For an airplane to fly, it engages in a constant tug of war between the opposing forces of lift versus weight and thrust versus drag. The might of such strong energies at odds with each another is something that Rodney James, founder and CEO of JSE-listed 1time airlines knows a lot about. Audacious and, some might say, downright defiant, he had the nerve to start a budget airline in 2004, pitting it against Kulula, which had taken to the skies three years earlier and held the market firmly in its grasp.
James, who qualified as an aircraft engineer and had owned his own aircraft maintenance company since his late 20s, had friends in the right places. One of his former partners, Glenn Orsmond, had joined Comair and was employed as Kulula’s financial director. He and James met regularly at their local to chat over a beer or two and it was there that they hatched their plan for a new and what James calls a “true” low-cost airline.
“Glenn had been involved in the launch of Kulula which had been going for about 18 months when we started chatting about our own idea for an airline,” says James. “I was in the maintenance business, but I wanted to grow the company — Aeronexus Technical — and the only way to do that was to create our own airline. So I said to Glenn, c’mon let’s do it. I taunted him about Kulula because they were pricing themselves at about 15% below the premium airlines, which is not low-cost in my view.
“We had a good laugh, but we agreed on two things: South African passengers needed to pay less to fly, and Aeronexus was a really great platform from which to launch a new airline. We had years of experience and a great reputation in maintenance. In this industry, safety records and quality are critical, and we had that pinned down. After about three months, I convinced Glenn to say yes. When he informed his employers he was leaving, they told him to pack up his stuff and go. He came to my door and said ‘I need an office’.
I didn’t have one for him, so he sat across from me at my desk and wrote the business plan.”
For an airplane to fly, it engages in a constant tug of war between the opposing forces of lift versus weight and thrust versus drag. The might of such strong energies at odds with each another is something that Rodney James, founder and CEO of JSE-listed 1time airlines knows a lot about. Audacious and, some might say, downright defiant, he had the nerve to start a budget airline in 2004, pitting it against Kulula, which had taken to the skies three years earlier and held the market firmly in its grasp.
James, who qualified as an aircraft engineer and had owned his own aircraft maintenance company since his late 20s, had friends in the right places. One of his former partners, Glenn Orsmond, had joined Comair and was employed as Kulula’s financial director. He and James met regularly at their local to chat over a beer or two and it was there that they hatched their plan for a new and what James calls a “true” low-cost airline.
“Glenn had been involved in the launch of Kulula which had been going for about 18 months when we started chatting about our own idea for an airline,” says James. “I was in the maintenance business, but I wanted to grow the company — Aeronexus Technical — and the only way to do that was to create our own airline. So I said to Glenn, c’mon let’s do it. I taunted him about Kulula because they were pricing themselves at about 15% below the premium airlines, which is not low-cost in my view.
“We had a good laugh, but we agreed on two things: South African passengers needed to pay less to fly, and Aeronexus was a really great platform from which to launch a new airline. We had years of experience and a great reputation in maintenance. In this industry, safety records and quality are critical, and we had that pinned down. After about three months, I convinced Glenn to say yes. When he informed his employers he was leaving, they told him to pack up his stuff and go. He came to my door and said ‘I need an office’.
I didn’t have one for him, so he sat across from me at my desk and wrote the business plan.”
Behind the scenes
How do you launch an airline post 9/11 and make it fly? Worldwide, the airline industry lost $24,3 billion from 2001 to 2002. The September 11 catastrophe hit really hard, but it also opened the door for airlines to accelerate the restructuring that was so badly needed in an already chaotic sector. For 1time, the streamlining that took place was great. There were aircraft available at really good prices and that’s how they could afford to get started.
Although the reality is that the airline industry is extremely price sensitive, regular 1time passengers have told James that they don’t choose the carrier based on price alone. “Our marketing budget is typically a third of that of our competitors, but we’ve put a huge amount of effort into the product itself, hence ‘more nice, less price’. We really spend a lot of money on the ‘more nice’ thing because word of mouth is powerful. As people started flying 1time, the message got out there — there’s decent leg room, leather seats and incredible airfares. It didn’t matter what our competitors were saying, passengers were saying ‘try them’. There’s nothing as powerful as that.”
He cautions that it doesn’t matter how good you think you are, you always have to be critical about your business. In 2010, he and the directors went on a road show that got them on their planes and out talking to staff. “We were critical about everything and put in place plans to address problems. When you are too familiar with an environment, you don’t always notice that the paint is fading or the seats are scuffed. It’s vital to keep a critical eye on the business. Always look at things as if you were the customer. What would you take in?”
1time also employs a bunch of yield managers who sit on their computers like commodity traders. “If we’re not selling airfares quickly enough, we bring down the prices; if you’re selling too quickly, you’re too cheap so you need to bring in a few higher priced fares. This process is a big part of the low-cost business model and enables us to manage demand better in such a seasonal industry.”
