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Eric Bloch Column

Law of diminishing returns prevails

By Eric Bloch

THE thought of an airline pursuing the law of diminishing returns conjures up horrendous images, but intending passengers of Air Zimbabwe need not fear for their safety.  The diminishing returns

will not be those of the airline’s aircraft, and of the passengers on board, but of the revenues accruing from an ever-diminishing number of passengers. 

This is so because, under the law of diminishing returns, ill-considered and excessive increases fail to generate anticipated increased income, and instead result in a fall in operational earnings.  And that will, inevitably, be the consequence of Air Zimbabwe’s recent gargantuan hikes in its fares.

This week the board suspended CEO Tendai Mahachi and grounded its fleet.

That the national airline had to raise its charges is indisputable, for not only is it as subject to the hyperinflationary impacts that afflict all Zimbabwe but, in addition, a very great proportion of its essential expenditures are foreign currency-denominated.  Undoubtedly its major costs include aviation fuel, spares, international landing fees, crew accommodation abroad, reinsurance and much else. Therefore, not only must fares be realigned to address inflation in local costs, but also the escalation in operational expenditures caused by exchange rate movement.

However, the magnitude of fare increases in the last month has left passengers, and would-be passengers, aghast. Despite three prior price increases in 2005, fares were increased during the last months by almost 200% on domestic routes and more than 300% on most regional and international routes. 

In seeking to justify such immense increases, the airline has cited exchange rate movement but, on the one hand, that movement was to a lesser extent than those percentages and, on the other hand, not all the airline’s costs are foreign currency-denominated.  As to the exchange rate, the airline appears to apply the rates existing in the unlawful alternative markets, as distinct from the rates prevailing within the official interbank market.  The latter have been between $60 000:US$1 and $63 200: US$1 (being the mid- rates) since the foreign currency auctions were discontinued on October 20. 

In contradistinction, Air Zimbabwe appears to be applying rates ranging from  $75 000:US$1 to $100 000:US$1.  An economy class return fare on the Bulawayo-Harare route is now an astounding $21 550 250; on the Bulawayo-Johannesburg route $29 850 000; Harare-Johannesburg route  $39 600 000; and to London Gatwick $146 925 000 (before taxes and departure fees!). 

Adding insult to injury, it applies those rates to the entire fares, instead of recognising that a   significant portion of the revenues are required to serve local costs, including salaries, administrative and other overhead expenditure, domestic marketing and finance costs.  Those costs should increase only in tandem with inflation, as distinct from being exchange rate-driven.  

Compounding the insults to injury even further is that when the airline launched its newly acquired MA60 aircraft about six months ago, it trumpeted with very great razzmatazz that those aircraft were exceptionally cost-efficient, lowering operational costs by at least a third!

And to compound the appalling state of affairs even further, the airline’s customer care continues to decline apace, with the sole exception being the remarkably great attentiveness of the cockpit and cabin crews. They demonstrate continual concern for the well-being and comfort of the passengers, but the same cannot be said for management, who cannot (or will not) even ensure adequacy of aircraft supplies.

On at least eight flights out of 10, on domestic routes, there is no soap in the toilets.  Compliance with international airline catering standards of providing decaffeinated coffee, for those allergic to caffeine, was discontinued sometime ago. Similarly, it is now the exception, rather than the rule, for whisky to be available on evening flights, be it in business or economy class, and irrespective of whether on routes catering mainly for international tourists, or for domestic travellers.

Announcements are not made at the airports when flights are delayed, printed timetables have ceased to be available (although, if available, would probably qualify for an international prize as works of fiction), and even business-class travellers are restricted on the refreshments of which they may partake at many airports, let alone members of the much-vaunted frequent-flyer Rainbow Club.

Air Zimbabwe is clearly suffering from “monopoly disease”, for it has no competition on domestic routes, and non-accessibility of foreign currency forces most Zimbabweans to patronise the airline, instead of its competitors, on regional and international routes.  

As a result, the management of Air Zimbabwe appears to pursue a “passengers don’t matter” philosophy, in contradiction to the helpfulness and concern demonstrated continuously by check-in personnel and aircraft crews. 

That passenger disregard attitude has prevailed for an extended period of time, but has markedly intensified recently, reaching new heights with the latest fare increases.

Air Zimbabwe recently had a new board of directors, including some renowned, very able, businessmen, and hopefully they will urgently focus upon achieving passenger-oriented, efficiency-targetted, cost-containment policies.  If they do not, the law of diminishing returns will set in for, despite Air Zimbabwe’s near-monopolistic supremacy, potential passengers are beginning to balk at the tyrannical fares and the service inadequacies. 
Bulawayo businessmen, who used to travel as much as twice weekly to Harare, are rescheduling to consolidate commitments into one trip per fortnight, thereby depriving Air Zimbabwe of three return fares. Others are grouping together to charter aircraft, for six can fly to Harare and return in a chartered light aircraft for a fraction of six return air fares on Air Zimbabwe. Yet others, notwithstanding fuel shortages, are now resorting to road travel.

A month or more ago, every flight between Bulawayo and Harare on the 52-seater MA60 aircraft carried an 80% or greater passenger load.  Each flight would carry in excess of 40 passengers, and many were fully booked, but in the last few weeks numerous of the flights have had only 20 to 30 passengers, which loudly proclaims the market resistance to the exorbitant fares now prevailing.

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