Investigation into passenger volumes and financial performance of the low-cost carriers in the Southern African Development Community region Michael E. Mononga University of Westminster January 2020 A dissertation submitted to the University of Westminster in partial fulfilment of the requirements of the degree of Masters of Science, Air Transport Planning and Management Left blank i Abstract Since the emergence of the first low cost carrier (LCC) back in 2002 on the African continent in the South African Development Community (SADC) region, LCC activity has been moderate. Compared to LCC activity, from other parts of the world, such as Europe, North America and South East Asia, LCC activity has increased to the extent it the market has neared maturity and has made a huge impact to the passenger market. As for Africa, industry experts still consider that the air transport market is yet to experience further growth, as, as of 2017, Africa only represented 2.2% of the global market share according to a report on passenger demand and load factors by the International Air Transport Association (IATA). The main objective of this research is to investigate passenger volumes and financial performance of the LCCs in the Southern African Development Community region. The existing literature for the LCC market has resulted in limited knowledge about the impact to the passenger market for this specific business model at regional economic bloc level. Analysis of secondary data; passenger traffic volumes, seat capacity and load factors and airline case studies were conducted to identify growth in passenger volumes from 2000 to 2017, and financial performance of two airlines against industry global levels. In addition, qualitative information was gathered from dissemination of a questionnaire via email interviews conducted among industry experts with substantial knowledge of the African air transport industry. The questionnaire was structured to source information on the factors influencing and affecting LCC activity in the economic bloc. The results of the secondary data indicate that LCCs stimulated passenger numbers between 2002 and 2017 to the air transport market, adding passenger volumes to the volumes carried by the Full-Service Network Carriers (FSNCs). Furthermore, the results indicated that financial performances of the two airlines selected for the case studies, between 2012 and 2017 performed positively recording net profit levels above the industry global levels. The industry experts expressed opinion that the commercial viability and competitiveness of LCCs in the economic bloc could be dependent on several factors such as regional policy on air transport and strategy and management model, and not entirely on LCCs being government subsided or privately owned. ii Acknowledgements I would like to thank my supervisor, Frances Kremarik, for her endless support and academic guidance during the time I spent working on this research, as well as Dr Nigel Dennis for his support during the process of searching for a topic. I also wish to thank Professor Rigas Doganis, for the monumental input, advise and information provided whilst undertaking this research. For the industry experts, Mr James Chakwera and Mr Bernard Dzawanda, I also wish to thank them in participating in the primary research and their motivation to me that has led to inspiring me to continue my professional journey in policy and planning of air transport, in a bid towards contributing in shaping a conducive African air transport environment. Lastly but not least I would like to express my gratitude towards the Malawi Government for sponsoring my undertaking of this research and MSc degree programme in Air Transport Management and Planning at the University of Westminster, London – United Kingdom. Whole document: 19,440 Main text: 16,176 words, including tables and diagrams, excluding list of acknowledgements, appendices and references iii Left Blank iv Contents 1. Chapter One: Background ....................................................................................................... 1 1.1 Introduction ........................................................................................................................ 1 1.1.1 Aims and Objectives ................................................................................................... 1 1.1.2 Area of Focus: Southern African Development Community (SADC) ....................... 1 1.2 Definition of key concepts .................................................................................................. 5 1.3 Overview of the Airline Industry ........................................................................................ 5 1.3.1 Global/International Airlines ....................................................................................... 5 1.3.2 African Airlines ........................................................................................................... 9 2. Chapter Two: Literature Review ........................................................................................... 12 2.1 Air Transport in Southern African Development Community (SADC) ........................... 12 2.1.1 LCCs .......................................................................................................................... 12 2.1.2 Air Transport Policy .................................................................................................. 15 3. 3.Chapter Three: SADC Air Transport Market ..................................................................... 18 3.1 SADC’s Air Transport Policy: Protocol on Transport, Communication and Meteorology ........................................................................................................................... 18 3.2 Current Status ................................................................................................................... 18 3.3 Regulatory and Economic challenges ............................................................................... 19 3.4 International Tourism ....................................................................................................... 20 3.4.1 Global perspective ..................................................................................................... 20 3.4.2 Africa perspective ..................................................................................................... 22 3.5 GDP trend in SADC ......................................................................................................... 24 3.6 Low Cost Carrier business model ..................................................................................... 26 4. Chapter Four: Methodology ................................................................................................... 28 4.1 Introduction ...................................................................................................................... 28 4.2 Possible methodologies .................................................................................................... 28 4.2.1 Route traffic ............................................................................................................... 28 4.3 Possible case studies ......................................................................................................... 28 4.4 Methodologies used .......................................................................................................... 28 4.5 Case studies of airlines ..................................................................................................... 29 4.6 Primary research ............................................................................................................... 29 4.7 Purpose of primary research ............................................................................................. 29 4.8 Sample of industry experts ............................................................................................... 29 v 5. Chapter Five: Research Findings and Analysis Results ........................................................ 30 5.1 Passenger traffic overview in the Region ......................................................................... 30 5.2 LCC passenger traffic overview of in the region ............................................................. 33 6. Chapter Six: Comparative Analysis between Kulula and Mango ......................................... 40 6.1 Introduction ...................................................................................................................... 40 6.2 Operations Analysis .......................................................................................................... 41 6.2.1 Passenger Load Factor, Available Seat per Kilometre and Revenue Passenger per Kilometres .............................................................................................................................. 41 6.2.2 Route network ........................................................................................................... 44 6.2.3 Aircraft fleet and utilisation ...................................................................................... 46 6.3 Financial Performance ...................................................................................................... 48 6.3.1 Introduction ............................................................................................................... 48 6.3.2 Net profit margin analysis ........................................................................................