With tickets as low as $24 for a one way trip from Johannesburg to Durban, these innovative companies afford a newly forming middle class the opportunity to explore their country.
During its first week of operation, Mango, whose parent company is a subsidiary of South Africa Airways, started off with impressive numbers. The airline reported that it sold approximately 130,000 tickets that filled an estimated 698 aircraft at full capacity.
Profits from these major low-cost airlines, 1time and Kulula have been on a steady increase. As Mango is a relatively new addition to the low cost carriers group, results have yet to be seen.
The profits for 1time and Kulula have, however, come at a cost for the larger air carriers.
Overall profits for SAA have fallen from $91m to $9m in 2006, predominantly due to the increasing competition from lost-cost airlines as well as a 51.5% increase in fuel prices.
To regain some of the profits lost, SAA spearheaded an initiative to compete with the previously established low-cost airlines. The company came up with Mango, which it floated a $14m loan. The company modelled its creation after Europe’s Ryanair and America’s Southwest Airlines, which boast well-established records of turning profits while maintaining low costs.
Nico Bezuidenhout, chief executive of Mango, emphasised that “low-cost air travel is sustainable through the airline’s innovative operational efficiencies, a young fleet of fuel-efficient and technologically advanced Boeing 737-800’s, effective use of assets and more-efficient seating configurations.”
Mango has shaken up the low-cost airline industry by lowering prices even further than the previously established Kulula and 1time, pushing these companies to drop prices as well.
The creation of Mango has not come into fruition without controversy. Glenn Orsmond, the CEO of 1time, said, “it is always good to have more competition, but that competition must be fair… Mango will operate on state subsidies, and will not be obliged to show a return. That makes it unfair in our view, and puts pressure on the rest of us.”
Because SAA is a government subsidised entity and Mango received much of its start-up funding from SAA, Gidon Novick, the CEO of Kulula pointed out that taxpayers have indirectly funded this aviation endeavour.
He continued to say that “only if you are being heavily subsidised and have no motive to make a profit” could a company such as Mango continue to operate at such low prices.
Bezuidenhout responded to such concerns by saying that “the relationship between SAA and Mango begins and ends with a R100m ($14m) shareholder loan.”
Regardless of how low prices go, most in the industry seem to believe that it is not possible for any of these airlines to sustain fares of $25 or less.
When SAA held the top position in South African skies, a ticket from Johannesburg to Cape Town cost travellers an average of $420. Now, a passenger can get to Cape Town for under $140. Irrespective of the disputes occurring between low-cost airlines, a robust and competitive domestic airline market will continue to benefit the travellers in South Africa.
