air france-klm – transforming? · air france-klm – transform-ing? 1 ana’s expanding business...

Issue no. 189September 2013

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

EURm

Air France-KLM Results

Opera ng profits

Net Profits

EBITDAR Margin

Air France-KLM – Transforming?

T largest of the three Europeannetwork carriers, Air France-KLM, is in theprocess of a restructuring exercise designed to return it to a reasonable

level of profitability by 2015 (alright, so are the other two European majors).At the tail end of last year it revealed its strategic plan under the imagina vesoubriquet of “Transforma on 2015” with the aim of cu ng debt by €2bn,manageable non-fuel unit costs by 15%; renego a ng all staff contracts, cut-ng staffing levels by 8% (9% at Air France and 6% at KLM), and importantly

trying to return the short-mediumhaul opera ons to at least break even fromlosses of around €700m.

At thepublica onof the group’s first half results in September, the group’snew CEOAlexandre de Juniac affirmed that the planwas on track. At least, forthe first me since 2008, the group was able to produce an opera ng profitin the June quarter (albeit a small €79m) up from a restated loss in the sameperiod the year before of a similar amount – even a er implemen ng theludicrous IAS19 accoun ng policy on pensions. Revenues, however, only grewby 1% year on year, somewhat below the group’s targets; the managementadmi ed that the revenue environment, par cularly in Europe, was weakerthan it had expected at this stage of the plan. As a result the turnaround inthe medium haul European network and in Cargo was taking far longer thanhoped.

September 2013 www.aviationstrategy.aero 1

This issue includes

Page

Air France-KLM – Transform-ing? 1

ANA’s expanding businesspor olio: Peach, Vanilla,Asian Wings, Pan Am, etc. 5

South African Airways: Eighthturnaround plan 9

Fastjet: The struggle todemocra se African airtravel 13

http://www.aviationstrategy.aero/

Aviation StrategyISSN 2041-4021 (Online)

This newsle er is published ten mesa year by Avia on Strategy LimitedJan/Feb and Jul/Aug usually appear ascombined issues.Our editorial policy is to analyse andcover contemporary avia on issuesand airline strategies in a clear, originaland objec ve manner. Avia on Strat-egy does not shy away from cri calanalysis, and takes a global perspec ve– with balanced coverage of the Euro-pean, American and Asian markets.

Publisher:Keith McMullanJames Halstead

Editorial TeamKeith McMullankgm@avia onstrategy.aeroJames Halsteadkgm@avia onstrategy.aeroHeini Nuu nenhn@avia onstrategy.aeroNick Morenonm@avia onstrategy.aero

Subscriptions:info@avia onstrategy.com

Copyright:2013. All rights reserved

Avia on Strategy LtdRegistered No: 8511732 (England)Registered Office:6 Langside AvenueLondon SW15 5QTVAT No: 701780947ISSN 2041-4021 (Online)

The opinions expressed in this publica-on do not necessarily reflect the opin-

ions of the editors, publisher or con-tributors. Every effort is made to en-sure that the informa on contained inthis publica on is accurate, but no le-gal reponsibility is accepted for any er-rors or omissions. The contents of thispublica on, either in whole or in part,may not be copied, stored or repro-duced in any format, printed or elec-tronic form, without the wri en con-sent of the publisher.

Air France-KLM FleetAircra Type In service Change On Order Op ons In Storage

MainlineAir France 747 7 -1

777 62 3 10A330 15 2A340 13A350 25A380 9 +1 3 1

A320 Family 135 -9 4 16 1

KLM 747 22777 23 +2 3 2787 23A330 16 +2 18MD-11 5 -5 1

737 45 +1 2 8

Transavia 737 35 +1 2 3Transavia France 737 12 +3

CargoAir France 747F 3

777F 2Mar nair 747F 4 -2 2

MD-11F 6

RegionalHop! ATR 42/72 23

CRJ 39 1 2 1E170/190 25 9ERJ 20 -5 1

KLM Cityhopper E170/190 22 6 9F100 -1 1F70 26

Cityjet RJ 19 2

Total 588 -13 72 80 9Source: Ascend. Change compared with end June 2012

2

For the period of the restruc-turing, the group has abandoned itsold idea of growing in line with themarket. Passenger capacity grew byonly 2.6% year on year in the quar-ter, mostly on long haul opera onswhile traffic grew by 3.2% givinga half point increase in load fac-tors to 83.2%. Cargo remains in thedoldrums with a 6% drop in traf-fic against capacity down by 4% andcargo revenues down by a further 7%year on year. Unit revenues actuallyfell in the quarter by 1.9% year onyear or 1.3% on a constant currencybasis while unit costs fell by 5% yearon year, helped by a 8% decline in the

fuel price and a modest 0.6% fall instaffing costs.

The overall group net resultrolled out at a modest loss of €163mdown from losses of €897m inthe second quarter 2012 whilelosses for the first half of the yeartotalled €793m compared with€1.3bn the year before. Definitely animprovement.

The original vision of the trans-forma on plan saw 2012 as be-ing the year for laying the founda-ons for the group’s turnaround; im-

plemen ng immediate cost reduc-on measures, imposing strict ca-

pacity discipline and reduced invest-

2 www.aviationstrategy.aero September 2013


ment, renego a on of all collec velabour agreements and the establish-ment of the structural opera onalchanges.

2013 equallywasmeant to be theyear for the roll out of the measureswhen the group could start to benefitfrom the cost reduc ons, the restruc-tured short haul opera ons, a hopedfor recovery in cargo and “ini a vesto reconquer the customer base”.

2014 is meant to be the yearwhen the full impact would be felt al-lowing for a recovery to 6-8% operat-ing margins by 2015.

It now seems that the groupaccepts that more needs be done.Firstly, medium term economic fore-casts have fallen – although thereis recovery visible in the US, andpossibly the UK; Con nental Eu-rope remains stubbornly sluggish,and prospects for the BRICs havetended to be downgraded. Secondly,the weakness in Europe and Francehas not helped the plans to re-inventthe short haul offering, while theweakness in the air freight businessis hampering recovery there.

Staff cuts

By the end of June the grouphad reduced total employment levelsby 5,600 FTE posi ons or 5.3% com-pared with June 2011 -through nat-ural wastage, voluntary early re re-ment and redundancies. Last weekAir France told its Central WorksCouncil that it would need to find an-other 2,800 jobs to get rid of. Theunions so far seem to have acceptedthis with equanimity, although therehave been sugges ons that it mayprove difficult to achieve these cutswithout compulsion. The target re-mains to reduce total staff costs byover €400m by the end of 2014.

Short haul reinven on

One of the dilemmas for a net-work carrier is how to jus fy unprof-itable short haul feed to long haul op-era ons, or unprofitable short haulopera ons that do not touch its huband have to compete with low costand ultra low cost operators. For AirFrance, admi ng that it had lostsome €700m on medium haul oper-a ons in 2011, while insis ng, per-versely, that non-hub European fly-ing was vital for market presence,this was par cularly per nent.

