Kulula founder and former Comair CEO Gidon Novick recently revealed his plans to launch a new low-cost domestic airline in South Africa which focuses on efficiency.
This may be seen as a strange decision, as the airline industry has been decimated by the COVID-19 pandemic and travel bans.
SAA has collapsed, Kulula owner Comair is in business rescue, and the travel and airline industries are in dire straits.
Novick, however, is upbeat about the opportunity which the pandemic brings to re-look at traditional business models and find how things can be done differently.
Novick said the pandemic has created the prospect of affordably acquiring the key inputs to start an airline – aircraft, facilities, and skilled employees.
A key focus for Novick is on efficiency and cutting costs, which include leasing aircraft at dramatically reduced rates.
He added that there are high-quality maintenance facilities available which are far cheaper than what they were a few months ago.
Through experience he found that airlines get less efficient the larger they get, so starting off small gives a new airline a big advantage.
Another focus for Novick is flexibility. “With the market uncertainty, a flexible model which can adjust to market demand is critical,” he said.
He told MyBroadband technology will play a very important role to increase efficiency.
“Technology has the ability to facilitate a seamless, efficient, and engaging relationship with our future customers,” Novick said.
Financing and debt
Novick told MyBroadband the new airline will be fully funded through private capital with no debt.
He said his business experience showed him the incredible damage debt can do to a business, especially in a volatile industry like air travel.
“Staying away from debt is absolutely key to the success of launching a new low-cost airline,” he said.
To keep costs down they will launch with used aircraft which are either purchased outright or leased.
These will mainly be narrow-body, single-aisle aircraft with around 180 seats, like the Boeing 737 or Airbus A320.
He explained local airfares are much lower than in many developed countries which require a local airline to adjust their business model. This includes using older aircraft.
Staring route and airline travel changes
The starting route for the new airline will be Johannesburg to Cape Town – one of the busiest routes in the world and one which Novick is familiar with through Kulula.
The flights will be between OR Tambo International Airport and Cape Town International Airport.
He said while Lanseria is a great success, OR Tambo has a much larger catchment area and offers better routes down the line.
This has traditionally been a strong route for business travel, but this is not Novick’s focus.
He said he is not bullish on business travel. “Business travel will continue, but at significantly lower volumes,” he said.
He also expects fewer but longer trips with a changing dynamic around the distinction between business and leisure travel.
The focus for the new airline will be South Africa’s potential as a tourist destination. “Leisure travel will bounce back,” he said.
He said travelling and experiences remain popular, and he expects people to continue to spend on leisure travel in future.
The difference will be tighter budgets. While corporates were less price-sensitive, but he said the days of business travellers funding an airline through higher fees is over.
“The requirement for super-efficiency is going to be greater than ever,” said Novick.
Novick said regulations and behavioural changes will dictate when the new domestic airline will launch.
While the launch date is not clear, he promised South Africans a customer-centric service and attractive product offering when they start to fly.