Aviation Outlook Africa 2013 Richard Bodin COO Exploring the opportunities and challenges of establishing a profitable LCC in Africa THE OPPORTUNITY…. IATA AGM 2 June 2013 Cape Town IATA director general Tony Tyler : “African aviation is at an inflection point. Although it is small by global standards, the potential is enormous with a billion people spread across 20 per cent of earth’s land mass. Safety is aviation’s top priority. And it is the biggest issue for African aviation. ……..The total accident rate in Africa is many times the global average. It will also be a time to remind governments of the many challenges that stand between African aviation today and its potential to drive growth and development—from high costs and taxes, to inadequate infrastructure and unreliable fuel supply. In the 50th anniversary year of the African Union, we are reminded of its vision for an integrated and peaceful Africa. Aviation is making an important contribution to achieving this. 4 Present Day Africa More than 1 Billion people Lack of transport infrastructure Oil, Gas and natural resources $1.6 trillion consumer spend by 2020 (McKinsey report 2009) High GDP growth - Rapidly growing middle classes Considerable infrastructure investment by governments and NGO’s Significant third world debt being written off Increasing stability across the continent 5 African Aviation 15% of world population / 20% of world land mass – 3% of world aviation Propensity to Fly < 0.1 seats per capita per annum vs Europe 2.0 seats per capita per annum 10.85 accidents per million flight hours, compared to a world average of 2.00 Cost – approximately 4 x cost per seat KM compared to Europe Reliability – cancellations and delays endemic Regulation – Air travel between all 48 countries of Sub Sahara Africa controlled by Bilateral Air Service Agreements 6 THE STRATEGY…. Making reliable and safe air travel accessible to all Operate to International standards of Safety, Security & Quality “Peoples Champion” Operating modern Jets on the Democratising air travel in Africa world wide proven LCC model Rapid growth of a high density Differentiating the brand - regional African route network fastjet Reliability and Punctuality Distribution: embracing a multi-channel Low cost fares: 500km route - $80 to network (not just internet) $100 average with fares starting from $20 (excluding taxes and charges) 8 A Pan African Low Cost Airline A strategy to provide an identical product across a Pan African Airline. Regulatory Environment with total lack of liberalisation inhibits the development of a single airline across the whole continent. Unlike Europe for example where easyjet operates 605 routes of which only 5 are subject to BASAs Many separate airlines but: One Brand One level of Operational excellence One Customer experience One Sales platform The first choice for self booking passengers The first choice for inbound airline connections 9 Aircraft livery Brand can be adapted to suit theAircraft liver localy identity requirements Aircraft livery Aircraft livery fastjet – internationally knownUsing two key colours from the butSouth African flag. locally respected 10 Pan African Low Cost Brand 11 Pan African Low Cost Brand 12 THE CHALLENGES…. Challenges – Regulatory The regulatory framework is being used to promote protectionism. Lack of competition promotes inefficiency and high costs. Inefficient high cost airlines turn to government for subsidies and bale outs The market is artificially restricted The most significant factor causing lack of development in the African aviation market. 14 The low cost model stimulates market growth - its not about market share A real example – London Barcelona 15 A growing Aviation Market brings huge benefits to a region. Significantly contributing to sustainable development by: facilitating trade and tourism generating economic growth increasing the attractiveness of the region for inward investment providing significant employment opportunities improving living standards Increasing footfall thereby attracting airport infrastructure investment and increased airport revenues facilitating the growth of Business and Leisure traffic across the region 16 Challenges – Infrastructure Huge taxes being imposed on aviation but not spent on aviation infrastructure Once an airport reaches a critical size in passenger numbers, the private sector will invest. The low cost model creates a dramatic increase in passenger numbers. Increased activity will generate greater revenues in all aviation agencies such as ATC and Security to fund improved infrastructure. Education and proper oversight needed along with the constructive and proactive involvement of airlines 17 Challenges – Safety Key causal factors Lack of effective oversight Lack of training Shortage of cash The systems and knowledge are available The African airlines that have completed IATA IOSA certification have a record equal to the rest of the world. Airlines must influence all other agencies to gain a comprehensive Safety Management System throughout African aviation. 18 THE SUCCESSES…. First 6 month of Operations from Dar es Salaam Operational success despite the infrastructure Over 200,000 passengers carried so far Two flights per day to Mwanza and Kilimanjaro 79%% Load Factor in first month of operation Arrivals within 15 mins of STA – 96% with average delay just 4 mins Cancellations < 0.1% 0 bags lost 5 local pilots trained and operating A319’s 20 First 6 month of Operations from Dar es Salaam Customers endorse the Low Cost model 40,000 tickets have been sold at the lowest fare of USD$20. 38 per cent of those surveyed had never flown before 9 out of 10 passengers surveyed considered fastjet flights to be very good value. 100 per cent of participants would recommend fastjet to a friend. 98% said that they would fly with us again. The fastjet website has had over 2,500,000 page views in 6 months. The fastjet is the most “liked” airline in sub Saharan Africa with over 67,000 likes on Facebook. 21 THE FUTURE MODEL Airline Management Services Fastjet PLC 100% Brand & Key Services Contract Minority Fastjet Airline Share Management Holding Services Airline A Airline B Airline C 23 Fastjet Airline Management Services - “Airline in a box” Leveraged off the fastjet low cost airline management experience Maximises revenue by leveraging the brand Reduces risk for Airline investors. Enables less experienced local airline management team to develop / operate a fastjet airline to the required International standards Provides financial synergies of a large airline Creates efficiency through strategic guidance, business intelligence and management information from the whole group Provides robust operational performance through group operational and safety systems and controls 24 Fastjet Airline Management Services - “Airline in a box” • Services provided to group airlines – Brand Web Site, Distribution and Sales Cash collection Revenue Management Group Marketing and PR Network Development Operational Control Systems Group Safety Management System Crew Training and selection Operational Manual production and revision Finance System / Management Information / Business Intelligence Strategic Guidance Group Purchasing and contracts 25 The Potential Reward - Industry Profitability Comparisons • Below is 2011 EBITDAR* from published account data for comparable low-cost carriers • “African Potential” shows an illustrative estimate of potential steady state EBITDAR margin by reference to other low cost carriers operating in developing markets EBITDAR 35.0% 30.0% Developed Markets 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% EasyJet Southwest Airlines Westjet GOL Air Arabia African Potential Air Asia Source: Published Company Accounts * Earnings Before Interest Taxes Depreciation Amortisation and Rent is a measure which adjusts for the different financing structures used to own or lease aircraft fleets 26 Finally… A deregulated, efficient and competitive air transport industry providing safe, reliable, good value travel to all Africans must be the ultimate goal for consumers, airlines and governments. We, the industry must lead the way in breaking down the traditional barriers 27 Thank You .