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FlyAfrica: the newest African LCC

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FlyAfrica: the newest African LCC

FlyAfrica: the newest African LCC
May 26
11:13 2016

Published in December 2015 issue

Low-cost carriers continue to arise in the African continent. Based in Harare, Zimbabwe, flyAfrica promises reliability, affordability, and the option to replicate its concept throughout other countries.

By Arthur Stevens

The head office of flyAfrica (Z7), in downtown Johannesburg, is hard to find. But, once you’re there, you see it’s a hive of activity: operations, marketing, and planning. In one spot in the openair office space, a Mozambican team is planning the startup of services in that country.

Adrian Hamilton-Manns is in casual mode in jeans and sweatshirt, but beneath this exterior is a very experienced airline executive. He is the CEO and prime mover of this upstart, which is helping spearhead a small but vibrant low-cost carrier (LCC) industry into an African aviation scene that has been dominated by local giant South African Airways (SA).

AFRICA’S VIBRANT MARKET

Currently, the vast continent of Africa only accounts for less than 3% of global air traffic. Despite attempts to loosen regulatory hurdles and promote regional air markets through the Yamassoukro Convention—a 1999 treaty named for the capital of the Ivory Coast and signed by 44 countries—protectionism and ongoing support for national carriers still stand in the way of progress.

But signs of growth are in the air; nine LCCs are now operating on the continent. In North Africa, Air Arabia Egypt (E5) and Air Arabia Morocco (3O) operate international routes out of Africa to Europe, while Kenya Airways’ (KQ) subsidiary Jambojet (JX) flies only within Kenya. All the rest are based in South Africa and have to deal with the mighty SA, which has already dispatched a steady stream of competitors, starting with Flightstar in the 1990s and including Nationwide (CE), 1Time (T6) and Velvet Sky (VZ).

Until October 2014, the only airlines in the market— besides SA and its LCC subsidiary Mango (JE)—were British Airways (BA) franchise Comair Limited (MN) and its LCC subsidiary Kulula.com (also coded MN).

Then came FlySafair (FA), which now operates trunk routes with five Boeing 737-400s and plans to introduce three 737-800s (acquired from stateowned rival Mango). From Cape Town (CPT) and Johannesburg (JNB), FA flies to George (GRJ), Durban (DUR), and East London (ELS). Another low-cost newcomer, Skywise (S8), began scheduled flights in March 2015, operating between the JNB and CPT with two Boeing 737-500s.

Yet another entrant, Fly Blue Crane (7B), began flying in September 2015 from JNB to the secondary cities of Bloemfontein (BFN), Kimberley (KIM), and Nelspruit (NLP), with a fleet of 50-seat Embraer 145s.

These budget airlines are all aimed at the South African domestic market—with the exception of a single route between JNB and Zanzibar (ZNZ), operated three times a week by Mango. The South African public is benefitting strongly from the increase in choice and services.

Service to other countries, especially those close to South Africa, has traditionally been an SA preserve, with some of the highest fares in the world. The advent of Fastjet (FN) and flyAfrica (Z7) is now starting to change that.

The Dar es Salaam (DAR)-based and publicly traded Fastjet began operations in 2012, introducing regional service between JNB, Harare (HRE), Entebbe (EBB), and Lilongwe (LLW). Its fleet comprises three Airbus A319s—including one recently acquired from SA—with two more in the process of being delivered.

Newer still is flyAfrica—which established a Zimbabwe subsidiary and began a Victoria Falls (VFA) to JNB service in August 2014. Three months later, in direct competition with SA, it began flying to Harare, with much lower priced seats and higher than average load factors.

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MEETING FLYAFRICA’S CEO

Behind flyAfrica’s exciting moves is CEO Adrian Hamilton- Manns. In 2005, after a successful career with SA, the executive branched out on his own to join Indonesia’s Mandala Airlines. He was behind the attempt to rescue that airline when it went into Chapter 11 in 2010 and was sold, in 2012, to Tiger Airways (RI). RI also closed down in July 2014, but, by then, on the basis of his experiences and observations in Southeast Asia, Adrian had returned to Africa with the idea of starting flyAfrica.

