Failure to launch: The trouble with low-cost airline dream

By Joseph Bonyo

Kenya: If there was ever a defining year for Kenya’s aviation industry, then it was 2010 — at least for the news it generated.

At the time, a local investor was all over media outlets promising the first ever low-cost carrier (LCC) in the country.

In his interviews, Mr Arjun Ruzaik, owner and chief executive officer of OneJetOne Airways Limited, promised to rock the skies.

His model, he explained, was intended to get more Kenyans to fly across the country, and would see air fare drop to as low as Sh1,000 between Kisumu and Nairobi.

The vision

On social media pages, OneJetOne spelt out its mission and focus: “Our objective is to keep costs low by eliminating the unnecessary costs and added extras that represent ‘traditional/legacy’ airlines.”

The concept, the airline added, would be achieved, “in a number of ways, including the use of Internet and paperless operations to reduce distribution costs, and maximising utilisation of aircraft without compromising on safety, maintenance, security and customer service.”

On its proposed fleet, the airline promised Airbus A319, A320 and A330, flying to and from its Nairobi hub to all major cities in Africa, Middle East, Europe and Asia.

However, the dream remained just that. The launch date kept shifting and Kenyans lost hope. Years later, very little has been heard from OneJetOne.

This year will mark a watershed for low-cost carriers in Kenya. National carrier Kenya Airways is to launch its LCC Jambo Jet, but has kept details on the expected fleet size and personnel close to its chest.

After many false starts, KQ finally appointed a CEO, Willem Alexander Hondius, and a board of directors in September last year. Mr Hondius was tapped from Dutch airline carrier KLM, which has a stake in KQ.

The CEO his work cut out if the airline is to launch by March, according to the estimates released by the airline.

One of the key decisions will be which aircraft Jambo Jet will use, with indications that it will rely on KQ’s narrow body Embraers.

Based on the national carrier’s operating legacy, Jambo Jet could become the fourth low-cost airline in the continent, joining Fly540, Tanzania-based FastJet and Mango, a subsidiary of South African Airways.

Jambo Jet is expected to face stiff competition from already established Fly540, AirKenya and a resurgent Jetlink Express. AirKenya currently serves Kenya’s coastal region, a popular tourist destination.

Jetlink, which succumbed to financial woes in late 2012, has shown a strong desire to make a comeback. The airline was recently licensed by the Kenya Civil Aviation Authority.

The regional airline nosedived due to a lack of access to its funds in the now troubled South Sudan, its management said. The question is, will Jetlink make like the proverbial phoenix and rise from the current grounding of its aircraft?

But despite the anticipated competition, Kenya’s growing middle class presents an attractive market for LCCs.

However, the focus on developing infrastructure, especially road and rail, could inhibit their growth.  If all works out as planned, travelling by road is set to become faster, cheaper and more comfortable.

Globally, the LCC model has registered marked success and is considered the aviation industry’s most disruptive innovation to date.

The concept was pioneered by US-based airline Southwest at its conception in 1967. It intended to transport passengers from point A to B at the least possible cost.

In Europe, the LCC model has also found success, with Ryanair currently considered the biggest player, closely followed by EasyJet.

Challenges in Africa

In Africa, the model has been plagued by a number of factors, ranging from government policies to market perception.

The overreliance on legacy airlines by a number of the continent’s populations has also curtailed the growth of LCCs. 

According to the Centre for Aviation (CAPA), a provider of independent aviation market intelligence, “low-cost carriers are starting to slowly — very slowly — penetrate Africa’s regional international market.”

Its analysis indicates that the segment currently accounts for about 0.2 per cent of international capacity within Africa, making the continent one of the last frontiers for the global low-cost carrier sector.

In terms of capacity, by October last year, LCCs accounted for only 11 per cent of both international and domestic capacity in Africa.

This compared poorly to Europe, where such carriers had 37 per cent of total capacity, 30 per cent in North America, 34 per cent in Central/South America and 24 per cent within Asia-Pacific.

In a continent with rapidly growing economies, one would expect that the increased demand for travel would lead to fortune for low-cost airlines.

However, The Economist in an article mid last year noted that the concept was facing strong headwinds due to airline costs being high.

Speaking at its 45th annual general assembly in Diani, Kwale County, in late November, African Airlines Association (AFRAA) Secretary General Elijah Chingosho put the blame on African governments.

“The cost of doing business in Africa still remains high, especially in the aviation industry. Governments levy very high taxes on the industry, which has seen it perform below it its potential,” he said.

This coupled with high fuel costs — estimated to take up about 40-45 per cent of total operating costs — makes it difficult for an airline to offer the full range of low-cost operations. 

“Another problem is the lack of secondary airports for low-cost airlines, where the charges are much lower like they do in Europe. In Africa, very few major cities have secondary airports, and when they do have them, they are very inconvenient and the charges are very similar to main airports,” Dr Chingosho is reported to have told an air transport conference in South Africa in June.

The attempts

Locally, Fly540 has attempted to ride on the low-cost concept. But industry players argue that its business model, though not low cost, has flourished as it offers alternative rates to those charged by KQ.

The collapse of other carriers, like Jetlink and East Africa Safari Air Express, has also contributed to Fly540’s growth. 

But even as LCCs in the continent begin to make headway, analysts say their operations will survive only on the domestic front. This is attributed to African governments’ failure to implement the Yamoussoukro Decision.

If it were implemented, continental airlines would operate an open sky policy similar to that in Europe that led to the boom of budget carriers in the 1990s. 

Most African governments, it is believed, are averse to implementing the policy as they fear the competition would negatively affect their national carriers.

“We must begin to engage our respective governments more comprehensively to open our skies. Eleven years is a long time to wait for the implementation of a beneficial decision such as the Yamoussoukro,” said KQ Managing Director Titus Naikuni at the November AFRAA meeting.

jbonyo@standardmedia.co.ke