Thursday, January 30, 2020

Africa: Why Low-Cost Airlines in Africa Remain Impractical


Dar es Salaam — In a 2007 interview with BusinessWeek, Precision Air's founder and chairman, Michael Ngaleku Shirima shrugged off the idea of 'low-cost airlines', saying it made little
business sense in the context of Tanzania and Africa at large.
"I often get amused by people touting low-cost carriers (LCC) in this region. We not only have the critical mass of air travellers but the sophisticated network for it," he told BusinessWeek in an interview that sought to profile Precision Air.
He said Africa was the most expensive place to operate an airline in due to - among other things - poor infrastructure, logistics and maintenance challenges, as well as inadequate skilled human resources.
With news that some Tanzanians were finalising plans to establish a low-cost airline - in the name of Community Airlines - some may have thought that Mr Shirima's statement was simply meant to discourage competition in the sector.
In January 2008, Community Airlines became operational as a new player in cargo and passenger air services in Tanzania.
With air fares that went as low as Sh70,000 for a one-way ticket between Dar es Salaam and Mwanza, Community Airlines' life was short-lived. Just in one year, the airline was no where to be seen in Tanzania's skies - and the rest is history.
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So, when Fastjet started to slowly degenerate into a fourth-rate service provider due to flight delays and abrupt cancellations, it was like prophesy being fulfilled for those conversant with the airline business in third world economies.
Aviation expert and trainer Juma Fimbo said the Tanzania Civil Aviation Authority (TCAA) and the Tanzania Airports Authority (TAA) have not created an environment that would operationalise LCCs - a situation that calls for specific regulations for the purpose.
However, the claims were denied by the two authorities, saying the problem was not regulations but, rather, failure of low-cost airlines to observe the requirements of what it takes for them to survive and prosper.
To lower operational costs and fares, Mr Fimbo argued, LCCs needed to be exempted from compensation and taking customers to hotel when it comes to flight cancellation.
He added that in-flight entertainments should not be there or must be paid for.
"There is justice that a low-cost airline has nothing to do with all costs which are not related to safety and security," noted Mr Fimbo.
The government, he added, should take a leaf from the book of developed countries where LCCs operatte in separate airport terminals at lower handling charges compared to other airlines.
Low-cost carriers are supposed to avoid travel agents in selling tickets so that commissions paid to them are not included in fares.
He called for education to customers to enable them understand the differences between LCCs and other airlines.
"People should understand that LCCs are not for high, but low profile people with a view to satisfying a new market which remains largely untapped," noted Mr Fimbo.
"The idea of low-cost carrier came prematurely to Tanzania. TCAA has a homework to create specific regulations, of which TAA has to operationalise," suggested Mr Fimbo.
"Under the current environment, I was not caught by surprise about the news of the demise of Fastjet. Even if it had a good management, its death would have been inevitable."
The Precision Air's managing director and chief executive officer, Patrick Mwanri, said with the way the costs are structured at the moment low-cost carriers cannot make it.
Going by TAA figures, passenger service charges stand at Sh10,000 and $40 for domestic and international passengers respectively.
Security fee, which is incorporated in air tickets is fixed at Sh5,000 for local travel tickets and $5 for international passenger tickets.
Parking charges for aircraft of up to 20,000kg stand at Sh1,000 and $5 per 12 hours for airlines registered in Tanzania and foreign ones respectively.
The landing charges is levied at $5 for every 1,000kg of the aircraft at Dar es Salaam, Kilimanjaro, Zanzibar, and Pemba airports.
Mr Mwanri said multi-regulatory bodies were making things even tougher as they added to operational costs.
Apart from TCAA, airlines are also monitored by Occupational Safety and Health Administration (Osha), National Environment Management Council (NEMC), Tanzania Bureau of Standards (TBS) and Government Chemist, with each coming with their own fees.
Mr Mwanri said if LCCs coupled with all costs in operations they would just find they almost operated like full service carriers.
"If the oversight for the aviation sector could be left under TCAA, of which stakeholders could be consulting to, at least visibility on the costs in airlines could be seen," he opined.
