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STRATEGIC MARKETING AND TACTICAL MARKETING PLANS

Case Study

1time Airline: More nice, less price

1time started as a dream of five men who saw the potential in a changing South Africa and global
environment, for a new form of competitor in SA aviation industry. Picture the scene. It’s 2003, and
low-cost airlines are proving to be successful with the likes of South West Airlines in USA and Ryanair
and Easyjet in Europe. Aircraft acquisition costs were at an all-time costs were at an all time low as a
result of the 9/11 aftermath. The South African rand was at the strongest it had been in a long time,
and approximately 7,5 million airline passengers per year were paying high prices for seats. The
conditions seemed ideal for the development of a business plan for 1time. Gavin Harrison, Glenn
Orsmond, Rodney James, Sven Petersen and Michael Kaminski pooled their many years’ experience
in the aviation industry and along with their desire to do things differently, created the platform
from which to seek the necessary additional funding. Afrisource Holdings, their aviation holding
company held 50% of the shares, while Mogwele Investments, a black empowerment partner, took
20% and an IT group the remaining 30%, thus adding vital diversity and IT skills to the existing
aircraft management, staffing and maintenance competencies held by the group. “The availability of
key airline executives and managers, with relevant experience, to set up and run the airline, was a
bonus.”

TIMING IS EVERYTHING

“On Thursday, 22 January 2004, 1time Airline opened for ticket sales through the Internet, its service
centre, and its ticket sales counters at Johannesburg and Cape Town International
Airports.”Operations commenced with three return flights per day on the Cape Town-Johannesburg
route. The airline has since grown and continues to grow, with new routes, destinations and
passenger numbers. 1time now flies between Johannesburg and Durban, East London, Port
Elizabeth, Cape Town and George, and between Cape Town and Port Elizabeth, East London and
Durban. In 2007, passenger numbers grew by 34%, compared to 15% per annum for the domestic
airline market as a whole. 1time is estimated to hold about 12% market share and carries up to 120
000 passengers per month.

What is low-cost airline? Smith notes the following six characteristics of low-cost airlines: high
seating density and load factors; uniform aircraft types; direct booking (Internet/call centre – with
no commissions); no frills such as “free” food, drinks, lounges or air miles; simple systems of yield
management (pricing); use of secondary airports to cut charges and turnaround times.

The 9/11 terrorist attacks in the USA in 2001 turned out to be an opportunity for 1time, as the
attacks shocked the global airline industry into major drops in the demand for air travel globally.
Passenger volumes dropped and aircraft values collapsed. Low passenger volumes were followed by
increased interest rates, which lead to many airlines shutting down altogether. Thus, many airlines
had aircraft for sale at very low prices, opening the door for small operators to acquire needed

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capital equipment. 1time was able to purchase aircraft and secure long-term leases at extremely
favourable rates. This opportunity was augmented by a strong local currency.

THE AVIATION INDUSTRY IN SOUTH AFRICA

1time represented South Africa’s first real low-fare airline. For years, air travel was the realm of the
country’s truly rich. In the years since 1994, competitors to SAA (South African Airways) included Sun
Air, Phoenix Air, Civair, FlightStar and Intensive Air, but all were swatted from the sky by SAA until “a
new breed of young, hip, irreverent brands arrived – that of the low-cost airlines”. Today,
competitors in the industry include Kulula, Mango, Comair, SAA, SA Express and SA Airlink. Low-cost
carries’ brands have had a major impact on the market share of the bigger, more established brands
of SAA and BA (British Airways).

SAA is the second-oldest airline in the world (KLM is the oldest). SAA has a fleet of over 50 aircraft of
varying types and sizes and services all major routes in South Africa, as well as many regional and
international routes. SAA has been voted “Best African Airline” for the last 10 years in row, and has
recently joined the Star Alliance.

Mango is state-owned and a subsidiary of SAA, but functions separately and independently of SAA It
leases four aircraft from SAA and was launched in 2006. Comair is a BA franchise partner operating a
fleet of 15 aircraft. Kulula is a wholly owned subsidiary of BA Comair and was set up as a low-cost
carrier, launched in 2001. Kulula comes from the Zulu word meaning “easy.”

