Business on a Budget

1609

 It wasn’t long ago that travelling on business was a passport to the good life. Stretching out in premium airline cabins, wining and dining clients in top restaurants, and checking in to upmarket hotels. Today, those luxury perks are restricted to the lucky few, and most business travellers keep a keen eye on their travel spend, as Richard Holmes found out.

It’s perhaps little surprise that the travel industry has evolved to service the needs of a new cost-conscious corporate traveller – a traveller who looks past the frills, ignores the bells and whistles, and searches for real value that will help them get the job done.

Perhaps the best bellwether of this rapid growth in low-cost corporate travel has been the airline industry, which has seen dramatic change over the past decade. While there will always be a market for ultra-luxury travel, the decision by many long-haul airlines to scale back their First Class cabins in favour of growing their Premium Economy offering is a potent indication that corporate travellers are trading down. Regional and short-haul carriers are following suit, with low-cost travel becoming the norm for many corporate fliers.

“There is definitely a high demand for corporate travel on low-cost carriers, which continues to grow, as more and more companies look to save and reduce their costs,” says Shaun Pozyn, Marketing Manager for South African budget airline kulula.com. “Generally speaking, this trend is occurring throughout the world and is evident by the number of new low-cost carriers entering the various markets.”

According to Pozyn, kulula.com’s most popular business route is between Johannesburg and Cape Town, whilst the other routes in demand include Johannesburg–Durban, Johannesburg–Port Elizabeth, Johannesburg–East London, and Cape Town-Durban.

“There is also a high demand between George (on the South African Garden Route) and Johannesburg, with numerous customers living in George, but commuting weekly to Johannesburg for work,” says Pozyn. “The majority of these customers usually travel to Johannesburg either on Sunday evenings or Monday mornings, and then return on Friday afternoons.”

Kulula.com also has a significant presence at Lanseria International Airport – situated north-west of Johannesburg – and this has proved a major plus for the airline.

“It’s very close to Sandton and other business hubs, so it’s also very popular with corporate travellers, as it’s closer and easier for them to use,” says Pozyn. “Kulula.com was the first commercial low-cost carrier to commence operations to and from this airport, and currently offers just under 40 flights per week out of Lanseria.”

As in other parts of the world, there is a growing array of budget airlines criss-crossing African skies. Travellers on the continent have long suffered under the exorbitant fares and poor service brought about by state-protected carriers and monopoly or duopoly carriers on prime routes. But that, happily, is beginning to change, and Tanzania-based fastjet is perhaps leading the pack when it comes to transforming regional air travel in Africa.

Fastjet has its roots as a low-cost carrier, but its mix of low fares, sought-after routes and reliability has seen a boom in corporate travellers booking a seat.

“We’re seeing a really strong mix of passengers on board our flights, from families to high net worth individuals to businessmen and politicians,” says fastjet’s Chief Commercial Officer, Richard Bodin. “Certainly, we’re seeing more suits and ties on board our flights, because people are embracing the opportunity to get to their customers. A two-hour plane trip is infinitely better than a 12-hour bus journey.”

And growing the pie, not competing for a larger slice of it, underpins the growth of low-cost carriers in markets across the globe, with Africa no exception. As the cost of tickets falls, so travelling by air becomes a viable alternative to coach and rail options.

“At one point in our research, 38% of passengers surveyed had never been on a plane,” says Bodin. “South Africa is the most mature aviation market in sub-Saharan Africa, but in less mature markets there’s a real opportunity to grow.”

Within well-serviced markets such as South Africa, piling capacity – and thus competition – onto over-priced routes drops prices and stimulates the market. The Johannesburg-Cape Town route is amongst the most heavily-serviced city pairs in the world, and yet when carriers pull out fares tend to rise. The route has seen two new entrants to the market in a matter of months, in the form of FlySafair and Skywise, joining kulula.com and Mango as the main budget players on this route. FlySafair launched daily flights on the route in October and the increased competition has injected cut-price fares into the market.

“We set out with very modest expectations for capturing the corporate market, given our initial limited network and schedule. We have been pleasantly surprised with the degree of support from businesses across South Africa so far,” comments Oliver Wigdahl, Vice-President Commercial for FlySafair. “Many small, medium and even larger businesses are making use of our conveniently-timed services… as we augment our network and schedule, we anticipate that business demand will increase substantially.”

With growth in mind, fastjet is laying its cards on the table with ambitious plans to become a truly pan-African low-cost airline.

The airline has received permission to fly from Uganda to Johannesburg, Juba, Nairobi and Kigali, subject to government approval, and plans for an operating base in Zambia are at an advanced stage. Domestically, a runway resurfacing project planned for Mtwara in the course of 2015 will see the Tanzanian port city become another strong business travel destination in East Africa.

“We have significant plans for expansion,” says Bodin. “Organic growth out of Tanzania, with more frequencies and more linking of the dots. Then we’ve also applied to fly to Nairobi and Mombasa. We see significant monopoly prices on those routes.”