"There is this perception about aviation that we, operators, get a lot of money, but nobody tries to understand what our operating costs are."
Air Tanzania Company Limited (ATCL) managing director and CEO Ladislaus Matindi seemed to read from the same script, saying LCCs model could not work in Africa due to high airport charges, high prices of spare parts and fuel as well as low traffic volume.
He said to lower costs, in Europe passengers travelling aboard LCCs had to undergo self-baggage handling instead of using ground handlers, something that cannot apply here given the way airports are structured.
He further said that in Europe, most LCCs use airports that have been rejected (have no traffic) and were receiving incentives from the owners, to lower operational costs.
"This doesn't work in Africa due to operating environment and if it did, every airline would opt for it," he said, adding, that operating costs need to be minimized as much as possible.
"Go and find out the range of the tickets of those who were once calling themselves LCC. Was it real LCC in the real sense or it was in some few details and then others compensate even three, four, five times."
Aviation expert John Njawa said the infrastructure available is limited. Noting that airlines can make money if their aircraft operate 24 hours or for a minimum of 18 hours a day, he said Mwanza, Dar es Salaam and Kilimanjaro are the only places aircraft can fly round the clock.
He said in order to operate profitably an airline needs more routes and frequencies.
"Aircraft should not be going to sleep like chicken, they are supposed to be active 24 hours. LCC is all about high volume and high frequency," noted Mr Njawa.
TCAA CCC acting executive secretary Debora Mligo was of the view that if LCCs model of business was to work, there should be separate cheap airport terminals for them.
"If the landing and departure charges for LCCs are to be taken down, authorities can decide to have non-tarmac airport apron purposefully for the kind the airlines," opined Ms Mligo.
She also suggested that LCCs should have a single aircraft type in their fleet to minimise staff training and maintenance costs, an approach which proved successful to some airlines elsewhere in the world.
The top 6 world's best low-cost airlines in 2019 included AirAsia, EasyJet, Norwegian, Southwest Airlines, AirAsia X and Jetstar Airways, according to Skytrax- a United Kingdom-based consultancy which runs an airline and airport review and ranking site.
The airlines have also been able to survive in tough trading environment featured with rising fuel prices, fierce market competition and a less positive global economic outlook, thanks to optimisation of airline pricing to generate maximum revenue.
TAA director general Julius Ndyamukama said infrastructures for LCCs were there and that it was a matter of the airlines' willingness.
He refuted claims that Fastjet Tanzania failed to make it because of unconducive business environment, but rather due to managerial issues.
"We have three airport terminals, of which are yet to be used maximally... .terminal two for-instance is used by only ATCL and Precision Air," noted Mr Ndyamukama.
"We can do something with the available infrastructure. We are ready for talks with those who are willing to trade as LCCs."
TCAA director general Hamza Johari said the problem was not regulations, but failure of the airlines to comply with the attributes of LCCs.
The requirements which are not observed by the kind of airlines include, among others, operating very efficient aircraft like Airbus 319, working with casual labourers so that crew costs can go down, leasing costs should be zero or very minimal, if any, maintaining young fleets, with a view to cutting maintenance costs and avoiding the use of travelling agents, to reduce distribution costs.
"The challenge with low-cost carriers in Africa is that they don't seem to be really low-cost carriers despite enjoying privileges like no free in-flight meal, charge for carry-on baggage, and non-flexible tickets, which are often non-exchangeable and non-refundable," noted Mr Johari.
It is not only in Tanzania where LCCs were unable to make it.
Primera Air - a Danish airline - and Iceland-based Wow Air, which were previously doing okay in the early days, ceased operations in October 2018 and March last year respectively due to improper approach in running them.
However, they lost stability and things started to go wrong after they rushed into establishing new bases and operations, and even started transatlantic flying on a low cost basis.
The end result was too much money going out, not enough coming in and operations were increasingly chaotic until finally they admitted defeat.

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