There is much debate about Mango and SAA’s state funding and its impact on the industry. Orsmond
of 1time commented that Mango and SAAA are state subsidised and “distort the market by selling
below cost”. Erik Venter, joint CEO OF Comair, says, “We will continue to debate with, and challenge,
government on the subject of the need for loss – making state-owned airlines in the domestic
market.”

Research conducted by Campbell on a sample of 185 respondents at Durban International Airport

found that the most important attributes for passengers, in order of importance, were safety:
punctual and reliable flights; safely and carefully handled baggage; low prices; friendliness; customer
service; efficiency of employees; and online booking.

HOW IT ALL STARTED

“The name ‘1time’is a reflection of the South African soul of the company.” In South Africa, the
phrase ‘one time!’ Is a colloquialism meaning ‘for real!’. Airline slogans feature “Azikho lo nonsense”
or “No nonsense”, and “More Nice, Less Price” reflects the more-for-less positioning strategy. Anya
Potgieter, 1time’s Manager, says 1time doesn’t cost customers “an arm and the legroom” and says
“1time is the only low – cost carrier airline that doesn’t have a mother company to pay the bills.

1time standardised their aircraft to a single type, the MD80, which is part of the DC9 family. This
simplifies various aspects of its operations. 1time pilots, cabin attendants and maintenance crews
are specialists in this type of aircraft. The MD80 is one o the safest and most reliable commercial jets
ever built. The DC9/MD80 world fleet has flown in excess of 50 million hours. It was designed for

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short runway and short to medium range route. The low ground clearance reduces loading costs as
the lower deck cargo bays are at waist height reducing the need for loading platforms or conveyors.
Aeronexus, part of the 1time holding group, is an aircraft maintenance firm with vast experience
with this aircraft, thereby “ensuring the highest possible quality, reliability and safety standards”.

High utilisation is one of the secrets to 1time being able to consistently offer low fares. Many of the
other domestic airlines acquired their aircraft prior to 11 September 2001 when the value of the
rand was weak and aircraft prices high. Consequently, their cost structures remain high.

1time is an empowered firm in terms of its shareholders, employees and the community it serves.
According to Chief Executive Officer, Glenn Orsmond, “1time is the first privately owned airline to
commit itself to the objectives and targets set out in the Aviation Transport Charter. These
objectives include a targeted 25% black empowerment shareholding. The airline is furthermore
committed to consistently offering the lowest airfares to the general public to make air travel
accessible to those previously denied the opportunity to travel by air”.

1time has opted for a ticketless system utilising state of- the- art technology in its service centre and
Internet booking operations. The service centre is open 7 days a week from 7.00 a.m. to 9.00 p.m.
1time receives between 2 500 and 4 400 call per day. Of these, 92% are answered within 10 seconds

1time’s passenger cabins are designed for passenger comfort and convenience. Economy class
seating is 5 across – the preferred arrangement according to passenger surveys. All seats are leather
and legroom is considered to be the best in the industry. Food and drink can be purchased on board
flights so that only those passengers making use of this service are liable for the costs. 1time does
not offer a frequent flier programme as it believes that such loyalty programmes “rip the customer
off with high airfares”.

Positioning, research establishes how a brand is positioned on important attributes to the customer
and relative to competing brands. Earlier we mentioned the study conducted at Durban
International Airport amongst airline passengers across a variety of airlines that determined the
most important attributes to be safety and reliability/punctuality of flights. In terms of the most
important attribute, safety, SA Airlink was perceived to be the safest airline followed by SAA, then
BA Comair and then Mango, 1time and finally Kulula. In terms of punctual and reliable flights, BA
Comair and SAA were seen to be the best followed by Mango, then Kulula and finally SA Airlink and
then 1time. On reasonable process, as expected, the low-cost airlines scored best with Mango
coming out on top followed by Kulula and then 1time. SAA, BA Comair and SA Airlink were perceived
to be significantly more expensive. Figure 1 is a positioning map indicating perceptions related to
safety versus punctual and reliable flights.

