Thursday, 20 April 2017

Low Cost Carriers In Africa Impeded By Lack Of Open Skies, High Costs, Lack Of Passengers

In the recent past, we have been hearing about how air travel and connectivity within the region is getting better through low-cost or budget carriers.

However, don’t go into a celebratory mood just yet.

A spot check on the website of a recently launched low-cost carrier put the one-way fare between Nairobi and Dar es Salaam at approximately Ksh8,000 ($80).

The same search done, with the same exact parameters, on the website of a full-service carrier revealed a fare of Ksh8,895 ($89). So, if by name alone “low-cost carrier” should imply travel cost savings, why isn’t that benefit evident?

Let us take a look at another scenario — Nairobi to Mombasa, arguably one of the most heavily travelled routes in the region, is approximately an hour’s flight.

A flight search within the month, done 1-2 weeks in advance, will give you an average one-way fare (inclusive of all taxes) of Ksh6,000 ($60) on a low-cost carrier. A full service carrier gives the fare at Ksh7,800 ($78).

Is that really enough of a pricing differentiation aspect to warrant one being referred to as a full-service carrier and the other a low-cost carrier?

The definition of a low-cost carrier has been evolving within aviation circles. Perhaps the easiest approach to break down what a low cost carrier is would be to talk about some of its traits.

The first is low fares, achieved through a low-cost model of operations.

Generally, low-cost carriers will fly short-haul and medium-haul routes from several airports, with a high density or high passenger demand, so as to avoid competition with full-service carriers.

One would expect low-cost carriers in Kenya to use an alternative airport out of Nairobi instead of Jomo Kenya International Airport, and land, say, at Ukunda airstrip instead of Moi International Airport in Mombasa.

Of course, this is subject to the aerodrome management authorities making it cheaper for carriers to use alternative airports with the realisation that lower airport charges translate into lower costs and fares.

The flight time between Dublin and London is approximately one hour and 15 minutes. On a low-cost carrier on this sector, a flight search a week before starts from 31 euros ($35) one way. With an almost hourly departure, each flight is priced differently.

While this is deceptively affordable compared with what an East African flyer is paying over the same flight time or distances for a low-cost flight, the actual amount becomes clear when you proceed with the booking and every extra item selected is charged.

Seat selection, baggage above minimum allowance, priority boarding, security fast tracking, airport transfers, car park — each is priced separately. With a strict no-frills policy, even the basic peanuts and soft drinks invite an extra charge. The traveller pays for every service over and above basic travel.

To maintain operations at the lowest possible cost, many airlines operating as low-cost carriers will use one type of aircraft for their fleet, saving on multiple flight crews and maintenance. To keep labour costs and other operational overheads at a minimum, low-cost carriers outsource some of their functions.

The negative side of low-cost carriers is that if you miss your flight, you lose your money. As if to dissuade travellers from changing their booking, the penalties and change of reservation fees levied by low-cost carriers in the region are high.

For cross-border travel in the region, no low-cost operator has presented a persuasive enough case to the governments to do away with, or lower, the airport or passenger taxes.

In addition, the service differentiation level is not yet at the level where passengers will see the benefits of the operating model.

The low-cost carrier model is expected to take root in the region. Until then, look beyond attractive fare advertisements and read the terms and conditions of the offer carefully.

The business model of discount/no frills/budget airlines or Low Cost Carriers (LCCs) is based on low fares with limited services to keep costs to a minimum.

LCCs employ several cost cutting measures to ensure that their operating costs are less than those of traditional or Full Service Carriers (FSCs). The most common are; online ticket sales and check in, charges for checked in baggage and on-board refreshments, utilizing cheaper un-congested secondary airports, etc.

LCCs are popular on short haul and regional point to point routes associated with single aisle/narrow body aircraft (A320, B737, Embraer, CRJ, ATR and MD80).

Research (KPMG) shows that a FSC operating an Airbus A320 between London and Rome spends US$12,000 more on each round trip than a low cost carrier does. Lower operational costs and ultimately cheaper tickets, has enabled LCCs demystify air travel, enabling more passengers to fly for business and leisure (holiday and adventure).

North America, South America, Europe and Asia have more than seven LCCs. Only the seven largest (by fleet size) were considered for purposes of this article. Australia and the Middle East have less than seven. All LCCs in Africa are listed.

Africa comes last. The low figures and late commencement of operations indicate that in spite of friendly ticket prices associated with low operational costs, LCCs are not as popular as FSCs.

Data published by the African Airlines Association (AFRAA) for the period April to June 2014 indicates that African carriers conducted 224,270 intra Africa flights (24,841,776 seats).

AFRAA data also indicates the top five city pairs for international destinations within Africa as reproduced here below.

