HomeBusiness DigestBoon for air travel customers as aviation competition intensifies

Boon for air travel customers as aviation competition intensifies

Air travel has over the years been a preserve of the rich in Zimbabwe due to the generally high costs obtaining on the international and domestic markets as well as government delays in opening up the skies to new players.

By Taurai Mangudhla/Blessed Mhlanga

This has already started changing with the emergence of low-cost carriers, with prospects air travel on the regional and domestic markets will become even more accessible as fares are pushed down due to growing competition among players.

Zimbabwe’s landscape has changed from a point where it was cheaper to spend at least 12 hours on a road trip between Harare and the resort town of Victoria Falls to one where flights can cost less than US$40 per head.

The biggest beneficiary to this competition has been the passenger, but already questions over the sustainability of such pricing for the operators have already taken centre stage with aviation experts warning that the prevailing pricing models could create a monopoly by pushing other airlines out of business.

The cost of a ticket has already set airlines against each other with guns being pointed at fastjet who are running a promotion on their low budget travel on both domestic and regional routes.

“Book domestic flights from Harare to Victoria Falls for as little as US$38 one way, including taxes, or fly further afield from Harare to Johannesburg for just US$100 one way, including taxes,” fastjet announced on the Internet recently, prompting competitors to cry foul.

Competitors are saying its fares are so low to a point they have become unsustainable to the industry. Although the International Air Transport Association (Iata) announced that it expects the global airline industry to make a net profit in 2017 of US$29,8 billion, the profit margin of about 4,1% is low particularly for smaller airlines that handle very little revenue. This has seen some airlines going under over the years and forced state carriers to be content with breaking even or incurring small losses.

fastjet’s fares have been getting lower through promotions since it began operating.

The lower fares come as state-owned carrier Air Zimbabwe has been struggling to clean up its balance sheet and access fresh funding to recapitalise as well as secure strategic partners in order to become competitive.

Rainbow Airlines, which took to the skies late January, says the fares charged by fastjet are unsustainable as they are even below the low-cost airline concept.

“I don’t think those fares are sustainable. My only hope is that they will not be able to sustain them for long because they have the effect of driving away competition,” Rainbow Airlines chief executive Ed Berry said.

fastjet, which has lowered even regional fares, particularly Harare-Johannesburg, to US$100 one way inclusive of tax when other airlines, including Air Zimbabwe, charge as much as US$300 all inclusive, has denied trying to push others out of business.

“Fastjet, like any other business, seeks commercial sustainability. This means that selling below cost would be completely counter-productive. Conversely though, the low-cost airline model has introduced more affordable air travel across many markets, including Southern and Eastern Africa, and is able to provide said fares due to a vastly different business model to traditional full service airlines,” fastjet PLC chief executive officer Nico Bezuidenhout said.

fastjet has suspended some routes and shelved expansion plans into the region despite its low prices amid claims poor load factors and depressed margins are affecting viability of the airline.

Despite its various promotions that have seen domestic and regional flights costing US$30 and US$50 respectively for a one-way ticket, excluding taxes, fastjet has been unable to achieve its desired load factors and increase flight frequencies to targets.

As a result the airline has been forced to suspend its Victoria Falls-Johannesburg route and shelve plans to expand its route network into East Africa.

Bezuidenhout confirmed the airline had suspended its Victoria Falls-Johannesburg route and insisted it was an internal strategic decision that is not related to the viability of the route or the impact of lower margins due to promotions.

“Our load factors are healthy and promotions further enhance not only passenger volumes but also the value proposition to consumers,” Bezuidenhout told businessdigest.

“The suspension of our route between Johannesburg and Victoria Falls forms part of fastjet’s stabilisation plan, which requires a narrowed commercial focus on network points that perform better commercially,” he said.

Speaking on the decision to shelve expansion plans into East Africa, Bezuidenhout said the company’s stabilisation plan calls for the consolidation of its network, adding there was a measure of introspection prior to considering any growth.

Since fastjet Zimbabwe began operations in October 2015, the airline has flown over 100 000 passengers across the Zimbabwean skies, Bezuidenhout said.

Currently, it has 32 flights per week to and from Harare, Johannesburg and Victoria Falls. fastjet’s challenges come as another carrier, Rainbow Airlines, has come onto the Zimbabwean market.

Viability of Zimbabwe’s domestic and regional carriers also comes into question due to low passenger numbers.

