BY STAFF WRITER
9th December 2012
The entry of a low cost airline into Tanzania’s skies is causing panic and uncertainty among local airlines with Precisionair and Air Tanzania facing a tough business future, The Guardian on Sunday can reveal today.
The low cost airline backed by Easy Jet founder Stelios Haji-Ioannou hit Tanzania’s skies two weeks ago, bringing low-cost flights to thousands of people in the country.
Dubbed Fastjet, the no-frills carrier is expected to dent the profit margin of the country’s only big private airline, Precisionair as well as the struggling Air Tanzania, which resumed its services two months ago.
The move comes after Haji-Ioannou's EasyGroup teamed up earlier this month with pan-African conglomerate Lonrho to create the low-cost carrier. Lonhro, owner of budget airline Fly540, has agreed to sell its aviation business to investment firm Rubicon Diversified Investments, in which EasyGroup will hold a 5 percent stake.
Apart from Tanzania, the new airline would also start operations using the Lonrho existing network in Ghana, Kenya and Angola, before expanding to more markets in the future.
According to a survey conducted by The Guardian on Sunday, Precisionair has been affected by the new low cost airline, which charges $20(Sh32,000) excluding taxes and other airport charges.
Though Precisionair this week said it wasn’t threatened by the new low cost airline, the reality on the ground shows the opposite because the airline has been forced to review its fares immediately to cope with the growing competition.
The airline claimed that it was banking its hopes on customers’ loyalty and quality services, dismissing reports that it was facing a tough situation following the entry of the low-cost airline in Tanzania’s aviation market.
December-January is normally the season where Precisionair takes advantage of the high number of passengers traveling during the holidays, to ‘make a killing.’
But, this time around, the airline has been forced to reduce its fares especially for the Dar-Mwanza route, which is the most profitable due to the high number of passengers.
For the past four years, fares for Dar-Mwanza route during holidays season have been averaging between Sh320,000 and Sh380,000 for a return ticket economy class.
However for the past two weeks, Precisionair has been charging between Sh179,000 and Sh200,000 on the basis of details gathered by The Guardian on Sunday.
Air Tanzania, the national carrier, has also maintained its fares charging nearly similar with what its main rival, Precisionair is currently charging for the Dar-Mwanza route.
Precisionair operates three flights a day for the Dar-Mwanza route. ATCL operates one flight a day for the same route, while Fast Jet operates two flights a day.
Both Precisionair and ATCL use the Boeing 737 series for the Dar-Mwanza route, while FastJet has deployed Airbus A319, with a carriage capacity of 150 passengers and crew.
“This is not competition, this is spoiling the aviation business…what’s happening isn’t good for the future of the aviation in Tanzania and hopefully the Fair Competition Commission will intervene,” a senior officer from Precisionair who spoke under condition of anonymity told the Guardian on Sunday.
Many still don’t believe the announced $20(Sh32,000) for one way between Dar-Mwanza, but what transpired last week when FastJet launched its operation proved wrong, ‘the doubting Thomases.’
In clarification, the Chief Executive Officer of the FastJet airline, Ed Winter noted that average fares are expected to be $80 (Sh120,000) for return ticket, but by starting the airline will charge as low as $ 20 one-way excluding taxes and other charges for customers who book early. An official from Air Tanzania who declined to be named because he is not the authorized spokesperson told The Guardian on Sunday, “This more than competition…this is a ‘Tsunami.”
“We are still studying the situation before making any move but at the end of the day, it will affect all of us,” the ATCL official told the Guardian on Sunday.
FastJet’s aim is to change Fly540 into a much bigger airline based on the low-cost model which has been successful in every other part of the world.
The company plans to carry around 12 million passengers per year, "which creates an airline of roughly 40 aircraft," according to Richard Blakesley, FastJet's finance director. FastJet officials say they hope to tap Africa's rather underdeveloped aviation network, offering an affordable alternative in a transport environment largely dominated by difficult terrains, long bus journeys and poor infrastructure.
According to inside information, the company plays its calculations on economies of scales. The company says past experience shows by halving fares, a successful low-cost carrier can encourage people, who have never previously traveled by air, to fly. For Africa, with its densely populated cities separated by great distances – this means a potential new market of millions.
In 2011, low-cost carriers occupied 9 percent of the African market, suggesting that there is a large potential for further development and growth, aviation expert Linden Birns told Cable News Network online edition last week.
Aircraft manufacturer Airbus has forecast Africa traffic to expand by about 6.5 percent per annum in next decade and by 4.9 percent between 2021 and 2030, to a 20-year growth rate of 5.7 percent thereafter. This compares with a 4.8 percent increase in demand on a worldwide basis over the next 20 years.
The concept of low cost airline
There is no absolutely sharp difference between the so-called low cost carriers (LCC) and the traditional airlines, which are also called full cost carriers (FCC). Low cost carriers could be defined as airlines which operate on relatively short distances in a certain region without offering additional services.
SOURCE: GUARDIAN ON SUNDAY
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