Business Report Opinion

kulula.com is flying high

Published

If you have flown kulula.com you will be very aware of the informality and relaxed atmosphere of the cabin staff. They wear jeans and casual shirts in the carrier's trademark green. You will also be aware of the jokes and antics that take place during the flight.

That atmosphere and casual, some might say informal, culture is also very much an element of the firm's head office. In a converted warehouse painted the same green as kulula.com's airplanes, all staff sit in an open-plan office, including executive director Gidon Novick, who has been at the helm for 18 months.

The informality, though, and "fun", as Novick likes to describe it, does require structure. For instance, he says the cabin crew have it as part of their job description that they must create at least one memorable event on each flight for the passengers.

That can be in the form of a joke or an unusual happening, like the cabin crew member who took on board a huge blow-up giraffe and rode it while serving clients.

Of course, it also means that Novick himself is sometimes used by the cabin crew to create that memorable moment when he is on a flight. Like when they forced him to serve food to the passengers. That was something, Novick says, he really enjoyed.

"It doesn't always happen but when it doesn't we ask them what happened. Were you tired? Were you in a bad mood? Why were you unable to create that memorable moment?"

Such antics are a small aspect of kulula.com but the airline, he says, is not that different from any other customer services firm.

"Our flights have got to take off on time. In May we had 93 percent of our flights on time."

"Not many people know it but we are very focused on that because 40 percent of our customers are travelling on business," says Novick.

"To them - a big and growing part of our market - not being on time is not negotiable."

It is this uncompromising attitude to service delivery and making sure that everyone at work has fun that has underpinned kulula's success.

Started three years ago as the country's first low-cost airline in response to the tremendous success that such airlines had had around the world, kulula.com has quickly gained between 15 percent and 20 percent of the domestic passenger market.

It has grown from one plane servicing one route to Cape Town to five planes servicing five destinations. It now also offers taxis for airport transfers, car hire and hotel bookings.

"From a capacity point of view, we are four times the size in the number of seats than when we started," he says.

"We now have available 1.2 million seats a year and we will sell over a million of them."

The business model is also far more robust now than when the airline started, Novick says.

However, its cost base remains critical to the continued success of the business.

Each empty seat means that the airline is picking up the cost of that ticket as the plane has to fly whether it is full or not.

In the traditional model, airlines would offer cheaper tickets to those who booked early and then increase the price the closer it got to take off time. Typically, the model required 65 percent of the airplane's capacity to be filled to be considered successful.

But with a large part of an airline's cost base outside of its control, while the model might be successful, it has not resulted in profitability in many instances.

It has almost been a type of "if you build it, they will come" attitude by the airlines, or in this case, "if we fly to the destination, they will travel to it". kulula.com has had to turn this model on its head and find a way to drive demand and fill its airplanes.

"If you are filling a plane's capacity you are reducing the unit cost with each additional passenger you get," Novick points out.

The success, he says, behind kulula.com is that not only has it been able to fill its airplanes, with each flight typically running at 80 percent capacity, but it has done so cheaply.

"On a typical flight, that means we are splitting the cost over 135 people."

Where kulula.com has been successful in getting that capacity comes from three main areas.

"We aim to fly where people want us to fly."

This might sound easy, but it is not. It has required a tremendous amount of market research - something that kulula.com has been able to gain from its parent, Comair.

Comair has been in business for over 50 years, having begun as a charter service in World War 2.

"There are times of the year and times of the day when a lot more people want to fly. And it can also be directional."

Of course mistakes have been made, admits Novick.

But nothing so far that was significant enough to endanger the airline's existence.

Even so, Novick says this has not put it off taking risks.

"It is a core part of our success that we have experimented. We are very comfortable with taking risks and doing things differently."

When it comes to the financial management of kulula.com, the group, however, remains conservative. "One thing that is critical for our business is having money in the bank because of the cyclical nature of the business."

"You have to have the cash resources to get you through the bad times," explains Novick.

The other key area is the front end of the business.

kulula.com's innovation when it comes to ticket sales in South Africa has led it to become the biggest online retailer in the country.

This foray on to the internet has come with great returns and has allowed the airline to drive its transaction costs to almost zero.

"People love booking on line," says Novick, an assertion borne out by the fact that 65 percent of its passengers use the Web to book their tickets.

The airline does offer other ways to buy tickets but then it expects its passengers to pick up the fee for the higher transactions costs involved.

"You can choose how you want to do business with us. But if there is a higher cost involved you will pay for it," says Novick.

So if you book through its call centre, kulula.com adds R25 to the ticket price.

All this comes back to the central tenets of the business: ease and affordability.

But to make sure it is the most affordable airline in South Africa, it has to focus all its energies on driving down its cost base.

And this comes back to the capacity of each plane, and the need to drive the volumes to fill the flights.

"It is a circle. You offer the lowest fares, this drives volumes up and this drives the costs down so you can continue to offer the lowest fares," explains Novick.

Its success has, however, attracted competition. 1Time recently launched a low-cost airline, SAA has apparently been mulling the option and Nationwide has been trying to compete on fares as well. All of which has led to overcapacity in the market.

And that, for Comair investors, has not been great news. So while kulula.com might have been profitable from its first year, the yield from each passenger has been falling.

The result: Comair's earnings have been under pressure.

The problem, though, is that Comair does not disclose how kulula.com is performing - an issue that has irked the market.

"It is something we are addressing," is Novick's response.

Nevertheless, the success of kulula.com is quite evident. Its brand has quickly become recognisable to many South Africans.

And while it is difficult to see into the future beyond a couple of months, as things are changing so rapidly, Novick likes to point out that at least now anyone can fly.