Erik Venter and Gidon Novick Founders of Kulula Airlines

Erik Venter and Gidon Novick made history eight years ago when the two Comair employees, with some help from senior management, launched South Africa’s first no-frills airline on a tiny budget. In 2008, Kulula generated turnover of R1,8 billion through its website. It’s no wonder that the carrier’s competitors are green with envy.
By Monique Verduyn

I put the Kulula story down to healthy paranoia and a deep-seated fear of lagging behind. The Comair culture has always been entrepreneurial. I discovered the true extent of that when I read a book about the history of the airline dating back to 1946. We have always had to battle against extreme odds to compete with SAA and that fighting spirit has won through, right to the present.

A lot of that is because we have remarkable consistency in the top management team. The company chair and deputy chair, who played key roles in getting Kulula off the ground, have been in the organisation for over 40 years, and in 65 years Comair has had only four CEOs. Because the churn at the top is so minimal, the organisation has always been able to focus on the future, to look at new trends in global aviation, identify potential threats to business, and determine how best to change the organisation in response to new environments and fresh opportunities.

We don’t seek out people with flair; rather, we aim to promote an entrepreneurial approach throughout the company so that everyone buys into the same philosophy. It’s a strategy that is quite unorthodox compared to many companies, most of which have set mission, vision and strategy statements. But we are in such a volatile industry that we have to keep changing targets all the time. As a result, we home in more on behaviours that make the company successful. Currently, for example, we maintain a great focus on the airline, but we are also moving into e-commerce, thanks to the cultivation of behaviours that are equally applicable to both sides of the business. Innovation and market leadership are at the heart of what we do. The ability to innovate comes from recognising proactive people and building recognition into performance assessments and measurements. We don’t single out people – it’s a process that we develop from the bottom up.

The biggest challenge in creating Kulula was that South Africa had not seen anything like this before. It was an extreme deviation from the traditional airline model which is all we had known since World War II. But while it was radical for the market, it wasn’t for us. The organisation had been in aviation for so long and was so familiar with the industry that it was a welcome challenge. Internationally, so many airlines have given up on their low-cost airlines, saying that it’s not possible to run a conventional carrier along with a low-cost offering. The truth is that Comair has always operated as a low-cost carrier anyway, because it is the underdog to SAA. The challenge therefore did not lie there; it was more about how to differentiate the new product to the customer. We did that by identifying elements of air travel that people would be prepared to pay for separately so that they could travel by air at a lower price.

We had seen what was happening overseas and we knew that it would have an impact on the local market. There were some carriers already looking at setting up a low-cost airline and we had to get to market first and quickly. And we did – we went from conceptualisation to first flight in just two months, taking to the skies in August 2001. Being first gave us huge traction in the market which has continued to the present. One of the biggest advantages at the time was that we launched it as The term “dot com”, which today is almost incidental, was new and in vogue, and had strong associations with the Internet – of course it was part of our strategy to incorporate the term into the name. It got us immediate attention and gave us a fresh and fun image.

It’s very easy to lose monumental amounts of money in aviation, so we set it up on a shoestring budget, which enabled us to see profits from day one. Comair funded Kulula, but the amount was really negligible. Yes, we had to be entrepreneurial in our approach and take risks, but we also had to be cautious. Our first reservation system was built in six weeks at a cost of R300 000, which is just bizarre. When I think of it now, it’s amazing that it ever worked. The current version of the system is multiple generations ahead of that one, has a team of 30 people working on it, and is worth millions.
The airline industry is currently experiencing tough times because of volatile oil prices and the economic crisis, but Kulula is healthy, handling over 100 flights day. A lot of the reason behind that comes back to institutional memory, which is a great strength. The absence of that constantly catches out other aviation businesses, where management have no idea how to deal with challenges because the team is always experiencing them for the first time. We on the other hand have been through 9/11, the SARS virus, and a dollar that cost R12 – hard times don’t really phase us.

The other thing about long service is that it paves the way for long-term focus. Many companies make the fatal mistake of sacrificing long-term sustainability for short-term profits. You have to resist that temptation. A long-term view makes a business so much more robust, especially in a recession. As an example, when we bought our aircraft we decided to pay them off over five years and not ten. Sure, we would have had a better cash flow if we’d stretched out the repayments, but it would also have cost us much more interest and we would have had to carry that during a downturn; instead, today we sit with a large portion of our fleet paid off.