For mainline opera ons thegroup has reduced its short haulAF A320 fleet by 16 units over thepast year to 135, while KLM has“densified” its 737 fleet (ie, addedmore seats). At the beginning ofthis year Air France restructured itsdomes c regional feed (previouslyrun under BritAir, Régional, andnewly-consolidated Airlinair) intoa single new “brand” called Hop!(obviously the exclama onmark wasfelt to be important, and the brandnamemay work for francophones). Itexcluded CityJet, which it put up forsale (but has seemingly yet to cometo an agreement over the amountof cash it needs to pay any buyer totake it of its hands). It has not donemuch to the regional fleet, except toget rid of 5 ERJs, but has the aim ofreducing ACMI costs by some 15%.

It had originally developed theidea of crea ng quasi “low cost” op-era ons from regional French basesas add-ons to its domes c shu leservices to Orly and as a way tocut costs by reloca ng crews awayfrom Paris to the provinces for localovernigh ng, and increasing u lisa-on – but, with limited real success

(forwhich read significant failure?). Itseems to have scaled back its expec-ta ons and opera ons.

Transavia France (originally a“leisure” brand to compete withLCCs) has been handed a few moreaircra , and it appears that thegroup is aiming to copy Lu hansa’sstrategy (of using germanwingsfor non-hub intra-Europe flying)by giving Transavia various routesfrom Orly. Meanwhile, on cargoopera ons the group con nues toreduce its all-freight fleet (mostlyfrom Mar nair) to concentrate moreon belly hold capacity

While it has all this on its plate,the group has been faced with the is-sue of whether to invest even morein Alitalia (it currently owns 25%, ac-quired on the “priva sa on” of thebankrupt state owned carrier in 2008– seeAvia on Strategy,March 2008).The now privately-owned Italian car-rier is once again in need of cash, andwants to call on shareholders by theend of the year. The Italian govern-ment now seems willing to allow AirFrance-KLM to take a majority stake– but this perennial loss-maker is thelast thing the AF-KL board needs atthe moment. The prospect of the fullconsolida on, even to protect theair-bridge from Italy into CDG and itssouthern flank from rivals Lu hansaand IAG, must gall.

Conclusions?

Turning round a legacy carrier isa difficult task – and Air France-KLMseems now to admit that it has a lotmore to do to meet its 2015 targets.It has a lot of strengths: a prime baseat Paris Roissy – the second majorEuropean O&D des na on a er Lon-don; the longest established cross-border merged group in the cur-rent era; a strong North Atlan c jointventure with Delta (being extendedno doubt with the addi on of Vir-gin Atlan c); superior links into thehigher growth regions, par cularly


http://www.aviationstrategy.aero/newsletter/articles/1513/show


-1,000

-800

-600

-400

-200

0

200

400

1998 2000 2002 2004 2006 2008 2010 20122,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

EURm

EURm

Alitalia - Results

Opera ng result

Net result

Total Revenue

Note: no financial data for 2008

into China with its alliance links tofour carriers through SkyTeam, jointventures with both China Southernand China Eastern, and code-shareswith Xiamen. It has even swallowedgallic pride to link up in a code shareagreement with E had. It is doingits best to return to profitability. Itmay just be a bit further away thanplanned.

Alitalia – con passione

In July Alitalia’s new CEO,Gabriele Del Torchio, outlined theItalian flag carrier’s new four-year“Industrial Plan”. It will focus onthree principal businesses: Alitalia,Air One and Alitalia Loyalty (aneffec ve spin-off of its frequent flyerprogramme). It also has a catchynew mission statement: “Proud toshow the best of our country. WithPassion.”

Alitalia itself will focus domes cand interna onal services at RomeFiumicino. Beginning at the start ofthe winter IATA season this year itis realigning the opera ons at FCOto provide a much be er wave sys-tem to try to improve the “hub”. Itaims to add an extra six aircra toits long haul fleet in the next fouryears to expand intercon nental ser-vices, increase frequencies on exist-

ing routes, open new routes and con-centrate on areas with “high Ital-ian community presence”. But havingsaid it will concentrate on hub op-era ons out of Rome, the companyalso states that it will be introduc-ing long haul routes from Milan (toShanghai, Abu Dhabi andOsaka), andfrom Venice (to Tokyo).

AtMilan Linate it will be reducingservices on the lucra veMilan-Romeroute (it lost its monopoly wheneasyJet gained access last year) tomake room to re-introduce servicesfrom Linate to other European des -na ons, while at Malpensa it will beadding services to medium haul non-European routes.

Air One is being rebranded to“bring it closer to Alitalia” and isbeing relegated to base opera onsfrom Catania, Palermo, Venice andPisa. The group somehow hopesthat this will increase the separa-on and differen a on between the

brands and prevent overlap. Inter-es ngly, the plan suggests an inten-on to increase interna onal flying

from Sicily, where they see “high de-mand”, and fromNorthern Italy to re-cover market share lost to other Eu-ropean airports in recent years.

As for Alitalia Loyalty we canonly quote verba m from the com-

pany’s release: “The main guidelinesof the Plan rela ng to the opera onof Alitalia Loyalty include: the pushto increase the number of mem-bers of the MilleMiglia programme,the development of new ways to re-deem miles on flights or other ser-vices, the crea on of high value part-nerships with leading financial andcredit ins tu ons, the entrance oftheMilleMiglia programme in a coali-on of many loyalty programs to in-

crease the opportuni es of earningand redeeming Alitalia miles, the de-velopment of new forms of com-munica on and marke ng towardsMilleMiglia members.” This probablyspeaks for itself.

The group at the same mestated that it aimed under this strat-egy to achieve a posi ve opera ngprofit in the second half of 2013,annual break-even at the opera nglevel in 2014, a “balanced budget”in 2015 and a profit by 2016. This ispredicated on raising €300m in eq-uity from its shareholders by Decem-ber.

Does all this sound familiar?Between 1999 and 2007 the formermajority-state-owned Alitalia lostover €3bn and entered 2008 indire straits, running out of cash. Itwent bankrupt at the end of 2008,despite an offer from Air France-KLM, and with the help of the thennew Berlusconi government whichrefused to allow majority foreignownership of the flag carrier. TheItalian government effec vely wroteoff the bad parts and the new Alitaliaemerged as a combina on withthe former second largest Italiancarrier Air One; and Air France-KLMholding 25%. The strategic plan wasto concentrate on Rome Fiumicinoas the group’s intercon nental hub.Since 2009 Alitalia has lost €850mand is again running out of cash.



