Question

2.2 Under what market structure does the airline industry currently operate in South Africa?​

Answer 1

Answers

Air travel in Africa has grown strongly and much faster than the rest of the world. The

International Air Transport Association (IATA) projects that the airline industry in Africa will

continue to grow in passenger numbers at an annual average rate of 4.7% by 2034, faster

than regional markets in North America and Europe whose growth is forecast at 3.3% and

2.7%, respectively (IATA, 2014).

To meet this demand, there has been entry and expansion of a number of airlines. National

carriers such as Kenya Airways and Ethiopian Airlines have been the most successful in terms

of growth by number of routes but low cost carriers are also quickly entering the market and

beginning to take up market share. A low cost carrier (LCC) is an airline that offers low fares

and no frills or comforts on the basis of a low cost business model. These airlines bring

competition to the established, generally (current or formerly) state-owned national carriers.

This paper specifically examines the barriers to entry and growth of challenger airlines in South

Africa, comparing the effects on routes where there has and has not been entry. The

challenges of entry and expansion are considered through case studies of two entrants,

1Time, which failed, and FlySafair, which has been successful to-date.

South Africa has seen many entrants since the industry’s deregulation in 1990. Examples of

these LCCs in South Africa are Kulula, Mango, FlySafair and Skywise. Some of the regional

LCCs are Fastjet in Tanzania which expanded into Uganda, Zambia and Zimbabwe, as well

as Fly Africa in Zimbabwe which expanded into Namibia, South Africa and Zambia (African

Development Bank, 2012).

The failure rate in South Africa has also been very high. Apart from the national carrier’s

subsidiary, Mango, of the 11 airlines that entered the market between 1991 and 2012 only one

is still operational, Comair’s Kulula. The other airlines currently in the market are entrants since

2012. Through considering the various constraints and challenges faced by LCCs in particular,

this study contributes to the understanding of competitive dynamics in the sector and the

reasons for the numerous failures on the part of the entrants.

A key emphasis of this research is to distil those factors relating to the competitive environment

which, along with information about costs and management practices, contribute to effective

entry and expansion in the industry. While the exogenous barriers to entry are not especially

high (as evidenced by the number of entrants) there are strategic obstacles including the

conduct of the incumbent, which have led to a number of competition cases. The 1Time case

study is used here as a tool for drawing lessons which can be generalised particularly in the

South African context.1

The paper is organised as follows: section 2 provides a review of entry and competition in

South Africa, including the effect of entry on the pricing on different routes. Section 3 considers

1Time’s experience as a relatively successful competitor in the South African market and lays

out possible reasons for its collapse. Section 4 critically assesses the range of factors relating

to the competitive environment, and section 5 draws c

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