Fastjet may be expanding at pace, but it’s certainly not the only low-cost airline cutting a path through high fares.

Flyafrica.com has ambitious plans to expand during 2015, building on its initial launch routes linking Johannesburg, Harare and Victoria Falls. In March, Flyafrica Namibia will launch direct flights connecting Windhoek with Johannesburg and Cape Town – popular business routes often lacking in capacity.

The airline also plans to offer flights from Johannesburg to Lusaka, as well as from Harare to destinations in Mozambique, Malawi and Zambia. Services out of Gabon are due to launch during 2015, and the airline is waiting for a license to be issued to operate in the South African domestic market.

Shaking up fares on previously monopolised routes is a key aspect of how low-cost airlines are transforming business travel in Africa. Another is in opening up secondary routes that many legacy carriers deem to be unprofitable. Connecting secondary cities with a direct air service to political and commercial capitals has typically resulted in a spike in demand for air travel – a spike that often spurs full-service airlines to launch flights on the route.

“There are plenty of domestic and regional city pairs which are woefully underserved and where fares are prohibitive for most South African air travellers,” adds Wigdahl. “We intend to provide a value alternative and stimulate increased demand in all the markets we serve. We intend announcing further routes in the first quarter of 2015.”

Ensuring fares stay as low as possible is key to ensuring high load-factors, and FlySafair has taken a purist approach to the low-cost model by offering little more than a seat on a plane for entry-level fares. While some travellers have raised an eyebrow at paying extra for checked baggage, it’s all about paying only for what you use, says the airline.

“We chose not to include a hold bag in the base fare, as around 45% of passengers are only travelling with hand baggage, and we don’t think it is fair that they subsidise those who wish to travel with more luggage,” explains Wigdahl. “Today’s emerging and growing businesses know they have to be thoughtful about cost control, particularly given the less than favourable economic backdrop in South Africa today. We offer a cost-effective, professional, point A to point B service which gets business travellers to their meetings and conferences on time and with minimal fuss in the booking process or at the airport.”

Although Flyafrica.com offers a full-service Business Class that includes a checked baggage allowance, in-flight meals and lounge access, the airline offers a similarly innovative approach to cut-price fares on its regional routes.

Base fares on Flyafrica.com offer a seat on the plane and a single item of carry-on luggage, with a host of ‘bolt-on’ options to be paid for as required. These include checked baggage – either 20kg or 30kg – as well as the ability to purchase an additional 7kg on-board item.

Time-pressed business travellers are well catered for too, with a ‘Priority Bags’ service ensuring yours are first onto the carousel on arrival, and a ‘Qjump’ offering that allows you to avoid the queues at both check-in and boarding. On-board meals, lounge access and excess baggage can also be purchased as optional extras at the time of booking.

“Those services are definitely aimed at the business traveller – those who have time constraints and wish to have ease of travel,” explains Flyafrica’s Chief Executive Officer Adrian Hamilton-Manns. “It’s all about paying for what you want, not what you don’t want. Look at a corporate traveller who goes to Harare for the day, and yet he has to pay for 20 kilograms of checked luggage he’s never going to use!”

Fastjet has likewise proven to be flexible to customer demands, adapting and evolving as travellers seek to tweak the experience. While no-frills and low fares remain the core of its low-cost offering, in September 2014 it introduced a new fare class aimed squarely at corporate travellers.

‘SmartClass’ is available on all fastjet flights and offers passengers an increased baggage allowance of up to 32kg, unlimited flight date changes at no additional cost, as well as advance premium seat allocation. SmartClass fares will start at $160 one way plus government taxes for domestic flights, and $450 for international routes.

“SmartClass is based on feedback from our passengers and we’ve been very pleased with how it has sold,” adds Bodin. “People are keen on the ability to change their ticket and be more flexible, especially business travellers where meetings might change and so on. From a networking point of view, they also told us they want to be able to sit at the front of the aircraft and be surrounded by people with similar benefits. Also, for flights across borders, it allows passengers to be at the front of the immigration queue.”

Sitting at the front of the plane is a real plus, particularly if your time is precious, and kulula.com offers this to its clients, as well.

“Additional products that customers can purchase include extra baggage, flight and bag insurance, and pre-paid seating,” says Pozyn. “So, you have the ability to select a seat in the front of the aircraft, ensuring you disembark first.”

With African economies boasting some of the highest GDP growth rates on the planet, one would expect low-cost carriers to be launching every week to serve a new generation of corporate travellers and pan-African traders. But, while low-cost carriers offering international flights are slowly starting to emerge on the continent, a turbulent pile of governmental red tape and the lack of an open skies environment have hindered growth.

“Every government has bilateral air services agreements, and it takes a long time to work with governments to negotiate flying rights,” says Bodin. “Africa has 20% of the world’s population, 15% of the world’s landmass, and just three percent of its air traffic. There should be a vibrant aviation market in Africa and in many places there isn’t.”

