Glenn Orsmond: Leading South Africa’s other low-cost carrier

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South Africa’s 1Time Airline is one of the world’s least known low-cost carriers, but co-founder and chief executive Glenn Orsmond is not concerned about getting beat by his more familiar competitors.

“Survival depends on who has the lowest cost,” he says. “If the government doesn’t intervene we’ll be the survivor because we’ve got the lower costs.”

Orsmond is confident 1Time has lower costs than its two main competitors, Kulula and Mango, because he established the airline when aircraft acquisition costs were at the bottom of the cycle. In fact he decided to leave Kulula parent Comair, where he was financial director, to establish 1Time three years ago with three partners because he knew he could significantly undercut other South African domestic carriers.

Orsmond says the three other co-founders, backed with funding from local investors, were able to buy and lease McDonnell Douglas DC-9s at bargain basement rates. They also leased two Boeing MD-83s for only R500,000 ($71,000) per month. Kulula and Mango, Orsmond claims, are paying significantly more because they are locked into pre-September 2001 lease rates when the South African Rand was weaker compared with the US dollar.

Kulula launched in August 2001 with a fleet of Boeing 737-200/400s and now also operates MD-80s. Mango launched in November 2006 but with 737-800s sub-leased from parent South African Airways (SAA), which acquired the aircraft prior to 2001.

“We were able to lock in aircraft at a fraction of the cost so we are ensured of a long term cost advantage,” Orsmond says.

1Time launched in February 2004 with 110-seat DC-9s. It has since moved three of its four DC-9s to its charter unit and replaced them with 157-seat MD-83s. It fourth DC-9 will be moved over to charter work in early 2007, giving the low-cost operation an all MD-83 fleet. 1Time has committed to acquiring two additional MD-83s in the first half of 2007, one of which will be used to replace the remaining DC-9s and the other to further grow the low-cost operation.

1Time has slowly but consistently expanded since its launch, adding an average of one aircraft every six months. In 2006 1Time carried about 1.2 million passengers, equating to about 10% of South Africa’s total domestic market. Orsmond claims the carrier turned a R20 million profit in 2006 across the group, which in addition to its charter and scheduled operations includes a maintenance business and an aircraft leasing unit. 1Time’s aircraft feature leather seats with 32in pitch but the carrier is a traditional no frills operator with 100% e-ticketing, charges for food and drink and no frequent flyer programme

1Time has benefited from a booming domestic market which has grown by about 50% since its launch. Orsmond expects growth at 1Time and the market overall to continue growing at about a 10% annual clip at least for the next few years.

But competition is stiff and over the long-term the domestic market could become saturated. Orsmond says in South Africa only five or six domestic routes are currently profitable. 1Time already operates on eight routes. “It’s a small flying population,” he says.

As a result Orsmond is banking on growth from its maintenance and charter businesses. The maintenance unit, Aeronexus, can do heavy airframe checks on DC-9s/MD-80s as well as Boeing 737s and 727s. It now works mainly on 1Time aircraft but is targeting new third-party business from other African carriers. Its diverse charter operation, which flies throughout Africa, also includes a Boeing 727 in VIP configuration that is mainly used by the Djibouti government.

Orsmond also hopes to eventually launch a scheduled international operation but so far attempts to secure route authorities have come up empty handed. “If and when it happens we’ll go to Africa,” he says. “Now we just get blocked by the government.”

Orsmond is interested in getting a piece of highly profitable routes to Angola, Mozambique, Zambia and islands in the southern Indian Ocean. But currently all the available frequencies under the relevant bilaterals are fully allocated and Orsmond complains that when new rights are available they are generally awarded to government-owned SAA. He also complains it is hard to negotiate competitive rates at South Africa’s major airports because they are all managed by the government-owned Airports Company of South Africa. Orsmond already lost a battle against the South African government over Mango, which he claims should not have received clearance to launch from the country’s competition authority because it puts the government in competition with private entities.

“Arguing against the government you have no chance. That’s how things work here,” he says.

But Orsmond does not plan to give up and says “eventually it will be sorted out”. Much of the world’s airline industry has heard of Kulula, which is often wrongly referred to as Africa’s only low-cost carrier, and took notice when Mango launched in November. 1Time is not exactly a household name. Its five manager-owners - which in addition to Orsmond include Sven Petersen, Michael Kaminski, Gavin Harrison and Rodney James – seem to like it that way.