FLY 540 CHALLENGER 300

FlightCom
Airlines - Fly 540 / AAD - Full Report / Challenger 300
Edition 26
November 2010
Price: $4.50
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Edition 26 – November 2010
201011_FC.indd 1
FLY 540
TAKES ON
AFRICA
AAD
FULL REPORT
CHALLENGER 300
10/13/10 3:50:20 PM
ACROSS AFRICA BY 5:40
airlines
40
Fly 540 aims to paint Africa
bright orange with plans for a
pan African carrier
The concept of
standardised intra-African
air travel is intriguing.
Allowing passengers and
Keith Mwanalushi
freight to move more
conveniently throughout
S
the continent will stimulate
economic growth in Africa.
The young and ambitious
Fly540 is geared to take
on the challenge – but will
the complexities of African
aviation outweigh its long
term ambitions?
1
2
1: 5 40 Africa placed orders for
10 new ATR-72-500s worth
over $150 million.
Photo - John Creasey
2: 5 40 Beech 1900D loading
passengers at Kitale Airport
in western Kenya
trong economic growth and an increase
in trade amongst African states have created
demand for accessible regional air transport.
An emerging middle class combined with
international investors and flocking tourists is
fuelling the need for convenient connections. Generally,
most regional hubs in Africa such as Nairobi, Accra and
Johannesburg are well connected to various parts of the
world but intra-continental air travel remains severely
limited.
Geoff White, the CEO of Lonrho says, “Africa’s
population is approaching one billion people so the market
is massively strong. The vast majority of traffic is nondiscretional. People travel because they have to, and often
the only way to get from A to B is by air.” Lonrho has
long been involved with aviation in Africa and paid $1.5
million for 49% of the issued share capital of Fly540.
“We spent a lot of time debating what industry sectors
to get into,” says White. “We concluded that we wanted
to get into businesses that the continent needs in order
to grow economically, but also markets that have growth
potential. One of those, very clearly was the ability to get
around.”
540 business model
Fly540 was the first airline in east Africa to
successfully promote the low fare concept. Based at
Nairobi’s Jomo Kenyatta International Airport, operations
began in November 2006. Initial services linked the
Kenyan capital with Mombasa twice daily using 48-seat
ATR 42-300 aircraft. In January 2007 Kisumu was added
to the domestic network followed a month later by a daily
service between Nairobi - Milindi and Lamu.
The first international route was inaugurated in
October 2007 connecting the city of Juba in southern
Sudan followed by Goma in the DRC. Entebbe was added
in February 2008 and since then the network has grown to
include Bujumbura, Mwanza, Kilimanjaro and Zanzibar.
At the end of the first year of operations, the airline carried
88,571 passengers. Numbers rose by 93% to reach 171,160
by the end of 2008. The growth curve continued in 2009
with passenger uplift rising to over 250,000.
By mid 2010, Fly540 was operating 117 weekly
services to ten destinations. Fly540 has quickly established
itself as an important player in East African aviation. It
is the second largest carrier in Kenya behind flag carrier
Kenya Airways (KQ), which enjoys a 41% market share of
all operations from Nairobi.
41
Right from the start, it seems the airline
attempted with much effort to set itself aside
from the poor reputation that has plagued
a number of smaller African carriers, in
terms of safety and reliability. The airline
has repeatedly emphasised its core objective
of delivering international standards in an
African environment. 540’s association with
Lonrho may have raised its profile but even the
backing of a well-known company does not
automatically guarantee operational success.
However, getting into the black in just two and
a half years is a considerable achievement.
Sujal Raja–Haria, Commercial Manager of
Fly540, points out some key elements that
led to the rapid progress. “It is how our model
has been developed – it’s more price sensitive,
and of course the choice of aircraft. Operating
the ATR 42s, it’s more about lower fuel
consumption and managing costs.”
Apart from the three ATR-42–300s, the
fleet includes; a Beech 1900D, Dash 8-100,
Cessna Caravan, Embraer ERJ-135LR and
a CRJ-200. Ten brand new ATR 72- 500s
await delivery and these are expected to be
distributed amongst the other 540 airline
ventures.
