CRITICAL SUCCESS FACTORS FOR AIRLINES IN SOUTHERN AFRICA by Osward Mhlanga Thesis submitted in fulfilment of the requirements for the degree Doctor of Technology: Tourism and Hospitality Management in the Faculty of Business and Management Sciences at the Cape Peninsula University of Technology Supervisors: Professor JN Steyn Professor JP Spencer Cape Town November 2018 CPUT copyright information The thesis may not be published either in part (in scholarly, scientific or technical journals), or as a whole (as a monograph), unless permission has been obtained from the University. DECLARATION I, OSWARD MHLANGA, student number 215297369, declare that this thesis, CRITICAL SUCCESS FACTORS FOR AIRLINES IN SOUTHERN AFRICA, submitted to the Cape Peninsula University of Technology for the Degree DOCTOR TECHNOLOGIAE: TOURISM AND HOSPITALITY MANAGEMENT, represents my own unaided work, and that the thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the Cape Peninsula University of Technology. ______________________________ _________________ Signature of student Date ii DEDICATION I dedicate this thesis to my daughter, Isiphosethu. iii I made the comment that if a capitalist had been present in 1903, he should have shot the Wright brothers. He would have saved his progeny money. But seriously, the airline business has been extraordinary. It has eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in. You’ve got huge fixed costs, you’ve got strong labour unions and you’ve got commodity pricing. That is not a great recipe for success. I have an 800 number now that I call if I get the urge to buy an airline stock. I call at two in the morning and I say: “My name is Warren and I’m an aeroholic.” And then they talk me down.’ - Legendary investor Warren Buffett iv ACKNOWLEDGEMENTS I wish to express my sincere appreciation and gratitude to the following people without whom this thesis would not have been possible: Professor Steyn, my supervisor, for his excellent, consistent and kind mentorship. I am very appreciative for his advice, guidance and motivation and his role in making this journey a challenging, yet edifying and an extremely enriching experience. His immense insight and passion for research inspires me. This is as much my study as it is his. Thank you. Professor Spencer, my co-supervisor, for his generous time, patience, assistance and guidance throughout the most challenging learning process of my life. One thing I will always carry with me is your passion for perfection. Thank you. My parents, who raised me to believe that anything is possible and attainable through hard work and education; to my dad, who never doubted that this document would become a reality; and to my mom, whose undying support and encouragement led to the completion of this study. I acknowledge the love and care and devotion shown towards us and the discipline to strive for excellence. My family and friends, who were there to support, motivate, listen, and provide assistance, show interest and who were my cheerleaders from day one up until the very end. Thank you for your patience while this study became my life. To my brothers, Norman and Plows – for your unwavering belief in my research abilities and for all your motivation, I am eternally grateful. You have both been, and continue to be, an inspiration to me on a daily basis! I am greatly indebted to Dr Corrie Uys, for her time and invaluable input in assisting me with statistical analysis of this study. Cheryl Thomson, for language and technical editing of my thesis – your thoroughness and constant willingness to assist me at all times is greatly appreciated. The Research Directorate of the University of Mpumalanga for their support. To God, who has throughout my life provided me with wonderful opportunities to learn, grow and make an impact on others. v ABSTRACT The airline industry is structurally challenged by its very nature, facing high fixed costs, cyclical demand, intense competition and vulnerability to external shocks. This is exacerbated further by other endogeneous and exogeneous challenges in the operating environment, which make it difficult to operate airlines successfully. Consequently, structural, endogeneous and exogeneous challenges produce thin profit margins for airlines, thereby prompting airline managers to identify critical success factors to these challenges. However, operating airlines in southern Africa has proved to be fraught with difficulties resulting in several airlines terminating their services after short periods of operation, thereby disrupting travellers. The purpose of this research is to identify critical success factors to overcome challenges facing airlines in the region. A mixed-methods research design and an extensive literature review on critical success factors for airlines was employed, followed by several interviews with key personnel at eight southern African airlines. Purposive sampling was used to collect data from 54 respondents from eight different airlines. From the study, it is clear that the ability for airlines to survive financially is seriously threatened by organisational, industry, and environmental success factors. Within the organisation management inefficiency, labour inefficiency, use of aged fleets and management turnover significantly affected negatively the performances of state carriers, whilst alliances and the use of a standardised fleet significantly affected positively the performances of private airlines. The following environmental success factors namely, political, economic and technological factors, significantly affected negatively the performances of all airlines. Furthermore, national airlines received preferential treatment, which often distorted any prospect of a level playing field, thereby preventing privately owned carriers from competing effectively. The following industry success factors namely, rivalry amongst existing competitors, the bargaining power of suppliers and the bargaining power of customers significantly affected negatively the performances of airlines. As such, the following industry success factors were identified, namely the low threat of substitutes and new entrants, which are not enough to mitigate intense rivalry and the high bargaining power of customers and suppliers. Several suppliers can squeeze airlines, and even though the threat of new entrants is low, wherever there is potential, there will be new entrants, creating overcapacity and reducing yields. Consequently, to overcome challenges in the region the following organisational success factors were identified, namely management efficiency, the use of a modern fleet, fuel efficiency, labour efficiency, alliances, aircraft choice and customer satisfaction. Keywords: Challenges, airline industry, state carriers, critical success factors, southern Africa vi TABLE OF CONTENTS DECLARATION .................................................................................................................................................. II DEDICATION .................................................................................................................................................... III ACKNOWLEDGEMENTS ................................................................................................................................. V ABSTRACT ......................................................................................................................................................... VI LIST OF FIGURES ............................................................................................................................................. XI LIST OF TABLES ............................................................................................................................................. XII LIST OF ABBREVIATIONS AND ACRONYMS ........................................................................................ XIII CHAPTER ONE: BACKGROUND TO THE STUDY ...................................................................................... 1 1.1 INTRODUCTION ................................................................................................................................ 1 1.2 BACKGROUND AND CONTEXT..................................................................................................... 4 1.3 CRITICAL SUCCESS FACTORS (CSFS) ........................................................................................ 5 1.4 PROBLEM STATEMENT .................................................................................................................. 6 1.5 AIM AND OBJECTIVES OF THE STUDY ...................................................................................... 7 1.6 SCOPE AND LIMITATIONS OF THE STUDY .............................................................................. 7 1.7 STRUCTURE OF THE THESIS ........................................................................................................ 8 1.7.1 Chapter One: Introduction to the study ..........................................................................................8 1.7.2 Chapter Two: Development of the airline industry in southern Africa ..............................................8 1.7.3 Chapter Three: Sources of critical success factors for airlines in southern Africa ...............................8