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Air zara should not let us down. Not this time

Discussion in 'Biashara, Uchumi na Ujasiriamali' started by ByaseL, Mar 15, 2010.

  1. B

    ByaseL JF-Expert Member

    Mar 15, 2010
    Joined: Nov 22, 2007
    Messages: 2,218
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    After what looks like a false start and flip flopping Air Zara seems to have grasped the nitty-gritty of a startup airline and now could be here to stay, touch wood. The new “kid” on the block which came onto the scene sometime in 2009 has been sending mixed and sometimes wrong signals to the market. Initially we were told Air Zara would start unscheduled services on the Dar Es Salaam-Nairobi route using a leased B737-200 but this came to naught. The next was the inauguration of flights from Dar Es Salaam to the Comoros but only for a very short stint. Dar Es Salaam-Mwanza flights were introduced with hullabaloo at rock-bottom fares but also this proved to be a non starter.

    For airline industry observers in Tanzania, Air Zara was becoming just a ‘replica” of what we had seen before; Startup airlines based on wrong market assumptions, quick results mindset and inadequate working capital to sustain the business plan. Examples abound. Eagle Air went “belly-up” in the early 2000’s. Community Air owned by a prominent politician-cum-businessman put on a show but quickly coiled its tail promising a comeback but did so briefly and now seems to have fizzled out completely!

    It is really quite puzzling how the planners of Community Air project came up with a suggestion to deploy a Boeing 737-800 on a very limited network of just Dar-Es Salaam-Mwanza and Dar Es Salaam-Kilimanjaro routes given the fact that Community Air is not a designated airline in Tanzania’s Bilateral Air Service Agreements (BASAs) so it could not operate international routes to Nairobi and Johannesburg on a scheduled network. At least not in the short run until the BASAs were renegotiated to accommodate Community Air. So it was quite obvious from the outset that the leased B737-800 utilization would be quite low and therefore very uneconomical to operate. As if that was not bad enough, Community Air went ahead to behave like a bull in china shop by putting in the marketplace predatory introductory fares on its routes which were very ludicrous!

    Naturally Community Air fares got the market excited in so far as they were quite below the competitors’ prices. However, for experts versed in airline economics this was a prelude for disaster and it was just a matter of time before the airline caved in. A B737-800 is a new generation aircraft, so by pricing it too low, even for a brief period, was tantamount to reckless trading. For instance, you must be out of your mind to deploy a brand new Toyota Landcruiser vehicle to compete with used saloon cars for car hire business in town! You do not need an up-market accountant to predict for you the end result; Failure.

    There are several reasons why some startup airlines have failed in Tanzania but two stand out;

    Firstly, those which have aspired to start as first tier airlines to take head-on ATCL and Precision Air do not do their homework well enough to realize that at the moment the domestic market is somehow at a saturation point and can only sustain two big airlines. There are only two big markets in the country, so to speak; Dar ES Salaam-Mwanza (the biggest) and Dar Es Salaam-Kilimanjaro and the existing capacity is just enough to satisfy the effective demand on these key markets. Adding more capacity on these routes will inevitably invoke price wars ultimately rendering the weakest contender to give in. This is what befell Eagle Air.

    Secondly, it takes a long time for an airline to build confidence in the marketplace particularly in the business segment like government and the corporate clients which is the bedrock of the domestic airline industry in Tanzania. A startup airline in this case needs patience, resilience and deep pockets to be able to swing customers away from the mainstream airlines before it can breakeven. This requires enough medium to long term working capital which has been “anemic” in many startups. As soon as investors start experiencing cash flow shortfall because of low load factors and poor yields they become jittery and resort to knee jerk decisions to exit the market in a hasty manner, leaving their new found customers licking their wounds and exasperated hence the skepticism and lack of confidence in startup airlines.

    Sorry for the digression but sometimes it is quite imperative to go into past experience to draw some lessons. It would, therefore, be foolhardy for Air Zara not to put this vital background into perspective as it charts out the way forward.

    It seems after a lot of soul searching and number crunching, Air Zara has decided to re-position the airline to a second tier status. The B737-200 has been ditched in favour of a 30 seater Brazilian made Embraer 120 aircraft. To cut what it can chew, Air Zara has downsized its network by venturing into some tertiary markets as well as emerging markets. For instance, the airline has flights from Dar Es Salaam-Mtwara, Arusha, Zanzibar and Pemba to augment the existing carriers and new flights have been inaugurated to Mbeya and Dodoma. In my view this is the way to go for a startup airline. This time around the type of aircraft is right and so is the capacity.

    The flight Dar ES Salaam-Mtwara is timely as it will complement Precision Air and fill the void left by ATCL. Dar ES Salaam-Arusha is likely to deliver good results because apart from Precision Air, ATCL has been inconsistent on this largely tourist market while the flights to Zanzibar and Pemba can quickly breakeven given the aircraft used on these routes. It is a smart move by Air Zara to venture into Dodoma and Mbeya markets which are currently not served by any airline and this where it is expected to create its own niche provided it remains focused and has a staying power as espoused by Dr. Kawambwa. Speaking at the launch of Air Zara flights Dar Es Salaam-Dodoma, the Minister of Infrastructure Development Dr. Shukuru Kawambwa had this to say “Airlines should build customer royalty by adhering to flight schedules and having reasonable fares. By so doing they will be trusted’.

    The minister was spot on. The airline business is about trust first and foremost. You need repeat customers to be able to breakthrough in the airline business. Customers are weary of startup airlines which are “here today, gone tomorrow” and Air Zara should leave no stone unturned to shed off the stigma which has, hitherto, put it in negative light due to startup gaffes. Air Zara needs to borrow a leaf from Precision Air which started in a very pragmatic way by venturing into new routes like Shinyanga which has proved to be quite successful and contributed to make Precision Air what it is now.

    The airline business is not for the faint- hearted and get rich quick mentality. Granted, like in any business, there is money to be made in the airline industry but not so fast and sometimes it takes a gut passion for aviation to be able to persist and become successful.

    Byase Luteke

  2. M

    MIGNON JF-Expert Member

    Mar 17, 2010
    Joined: Nov 23, 2009
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    A nice well researched piece of advice.
    Can someone from Air Zara acknowledge this?