Another factor in 540’s favour is the
resilience of the East African market; Kenya
in particular. Africa’s 53 countries are made
up of diverse characteristics – Kenya’s unique
mix of business and leisure travel acts as a
compensatory mechanism, allowing for one
segment of the market to make up for drops in
another. The market mix in some other regions
on the continent is more one dimensional.
“We see Africa as a very dynamic market
which has a lot of potential, although we are
aware of its limitations,” said Raja-Haria.
“What we need to do is bring all the elements
of the industry up to speed. We feel that the
point-to-point regional traffic continues to do
well.”
540’s passenger profile varies; recent
evidence of down trading in corporate and
government travel expenditure is good news
for the airline. 540 is more than content at
picking up traffic from down trading business
travellers but the airline does not delude itself
as to what its main priority is.“We provide an
economy class service, we don’t have business
class,” she points out. The airline remains
focused on absorbing the increased demand
for low-cost travel in the region.
540 operations
The Fly540 business plan includes
developing the airline into a regional hub and
spoke carrier feeding intercontinental airlines.
Kenya is well known for attracting large
numbers to its safari parks – many of whom
arrive from intercontinental flights.
In a move to tap into this lucrative market,
540 literally went on safari. During the northern
42
summer 2010 season the airline introduced
services to popular safari destinations of Masai
Mara, Nanyuki, Samburu and Amboseli using
C208 Caravan aircraft from Nairobi’s second
gateway at Wilson Airport. In an unusual move
for a low fare carrier, 540 opened a dedicated
purpose-built lounge at Wilson Airport for
passengers destined for the national parks.
As of this winter season, 540 will have made
a number of operational changes. Services
from Nairobi to Eldoret and Kakamega are
now operated with a Dash 8 and flights have
been combined between Friday and Sunday to
allow for a convenient weekend connection.
The Dash 8 is also flying on the Nairobi
– Mwanza and Bujumbura sectors. The busy
Nairobi- Kisumu-Entebbe route is served by
the CRJ-200 on a regular basis. The lakeside
city of Kisumu on Lake Victoria is increasing
in popularity, not just for its tourism – visitors
have the opportunity to see the paternal home
of US president Barack Obama, which is
located just a few kilometres from the city’s
airport.
Visitors have the
opportunity to see
the paternal home
of US president
Barack Obama
The CRJ has proved to be an important
part of 540’s fleet strategy. The aircraft’s
range of 1,815 kilometres is a key attraction.
The airline says this will help deliver the
expansion drive in east and central Africa and
reduce delays in the schedule due to its speed.
More CRJs are expected – this aircraft type
will be used to launch the much publicised
new route to Lusaka, Zambia.
The CRJ has caught the attention of other
competitors in the region. Neighbouring Air
Uganda recently took delivery of another
CRJ-200, adding a third daily frequency
between Entebbe and Nairobi, and competing
head on with Fly540 and Kenya Airways. As
a point-to-point operator the challenge is more
to 540 which also operates the CRJ on the
same route.
Air Uganda’s third flight provides a
competitive edge over 540, which remains on
two flights a day. Kenya Airways remains the
predominant carrier with four daily flights
– including the first out of Entebbe and the
last out of Nairobi, not to mention the added
benefits of being a network carrier via its
Nairobi hub.
Tight control over operating costs allows
the low cost carriers to provide cheaper fares.
Ticket sales in Africa are still predominantly
travel agent based. The use of credit cards and
online payment methods while growing is still
not of high density compared to other regions
where the low fare formula has thrived. “Well,
it’s mainly cash, credit card, cheque. It would
have to be a banker’s or company cheque or
an invoice method if you have a corporate
account. In Kenya, we don’t accept credit cards
over the phone; they have to be swiped – unless
you book online, which is completely different
because then we are linked into Barclaycard
in London,” stated Raja Haria. Apart from
traditional travel agent sales, the airline has
been actively perusing other possible internet
based sales platforms, including placing a
sales engine on a popular virtual shopping
website in Kenya.
Despite the successful rise of 540, the
airline has faced problems. Reviews from
popular aviation forums such as SKYTRAX
reveal a mixed bag of opinions about the
customer experience. Delays and cancellations
have clearly been an issue. “Yes, we have had
cancellations, they have been for technical
reasons rather than anything else,” admitted
the commercial manager.