There’s certainly less red tape on the ground though, and airlines aren’t the only players in the travel industry capitalising on a wave of cost-conscious travellers.

Diversity across price points is becoming a key aspect to most of the major hotel chains operating in Africa, with distinct budget-friendly brands appealing to corporate travellers more than ever before.

The City Lodge Hotel Group offers the one-star Road Lodge and two-star Town Lodge brands in South Africa, Botswana and Kenya, with nearly 3,500 rooms aimed at the budget-conscious traveller.

“While a considerable element of this market is leisure-focused, increasing numbers of business travellers are staying at Road Lodges due to their convenient locations and excellent value for money, especially when economic conditions are tight,” says Clifford Ross, Chief Executive Officer of the City Lodge Hotel Group. “Small businesses, large corporations and government are all looking to get the best possible value for their travel and accommodation rand.”

The Road Lodge brand may be low on frills, but still offers en-suite bedrooms with colour television and air-conditioning, with a dedicated work desk in each room and a light breakfast available daily. There is limited complimentary Internet access at all properties.

Perhaps unsurprisingly, these properties are focused on providing affordable fuss-free accommodation, and meeting facilities are few and far between.

“Our Town Lodge in George does have its own mini-conference facility, but our City Lodge (3-star) and Courtyard (4-star) brands are more appropriate for the conferencing and meeting market,” says Ross.

South African hotel giant Tsogo Sun is also capitalising on increased demand for low-cost hotel rooms with its SUN1 and StayEasy brands. Both are a world away from the luxurious resort-style rooms of its premier brands, yet are aimed squarely at cost-conscious travellers looking for a clean, comfortable room for the night.

SUN1 in particular is all about no-frills rooms at a cut-price rate. The décor is simple and the amenities basic, but you’ll still find a good shower in the bathroom, a dedicated workspace and free Wi-Fi in public areas.

One step up, and perhaps a better choice for most corporate travellers, is Tsogo Sun’s StayEasy brand. Although rates are slightly higher, accommodation includes complimentary breakfast, free Wi-Fi, satellite television and a handful of other low-key luxuries.

Tsogo Sun runs StayEasy hotels across South Africa, with just one property north of the border, in the Zambian capital Lusaka. The 130-room property is situated close to the central business district and offers a private boardroom for small corporate gatherings.

Lonrho’s easyHotel Johannesburg CBD, De Korte Street is considerably more spartan, but with centrally-located rooms from just $70 they are certainly attracting a penny-pinching clientele. You’ll have to pay extra for Wi-Fi and breakfast though.
Worldwide and across Africa, the trend in budget travel seems precisely that: paying only for what you need, not what you don’t. It may mean opening your wallet for a whisky on the flight home, or punching in your credit card details to hop online, but when the bottom line is a healthier travel budget, it’s no surprise that corporate travel across Africa is taking cost-cutting seriously.

Oil price falls, but fares hold steady?

With oil prices at their lowest levels in almost a decade, many travellers are querying why the fuel surcharge that adds a hefty chunk to most air tickets refuses to go away. Airlines have long bemoaned the fact that fuel is a substantial portion of their expenses, and yet with oil dropping to below $50 in January, the fuel surcharge shows no sign of losing altitude.

“The most likely reason why some airlines won’t have reduced or eliminated their fuel surcharges is because many of them would have hedged their forward/future fuel purchases,” explains Linden Birns, independent aviation analyst at Plane Talking. “By hedging, airlines and fuel companies agree to lock-in prices at agreed rates. If the fuel price subsequently rises, the airlines benefit as they pay only the agreed locked-in price.  But if the fuel price decreases, then the airlines lose out and the fuel companies profit, as the airlines still have to pay for their fuel at the locked-in price. The decrease over the past three months caught a lot of people by surprise – no-one was predicting a drop in the oil price, let alone a sustained slump.”

However, there is a chance of some cost-cutting light at the end of the tunnel.

“Fuel costs make up a large portion of an airline’s overall operating costs, and therefore as fuel increases the overall operating costs increase,” explains Shaun Pozyn, Marketing Manager of kulula.com. “Should the fuel costs continue to decrease and remain at the lower costs, and should all other costs remain consistent, then there could potentially be some decreases in some of the fares going forward in 2015.”

Some low-cost carriers snort with derision at the very notion of a fuel surcharge though, and insist that the levy is merely a way to massage fares and yields.

Flyafrica’s Chief Executive Officer Adrian Hamilton-Manns doesn’t mince his words.

“Fuel surcharges are nothing but a cynical ploy by airlines to steal from passengers,” he says. “We do not apply and will never apply fuel surcharges. They should not be a part of the airline business.”

“Fastjet will not charge a fuel surcharge,” agrees Richard Bodin, the airline’s Chief Commercial Officer. “You wouldn’t get a in a taxi and be asked to pay a little extra for the petrol, would you? We believe you buy a ticket and pay for the ticket.”