Figure 1 Positioning map: Airlines

High BA Comair SAA

● ●

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 Mango
●
Reliability/Productivity

Kulula
●

1time SA Airlink
● ●

Average Safety High

WHAT THE FUTURE HOLDS

1time has set its sights on Africa and beyond. In September 2008, 1times acquired a 77.5% stake in
Safair Technical when it was merged with 1time’s maintenance division, Aernexus, to become one of
the largest FAA-approved maintenance firms in Africa. The merged maintenance facility will
maintain 1 time’s fleet of 13 aircraft, Safair Operations’ fleet of 16 aircraft, as well as many third
party maintenance customers worldwide. All maintenance income is US dollar dominated. Orsmond
says, “The merger will grow revenue and strengthen earnings in all three aviation focus areas, the
charter business and the aircraft maintenance business”.

In December 2008, 1time announced it had signed an agreement with Solenta Aviation and its sister
firm, ACIA Aero Holdings, which will provide funding for further acquisitions and growth
opportunities. Solenta’s charter and maintenance will complement Aeronexus, as well as 1time
character division. Solenta is also widely represented across Africa with a presence in Zimbabwe,
Kenya, Cote de’Ivoire, Senegal, Sierra Leone, Gabon and Togo. It also has an office in Afghanistan.
Solenta has lucrative contracts with various aid organisations, as well as with DHL, the global freight
group. According to Orsmond, “The intention is to grow the merged entity to be largest in Africa”.
He adds: “We really believe that we can make a dent in the world market”.
It isn’t always “plane sailing”, especially in2009. A 1time flight from Johannesburg to Port Elizabeth
was forced t turn back and land a few minutes after taking off due to engine trouble. Passengers
waited over five hours for another aircraft, which according to Orsmond, was due to general delays
being experiences by all airlines at OR Tambo airport that day. He said that passengers received
apologies, free tickets and meal vouchers while they waited.
And then there is the global recession. According to the IATA (International Air Transport
Association), “Airlines are on course for one of their toughest ever years.” Giovanni Bisignani,
Director General and CEO of IATA, says that the global aviation industry faces the worst revenue
environment in 50 years, despite the offset provided by declining fuel prices, which was expected to
average R600 per barrel compared to R 1 100 in 2008. The global slump has sent air cargo into free
fall and slashed passenger growth from 7.4% to 1.6%. In December 2008 alone, international air

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travel dropped by 4.6% compared to the previous year, and airfreight dropped by 22%. Bisignani
comments that even in September 2001 when much of the global fleet was grounded, the decline
was only 13.9%. African freight carriers appear not to have been as hard hit, with declines of 8%
being recorded for the year ended 2008. African airlines are expected to suffer losses in 2009 in
excess of R2 billion. IATA said that the continent’s carriers face strong competition, and that
defending market share would be the main challenge in the coming year.
1time made a loss of R6.3 million at the end 2008, despite a 50% rise in revenue. According to
Orsmond, domestic air travel demand dropped for the first time in five years. He comments,
however, that the absence of Nationwide softened the blow. 1time is more optimistic about income
from its aircraft maintenance division.
Despite the trouble looming in the aviation industry, 1time is not sitting back in doom and gloom. On
2 March 2009, the airline announced another airline-first by offering passenger the option of hiring
Playstations for in-flight entertainment at a reasonable cost. For R60, the passenger has access to
the console and a regularly updated menu of movies and game to choose from. In line with 1time’s
“More Nice. Less Price”. The added value provides passengers with reasonable priced optional extras
instead of spending million on in-flight entertainment, which in turn increases the ticket prices for all
customers. Thus the cost of the entertainment is for the individual, rather than expressed over the
entire passenger load. This initiative supports findings from 1time’s research, which indicated that
48% of their passengers are parents. In qualitative research they commented that having a quiet and
well behaved child makes for a pleasant and hassle-free flight for themselves and other passengers.