"With the high volumes - our load factors average around 80% - and reduced cost structure we can afford to charge less than full-fare airlines and therefore attract passengers who would normally drive." Gidon Novick Commercial Director BA Comair Limited

Sky's the Limit for Kulula

By Roger Makings
Sunday Times
Johannesburg
November 21, 2004

Airline to get more planes as companies take to no-frills travel

NO-FRILLS airline Kulula.com will acquire three aircraft to meet growing passenger demand as the corporate world increasingly embraces the concept of low-cost travel.

Gidon Novick, executive director of Kulula, said this week travel deals had been struck with Sanlam, Sasol, Clicks and Metropolitan Life, along with many smaller businesses. In stark contrast to most full-fare airlines whose revenues are plummeting, the airline has grown capacity by 530% since its inception three years ago.

Competition from low-cost carriers and high fuel prices have taken a heavy toll on established full-fare airlines.

This is most notable in the US, where each of the "Big Six" airlines - United, American, Delta, US Airways, Northwest, and Continental - is in serious financial trouble with a combined debt as at June of $27.86-billion, according to USA Today.

Novick says companies are seeing the benefits of low-cost travel: staff can fly more frequently, there is full flexibility in changing bookings, and Kulula gives feedback on travel spend.

Novick says Kulula's success is based on the premise that low fares stimulate travel, while high fares are a constraint.

"We, as well as other low-cost carriers around the world, have been amazed how much low fares have attracted otherwise non-flying passengers.

"With the high volumes - our load factors average around 80% - - and reduced cost structure we can afford to charge less than full-fare airlines and therefore attract passengers who would normally drive."

To illustrate the point, Novick says a Johannesburg company recently flew 80 staff members to Durban for an office party rather than hire a restaurant in Johannesburg.

"That's business a full-fare airline would not have seen these days," he says.

Kulula also has record bookings for the coming holiday season, and flights are full over Christmas and New Year.

"We have noted that more people are flying to coastal destinations and we are adding more frequencies to accommodate them," Novick says.

Kulula's formula for success is simple. "We have lowered our costs through Internet bookings, eliminated free catering and utilise inexpensive but fuel-efficient aircraft.

"These three factors help us to lower our fares which in turn drives up volume, which again helps us to lower the unit cost of our seats."

Novick points out that Kulula will have grown from just one aircraft three years ago to nine by March next year.

The airline now flies to seven destinations in South Africa and Novick does not rule out further routes next year, possibly even outside the country's borders.

According to the Financial Times, Wolfang Kurt, president of European Low Fares Airlines Association,expects no-frills operators to carry as many as 80-m passengers in Europe in 2004 — up from 47-m last year. He added that a growth rate of 40% in passenger volumes was expected to continue for at least another two years.

Europe's 67 low cost carriers are now expected to capture 18% of the market on intra-European routes, resulting in predictions that they could provide some strong competition to traditional network airlines.

On the South African front, low cost airlines — Kulula.com and One Time — are also having a good time. Gidon Novick, executive director of Kulula, has disclosed that, two years after the airline entered the local market, it has managed to capture 20% market share. He added that together the two no-frills operators control about 25% of the market.

Compared to the European figures, Kulula's roughly 1,2-m passengers a year is tiny, but in South Africa the company is the biggest online retailer in the market. Gidon attributes Kulula's success to a combination of low prices — which he says are 40% lower than traditional airlines — and the ease of booking on the internet. He adds that the high frequency of flights, including 12 flights a day between Johannesburg and Cape Town (more than that on offer from other local operators), also gives Kulula a competitive advantage.

Gidon says Kulula does not see One Time as a competitor, but that instead the focus is on the whole market. He reckons that Kulula will provide South African Airways with stiff competition in the medium to long-term. He believes Kulula has shown its ability to capture a large portion of the market, given that since its entry into the local airline business, it has seen the total number of people making use of airline travel grow by 30%.

Attempts to get comment from One Time were unsuccessful.

Source: Sunday Times (Johannesburg)