1,000

1,250

1,500

1,750

2,000

2,250

2,500

03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14F

JPYb

n

ANA’s and JAL’s Opera ng Revenues

ANA

JAL

A Nippon Airways (ANA) hashad a rough year, marred by

the 787’s long grounding, con nuedslowdown on China routes, yendeprecia on and the associatedsurge in fuel costs, unexpectedlyhigh losses at AirAsia Japan, and theJune decision to dissolve the AirAsiaJV. Those nega ves led to a ¥5.6bnopera ng loss at ANA Holdings inthe June quarter ($56m; $1.6% ofrevenues), when rival Japan Airlines(JAL) managed a ¥22bn opera ngprofit ($222m; 7.5% of revenues).

Of course, this is just a blip inan otherwise impressively steady an-nual profit performance. ANA hasposted an annual opera ng loss onlyonce in the past decade (FY 2009)and achieved a 7% opera ng marginin each of the past two years, despitethe devasta ng effects of the March2011 earthquake and nuclear disas-ter in Fukushima. ANA con nues toproject a 6.8% opera ng margin forFY 2013.

While ANA’s main focus is onthe full-service carrier part of thebusiness and growing its interna-onal opera ons – especially a er

new slots become available at theTokyo airports in the summer of 2014(Haneda) and summer 2015 (Narita)– the most interes ng part of itsstrategy is the decision to diversifyinto “new growth segments”. Thatmeans developing mul ple airlinebrands and making strategic invest-ments – in both avia on and non-avia on fields – especially in Asia.

The mul -brand strategy kickedoff last year with the launch of thetwo Japan-based joint venture LCCs:

Peach Avia on in March 2012 andAirAsia Japan in August 2012. Whenthe rela onship with AirAsia soured,ANA bought its partner’s 49% stakefor ¥2.45bn ($25m) in June and nowplans to rebrand carrier as “VanillaAir”, with a new fleet and new strate-gies.

Recent months have seen theofficial kick-off of the “strategic in-vestments” part of the diversifica onstrategy. First, ANA established an in-vestment firm in Singapore to over-see and accelerate those ac vi es inAsia.

Second, as a major move intothe global pilot training business, inJuly ANA announced a deal to ac-quire Miami-based Pan Am Hold-ings and its subsidiary Pan Am Inter-na onal Flight Academy for around¥13.7bn or $138m (the transac onis expected to close by year-end).ANA plans to expand Pan Am intoAsia and views it as a great businessopportunity, given Asia’s enormousair travel growth poten al and hencelikely significant demand for the de-

velopment and training of airline pi-lots.

Third, in August ANA announcedits first airline investment in Asia:a 49% stake, for ¥3bn ($30.3m), inMyanmar carrier Asian Wings. TheYangon-based airline operates onlyone A321 and three ATR72s on do-mes c routes but is keen to expandits Airbus fleet. A er decades of mil-itary rule, Myanmar moved towardsdemocracy in 2011 and is now see-ing rapid growth in tourism and aninflow of investment. ANA, whichresumed service to Yangon in late2012 a er a 12-year suspension, isnow well-posi oned to benefit fromthose trends.

ANA is also planning an MRObusiness at Okinawa (Naha). Havingalso developed a cargo hub and aJV logis cs business there in recentyears, ANA intends to promote morestrategic business development thatuses Okinawa as a base for expansioninto Asia.

Further investments and acquisi-ons are likely as opportuni es arise.


ANA’s expanding business portfolio: Peach, Vanilla,Asian Wings, Pan Am, etc.


ANA has the funds because it raised¥182bn ($1.8bn) in a secondaryshare offering in July/August 2012.Also, in April 2013 ANA switchedto a holding company structure tomake it easier to manage the variousairline brands and subsidiaries.

ANA’s jus fica on for the strat-egy is that the new revenue plat-forms will “increase the likelihood ofachieving our medium-term goals”(among other things, a 10% operat-ing margin and 10% ROE).

But it is a somewhat risky strat-egy, with uncertain profit prospects.Is it wise for an airline to get involvedin everything? ANA already has some57 consolidated subsidiaries and 19affiliates, spanning passenger andcargo opera ons, catering, IT ser-vices,MRO and suchlike. Globally thetrend for many years has been theopposite: shedding non-airline sub-sidiaries and refocusing on core ac v-i es.

Other intriguing ques ons: Whatexactly went wrong with AirAsiaJapan? If AirAsia Japan did not work,can Vanilla succeed? And does itmake sense to keep Peach andVanillaseparate?Near-term challenges

The Japanese carriers saw thegoing get tougher in mid-2012,when Japan’s GDP growth slowed, astrong yen began to hamper exportgrowth, and Europe’s recession andthe global economic slowdown wereaccelera ng.

Adding to the woes, Japan-Chinaroutes have been affected by China’sslowing economic growth and, sinceSeptember 2012, a flare-up of thelongstanding territorial dispute be-tween China and Japan over a nygroup of uninhabited islands knownas Senkaku in Japan and Diaoyu inChina. An -Japan sen ment, violent

protects and a boyco of Japanesegoods in China have led to a sharpreduc on in travel demand betweenthe two countries. China is a hugemarket that Japanese businesses de-pend on and one that ANA and JALhad been coun ng on for expansion.

The effects of the territorial spathave lasted much longer than ex-pected. In April-June, ANA’s totalpassengers on China routes were s llmore than 20% below year-earlierlevels, though business travel de-mand had recovered.

Although Japan’s domes c mar-ket is growing for the first me indecades because of all the new LCCac vity, it has been at the expenseof yields and profitability. ANA’s Junequarter domes c sta s cs were il-lustra ve: RPKs up 2.4%, RASK down5.6%, yield down 3.6% and revenuesdown 1.3%.

With Europe and Asia stagna ng,North America was the only interna-onal region in ANA’s network that

saw traffic growth (in double-digits)in the June quarter. But ANA hasseen strong business class demandonmediumand long haul routes gen-erally, reflec ng route mix changesand the yen’s deprecia on.

The biggest blow this year hasbeen the surge in fuel costs: up¥15.7bn ($158m) for ANA in theJune quarter, of which ¥9bn was at-tributed to the weakening of the yen.

As the 787’s launch customerand largest operator, ANAwas hit thehardest by the grounding, losing anes mated ¥12.5bn ($126m) in rev-enue between mid-January and theend of May. Of course, ANA will re-ceive compensa on fromBoeing. Im-portantly, ANA was able to return tothe original route plans and 787 de-ployment in the July-September peaktravel period.

ANA has maintained its full-yearforecast of a record ¥110bn ($1.1bn)opera ng profit, first, becauseJapan’s economy appears to be on agradual recovery path. Second, theyen’s weakening is boos ng exports,leading to stronger interna onalbusiness travel demand. Third, ANAexpects to achieve another ¥25bn ofcost savings this year, as part of itsY100bn ($1bn) four-year cost cu ngprogramme ini ated in FY 2011.