From my own knowledge of traffic on some routes, for example between Entebbe and Nairobi (fifty-five minutes flight time), the dominant carrier between April and June 2014 (702 frequencies) was Kenya Airways (KQ), for the following reasons:

KQ flew four times daily, operating B737 and Embraer aircraft.
Air Uganda operated for only ten out of 12 weeks during that period and operated 50 seater CRJ 200 aircraft, thrice daily.
JamboJet and Fly Sax were not operating on this route during that period.

Current information on the Uganda Civil Aviation Authority website indicates nine flights between Entebbe and Nairobi daily. KQ operates six flights. RwandAir, African Express and Fly sax operate one flight each.

On the Gaborone- Johannesburg route, (30 minutes flight time) 1036 frequencies between April and June 2014, the dominant carriers were Air Botswana and South African Airways. Information from www.flightradar.24 indicates nine daily departures from Gaborone, seven of which are to Johannesburg (Four flights by Air Botswana and three by South African Airlines).

On the Lagos – Accra route, (45 minutes flight time) 849 frequencies during the period under consideration, is served by Aero Contractors, Africa World, Arik Air and Med-View Airline. Information from www.flightradar.24 indicates five daily flights from Lagos to Accra.

On the Tripoli-Tunis route, (50 minute flight time) and 695 frequencies during the period under consideration, the dominant carriers were Tunisair, Afriqiyah Airways, Buraq Air and Libyan Airlines.

These routes, ideal for LCC operations are dominated by FSCs. Even regional airlines that fly point to point prefer the FSC model.

Four limitations that impede growth of LCCs in Africa.

Lack of alternative and cheaper un-congested secondary airports meaning high fuel burn during delays and not quick enough turnaround times to effectively utilize aircraft.
Small flying population hence lack of passenger volumes to sustain a low cost model.
High Costs charged by Governments (taxes, landing, navigation, handling and other regulatory fees) raises ticket prices.
Lack of open skies.

I agree with the above limitations. However, can LCCs thrive in Africa if the above limitations are solved? NO, and I can explain why;

Alternative cheaper and un-congested airports have to be supported by road and rail networks to make access for travelers convenient. Considering Africa’s poor transport infrastructure, constructing an inaccessible airport is a waste of time and resources.

Further, LCCs can only fly where passengers actually want to travel, which is mostly to primary airports close to urban areas/ centers in major cities. In East Africa for example, most domestic flights to secondary airports like Eldoret, Kisumu, Mombasa, Kilimanjaro and Mwanza originate from, and return to primary congested airports – Nairobi (JKIA) and Dar es Salaam (JNIA). This guarantees high operational costs and explains why LCCs in Africa are few in number and have only recently commenced operations, yet secondary airports in the region have been in existence for decades.

LCCs in Europe and United States sell tickets on-line and accept payments by credit/debit card to eliminate costs associated with agents and handling/storing/transporting cash. Unfortunately, majority of Africans view card (plastic money) transactions with suspicion. Further still the African continent as a whole suffers from low internet connectivity and computer usage which makes on-line sales unpopular. Ticket purchases are made by cash transactions with travel agents or airline sales offices. This modus operandi raises operational costs making it unattractive for LCCs.

High ticket prices are not a problem especially where many travelers are public servants traveling on Government duty, and the cost is borne by taxpayers. Protocol dictates that high ranking government officials and statutory/private corporation employees on official duty travel business class, commensurate with their status.

LCC single class economy configuration without reserved seating is viewed with contempt. Such officials find it demeaning to travel and rub shoulders with “low ranking” individuals. Some African Governments have directives instructing public servants to use particular airlines (There is a cabinet directive in place instructing all Kenyan Public Servants to fly on Kenya Airways).

Such directives lead to unfair competition and protect FSCs, enabling them take up a large share of the market by operating on routes and to destinations otherwise suited for LCCs.

High levels of income disparity and lack of a sizable middle class, like in Europe and the United States, makes African societies divided between the haves and have-nots. The haves, though few in number, have the resources and means to travel, regardless of cost. The have-nots, who are the majority, cannot afford travel even aboard LCCs. Complacency on part of the haves keeps FSCs operational because they have money to pay for highly priced tickets.

The popularity and growth of LCCs in the 1960s is attributed to tourists and adventurous leisure travelers who sought destinations not served by FSCs and were willing to fly there with minimal comfort. Over the years, LCCs in Europe and North America have flown tourists to such destinations, sometimes on seasonal basis.

Although the middle class in Africa is steadily growing, the culture of holiday or leisure/adventure is alien to most Africans. Travel by air is limited to “essential matters” like work, business, education and medical treatment. The frequently flown routes indicated are between major cities, not to game parks or holiday resorts.