Statistics obtained from Zimbabwe’s aviation regulator, the Civil Aviation Authority of Zimbabwe (Caaz), show the authority recorded 1,47 million international and domestic passengers through its eight airports in 2015.

The 1,47 million passengers handled in 2015 are a far cry from 1999 figures at 74,9%. In 1999, prior to the chaotic land reform, Zimbabwe handled 1,9 million passengers.

Zimbabwe, once a favourite destination for foreign capital in Southern Africa with investments in agriculture, mining and tourism as well as the service industry, suffered a huge blow around 2000 when government embarked on a fast-track land reform programme.

Despite various attempts by the country’s leading hospitality groups to lure clients through discounts that even topped 69% in the first half of 2016, the Zimbabwe Tourism Authority reported national hotel room occupancy slid by two percentage points in the first quarter of 2016 to 36%.

Caaz general manager David Chawota’s statement in the parastatal’s 2015 annual report confirms the importance of the political and economic environment to aviation and tourism in general.

“The aviation sector’s performance is largely dependent on the dynamics of general economic activities,” he said.
Chawota said domestic passenger movements contributed 19,5% of the total passengers.

The decline reflects major contraction in international and domestic tourism activities in Zimbabwe and economic decline that impacted negatively on tourism and business travel.

South African-based airlines moved the highest number of both departing and arriving international passengers.

Air Zimbabwe moved the bulk of domestic passengers. The increase in passenger movement is attributed to, among others, the coming in of fastjet in 2015 and the increase in frequencies by airlines like Ethiopian and South African airways.

Commercial cargo declined by 1% from 16,1 tonnes in 2014 to 16,024 tonnes in 2015 mainly due to decline in exports.
According to Caaz figures, there were 20 scheduled airlines, including cargo carriers operating into Zimbabwe, during the year under review.

fastjet revolutionises local aviation industry

LOW-COST airline fastjet revolutionised the local aviation industry making air travel much cheaper and convenient for many. Along the way, the airline has had its own successes and challenges. This week the Zimbabwe Independent (ZI) speaks to fastjet Zimbabwe CE Nico Bezuidenhout (NB) on the local aviation sector.

ZI: Since launching a few years ago what has been your impact in the local aviation sector?

NB: Low-cost airlines typically stimulate demand and we have seen very positive growth in the domestic and cross-border sector since our launch in Zimbabwe. Our market-share is growing and we are encouraged as passenger volumes continue to move in a positive, upward direction.

ZI: Has the company reached break-even point?

NB: As mentioned, fastjet is growing positively and in the right direction and we expect to continue as a strong partner to everyone in Zimbabwe.

ZI: Which routes are you plying now and how you responded to market dynamics?

NB: Fastjet presently operates between Harare and Johannesburg, Harare and Victoria Falls as well as to Dar es Salaam, stimulating demand and answering market dynamics through consistently affordable and accessible air travel.
ZI: Zimbabwe has over the years opened up its skies resulting in competition. How has this competition affected your operations?

NB: Competition is healthy and fastjet welcomes it, as ultimately the consumer benefits through more affordable fares. We have absolute faith in our product, service and our people and to date it has been impactful and effective, with growth expected within Zimbabwe.

ZI: How important has this been on the ease of air transport?

NB: Affordable air travel makes it possible for faster access to markets for traders and businessmen while holidaymakers now have an affordable alternative to getting to their destinations efficiently and quickly.
ZI: What challenges have you faced since launching?

NB: No business is without its challenges, but, our business model and strong management team has ensured that we are always a business that develops solutions and innovative ways of managing any possible challenge.

ZI: How many passengers have you carried to date and what is your target in the next two years? How has been the load factor over the years?

NB: Since launching, the airline has flown more than 125 000 passengers on 1678 flights over a distance of more than 1,3 million kilometres  with an impressive 94% on-time performance, establishing itself as a punctual, reliable, and affordable low-cost carrier. With strong load factors the airline has responded to passenger feedback, increasing the frequency on its route from Harare to Johannesburg, and it introduced additional flights between Harare and Victoria Falls over the busy December holiday period.

ZI: How can government make the aviation industry more viable for you?

NB: Fastjet is a business that thrives on partnerships, whether to partner in promoting air travel, tourism, economic activity or simply lend a hand of friendship. The aviation industry in Zimbabwe is very viable and we are in appreciation of the opportunity given to us to be part of this magnificent country’s economy. Fastjet is for everyone.

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