Plans for Peach and Vanilla

Peach Avia on – ANA’s JV withHong-Kong-based Far Eastern Invest-ment Group and Innova on NetworkCorpora on of Japan – has beenmuch more successful than AirA-sia Japan. ANA has a 38.7% stakein the well-funded Kansai (Osaka)-based venture.

In its ini al 18 months, Peachhas grown its fleet to 10 A320sand its network to eight domes cand four interna onal points (Seoul,Hong Kong, Taipei and Busan). In Oc-tober it will enter the Kansai-Naritamarket, where demand has been sostrong that a third daily flight has al-ready been announced from January.Peach has just begun building a sec-ond hub at Okinawa (Naha), ini allylinking it with Ishigaki and Taipei.

Peach has made a big effort todifferen ate itself. It has a highlybranded approach, friendly in-flightservice and “cute and cool” aircradesign. It goes for aggressive US LCC-style fare sales, collabora ve ven-tures with various companies andgimmicky marke ng campaigns. Itsslogan is ‘Making the skies more funand bringing Asia closer together’.

Importantly, Peach is striving tocater for Japanese tastes and pref-erences. For example, it sells cketsthrough convenience stores andincludes menu items such as “first



-10

-5

0

5

10

15

20

03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14F

ANA’s and JAL’s Opera ng Margins

ANAJAL

authen c in-flight “okonomiyaki”(Japanese pancakes) for passen-gers to purchase on flights. It hasachieved high on- me performanceand flight comple on rates – alsoimportant in the Japanese market.

Peach has benefited from beingbased at Kansai’s T2, which becameJapan’s first airport terminal dedi-cated to LCCs when it opened in Oc-tober 2012. T2 allows 24-hour oper-a ons.

As a result, Peach has seen fasterthan an cipated traffic growth,healthy load factors and rela velymodest financial losses. In its firstyear endedMarch 31, Peach incurreda ¥900m ($9m) opera ng loss onrevenues of ¥14.3bn ($144m). It isnow expected to become profitablein the current fiscal year, whichwould be a year ahead of schedule.

In contrast, AirAsia Japan lost al-most four mes as much as Peachon an opera ng basis in the fiscalyear ended March 31 (¥3.5bn or$35m), a period that included thefirst eight months’ opera ons. In theJune quarter, its domes c and inter-na onal load factors averaged only55.5% and 52.1%.

AirAsia Japan’s growth was slowcompared to the other LCCs. At itspeak in July-August the airline oper-

ated only five A320s, compared to13 at JAL’s LCC venture Jetstar Japan(which launched opera ons only amonth earlier). At its peak AirAsiaJapan served five domes c and threeoverseas points (Seoul, Busan andTaipei).

AirAsia Japan will con nue to op-erate under that brand un l the endof October, when all of its A320swill have been returned to AirAsia. Itseems likely that the LCC will brieflysuspend opera ons, before being re-launched as Vanilla Air in December.

The JV was hampered by fun-damental disagreements about AirA-sia Japan’s strategy. ANA was con-cerned about a revenue shor all,which it blamed on the venture’sonline cke ng system and AirA-sia’s poor brand recogni on in Japan.AirAsia has blamed the cost struc-ture, misguided route choices andANA’s corporate culture.

Clearly, AirAsia Japan has notbeen able to achieve a low-enoughcost structure. It feels the full bruntof the high costs associated with op-era ng out of Narita – conges on,high landing fees, restricted operat-ing hours, etc. Notably, Jetstar Japanhas won some relief by establishing asecondary base at Kansai.

But it is also clear that the AirAsia

brand and product offering have notworked in Japan. ANA execu veshave argued that not enough a en-on was given to adap ng to the

Japanese market.One example is the booking

method. AirAsia apparently insistedthat the Japan-based airline offeredonly online cke ng (a key part ofthe AirAsia business model), butin Japan many people like to bookand pay for air ckets through travelagents or convenience stores.

Therefore ANA plans to makeVanilla an LCC that is “tailored toJapan”. Among other things, it willhave a more user-friendly website,new non-internet sales channels andmore promo ons.

Vanilla will con nue to be basedat Narita, but it will focus moreon interna onal routes, especially totourist des na ons. This will helpcapture broader demand and bet-ter schedule flights around Narita’snight curfew, thus improving aircrau lisa on and reducing unit costs.Vanilla will also operate from Nagoya(Chubu) Airport, which allows 24-hour opera ons. ANA expects to dis-close more detail about the venturein late September.

The success of Peach and theexperience gained in working withAirAsia have given ANA confidencethat it can succeed with Vanilla.Though fleet plans have not yet beenannounced, ANA has said that itwant to grow Vanilla’s fleet muchfaster thanwhat happened at AirAsiaJapan.

Importantly, cost pressures forNarita-based low-cost carriers shouldeasewhen the planned terminal ded-icated to LCCs opens there by March2015.

ANA seems determined to makethe dual-LCC strategy work. But itwill always have the op on to merge



Vanilla and Peach – something thatwas seriously considered but re-jected at this stage.

LCCs have already helped revi-talise Japan’s avia on market. Ac-cording to the MLIT, domes c pas-sengers have grown in 2013 for thefirst me in six years. With manymore airports planning special fa-cili es for LCCs, and with the gov-ernment adop ng more favourablepolicies (reduc ons in domes c fueltaxes, easing of tourist visa require-ments, etc.), LCCs look set to eventu-ally become a major force in Japan.

In June the Japanese governmentintroduced a new target of 30m for-eign visitors by 2030 (the previoustarget of 10m will be achieved in2013). With China’s decline, the cur-rent focus is on Southeast Asia. The2020 Olympics in Tokyo will providean extra boost to tourism and theeconomy. All of that should ensurepolicies that help LCCs.

But it will mean intense com-pe on. On its home turf, Vanillafaces Jetstar Japan, which has grownrapidly (though has delayed interna-onal entry) and is on track to be-

come profitable.Among foreign compe on,

China’s Spring Airlines has estab-lished a 33%-owned Narita-basedLCC unit that is due to start domes cflights with 737-800s in spring 2014.Spring Airlines Japan is the firstdomes c LCC with no Japaneseairline shareholders.

Then there is AirAsia’s possiblesolo return. As its CEO Tony Fernan-dez explained recently: “We have notgiven up on the dream of changingair travel in Japan and look forward toreturning to the market”. However, itmay not be for some me, and Fer-nandez has said that the future car-rier would not be based at Narita. In

the mean me, AirAsia X has boostedits flights fromKuala Lumpur to Japan(Tokyo and Osaka) and reaffirmed itsinten on to serve addi onal ci es inJapan within five years.