Drawing heavily on the Air Asia (AK) concept—establishing a central brand and then setting up subsidiaries in separate countries—Hamilton-Manns began seeking backing for an African version. As Africa’s markets are significantly smaller and operate in a more complex regulatory and protectionist environment, any new airline would have to be on a smaller scale than those in Southeast Asia.

However, Adrian could still establish multiple airlines, each with its own AOC, operating under a single brand. Rather than setting up in South Africa and then attempting to gain traffic rights against incumbent SA, he decided to base himself elsewhere in the region with individual, country-based operational partners. Then, he would apply for traffic rights under each country’s agreements.

While plans for a South African operation remain on the cards, these are unlikely to be progressed in the short term. As Hamilton-Manns noted, any such application would be very unwelcome by South African competitors and likely trigger extended objections and delays.

THE BIRTH OF FLYAFRICA

Thus, the parent and investment company flyAfrica Ltd was established in Mauritius—an island nation about 1,200 miles off Africa’s southeast coast. Adrian’s funding came primarily from private equity, with some institutional support. The plan, as the concept grows and attracts more institutional funding, is for the Mauritius holding company to become the investment partner for individual airlines, alongside local partners. The individual percentages of investment will depend on national airline ownership requirements. flyAfrica is a 49% shareholder in the Zimbabwe and Namibian companies, while the rest is held by local interests.

Aside from providing an important capital contribution to the local airlines, flyAfrica’s global brand brings its intellectual property, aircraft, operating expertise, and communal marketing—effectively delivering an airline package.

Hamilton-Manns doesn’t regard the existing regional airlines, such as Air Zimbabwe (UM), Air Namibia (SW), or LAM Mozambique Airlines (TM) as the primary competition This is represented by SA and its regional subsidiaries and partners.


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FACING THE COMPETITION

South African Airways offers 45% of the seat capacity across three routes in the Zimbabwe/South Africa market (Victoria Falls, Harare, and Bulawayo). BA/MN’s offering of approximately a further 18% capacity—almost 5,000 seats— to the Bulawayo service, leaves around 40% capacity covered by the two Zimbabwe based operators Z7 and UM.

However, Air Zimbabwe’s ongoing financial difficulties tend to make its offering somewhat unreliable, while the very low fares offered by flyAfrica are expected to both generate new traffic and divert cost-conscious travelers away from SA.

The Zimbabwe-based Karase family helped establish flyAfrica Zimbabwe by investing through its infastructure company called Nu.com, and providing it with its CEO, Professor Chakanyuka Karase. The company employs 24 Cabin Crew, five Pilots and three Engineers, all Zimbabwean. The initial launch was scheduled for July 16, 2014, but was delayed to August 1 by a requirement for the initial foreign flight crews to be Zimbabwe-registered. By March 2015, flyAfrica Zimbabwe was operating five routes.

Including taxes, a round trip flyAfrica fare from Zimbabwe to JNB comes in at around US$150, with promotional fares being even lower. By contrast, SA and its regional partners typically top $400.

flyAfrica’s Namibian subsidiary—using the AOC of Namibian partner Nomad Aviation— hoped to start service in March 2015, linking Windhoek (WDH) with CPT and JNB. However, as late as September 2015, flyAfrica was still grounded by a High Court objection brought by Air Namibia and had to rebook 240 passengers onto SA and BA, covering some $45,000 in extra costs. Return tickets were quoted at $315 on BA and $290 on SA, against the just $140 of flyAfrica.

Namibian authorities then acceded to flyAfrica linking WDH with Lanseria (HLA)— Johannesburg’s second airport—instead of JNB. At press time, flyAfrica had indicated that it would initiate service to HLA while continuing to seek access to JNB. The planned CPT operation’s status remained unclear.

FLEET & NETWORK PLANS

Rather than more modern Boeing 737s or the Airbus A320 family, flyAfrica has deliberately opted for the Boeing 737 classic series; these are readily available, their low acquisition costs balance out their higher operating and maintenance costs, and most African countries are familiar with them as almost all have, at one time or another, hosted operators of these aircraft—and the expertise remains in place.

