- Many African airlines are known for leasing aircraft, which is not a bad thing. Where they lease from is arguably a subject for debate.
- Most airlines are leased from companies connected to political families that often inflate the price and in the end drive operating costs and fares high.
Image: HANDOUT
In my Strategic management class this week, we reviewed how a small low-cost airline managed to influence change in the heavily regulated airline industry in Europe.
In what emerged as a classic case of a dogfight, I was mesmerised to learn how Ryanair stood shoulder-high in Europe triumphing National carriers with heavy financial and regulatory backing from their governments.
For starters, Ryanair is an Irish low-cost carrier that is currently one of the largest airline in Europe both in terms of number of aircraft and number of destinations. It serves about 180 destinations in 27 European countries including Morocco.
European Aviation
At the time Ryanair was entering the market, the fares were very high for domestic travel.
This was not determined by demand or supply forces but rather by a strategic move by governments to subsidize international services.
Stringent regulation by the government-backed IATA (International Air Travel Association) coupled with strong workers' unions to protect jobs decreased operational efficiency and put the prices even higher.
By the late 1960s, consumers grew increasingly dissatisfied with high prices for air travel.
A decade later, in the 1970s, airlines around the world were hit hard by the OPEC oil embargo that raised jet fuel prices.
This made it too expensive to travel for many consumers as airlines hiked the fares.
This and other pressures from market players pushed many countries back to the drawing board and in 1978, the US Congress approved deregulation of the domestic US airline industry.
This caused pricing, route scheduling, entry and exit to be free.
Like any other free market, the first effect was a massive price drop as airlines competed for marginal customers.
Twenty-two new low-cost carriers entered the market but most quickly went bankrupt and closed.
Southwest Airlines was however successful and later was used in Europe as a reference point for the democratization of the skies as they called the new change in the aviation industry.
Southwest's business model was distinct from other US airlines as it used a rolling hub and point-to-point network and allowed free checked baggage, it opted to operate in secondary airports to keep landing costs down.
Today, it is the world's largest low-cost carrier. The airline has nearly 66,100 employees and operates about 4,000 departures a day during peak travel season.
Ryanair
Ryanair was founded in 1984 as "Danren Enterprises" by Christopher Ryan, Liam Lonergan (owner of Irish travel agent Club Travel), and Irish businessman Tony Ryan, founder of Guinness Peat Aviation.
The airline was shortly renamed "Ryanair".
It began operations in 1985 flying a 15-seat Embraer Bandeirante turboprop aircraft between Waterford and Gatwick Airport.
Ryanair first business model was basically to offer the same standard as the other dominant players in the industry.
It did not succeed due to the price war that ensued after it announced it was coming for other routes operated by the dominant airlines which led to its bankruptcy.
The management of Ryanair turned things around after adopting the business model of Southwest Airlines in America.
In its new strategy, it kept operational costs low.
To ensure profitability, they flew to smaller airports with less landing fees and turnaround time.
They kept only a few aircraft types, charging for extra baggage, express service at check-in, and priority customer service.
There were no complimentary free drinks and snacks inflight instead they focused on selling duty-free items.
Ryanair today is a very successful budget airline thanks to Southwest Airlines which acted as a trailblazer to democratize the skies.
Ryanair has been characterised by its rapid expansion, a result of the deregulation of the aviation industry in Europe in 1997 and the success of its low-cost business model.
Since its establishment in 1984, Ryanair has grown from a small airline, flying the short journey from Waterford to London Gatwick, into Europe's largest carrier.
There have been over 19,000 people working for the company, most employed and contracted by agencies to fly on Ryanair aircraft.
The group operates more than 500 planes. Its route network serves over 40 countries in Europe and North Africa (Morocco) – I recently flew to Marrakech with the airline.
African aviation
The above case study got me thinking.
Why are African airline's operating costs and fares high yet they are constantly being bailed out by their respective governments?
Many African airlines are known for leasing aircraft, which is not a bad thing. Where they lease from is arguably a subject for debate.
Most airlines are leased from companies connected to political families that often inflate the price and in the end drive operating costs and fares high.
Electing leaders with alternative economic policies can potentially help to get rid of these challenges.
For National carriers to follow in the footsteps of private companies like Ryanair and succeed, such fraudulent deals must be tamed.
Many African governments invest more in their airlines to sustain them just because they view the business as the face of the nation; a flagbearer and international emissary.
This is no longer tenable, there is a need to put in models that will inspire growth and success.
Africa needs to democratize its skies now more than ever.
In Europe, a 30-minute domestic flight costs about 30 Euro return but in Kenya same flight distance is about 120 Euro return.
The World Economic Forum bemoaned the state of air travel in Africa.
Mobility – the movement of people and goods – is both a fundamental right and a linchpin of the global economy.
But without air travel, it can’t happen. Making air travel accessible to all is therefore crucial.
Airlines, airports, regulators, governments and relevant stakeholders must work together to make this a reality.
Nelson Amenya is an MBA (Master of Business Administration) student at HEC Paris Business School in France.