Big aircra and Haneda decisions

ANA resumed commercial ser-vice with the 787 on June 1 andhas now redeployed it on all fourinterna onal routes operated beforethe grounding (Haneda-Frankfurt,Narita-San Jose, Haneda-Beijing andNarita-Sea le). Three more Asianroutes have been upgraded to the787 (Haneda-Taipei and Narita toBeijing and Shanghai), with Narita-Singapore following on October1. Narita-Munich became a 787opera on on September 1. This waspart of an expansion drive that alsosaw doubling of 777-300ER flightson the Narita-Chicago route.

At the end August ANA had re-ceived 21 of the 66 787s it has onfirm order, of which 36 are 787-8sand 30 are 787-9s. The 787 graduallyreplaces ANA’s 767s and 777-200s.

All eyes are now on two upcom-ing events of global significance thatinvolve ANA. First, like JAL, ANA isnearing decision on the 777 replace-ment. It is expected to place an orderfor up to 30 aircra , either the A350or the 777X, by next spring.

The A350 would be a riskierchoice as a new aircra type, butit would be available earlier (from2017). It remains to be seen if the787’s delivery delays and technicalproblems will play into ANA’s deci-sion. If ANA opts for the A350, itwould be a major coup for Airbus,enabling it to break Boeing’s near-monopoly in Japan (though ANAdoes operate A320s).

The other important eventwill bethe Japanese government’s October

decision on how to allocate 20 newslots in 2014 at Haneda, the air-port nearest to downtown Tokyo thatbusiness passengers prefer to use. Itis likely to be the last major slot dis-tribu on at Haneda for years.

Normally new long-haul slotswould be divided equally betweenJAL and ANA, but ANA has mountedan aggressive campaign to secureall 20 of those slots. ANA wantspoli cal interven on to rebalancethe compe ve landscape a er the¥350bn ($3.5bn) government bailoutof JAL in 2010 and other favouri smshown to JAL to help it turn aroundfinancially.

This subject has beendebated foryears, but in the last year or so therehas been a major shi in the poli calclimate to favour ANA. There is nowbroad agreement in the ruling LDPcircles that the JAL rescue went toofar. ANA has seized on that supportand the issue has become a mightyba leground.

The problem now is that Hanedahas become vital also for JAL’s andANA’s foreign airline partners andtheir global alliances, oneworld andStar. If ANA gets all 20 slots, Starwould then have 50% of interna-onal flights at Haneda, compared

to oneworld’s 20% share. So, any at-tempt to right the wrongs betweenANA and JAL could blow into an in-terna onal conflict.

By Heini Nuu nenhnuu [email protected]



0

5

10

15

20

25

30

07/08 08/09 09/10 10/11 11/12

ZARb

n

SAA Revenues

E -changing senior manage-ment, inefficient opera ons,

rising fuel prices, overcapacity inthe South African market, the weakRand and expected massive lossesin 2012/13 are just some of thechallenges facing the country’s flagcarrier.

A struggling SAA is significant forthe con nent as a whole. SAA re-mains the largest African airline, withhistory going back to 1934, account-ing for a quarter of all intercon nen-tal capacity offered by African carri-ers (though this falls to less than 10%once non-African airlines – whichprovide more than two-thirds of in-terna onal traffic to/from Africa –are taken into account).

Given that size – and with strongforecast GDP growth across Africaover the next decade (andBoeing ,forexample, forecas ng African passen-ger traffic rising by 5.7% p.a. during2013-32) combining with a con nen-tal land transport infrastructure thatranges from average to abysmal –SAA should be the exemplar Africanairline that other carriers aspire tomatch.

SAA is a 100% state-owned com-pany repor ng to the government’s

Department of Public Enterprise,with a dual mandate. As Cheryl Caro-lus, the airline’s former chairwoman,put it last year: the SAA Group hasnot only to be a successful businessbut also “an enabler for policies andprojects, which have been designedto transform the poli cal and socio-economic landscape of our na onand con nent”.

The inevitable result is thatgovernment-appointed manage-ment is caught between makingpurely commercial decisions andones that fit in with (or at leastdon’t offend) government policy.In years when the economy wasstrong and fuel prices low this con-tradic on wasn’t too problema cal,but the last five years has seen theairline’s opera onal and financialposi on become steadily weaker,and the need for strong commercialmanagement free of governmentinterference is now essen al.

While 2010/11 results wereboosted by the 2010 World Cupheld in South Africa, once that effectfaded away the global recessionhit SAA hard. The SAA group onlyrevealed its results for the 2011/12financial year (ending March 31st)

in October lastyear; while rev-enue rose 3.8% toR23.9bn ($2.7bn),at the opera nglevel a profit ofR1bn in 2010/11turned into aR1.3bn ($147m)opera ng loss in2011/12. The net

result similarly went from a R782mprofit in 2010/11 to a R843m ($94m)loss in 2011/12. The reasons aremul ple – fuel costs rose by 36%,increasing to 33% of opera ng ex-penditure compared with 28% in theprevious financial year; maintenancecosts rose by 32% and “passengerrevenue was below target for allsectors as expected demand did notmaterialise”.

But it’s more than just one badyear, with a steady decline in air-line opera ons apparent over thelast few years. From FY 2007/08 toFY 2011/12 load factor has declinedfrom 76% to 72% (despite capacityfalling by 6.2% over the period), yieldhas remained flat and unit labourcosts have risen by 40%.

The financial situa on is dire.While analysts es mate the SouthAfrican government has investedmore than $1bn into SAA over thepast two decades in order to save theairline from bankruptcy, the group’scash flow became so bad in 2012that in September that year it re-ceived an emergency R5bn ($560m)funding guarantee for the next 24months from the government. Thisenabled SAA to con nue opera ngas a going concern and borrow sums(against the government guarantee)to pay for fuel and avoid the realdanger of the fleet being grounded.In May this year $167m of this facil-ity was used but it’s clearly only ashort-term solu on to problems, andthe guarantee was given under thecondi on that the airline presenteda sustainable turnaround plan.

The underlying problem for SAA


South African Airways:Eighth turnaround plan


-1,500

-1,000

-500

0

500

1,000

1,500

2,000

07/08 08/09 09/10 10/11 11/12

ZARm

SAA Financial Results

Opera ng result

Net result

is that it’s difficult to create a sustain-able plan (let alone execute it) whenthere is a never-ending processionof senior execu ves. ChairwomanCheryl Carolus and 14 board mem-bers resigned in September 2012, cit-ing the fact that the airline’s rela on-ship with the South African govern-ment had become “untenable” af-ter the ministry of public enterprisesminister cancelled the airline’s an-nual general mee ng and postponedthe release of its annual report.

