Wednesday, 19 July 2017

General Airline Commentary - More on Key Success Factors


The airline industry continues to confound observers, academics, investors, owners, employees and passengers. The financial ups and downs over many years make for good reading and bad returns. Surely there is a formula for success? Well, not so fast!. Whilst it may be possible to identify key success factors and isolate pitfalls, it does seem that airline management hangs on for dear life as the numbers plunge from boom to bust. Warren Buffett is reported to have said that the total returns in the airline industry are less than zero if you look at the entire global industry.

There is consensus that the airline industry is a difficult one. If we build a Porter model to assess the difficulty or competitiveness of the industry, we will find that the airline industry does warrant a “difficult” rating, with certain exceptions where monopolies, duopolies, or oligopolies exist.

The factors which contribute to the difficulty come from two key areas. Firstly, it is an expensive business to operate. Aircraft ownership, fuel, pilot salaries, and maintenance costs make for high unit costs. Secondly, the airline seat is perishable. Its value drops to zero as the flight is closed for departure. This means that airlines will adopt pricing models that seek to minimise empty seats, and are often unable to establish a breakeven price. In a competitive market, this can lead to aggressive price competition, with no “stop loss” level.

Additional complexity, or difficulty, arises from both the need to maintain high levels of safety and security, as well as the need to satisfy multiple market segments within a single product strategy. It is also fairly clear that the fortunes of the airline industry track the global oil price fairly closely.
In spite of this, there are willing investors and entrepreneurs who will support new entrants, or come to the assistance of struggling ones. The desire to put assets to work often outweighs the clear prospect of returns. There also seems to be a fascination for the “glamour” of the industry, and a desire to say “I own an airline”.

So if it is a given that airline businesses will continue to be launched, relaunched, and rescued, what can be done to minimise the business risk? There is no “silver bullet” and we believe that there are few universal key success factors. Critical factors in one market, may have no impact in another.

In any form of business there are some typical “vital signs” which must be monitored and actively managed, and these generally apply at the high level in airlines. So, for example, we look for ruthless cost control, good branding, visionary leadership, operational efficiency, solid human resourcing, and clear understanding of market and customer needs.

However, in airlines there are another group of key success factors which are dependent on situation and strategic decisions. Typically these are the “train set” of the business – where to fly, what to fly, when to fly, what to charge, and what to give. In more airline jargon we could refer to these as “network planning”, “fleet planning”, “flight scheduling”, “yield management”, and “product and service design”.


In ongoing articles we will attempt to break these topics down into digestible portions, and get as close as we can to a recipe for success.

Wednesday, 4 March 2015

Another Inaugural Flight

Skywise took to the Joburg skies this morning, March 5th 2015, with their first "revenue" flight, and they follow the procession of Southern Africa start-ups that we have seen in the last while.

The consumer has benefited from more choice and lower fares, and the number of "specials" offered by the established players has increased tremendously, as expected.

Although South African Airways and SA Express take the limelight with their liquidity issues and government loan guarantees, the influence of the new entrants cannot be overlooked.

FlyAfrica continues to expand its network, with the Zimbabwe routes being the jewel in the crown for the time being. The backers of FlyAfrica still remain invisible, but they seem to carry influence in countries neighbouring South Africa. There have always been reports that Paramount Aviation is involved.

FlySafair has launched successfully, and should have benefited from the Christmas holiday rush. They have moved into thinner routes to George and Port Elizabeth, and it remains to be seen whether these are sustainable at low fare levels. The "pay for baggage" policy does seem to have generated much negative reaction. FlySafair is now flying a 4 aircraft schedule.

Skywise has sneaked into the picture without the normal fanfare, and their ownership is also obscure. They obtained the licence to operate by buying the company shell from the former owners of 1Time, and apparently purchased Global Airways with their AOC. The holding company is PAK which is a trans-africa trading company. The Mandela family are involved here.

What we would expect in a domestic market where 2 new entrants are trying to establish a footprint is some insane pricing at quiet times. The key indicator of success will be how soon the new airlines increase frequency.

Meanwhile, Mango's boss is now acting in charge of SAA. This must be changing some perspectives. Two fire sales have already taken place on the SAA website. Strong rumours abound that Etihad will soon take an equity stake in SAA. The government involvement will certainly make this exercise as interesting as was the Etihad-Alitalia tie-up.

At last there is some action in the local industry, and good news for African economies.

Our website: www.webb-elgin.com


Tuesday, 30 September 2014

This Is A Real Low Cost Carrier

AirAsia X is the king of low costs


AirAsia X has the lowest unit costs in the industry. It is the only airline in the world with CASK below USD4 cents.

