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Franchising can help some airlines to blossom

Discussion in 'Biashara, Uchumi na Ujasiriamali' started by ByaseL, Apr 28, 2011.

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    ByaseL JF-Expert Member

    Apr 28, 2011
    Joined: Nov 22, 2007
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    Most definitions say that a franchise is a form of business in which a firm which has already a successful product or service known as a franchisor enters into a legally binding commercial relationship with another firm technically known as a franchisee to operate under the franchisor’s trade mark usually under the latter’s tutelage or guidance in exchange for a fee. The business that succeed in the franchising notion tend to have certain attributes such as proven good track record of profitability and the ability to be duplicated quite easily. The main advantage for franchising is that a franchisee can easily start up the business fairly quickly and without having to incur certain costs related to product/service development. With a known brand it becomes much easier for a franchisee to hit the ground running as far as market penetration is concerned.

    Perhaps the most common franchise business that is familiar in this part of the word is MacDonald’s and Steers food outfits. For example, MacDonald’s is the world's largest chain of hamburger fast food restaurants, serving more than 58 million customers daily. A McDonald's restaurant is operated by a franchisee, an affiliate, or the corporation itself. The corporation's revenue comes from the rent, royalties and fees paid by the franchisees, as well as sales in company-operated restaurants.

    The franchisee must follow certain rules and guidelines already established by the franchisor while the franchisee usually pays the ongoing royalty fee, as well as an up-front or a one-time franchise fee to the franchisor. In return a franchisee benefits from instant windfall that comes with the power of the brand which is well known to customers who readily fall over each other to buy the product/service without much ado.

    The rules of the game are strict and have to be followed to the letter. Failure to adhere to the rules and guidelines on the part of the franchisee can lead into instant revocation of the agreement. This boils down to consistency of product/service standards by both parties- the franchisor and franchisee. In other words, customers must not notice any difference between a hamburger produced by MacDonald’s in New York (franchisor) and the one sold by MacDonald’s in Dar es Salaam (franchisee). This is the essence of brand commonality and consistency.

    Much as franchising has been around for ages since the 1850’s this business notion caught up with airline industry in the 1980s and has continued to grow steadily. This typically entails a relatively small airline taking on a franchise from a very well known brand of a big or well respected airline and operate as if it owns that brand. This is an all-encompassing agreement whereby the franchisee airline adopt the livery, ticketing numeric code, staff uniforms, airline IATA code for reservations, on-board product, check-in procedures, customer care, etc, of the franchisor.

    Dear reader, if you have been at Julius Nyerere International Airport lately you may have noticed that there are British Airways (BA) flights being displayed on the arrival and departure screens indicating that BA is operating on the Johannesburg-Dar es salaam route. For actual travelers when you board the aircraft you get the impression that indeed this is a BA flight. Not quite though. The actual airline operating on the DAR-JNB route is Comair, one of the national airlines of South Africa. In this regard Comair is operating as BA under the franchise agreement whereby the aircraft livery, staff uniforms, ticketing code, IATA code and all those things mentioned in the preceding paragraph belong to BA who is a franchisor in this case.

    Under this framework Comair is capitalizing on the strength of BA’s brand to woo customers who are under the impression that they are flying on BA flights but in actual fact they are not. For example, a traveler making a reservation in San Paulo, Brazil to travel to Dar es salaam via Johannesburg will never know that he/she is going to fly Comair on the sector JNB-DAR. All he/she will see will be a BA product all the way except in some cases when a cabin crew may decide to announce that this “Comair flight is operated by BA”. It must be noted that the franchisor (BA) doesn’t participate in the loss or profit sharing, whatsoever, made by the franchisee (Comair) except getting a franchise fee or royalty as per the agreement. Editorial space does not allow mentioning more examples but there many airlines around the world operating under such framework.

    That said, franchise arrangements don’t come easily. I mean not every Tom, Dick and Harry kind of airline can secure a franchise agreement especially from a well-respected airline. There is a rigorous vetting process involved before such airline can allow its brand to be “surrogated” to another airline. The franchisor must ensure that the intended user is up to the task of fulfilling the franchise terms and conditions (like safety) lest its brand reputation could be in jeopardy. In this regard there are certain benchmarks to be accomplished by the would-be franchisee airline, not least financial stability, before the agreement can be signed. Failure to deliver on various aspects of the agreement, the franchisor can walk away from the deal.

    The airline franchise framework is lauded as the best to way to start an airline or ensure success particularly for airlines that are operating in a fiercely competitive environment because it is argued that by piggy-backing on strong brands, small airlines can hit the ground running and easily penetrate into the markets. Nevertheless, this alone cannot guarantee success. Take for example, Regional Air (defunct) a Kenya based airline owned by the flamboyant and former powerful minister, Nicholas Biwott. In early 2000s this airline took the BA franchise and initially the market was optimistic that Kenya Airways had finally found its match as far as competition is concerned, but where? Regional Air even under BA’s franchise could hardly make a dent on KQ market dominance in lucrative routes such as Nairobi-Entebbe where it quickly coiled its tail abandoning the market and like day follows the night the airline was no more!

    Perhaps Regional Air’s failure was an unfortunate case but generally speaking most franchise arrangements have, by and large, performed reasonably well. For those airlines that decide to ditch their commercial identity in favour of franchising the benefits far outweigh the shortcomings of loosing individual identity. After all what’s in the name? Some would argue. As the Chinese famous leader Mao Tse Tung used to say; “it doesn’t matter if the cat is white or black provided it can catch the mice.” Airlines are in business to make money, not names and if through the franchising strategy they can achieve that objective that is the way to go.

    Byase Luteke