Having secured a total of five 114-seat Boeing 737-500s from CSA Czech Airlines (OK), the initial flyAfrica fleet consisted of two aircraft—both registered in Zimbabwe and, unusually, offering both Business and Economy Class service. In preparation for its Namibian services, the airline received its third Boeing 737-500 from CSA and also planned to acquire further aircraft for new initiatives in Mozambique and the newly announced flyAfrica Gabon.

flyAfrica has needed to work with individual aviation authorities on new operating concepts—including, for example, common dispatch. Its third Boeing 737-500 is likely to start life as wet lease on the start-ups before migrating to an individual register. Also, the Zimbabwean, South African, and Namibian aircraft could operate services for any of the subsidiaries, in a bicycle-spoke formation. The fourth former Czech Airlines aircraft will be brought in for the Mozambique operation, expected to start by the third quarter of 2015.

A planned Request for Proposals (RFP) for up to 20 Boeing 737 Classics for future fleet needs was raised back in November 2014. With flyAfrica’s momentum beginning to build up, Hamilton-Manns said that this RFP is now imminent and will most likely be for a mix of -500s, for route development, and -400s, to contain seat mile costs with their higher capacity. The most numerous model, though, is the -300, and this is likely to make up most of the fleet.

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LEVELS OF SERVICE

flyAfrica’s basic Economy fare covers seat only, but does include seat allocation as check-in is conducted at point of booking. Unusually for the global LCC market, flyAfrica also offers a Business Class.

flyAfrica customers are allowed two free carryon bags—each weighing less than 7kg (15lb). This gives those traveling light the option to pay only for the services they need. Checkedin baggage attracts a fee—a standard rate if purchased at the airport, or a discounted one if pre-booked online. The standard hold baggage allowance is of 20kg (44lb), but the airline allows an excess of up to 32kg (70lb), to be paid for on a per-kg basis.

Various additional options are also on offer— including a Priority bag service, which ensures quick baggage offload for a quick exit, and Qjump, which gives Priority Boarding. Meals come in the form of snacks and beverages and can be ordered before flying so as to ensure availability. The menu is light and includes crisps, biscuits, biltong (a type of dried meat), sweets, hot and cold beverages, beer, wine, and whiskey. The costs are reasonable—mainly at the US$2 level, ranging up to US$5 for a whiskey. The airline clearly indicates what is included and what costs extra.

Lounge access can also be purchased at time of booking. However, flyAfrica has no plans to institute a frequent flyer program. All the routes it is flying and plans to fly in the next expansion phase are mainly business markets—with the exception of Victoria Falls. Packages, including accommodation, are not a part of the equation—point to point is the model.

This brings us to the interesting flyAfrica Business Class offering innovation. The cabin is not physically divided into two classes, but the front four rows are configured with convertible seats— with the middle seat folding downwards to create 2×2 seating as needed. flyAfrica’s Business Class entitles passengers to free hold baggage, drinks, and snacks, and access to the Business Class lounge. Uptake has been reported to be good.

INITIAL RESULTS

Overall load factors have been high since startup. According to Hamilton-Manns, non-seat revenue is running at 20%—a very high level for an LCC startup. Internet availability and banking is seeing increasingly high levels of usage, although most bookings are still made by phone. Multimedia promotion is so far confined to Facebook and other social media platforms, primarily used to advertise new services and routes, timings, fares and promotions.

flyAfrica has rapidly developed since the launch of its Johannesburg–Victoria Falls service 12 months ago. Its March 2015, its expansion to seven routes operated by 46 flights, with 10,500 weekly seats, places it firmly onto the southern African regional stage.

Mozambique services are likely to be next, with services linking Harare with the Mozambiquan cities of Beira (BEW) and Maputo (MPM), and expansion also to JNB, the LCC is gaining momentum. Its West African plans are equally ambitious, with Gabon likely before year-end and other countries, including Benin, Mali, and Chad, also being considered.

If Hamilton-Manns and his team have their way, LCCs offering intra-African services are coming—and will be here to stay.

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Arthur Stevens

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