A er that, chief execu ve officerSiza Mzimela le suddenly in Octo-ber 2012, to be replaced by ac ngchief execu ve Vuyisile Kona – whowas then suspended by the airline inFebruary 2013 over “certain allega-ons that have come to the a en on

of the board, in respect of which theboard has a fiduciary duty to inves -gate,” He was fired a month later anditwas then the turn ofNicoBezuiden-hout – the chief execu ve of SAA’sLCC business unit, called Mango – tobecome ac ng CEO. He then facedmedia allega ons – denied by SAA– that he “misrepresented” qualifica-ons on his CV, and in April he was

replaced by Monwabisi Kalawe ona five-year contract as (hopefully) apermanent CEO (with Bezuidenhoutreturning tomanageMango). Kalawe

was previously the managing direc-tor for the South African opera on offood services company Compass, al-though he has avia on experience asGM of Cape Town airport from 1998to 2004.

In the midst of that manage-rial chaos, earlier this year the air-line submi ed a 20-year turnaroundplan (catchily called the “Long TermTurnaround Strategy”) to the govern-ment, though astonishingly this wasthe eighth turnaround plan put to-gether by (different) management inthe last decade.

That plan a empts to addressmany problems, perhaps the mosturgent of which is the cost base. SAAhas previously implemented cost-cu ng measures but they simplyhave not been on a similar scale tothose adopted at European or NorthAmerican carriers.

The most obvious area for cost-cu ng is labour; the group hasmore than 11,000 employees world-wide, but reducing costs here is verytroublesome. For example, in Au-gust South African Airways Technical(SAAT), the maintenance subsidiaryof the group, became embroiled in adispute with the South African Trans-port and Allied Workers Union (SA-TAWU) over a number of issues, in-

cluding the use of uncer fied engi-neers on aircra (a claim vehementlyrefuted by management). The mainargument however is over pay: theunion wants a 12% increase. In lateAugust the airline agreed a one-yearse lement with another union – theAvia on Union of Southern Africa(AUSA) – including one-off paymentsand an overdue increase from theprevious year in a deal that airlinesays will increase its labour costs by6.5% year-on-year.

That se lement wasn’t accept-able to SATAWU, whose 750 mem-bers con nued to take industrial ac-on and which led to the airline

breaking off from nego a ons at theend of August. In September the dis-pute escalated as the airline took le-gal ac on against the union to stop“striking employees from acts of in-mida on, assault and vandalising

property”, and followed this up withcontempt of court proceedings af-ter it claimed SATAWU had clearly ig-nored the earlier court ac on.

One area where SAA is makingsome progress is in bringing in fleetrenewal. In July SAA received the firsttwo A320s from an outstanding or-der for 20 of the type, which will re-place the 13 737-800s currently inthe fleet. 12 of these have been soldto and leased back from UK-basedleasing company Pembroke, ownedby Standard Chartered bank.

SAA is also looking to order be-tween 25 and 35 widebody aircrato replace ageing A340s (it re red itslast 747-400s in 2010), with a choicelikely to be made soon between 787sor A350s as the tender process drawsto a conclusion. With new widebodyaircra unlikely to arrive for severalyears, SAA will is also looking for andwill sign deals for the lease of in-terim aircra , with former chief exec-u ve Nico Bezuidenhout saying that



15,000

20,000

25,000

30,000

35,000

07/08 08/09 09/10 10/11 11/1270

71

72

73

74

75

76SAA Capacity, Traffic and Load Factors

ASK mRPK m

PLF

SAA FleetIn Service Orders

MainlineA319 11A320 4 18A321 10A330-200 6A340-300 8A340-600 9737-800 13Cargo737-200 1737-300 2 1737-400 1Mango737-300 1737-800 8Total 64 29

“it is impera ve for us to get the Air-bus A340-600s phased out as soon aspossible”.

Replacement aircra – whetherleased or owned – will be used toexpand routes into east Asia in par-cular. SAA has 10 direct routes and

19 codeshares outside the con nent,and with 26 routes into other Africancountries it accounted for an es -mated 38% of interna onal traffic to-from South Africa in the 2011/12 fi-nancial year.

Avia on across Africa is verymuch hub-based (Johannesburg,Nairobi, Lagos, Addis Ababa, La-gos etc), and while there is largepoten al for more point-to-pointroutes SAA has long wanted to es-tablish hubs in east and west Africa(see Avia on Strategy, July/August2004) to complement the airline’sJohannesburg base, but the airlinehas never been able to realise itsambi ons. Now South African PublicEnterprise Minister Malusi Gigabawants the airline to set up a jointventure airline in Ghana, whichwill allow more east-west routes –though where the cash to financethat will come from remains to beseen.

SAA also has ambi ous plans to

posi on Johannesburg as a hub forpassengers travelling between SouthAmerica and parts of Asia, althoughglobal ambi onsmore realis cally liewith codeshare deals, of which SAAhas signed a ra of over the lastyear. These include a codeshare withfellow Star member US Airways inDecember 2012; with Jet Airways inApril 2013; with E had Airways inJuly; and with JetBlue Airways andBrazil’s TAM Airlines in August.

At its Johannesburg hub SAAcompetes against more than 50 air-lines, with more than 20 directand indirect compe tors on Londonroutes alone. As a result pressure onfares is intense, with compe on ondomes c and regional routes beingpar cularly fierce.

Comair (of which Bri sh Airwaysowns 18%) operates BA’s domes cSouth African and regional flights as afranchisee; it concentrates on point-to-point services out of its Johannes-burg hub with 17 737 aircra . AndComair’s LCC subsidiary Kulala.com –launched in 2001 – today operates 10737s domes cally.

LCCs have been trying to breakinto South Africa for some me now,but with a lack of cheap secondaryairports and a low internet penetra-

on it’s not the easiest of marketsfor the business model. LCC 1 mewas launched in 2004, ini ally on aroute between Cape Town and Jo-hannesburg with two DC-9s and twoMD-82s, with fares it claimed wereup to two-thirds cheaper than SAA,and built the fleet up to 10 MD-80sopera ng domes cally and interna-onally before filing for bankruptcy

in late 2012. Velvet Sky, another LCC,started opera ons inMarch 2011 outof Durban and built up to four 737sbefore closing down less than yearlater.

Another poten ally more dan-gerous LCC challenger – Tanzania-based FastJet, backed by easyJetfounder Stelios Haji-Ioannou – iskeen to enter the South African mar-ket.

SAA’s own LCC seems to be grow-ing painfully slowly. Mango launchedin 2006 and operates completely in-dependently of SAA but s ll onlyhas a fleet of nine aircra , all bor-rowed from SAA and with an aver-age age of more than 12 years. Basedat Oliver Tambo airport in Johan-nesburg, Mango operates domes -cally to six des na ons as well as





We welcome feedback from subscribers onthe analyses contained in the newsle er.

Also, if youwould like to suggest a company ora subject that you would like to see covered,please contact us:

Email: info@avia onstrategy.aeroor go to www.avia onstrategy.aero

to Zanzibar in Tanzania and while itsresults are not reported separatelywithin the SAA group, the airlinecarried 1.6m passengers in 2011/12(compared with 1.4m the year be-fore) and is believed to have made asubstan al loss in 2012/13.