This is aided by AirAsia X operating longer average stage lengths (about 5,000km) than other LCCs. AirAsia X’s shortest route is three and a half hours.

Other players in the medium/long-haul segment are not publicly traded or do not provide separate figures for narrowbody and widebody operations. But AirAsia X primarily competes against Asian full service carriers which have unit costs that are two to four times higher. AirAsia X is the only LCC on all 22 of its routes – although it does compete against other LCC groups on several connecting city pairs.


AirAsia X’s costs inched up in 2Q2014 due primarily to higher fuel prices. But cost controls and productivity improvements have resulted in lower staff, sales and marketing costs. The group expects lower CASK in 2H2014.

Monday, 25 August 2014

Airline Key Success Factors

During our popular ongoing Airline Commercial Management workshops we challenge participants to brainstorm a list of 5 key success factors in today's airline landscape. During the workshops we harvest the opinions of the airline delegates and attempt to distill their knowledge into the highlight list. Whilst there are diverse views of course, the following elements dominate the submissions:

1. Visionary,strong, and strategic leadership...
                     many names spring to mind including Kelleher, Fernandes, OLeary

2. Ruthless cost management

3. Multiple sources of ancillary revenue, and continuing to develop new sources

4. Effective use of information technology in distribution, yield management, and social networking

5. Deregulated environment with minimal government intervention/ownership

It should be possible to derive a success index, based on these factors, and a traditional SWOT and competitor analysis, that could form the initial basis for an airline success rating.

Monday, 28 July 2014

FlySafair Update

FlySafair have relaunched and announced that flights will commence on October 16th 2014. Initially they have offered JNB-CPT and CPT-PLZ at low fares. Baggage is not included.

The following from Travel News Online:

FlySafair has opened ticket sales for the second time, with plans to launch services in October - exactly a year after the airline initially planned to take flight.

FlySafair first opened ticket sales for flights between Johannesburg and Cape Town, in September last year, with the maiden flight scheduled for October 17, 2013. The airline was blocked from launching and forced to re-accommodate and refund passengers after the court granted an interdict sought by competitors, Comair and Skywise.

Now, the airline has opened bookings, with its first flight between Cape Town and Johannesburg set for October 16.
The LCC is advertising fares starting from R499 between Cape Town and Johannesburg and R399 between Cape Town and Port Elizabeth.
Dave Andrew, ceo of FlySafair, said in a statement: “These are not just opening specials or marketing showstoppers to announce the start-up. FlySafair is ready to bring you the value that you deserve.”

Saturday, 21 June 2014

Fly Africa

Fly Africa, the new low-fare carrier, is set to launch operations on 23JUL14. Initially it will operate Johannesburg – Victoria Falls service 3 times a week, with Boeing 737 aircraft. The airline uses IATA code “Z7″.

Flight schedule:

Z7104 JNB0900 – 1040VFA 737 357
Z7111 VFA1420 – 1555JNB 737 357

UPDATE: Flights postponed due to Zimbabwean CAA finding problems with operational documentation.

Wednesday, 21 May 2014

Fastjet Update

The following article appeared in atwonline today:
"African budget carrier Fastjet has suspended operations at its Fly540 Ghana subsidiary as part of its long-running battle to curb its legacy Fly540 losses.
FastJet acquired African regional airline Fly540 to accelerate its low-cost launch, giving it instant access to air operators’ certificates in Angola, Ghana, Kenya and Tanzania. It used this as a platform to launchFastjet-branded Airbus A319 operations from Dar es Salaam, Tanzania, in November 2012.
However, Fastjet has struggled to secure route rights for its budget expansion—partly due to questions over ownership and control—and its legacy Fly540 business has been racking up losses. Earlier in May, Fastjet suspended Fly540’s Angolan operation—pending restructuring—and said Ghana was also on its watch list.
Ghana has now followed in the footsteps of Angola. “Fly540 operations in Ghana are being temporarily suspended pending further restructuring. Fly540 has served notice on the leasing agreement it holds on one ATR aircraft in Ghana,” Fastjet said in a statement. It has already put two ATRs, previously operating in Ghana and Angola, up for sale.
Fastjet CEO Ed Winter said the legacy Fly540 business is not part of its core low-cost model. He reiterated his ambition to launch Fastjet low-cost operations in both Angola and Ghana in the long term.
For the shorter term, Fastjet is focusing on East and Southern Africa; it is aiming to establish bases in Kenya, South Africa and Zambia. “These plans are progressing well,” Winter said. 
However, Fastjet’s international expansion has been sluggish and its tentative plans to partner with airlines and investors in KenyaNigeria and South Africa have been slow to materialize."