It’s a way of thinking that has spurred on the recession – greed over sustainability. The international banking sector has revolved around massive bonuses for quick profits. In airlines too, contractors and consultants are brought in and paid huge amounts to deliver short-term gains.
The point is that they do not have the future of the business at heart and they are only around for a fixed period, which is where all their energies are targeted. After that they walk away. Our approach is that there are no surface solutions; if you need a consultant to perform a task in your business, chances are you will continue to require that task to be done, so rather bring someone on board and have what they do permeate the business.
We’re known for our branding and advertising, all of which is targeted towards being current, exciting and fun, a little like the Nando’s of the airline sector. We have our own internal graphics department which handles our promotions, and while our advertising is outsourced, we place a strong emphasis on building the image and culture of the brand internally too.

The recession has worked in our favour in several ways. There has been a lot of downgrading from premium to low-cost carriers. Many international companies once had a ban on cut-price airlines; that has fallen away. Instead, the management of travel costs has become a key concern for most companies. Both the corporate and leisure markets are keen on getting the best deal. This also favours the direct selling model which cuts down on admin costs.

Our products – Kulula Air, Kulula Travel, Kulula Connect, Kulula Card – are not in themselves driving our strategy. Kulula Connect, for example, is more about attracting people to the Kulula brand before they’re even ready to fly. The cellphone is ubiquitous in South Africa, so what better way to get the brand into the market early than with airtime. Kulula Card is different from other airline loyalty cards which apply some mystical formula to give customers miles which are extremely difficult to exchange for a specially allocated freebie seat. With Kulula, you earn moolah on every booking and you can use it anytime you want to for your next ticket. It’s that simple.

The move into Kulula Travel is really just leveraging off what we already have in the business: a great brand, a lot of marketing spend around that brand, and an excellent technology platform. In addition, it’s a product that is positioned well to complement our flight offering.We’ve seen many businesses launch travel platforms, but they have to start from scratch. With Kulula Air we already have a huge anchor tenant and all the support structures we need in place. It’s about having all the ingredients to enable the logical extension of the brand. And it’s a market that has enormous potential – in Europe, over 40% of hotel bookings are done online; in South Africa that figure is just 1%.

3G cards and the expected improvements and cost-reduction of bandwidth bode very well for the ongoing growth of Internet purchasing. E-commerce is still in its infancy in South Africa, but the recession may favour us once again as cost and convenience factors come into play.

The brand extensions help in that regard – we are doing something new all the time and we are never stagnant. The company spends a vast amount of time and energy researching Internet usage, how users interact with our own website, and how to improve the layout and processes. The drive is always to keep it user-friendly and exciting. Regular users of the internet no longer have tolerance for poor websites, so any e-tailer must keep their website functioning optimally. Consumers are becoming fussier about the Internet, from usability and Interface to uptime and speed of processing, your support infrastructure must be robust, backup must be in place and redundancy must be built in.

One of the tricks is managing the impact of fraud. Bearing in mind that 99% of our customers are genuine, we have avoided putting in place complex and extremely detrimental security products that penalise legitimate users; instead, we have gone for the back-office approach, in which we constantly profile users and credit card numbers to spot irregularities. We do not force our need for controls onto our customers. One of the main projects over the last 24 months has been to cultivate cultural awareness of what makes us stronger or weaker. This forms part of a huge plan to deliberately identify and communicate the corporate culture, and has led our people to accept things they have begrudged in the past. It’s all about seeing things from the customer’s point of view. Our new business ventures are all a product of instilling that culture – that is what drives innovation and spurs people on to look for opportunities.

Agility is key. You achieve it by creating a culture in which change is normal. We have never gone through what companies call a “period of consolidation” which is a euphemism for sitting back and doing nothing. We simply don’t expect stability, so change is not an issue. Interestingly, we have no systems to manage constant change – it’s something that is just accepted as part of the business. At more senior level, we hire people with a dynamic rather than maintenance approach to business. 2010 is difficult to gauge, for example.