SAA also partners with state-owned regional carrier South AfricanExpress (which has 22 Bombardieraircra ) as well as privately-ownedSA Airlink (with 29 Avro RJ85s, Em-braer ERJs and BAe Jetstream 41s),both ofwhich provide a feed networkinto SAA’s hubs across the coun-try. SAA also moves approximately60% of all air cargo in South Africa

through SAA Cargo, and the SAAgroup also contains an aircra main-tenance, repair and overhaul unit(SAA Technical); in-flight catering (AirChefs); and a travel agent chain (SATravel Centre).

As to the future, any chance thelatest turnaround plan has of suc-ceeding depends on some con nu-ity in management and con nuedfinancial support from the govern-ment. It’s a “Catch 22” situa on forSAA – without short- and probablymedium-term financial backing fromthe government it has no chanceof turning around and returning toprofitability, but it’s that very depen-

dence on the government that is sodamaging to the airline in the long-term.

Though rumours of priva sa onhave been doing the rounds for thelast decade, the government is facedwith pressure from voters and tradeunionists not to na onalise for fearthat new owners would dras callycut back the workforce, with one an-alyst believing priva sa on is “un-thinkable”. But with results due outimminently for the 2012/13 financialyear that are expected to be verypoor, perhaps the unthinkable willhave to become thinkable.


http://www.aviationstrategy.aero/contact_us


A would appear to have hugepoten al for the growth of LCCs.

It also presents formidable obsta-cles and complexi es. Fastjet is ob-jec vely a small airline, with a cur-rent annual passenger volume of lessthan one million passengers, but ithas achieved a high profile, and itsshort history illustrates both aspectsof the African market.

Flights under the fastjet brandstarted up in Tanzania in November2012 using three A319s, opera ngfrom Dar es Salaam to Kilimanjaro,Mbeya and Mwanza. Fastjet plc isthe holding company for fastjet it-self (which was developed from theformer Fly540 opera on in Tanza-nia), plus other Fly540 opera ons inKenya, Ghana and Angola.

Star ng with the poten al, Africahas a great economic future ahead(and always will have, according tothe scep cs):( More than one billion people, of

whom maybe one third can nowbe described as “middle class”

( Rapid economic growth (GDP inthe 5-6% pa range)

( Huge Oil, Gas and natural re-sources

( $1.6 trillion consumer spend by2020 (according to McKinsey)

( Infrastructure investment bygovernments and NGOs

( Restructuring of debt( Hopefully, increasing poli cal

stability across the con nent

Against this posi ve background,the avia on scene looks totally un-derdeveloped:

( Africa has 15% of the world pop-ula on, 20% of the world land

mass but less than 3% of worldRPKs

( Propensity to fly: less than 0.1seats per capita per annum incontrast to Europe’s 2.0 seats percapita per annum

( 10.85 accidents per million flighthours, compared to a world aver-age of 2.00

( Long history of failed operatorsand wasteful flag-carriers

( Poor reliability, with endemiccancella ons and delays

( Liberalisa on, as promised by theYamoussoukro Agreement, is s llfar off, and travel between all 48countries of sub-Saharan Africaremains controlled by BilateralAir Service Agreements.

Fastjet’s aim is to resolve this co-nundrum. Its mission statement isto implement the low-cost modelacross Africa, becoming the con -nent’s first low-cost, pan-African air-line. Management is packedwith LCCexper se: CEO Ed Winter (Go andeasyJet), CCO Richard Bodin (easy-Jet) and CFO Angus Saunders (Bri shMediterranean and Avianova, a Rus-sian LCC which was forced out ofbusiness). Parallels could be beendrawn with India where domes c airtraffic shot up from 14m passengersa year in themid 2000s to about 70mnow, following the arrival of LCCs likeIndigo and SpiceJet.

The fastjet plan at its launch lastyear was for rapid growth in its fleetto 10 aircra this year and 25-30by 2015, as it applied the LCC ex-perience of, mostly, easyJet to theAfrican con nent. But the currentfleet remains at three, and the organ-

isa onal structure of fastjet has beenques oned. The airline is headquar-tered at London Gatwick where thetop management work. There havebeen rumours of reloca on – but toDubai, rather than an African city.How, cri cs ask, can fastjet adapt theLCC model to Africa if it isn’t im-mersed in Africa?

However, fastjet can point toits marke ng successes. At its mostbasic level this involves educa ngpassengers about its “European”safety standards, demys fying theflying process (38% of its passengershave been first me flyers), throughfriendly videos, and establishing thebrand.

It has tackled the African airlinephenomenonof “Go Show”,wherebypassengers don’t turn up at the air-port un l the very last minute to pur-chase their ckets, suspec ng, cor-rectly, that their desired flight willbe delayed or just not happen. Fast-jet’s on me performance from Dares Salaam this year is put at 96%and cancella ons at less than 0.1%,efficiency ra ngs unheard of in do-mes c African avia on. ConsistentLCC pricing has also changed con-sumer behaviour; fastjet’s one-wayprices average $70 (ex taxes) butare sold at around $20 for earlybooking while last minute ckets goup to $170. As in Europe, passen-gers quickly learn the LCC model.According to fastjet, its average ad-vance booking/departure ra o haschanged from 0.7 days when opera-ons started at the end of 2012 to 15

days now.Although internet usage is com-


Fastjet:The struggle to democratise African air travel


Fastjet – planned pan-African low cost brandpara vely low in Africa, the websitefastnet.com appears to be very wellaccepted in Tanzania, with over amil-lion visits since its launch and a veryrespectable sale conversion rate of8%. Mobile ownership is extraordi-narily high in Africa (allegedly an av-erage of two phones per capita) andhas become a standard medium formaking transac ons and transferringmoney. About 25% of fastjet’s salesare viamobiles, the airline having en-tered into a partnership with Tigo,the global, but South America andAfrica focused, telecoms provider,earlier this year. Through facebookand other social media, fastjet claimsto be the fi h most popular brand inTanzania and the most “liked” airlinein sub Saharan Africa.

Fastjet’s logo is a fetching greyparrot, widespread throughoutAfrica, which is a very intelligentbird. It would undoubtedly applaudfastjet’s opera ng and marke ngsuccesses but might squawk loudlyat the financial results.

