraft, but was documented that if the Elevator jack screw do not get checked out every now and then it could be fatal (it was reported that the elevator system was designed with a fault, remember it was reported) and if a airline suffer financial problems they might slack on Tech. to save costs, and im also not saying that any airlines are in any financial problems. :{

[Solid Rust Twotter]

You stated quite bluntly the aircraft were unsafe now you say it's based on a rumour?:* :hmm:

[Boeing Rules]

Well I'm sorry, it was reported in the media, and i still believe that if a airline like 1T, MN as a low cost airline fail to keep up the standarts it could be fatal, and I'm also not saying that they are not.

Does any body know if the elavator realy failed on the 1T A/C.

[beechbum]

Boeing rules.....a few of BA/Comairs' aircraft are also maintained by the same company since both Kulula and the BA brand here are one and the same. Are you also saying that the 73's operated by Comair have a low maintenance standard?
Ummm....as I said before pointing fingers, I think you might have to get some facts.
I don't know much about the elevator on the 1 Time aircraft maybe we can get someone in the know to commment. As far as the jack screw is concerned it has to be checked every certain amount of hours or so. I suppose I would also be a little worried that everything was correct on the thing.But we could open a whole issue as was mentioned - on rudder hard overs or inert fuel tanks. The list is endless but to say you wouldn't travel on Kulula or 1 Time because of what you heard re: their maintenance standards.....through the press...mind you....is a little short sighted isn't it?:ok: (I better not put too many as that chicky from the other posting might get annoyed)

[Solid Rust Twotter]

If SAA fail to keep up standards it could be fatal as well. What are you trying to say?

The difference is that 1Time and Kulula are making money, unlike SAA. As for the screw jack, I'd guess there's a QRH procedure in case of problems as well as SBs and ADs to rectify any shortcomings. Do you honestly believe the journo who wrote the article is better informed than airline management, maintenance crews, pilots and SACAA?

[Boeing Rules]

All I'm trying to say is that, wouldn't a low cost airline try and keep costs to a min. then to a Normal Airline and the MD/DC have history regarding the T-tail elevator failure which 1T/MN use. But hey i'm no expert.

And who know maybe SAA is slacking on standards:confused:, seeing they in Debt.

Thanks beechbum I'll take your advise:ok:

[Solid Rust Twotter]

Skimping on maintenance is a short term solution with long term drawbacks as many companies have found out to their detriment. Can't see that happening unless it's a seriously dodgy operator.

[ZERO3L]

Boeing rules, you definitely dont have the facts.:confused:
The only confirmed elevator screw failure was on an Alaskan Airlines (Note-NOT low cost) MD80.
This was attributed to poor maintenence and lead to a change in servicing schedules.
The DC9/MD80 family has an incredible safety record, hence airlines like American, Northwest, Scandinavian just to mention a few still operate large fleets of them. Flight international listed Northwest's DC 9-32 alone at 110 aicraft last year and American in the vicinity of 300 MDs.
So, back in to your play pen and get the facts first and stop debating nonsense about Kulula and 1Time until you have the correct information.
Oh, and by the way, Kul and 1T make money from low fares through SOUND management and not abuse of tax payer's money like the national airline.Simple really.