Destination Africa but first out with protectionism and in with detailed data

Africa's first pan-African low-cost airline believes fairly priced and frequent airline tickets for all will give the market a boost

Any low-cost carrier (LCC) trying to establish routes in traditionally high-cost, protected environments has its work cut out. Such carriers have to be spot on with how they approach two indispensable weapons for achieveing profitable expansion: network planning and revenue management (RM). Only then can they fulfil their promise of bringing down the average route fare. Indeed, how such airlines scale up, and optimise their operations, let’s say in terms of aircraft utilisation, is worth a closer look. Enter fastjet, Africa’s answer to the pan-African low cost market, which recently operated a maiden flight on its first international route between Dar es Salaam and Johannesburg.

The airline flies domestically within Tanzania, including routes from Dar es Salaam to Mwanza, Dar es Salaam to Kilimanjaro, and Kilimanjaro to Zanzibar. In the second week of November, the airline chose to increase capacity on its newly launched Dar es Salaam to Mbeya (Songwe) route. Launched on November 1, the flight, according the airline, has managed an average load factor of 97.5% with a number of flights selling-out completely. By mid-December, the plan is to take the total number of flights per week between the two cities to seven.   

The airline is clear that once it establishes the Dar es Salaam route, it will then target the South African market as a second fastjet base for both regional and domestic operations. As the team strives to become the ‘first pan-African, true low-cost airline’, the team is clear that regional routes from South Africa to sub-Saharan destinations are short of actual competition and are both underserved and overpriced.

In this exclusive interview, EyeforTravel’s Ritesh Gupta talks to Ed Winter, fastjet’s chief executive about the significance of network planning, revenue management and learning from the likes of easyJet and Ryanair.

EFT: How significant is an airline’s network strategy in today’s business environment and particularly in Africa?

EW: I believe that the key to a successful airline in Africa is not establishing individual routes but rather building a network, and a brand, with a reputation for reliability and great value, that is the first port of call when people want to travel.

This is exactly what fastjet is working towards. There is currently no pan-African airline network, and it’s our goal to become the carrier of choice for travellers going to any of the destinations or cities that we fly to.

In many parts of the world the airline industry is liberalised and developing a comprehensive network is relatively straightforward.

An example being easyJet which has a network of over 600 routes throughout Europe. This is not as easily done in Africa where aviation is controlled with bilateral air service agreements negotiated between governments. This structure promotes protectionism and the existence of many inefficient loss-making airlines. This is not dissimilar to aviation in Europe in the 1980s which rapidly changed in the 1990s to become a competitive and efficient industry bringing huge benefits to the consumer.

We are very aware of the challenges but are committed to changing the status quo and bring African passengers all the benefits of a competitive market. 

EFT: Considering that a good network design is fundamental to an airline’s revenue generating capabilities, how can network planning complement revenue management?

EW: The better the network we can develop, the more people will make fastjet the first place they turn to when they want to travel in the region, and further afield on the African continent. For example, airlines such as easyJet and Ryanair offer extensive networks throughout Europe, and the first thing most travellers do when they want to go somewhere is check the easyJet or Ryanair’s website, because they just know this airline will take them where they want to go, at an affordable price. I think it’s going to take us a while to get to this point of familiarisation in Africa, but we’re working on it and are confident that we can do it.

EFT: Can you explain what sort of preparation - from both a network planning and RM perspective - went into launching fastjet’s first international route from Dar es Salaam to Joburg?

EW: fastjet developed a complex planning model as part of our original business plan before we even launched in Tanzania a year ago, and we looked at various parameters for many African cities. Entering data into this model helped us derive the potential success of a route between any two cities, including an analysis of pricing models.

Our findings showed that the route between Dar es Salaam and Johannesburg is a key route on the African continent for business and leisure travellers, and we investigated every factor possible to ensure price elasticity.

Although it’s quite difficult to measure price elasticity in Africa with the lack of reliable data relating to traffic and pricing, we have sufficient information to understand why people would travel from one destination to another and to estimate the potential elasticity.

EFT: How can one be spot on with routes that deliver optimal returns and growth?

EW: We don’t have the level of data for the African continent that we would need to be as accurate as one could be in more developed markets, but we use the data that we do have to get as close as we can. When there are more flights, more airlines and more competition on the continent, we will have access to more data, and we will be able to predict returns and growth more accurately.

EFT: When considering initiatives relating to route development and revenue management, what are the main considerations?

EW: It’s about ensuring that routes being developed are going to yield the best possible revenue, and this goes hand in hand with choosing the right routes. Fastjet believes that if we optimise our fares and offer significantly reduced ticket prices, in comparison to our competitors, we’ll increase the size of our market simply by making air travel accessible to people who couldn’t afford it before.

EFT: The interaction between revenue management and the capacity planning and scheduling is critical on a number of fronts. Can you elaborate?

EW: An airline needs to have a clear a strategy on how it’s going to create a market for itself before it can build capacity. Low-cost airlines are not about taking market share from current operators on a route, but rather about offering a cheaper fare to expand the market.

For example, in June 2013 we carried 33,000 people on domestic routes in Tanzania. Of thise, more than 1,200 only paid $20 but approximately 300 passengers paid more than US$200, with an average fare across all those passengers of $81. That’s a wide range of fares, but it allows the passengers who paid $20 for their fares to fly - something that they wouldn’t have been able to do if only the more expensive fares were available. They got the pricing advantage because they booked far in advance, whereas the traveller who booked at the last-minute paid our top fare. We think it’s beneficial to offer the ‘book early’ fare to boost air travel. 

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