SAA has announced that they will form a low cost/no frills company to compete with the likes of Kulula.com and 1time.
Well, the rationale is quite simple, SAA are losing tons of passengers to the two ‘newcomers’. It’s really a mixture of jealousy, desperation and ‘me too’.
SAA isn’t the only network carrier with such ambitions. Let’s have a look how the others did:
BA started a ‘Ryanair killer’ called GO. They wanted to compete with Ryan on its Dublin-London routes. What happened? BA’s pasengers left BA for GO and thereby cannibalized their own business. BA were lucky. They managed to sell the loser company to a private equity firm that later sold it to Easy Jet. I don’t know what’s left of it.
KLM started Buzz based at Stanstead. Same thing, it cannibalized KLM’s business. They were also lucky and sold it to RyanAir. They had to close it down 1.5 years later.
Scandinavian airlines started Snowflake to eliminate the competition from other local Scandinavian low cost airlines. Result? Fiasco! They had to close it down.
United started Shuttle. It also cannibalized it’s own business. They had to close it down.
US Airways started Metro. It failed and it had to be closed down.
Delta started Delta Express. And you know what? That didn’t work either.
You see, a low cost carrier sells cheap tickets because they have low overheads, thats why it’s called a low cost carrier. It’s NOT in the peanuts and the lack of inflight service. All the carriers mentioned above are similar to SAA in that had high overheads and high overhead culture.
I’ll give you an example. Two years ago we approaced Michael O’Leary, the infamous CEO of Ryanair for a deal. We offered him 1 million SEK/ZAR if we could sell his tickets for two years. The day after he personally sent us a fax saying thanks, but no thanks. Try to get a personal response from the CEO of any of the airlines above or SAA.
Managing an airlines is an extremely hands-on business and it’s the most competitive and complex industry in the world. It requires a mixture between all the good business practice you get from the best business schools combined with a high level of street smarts.
While I love competition from the airlines because its good for the customers, Ithink SAA should skip this one because it will surely fail.