When fastjet was genera ngpublicity and seeking funding lastyear the idea was that it couldquickly become a pan-African LCC(see Avia on Strategy, December2012) through acquiring the exis ngAOCs of Fly540, the avia on arm ofthe Africa-orientated conglomerateLonrho (London-Rhodesian, if you goback far enough). A former so warecompany, Rubicon, was used as acash shell to absorb the avia onassets of 540 (two aircra and thelicences for Tanzania, Kenya, Angolaand Ghana) as well as its liabili es. Inthe new company, fastjet plc, Lonrhobecame a 50% shareholder whileSir Stelios Haji-Ioannou, easyJet’sfounder and owner of the fastjetbrand, added LCC credibility forinvestors, and received a very nicepackage – 5% of the share capital,

a further 10% op on, a royalty fee(5% of revenues) and €50,000 permonth for consultancy services. Aswell as private investors, about 7%of fastjet’s stock was floated onLondon’s Alterna ve InvestmentMarket (AIM); launched at 39p, theshares peaked at 48 early this year,since when the price has fallen pre-cipitously to 6p in mid-September.

It is clear that African investmentproduced some nasty surprises forfastjet. Wri ng in the 2012 annualreport, published in May, chairmanDavid Lenigan wrote: “The Fly540businesses acquired from Lonrho Plchave all seriously underperformedrela ve to expecta ons.”

The seriousness of the underper-formance is starkly illustrated by thefollowing table taken from the an-nual report:

Fly 540 Results 2012 (US$m)Revenue EBITDA

Tanzania 3.6 -13.8Angola 13.1 -4.3Ghana 4.2 -7.8Central 0.2 -15.9Total 21.1 -41.8

Also each country summary in theannual report referred to deep busi-ness problems and missing accounts.As a result the acquisi on goodwillwas adjusted down by $35m, andthe auditors qualified the accounts.

In June David Lenigas steppeddown as Chairman, temporarily re-placed by CEO Ed Winter. This fol-lowed the purchase of Lonrho plc byFS Africa for a reported UK£175m;FS Africa is an investment fund setup by Rainer-Marc Frey, founder ofSwiss hedge-fund group Horizon21,and Thomas Schmidheiny, who is,among many other things, a formerdirector of Swissair.Revised pan-African strategy

So without the frameworkpromised by the 540 network, fastjethas had to modify its approach toachieving the pan-African airlineshown in the map above (which waspresented at the Terrapinn Low Costcarrier Congress held at Heathrowin September). There are now threemodels for growing fastjet.

First, fastjet could set up a





Franchise Modelmajority-owned carrier on the samelines as the Tanzanian opera onin new countries – probably thepreferred route but one likely to en-counter bureaucra c and regulatorybarriers.

Second, fastjet could take a mi-nority shareholding in an airline andoperate as a joint venture, with thepartner providing localmarket exper-se and compliance with ownership

requirements. Air Asia has developedthis model successfully, but Africa ismore challenging.

Fastjet had advanced plans fora South African airline, 25% ownedby fastjet and 75% by Blockbuster, aSouth African investment fund whichwas to have started this year. But thisairline project has apparently beenfrozen as fastjet decided to concen-trate on its first interna onal serviceswhen itwas awarded rights fromTan-zania to South Africa, Zambia andRwanda in June.

Flights to Johannesburg from Dares Salaam were due to start onSeptember 27th, posing a threat toSAA’s monopoly on this route. Butnothing in Africa is that simple andon the launch day the South Africanauthori es demanded “further docu-menta on” from fastjet, causing thelaunch to be postponed.

Fastjet has also been exploringways into the poten ally huge Nige-rian market, and has signed a MoUwith RED1, a start-up, which accord-ing to its website, is “an innova vepassenger airline, strategically posi-oned to bring the low cost, low

fare revolu on to the Nigerian peo-

ple and Africa’s most dynamic re-gion.”

Thirdly, fastjet is offeringfranchise-type agreements wherebyAfrican airlines can in effect buyfastjet’s LCC exper se, which is beingpackaged as Airline ManagementService (AMS). The advantages ofAMS, according to fastjet, are:

( Provides robust opera onal per-formance through group oper-a onal and safety systems andcontrols

( Maximises revenue by leveragingthe brand

( Reduces risk for airline investors.( Enables less experienced local

airline management team to de-velop/operate a fastjet airline tothe required interna onal stan-dards

( Provides the financial synergiesof a large airline

( Creates efficiency throughstrategic guidance, businessintelligence and managementinforma on from the wholegroup

Will Fastjet succeed?

The most obvious and painfullesson from fastjet’s experience isthat there is no rapid way of set-ng up a transna onal LCC in the

con nent given the current regula-tory and bureaucra c barriers, andthat airline capitalisa on is likely toconsiderably greater than expected.The posi ve lesson is that fastjethas introduced effec ve LCC op-era ng standards to Tanzania, andeventually, as in most of the restof the world, the LCC model willhelp to break down barriers and un-dermine entrenched interests acrosssub-Saharan Africa – democra singair travel. The mescale ques on re-mains unknowable.



The Principals and Associates of Avia on Strategy apply a problem-solving,crea ve and pragma c approach to commercial avia on projects.

Our exper se is in strategic and financial consul ng in Europe, the Americas,Asia, Africa and the Middle East, covering:

� Start-up business plans� Due diligence� An trust inves ga ons� Credit analysis� IPO prospectuses

� Turnaround strategies� Priva sa on projects� Merger/takeover proposals� Corporate strategy reviews� An trust inves ga ons

� State aid applica ons� Asset valua ons� Compe tor analyses� Market analyses� Traffic/revenue forecasts

For further informa on please contact:James Halstead or Keith McMullan

Avia on Strategy Ltde-mail: info@avia onstrategy.aero

Enter my Avia on Strategy subscrip on for: 1 year(10 issues - Jan/Feb and Jul/Aug are combined)

( UK: £450 + VAT @20%( EU: €550 + VAT @20% (unless valid VAT number

supplied)( USA and Rest of world: US$750

star ng with the issue

o I enclose a Sterling or Euro cheque made payable toAvia on Strategy Ltd

o Please invoice meo Please charge my Visa/Mastercard credit card

£450+VAT (if required by law)Card number Expiry

Name on Card CV2o I am sending a direct bank transfer of the the rel-

evant sum net of all charges to Avia on Strategy’sbank account:Duncan Lawrie Ltd, 1 Hobart Place, London SW1W 0HUIBAN: GB44 DULA 6093 7711 3243 40Sort code: 60-93-77 Account no: 11324340

Delivery AddressNamePosi onCompanye-mailTelephoneVAT No

Invoice AddressNamePosi onCompanyAddress

CountryPostcode

DATA PROTECTION ACTThe informa on you providewil be held on our database andmay be usedto keep you informed of ourpproducts and services or for selected thirdparty mailings

PLEASE RETURN THIS FORM TO:Avia on Strategy Ltd

6 Langside Avenue, London SW15 5QT, UKe-mail:info@avia onstrategy.aero

Fax: +44(0)207-504-8298VAT Registra on No: GB 162 7100 38

air france-klm – transforming? · air france-klm – transform-ing? 1 ana’s expanding business...

Documents