Low-cost aviation may be jobs driver

Sep 04 2012 16:07
James-Brent Styan
Cape Town - Low-cost airlines have grown the overall market in South Africa by 3 million travellers over the past decade and created well over 15 000 jobs in the industry.

Mango CEO Nico Bezuidenhout says low-cost airlines may hold the key to even more accelerated growth in the industry, despite the troubles some carriers have experienced in 2012.

This year has seen the demise of Velvet Sky and 1Time running into serious financial difficulty, but Comair - which operates Kulula - and Mango are making profitable returns.

Analysts believe a big reason Kulula and Mango are still financially viable is the new aircraft these airlines are using.

The planes used by 1Time are heavy fuel users and probably unsustainable at current record oil prices.

The industry as a whole is being rocked by high oil prices, which are also putting huge pressure on traditional (full-cost) carriers.

Traditional carriers worldwide are struggling to bring costs down to remain sustainable, while low-cost airlines are claiming a bigger and bigger share of domestic aviation markets.

In South Africa low-cost airlines currently outnumber traditional carriers 3:2 on the so-called golden triangle. This is the Johannesburg-Durban-Cape Town route, which is the busiest network for domestic air travel in Africa.

Bezuidenhout says low-cost aviation has not only stimulated global demand in air travel but also been responsible for substantial up and downstream benefits.

He says the growth of secondary airports - such as Stansted and London Airport - in the United Kingdom, along with economic stimulation around these hubs, can be attributed directly to the introduction of low-cost airlines into the country as Heathrow has become increasingly congested.

South African Airways recently sold its prime landing slot at Heathrow for an undisclosed sum, believed to be quite significant number as airlines wait decades for such a slot.

"While South Africa is not littered with secondary airports with runway capacity to accommodate large single aisle jet aircraft such as the Boeing 737-800, Lanseria has proved a remarkable success as a secondary presence in Johannesburg.

"Mango invested substantially in a new operation last year, with results indicating stimulated demand with healthy load factors.

"The most important fact is that the introduction of our Lanseria-Cape Town route did not impact the OR Tambo Cape Town route at all. In fact, it spurred Mango's market share on routes that it operates by 5% to just under 20%," says Bezuidenhout.

Bezuidenhout estimates that the introduction of a single airline to a secondary airport like Lanseria could create as many as 300-400 employment enhancing opportunities.

"This includes airline staff, airport capacity building in terms of human capital, construction of a larger terminal, catering, security, car rental and localised tourism among others."

Bezuidenhout believes the potential for low-cost travel in Africa is incredible. The recent launch of low-cost carrier Jambo in Kenya and the growing interest of EasyJet's proposed African brand FastJet could mark another turning point in African aviation.

"Traditionally Africa has been a challenging market with bilateral agreements limiting travel between countries and unnaturally keeping affordable fares out of reach of the everyman, simultaneously stifling movement of people and goods and subsequently economic growth."

He says that the growing motivation to act on the Yamoussoukro declaration (Open Skies In Africa) will find impetus in the success of low-cost startups.

A recent economic forecast by aircraft manufacturer Boeing sees Africa's gross domestic product growth 1.2% ahead of an expected global growth rate of 3.2%.

Continental cargo is expected to grow by 5.8% annually, while passenger traffic is pegged at 5.6% (globally 5%).

"The optimistic view is that African aviation will lead global growth for at least the next decade," says Bezuidenhout, "ìand the potential for South Africa is significant as a current clear leader in the sector."

He sees regional flights, in particular by domestic low-cost carriers, increasing substantially over the next 10 years with at least seven more low-cost airlines starting up in Africa by 2020.  

"Enthusiasm for African growth is already evident with the recent heightened activity of Middle Eastern carriers in the region. Mango is currently investigating regional route options within the range of our fleet," says Bezuidenhout.

Mango has carried in excess of 8 million people in its nearly six years of operation, an average of well over 1.3 million travellers annually and more than 300 000 per aircraft.

"Asset utilisation is approximately 15-30% higher in the low-cost industry than in traditional aviation. When an asset is in the air, it earns.

"On the ground, it burns money." Bezuidenhout adds that seat density contributes greatly to reducing the average input cost per guest.

In a traditional two class Boeing 737-800 configuration an airline carries approximately 160 seats.

Low-cost airlines carry up to 189 seats (Mango 186) creating scale and increasing possible revenue per available seat kilometre, while reducing the input cost per kilometre flown.

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1time  |  mango  |  saa  |  kulula  |  nico bezuidenhout  |  aviation  |  job creation  |  transport



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