Bat­tling for the high fliers

BA bets fat cats will opt for bet­ter food

Finweek English Edition - - Openers - BRUCE WHIT­FIELD

FOR­MER AMER­I­CAN AIR­LINES CEO Robert Cran­dall’s boast nearly 20 years ago – that he saved the air­line US$40 000/year by re­mov­ing a sin­gle olive from pas­sen­gers’ din­ner sal­ads – is leg­endary in the sec­tor and set the tone for strug­gling air­lines world­wide. Ever since then, air­lines have been look­ing for in­no­va­tive ways to cut costs in one of the world’s tough­est in­dus­tries.

Joint Co­mair CEO Gi­don Novick says news that con­sul­tants to SA Air­ways were ad­vis­ing it to rad­i­cally cut back on its meals ser­vice to all pas­sen­gers came like “manna from heaven”. De­tails of the re­port came as Co­mair an­nounced it was ramp­ing up its busi­ness class meals of­fer­ing on its do­mes­tic Bri­tish Air­ways fran­chise.

Cost-cut­ting is part of a global air­line trend. Those at the back of the air­craft are al­ready used to lim­ited legroom and queu­ing for the toi­let con­sid­er­ably longer than the well heeled up front. In­creas­ingly, they also have to pay for what they con­sume at the rear. Those at the sharp end pay the big bucks and as a re­sult get bet­ter ser­vice.

North­west Air­lines in the US re­cently elim­i­nated a free half-ounce bag of braid- ed pret­zel sticks from its of­fer­ing. They only cost a few cents each – but the air­line, which car­ries 40m pas­sen­gers/year, is sav­ing $2m as a re­sult.

SAA, which made an at­trib­ut­able loss of R652m in the six months to end-Septem­ber 2006, will have to do con­sid­er­ably more than re­move an olive from pas­sen­gers’ din­ner plates to turn a profit. US con­sul­tants Se­abury Air­line Plan­ning Group have handed man­age­ment a pro­posal they say will save the air­line R2,7bn. Among the pro­pos­als is a planned sav­ing of R171m by cut­ting out food in econ­omy class and lim­it­ing the op­tions for higher pay­ing busi­ness class pas­sen­gers. The pro­pos­als are sched­uled to go to SAA’s board in May.

Novick doesn’t ex­pect SAA to im­ple­ment the pro­pos­als fully, as it would cost the na­tional car­rier pas­sen­gers. But the tim­ing couldn’t have been bet­ter for the do­mes­tic BA fran­chise, which coin­ci­den­tally (it in­sists) has been plan­ning an up­grade of its meals ser­vice for months.

About 12% of Co­mair’s pas­sen­gers travel busi­ness class. The newly launched menu will see the cost per pas­sen­ger rise from about R60 to R90/head, adding about R4m/ year in ad­di­tional costs. “We only need to add three new busi­ness class pas­sen­gers a day across our net­work to cover the cost,” says Novick, who is con­fi­dent the new strat- egy will pay off hand­somely.

Part of that strat­egy is to strike up al­liances to get bet­ter pric­ing. For ex­am­ple, Brand­house sup­plies top end whisky John­nie Walker Black at a pref­er­en­tial rate, as does the US ice-cream brand Häa­gen-Dazs, which has been re­cently in­tro­duced to the South African mar­ket.

Low-profile car­rier Na­tion­wide re­vealed in Jan­uary that it would be scrap­ping the con­cept of com­pli­men­tary meals in econ­omy on its do­mes­tic routes and re­plac­ing them with a new “Buy-On­board” prod­uct. It stren­u­ously de­nies it’s fol­low­ing the bud­get air­line model. About 7% of Na­tion­wide’s pas­sen­gers fly busi­ness class – and the air­line is plan­ning to up­grade its menus at the front end of its air­craft.

Na­tion­wide fi­nan­cial di­rec­tor Peter Grif­fiths says cater­ing in econ­omy class was cost­ing the air­line around R30m/year and it es­ti­mated about a third of the food served was wasted. How­ever, the cost cuts don’t mean price re­duc­tions on tick­ets. Says Grif­fiths: “This sav­ing has in ef­fect been passed on to cus­tomers, as our fares are com­pa­ra­ble with the other car­ri­ers, in­clud­ing the so­called low-cost car­ri­ers.”

Bud­get car­ri­ers ku­l­ (owned by Co­mair), 1Time and SAA-owned Mango of­fer lim­ited in-flight cater­ing at an ad­di­tional cost to their cus­tomers.

SAA’s ad­vice is “manna from heaven”. Gi­don Novick

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