540 countries
The most talked about aspect of the
Fly540 business is the opening up of ‘540
offices’ and ‘540 countries’ as the airline
puts it. International aviation analysts are
intrigued as this would be a first for Africa if
it succeeds. Under the 540 Africa umbrella the
company is creating a pan African carrier that
aims to stimulate regional travel from north to
south and east to west – rather than to have
everything from a hub at Nairobi.
The Fly540 Tanzania operation got off to
a flying start covering five domestic stations
and a recently introduced service between
Dar es Salaam and Nairobi. From September
2010 a CRJ-100 was deployed to link the two
capitals with seven flights a week.
General Manager for Fly540 Tanzania,
Brown Francis said,“We believe there has been
a gap on this route for a budget airline offering
low fares and a convenient reliable schedule.”
The Nairobi – Dar sector is one of the most
high density city pair routes in East Africa.
“We know that they are established carriers on
the Nairobi route, but we shall be focusing on
meeting the needs of the low budget passenger
without compromising on comfort and safety.
We expect the market to react favourably, and
hope that we will be able to increase flights,
not only on this route, but to other cities within
Tanzania in the near future,” said Francis.
In a bid to strengthen its position on the
new route 540 Tanzania has entered into a
partnership with fellow low cost operator Air Arabia
– to provide connections from Nairobi to Sharjah and
other destinations in the Middle East and India. 540
is now the second largest carrier in Tanzania with a
reported 18% market share, trailing behind Precision
Air which operates more services utilising newer
generation ATRs and a 737-300. The absence of a
strong flag carrier in Tanzania has escalated the rise
of both carriers.
The focus for Fly540 Africa now centres on the
development of the regional hubs in Angola, Ghana and
Zimbabwe. The launch of all three stations was delayed
considerably and pushed back on several occasions.
Angola in particular should have been airborne some
years back. 540 admits that the start of operations from
the regional hubs took much longer than originally
planned “with all the bureaucracy” involved.
Bilateral restrictions have traditionally been a
major barrier in air services in Africa. Even with the
support of Lonrho and local partners the lengthy and
cumbersome procedures traditionally associated with
African aviation seem beyond 540’s control.
540 intend to initially develop the domestic
network in Angola, which should complement the
rise in international flights by airlines such as British
Airways, Emirates and TAAG. The oil-rich country is
attracting plenty of interest from investors and visitors
who are keen on exploring its vast economic potential.
540 Ghana is to be the focal point of expansion in West
Africa.
Kenyan low cost start up One-jet-One also
postponed its launch on a number of occasions.
Aviation experts have warned on the dangers associated
with underestimating the time to launch a low fare
operation.
Reports from Harare have indicated that Fly540
Zimbabwe has obtained its long awaited franchise
licence from Fly540 Africa. It is now believed the
franchisee is finalising a business development plan in
order to obtain the necessary air operator’s certificate.
The low cost outfit stands to benefit immensely from
the other 540 airlines. The Zimbabwean operation is
covered by Fly 540 Africa’s insurance scheme as well
as technical assistance programme. Lonrho Zimbabwe,
which owns a reported 90% of the local airline, paid
$4.3 million for an ATR42-320 from the Lonrho
Aviation fleet with a new ATR-72-500 to follow. With
the gradual signs of economic recovery, the airline
industry in Zimbabwe is expected to become a lucrative
investment, especially with the uncertain future of the
cash-strapped national carrier Air Zimbabwe.
The 540 operation is young and takes off with
indomitable spirit. The company has much ground
to cover on both the commercial and operations
sides; however it is still in the process of building its
infrastructure. It remains to be seen how its newly
found interest in the business jet market will fit into the
portfolio. The objective of creating a viable pan African
carrier is a difficult target – others have failed.
Once the airline completes building the domestic
and regional hubs, and then connects these networks
together, there is every chance of success. ¸
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2
1: A TR 42-300 prepares for
an east bound flight from
Entebbe to Nairobi
2: fly540 dar 100
3: D ash 8-100 5Y-BUZ is used
to service a number of
regional routes.
Photo - Guido Potters