Surviving in a cut-throat industry
Competition between the budget airlines has not let up and it remains ferocious. “It’s dirty and ugly out there,” says James. “We don’t like each other and we don’t talk to each other, even though some people think we do. I think our competitors are kicking themselves because maybe they could have taken us out of the market when we had one aeroplane, but now it’s impossible because we‘re on all their routes. We’ve been the fastest growing airline in this market for seven years running.”
James and his team fly on the competitors every now and then just to see what they’re doing. “We don’t spend as much time watching them as they do watching us though,” he laughs. “I reckon some of them have a 1time internal department that monitors us constantly.”
But not even the launch of SAA’s budget offering Mango in 2006 put a dent in 1time’s upward spiral. Probably because it was largely SAA passengers who switched to Mango, according to James.
“We’ve proven that paying a fortune to fly just does not make sense,” James says. “There are still people out there who get their companies to pay for them to fly certain airlines so they can collect frequent flier miles, but companies are catching on and putting a stop to that. That’s great for us of course. We now have a sales team that targets FDs and CEOs. We get them to look at their spend on travel and show them how they can bring that right down.
“Then there’s the food question. We don’t make much on the food we sell onboard, but we took away a huge cost, and that’s the big thing. We carry two million passengers a year now. For a really lousy airline meal in a cardboard box, you’re probably paying about R80. Times that by two million and you get a R160 million saving per year. So who cares if we’re making a small profit on food when we are saving that much?”
How an idea becomes reality
James recalls that there was never really a great vision to build a big airline. “In fact, the plan was to get four aeroplanes and maybe one extra spare. That would have given us a nice size operation. The big question now is when are we going to take a year off and build a big cash reserve? We just haven’t done that yet.”
That’s a big challenge for entrepreneurs. It’s difficult to turn down growth but it’s also really tricky to manage. Yet it’s one of the other things that 1time got right. “The banks do not lend money to airlines,” says James. “In our first year we carried 375 000 passengers. Last year we carried about two million passengers and the group turnover with the maintenance business was R1,3 billion. That growth has been funded through working capital.”
Things became a little hairy in 2008 when the downturn strangled the economy. With oil at $150 a barrel and the rand at nine to the dollar, 1time assumed the brace position. But then a remarkable thing happened. The recession moved a huge corporate market off the premium class carriers onto cheaper flights. “It was an amazing shift,” says James. “Many companies and airlines went under. Yet there we were gaining market share because business people still needed to fly. Those people have never moved back and we have just continued to grow.”
To put 1time’s achievements into perspective, 200 airlines around the world shut down as a result of the financial crisis, including another low-cost South African carrier, Nationwide Airlines, which was grounded by the Civil Aviation Authority after an engine fell off one of its planes on departure from Cape Town in November 2007. The 30% increase in fuel costs and a sharp decline in passenger numbers closed the airline down in April 2008.
Mr Nice Guy
Finding good people is a challenge in any business, but nowhere is it more so than in customer-centric companies like an airline that’s growing fast. “It’s always hard. We have an employment process that begins with an initial screening. A director and two managers do a 10-minute vetting with the candidate, just to chat and pick up on their personalities. We’re in the service industry, so we have to employ people who enjoy being servants.”
As a leader, James is fairly relaxed. “Some people mistake my softness for weakness, but I like to be soft on people and strong on standards. In this industry, keep the standards up and we’re all good. I find that you get a lot more out of people if you just let them manage themselves. I’m also lucky that I’m calm by nature.”
His advice to entrepreneurs? Trust your instincts and back yourself. We’re probably the only creatures on earth who don’t, he says. “Once you’ve made a decision to do something, go for it. Put all the basics in place right upfront and get all that ugly admin work done. That will keep you on top of every situation. And if you have the right attitude, you can do anything. It doesn’t really matter how hectic it is.”
Stat
10 000: The number of passengers 1time had carried 20 days after launching
R20 million: After tax profits in 2006
12%: Growth in passenger numbers in 2009, despite a contracted market
R1,3 billion: Group turnover in 2010
13: The number of planes in the fleet, making 250 flights per week on domestic routes
2 million: Number of passengers in 2010, about 160 000 per month
The sky’s the limit
1time Holdings listed on the JSE’s Altx in August 2007, raising R30 million and using the funds to buy more aircraft and expand its businesses. The aviation group has a healthy mix of income and it shows. After tax profits for the year to December 2006 were more than R20 million. As a listed company its net profit before tax increased by 30% in the first six months after listing, from R12,5 million the previous year to R16,3 million. Growth was achieved on the back of a 36% spike in revenue from R222 million to R302 million in those six months. Headline earnings per share (EPS) increased by 91% from 3,5 cents per share to 6,7 cents. By 2009, headline earnings were R82,6 million, and revenue R1,25 billion — a growth of 19% on the previous year. Headline EPS was 39,35 cents. Passenger numbers grew at 12%