We’ve planned to increase our capacity by 50%, but will only do so as we see demand growing. No one knows how many visitors will actually come to South Africa, or how much internal travel there will be. No doubt, the impact will be positive, but we don’t know by how much – we’ll respond when we do.
That’s what has enabled us to survive and grow in an airline market that is almost permanently overtraded. A lot of that is because of the government airlines, which fuel the constant battle over capacity. We have an aggressive, cut-throat relationship with our competitors and there is not much love lost between us and Mango. The state subsidy makes it jolly hard for us to compete. If for example, we look at upgrading our fleet, it’s very difficult to raise the finance in this climate, but SAA can go out there and buy a whole lot of new planes with government funds. As a business, we have to build momentum and get our balance sheet right, while the State keeps on ploughing money into Mango and SAA. That’s what pushed Nationwide out of the market. There really is no reason for Mango to exist other than to take out the competition.

Having two joint CEOs has enabled both of us to do what we enjoy, which means we do it well. Gidon and I have quite different approaches. His preference is for PR and marketing; mine lies in operations. The board must have decided that by putting the two of us together, they would get the best of both worlds. It’s hard to find one person who enjoys every single facet of a business, so I believe we are lucky we can share the duties.
Our roles are clearly defined and if anyone tries to play one of us off against the other, they are quickly told who to talk to about specific aspects of the business. It’s also allowed us to spread ourselves further and create a flat organisational structure. There are ten people at the next level of management, which a single CEO would not typically be able to handle. We are able to do much more and with a greater depth of detail.

Kulula at a glance
Kulula employs 1 800 staff.
Comair’s turnover has doubled in size every four years since the launch of Kulula in 2001.
The domestic air travel market has grown by 74% since 2001.
In the five years prior to that, there had been zero market growth.
Until the fuel price went ballistic, airfares had declined by 25% despite inflation since the launch of Kulula, a fact, says Venter, that makes it impossible to argue about the correlation between low-cost carrier prices and passenger volumes.
Kulula is one of South Africa's biggest online retailers with some R3,5 million in sales daily.
In isiZulu, “kulula” means it is light, or it is easy or simple.

Outlook for airlines
Kulula flies against a backdrop of global gloom:
Passenger traffic worldwide is expected to decline 8% in 2009, with corporate travel projected to drop by 15%.
The International Air Transport Association has warned that the world's airlines will collectively lose $9 billion this year.
Aircraft buyers are cancelling or delaying orders. Since January, European plane maker Airbus has booked a net total of 11 orders, after 21 were cancelled. Boeing – which is cutting 10 000 jobs – has taken orders for 73 planes, but with cancellations of 66, the net order intake is only seven jets. Fuel prices remain volatile as ever and continue to rise driven by the surge in crude oil prices, which topped $70 per barrel in August.

What you can learn from kulula

Speed to market
Kulula had first-mover advantage, a lead gained by being the first significant company to move into a new market. Realising that other carriers were eyeing the local scene, Kulula’s founders got the business up and running in two months, achieving an insurmountable advantage over its potential rivals. If a business is first into a market, it can capture market share much more easily without having to worry about rivals trying to lure the same customers.
When the rivals do come along – as they inevitably will – the first-mover will have advantages in the ensuing competition. In Kulula’s case these include familiar products, brand loyalty, and a great website. By beating rivals into the market, the first-mover can consolidate its position and compete more effectively, not only defending its previously acquired share but also continuing to expand and innovate.

Long-term focus
Short-term gain often equals long-term pain. Don’t make the mistake of putting all your efforts into making a quick buck now; rather broaden your focus and work on long-term sustainability. That will make your business resilient and help see it through the recession.

Consistent brand communication
Exceptional brand awareness is a direct result of consistent, integrated internal and external communication. It begins with a clear brand strategy, such as being customers’ number one choice by delivering outstanding value, continuous innovation and an exceptional experience. Exemplary brands always begin with strategy. Brand communication is merely a way to articulate and reinforce the strategy. Make all aspects of your marketing communications cohesive and consistent. Track and refine all your programmes and watch how that impacts on company culture, enhancing service delivery and increasing sales.

Keep costs down, pay off debt
Kulula’s launch budget was minimal, with the founders opting to focus on profitability from the outset. Time and again, successful business owners highlight the need to keep costs at a minimum – especially for a new venture. In addition, tackle your business's highest-interest rate debt first. Kulula opted to cut its payment period for an expensive capital investment by half, radically reducing the amount of interest it had to pay into the future. Better yet, the company does not have to service this debt in the midst of a recession.

Partner for success
The joint leadership model, which brings together two CEOs with complementary skills, has helped the company achieve its goals. It’s a valuable lesson for SMEs as partners have a vested interest in the business, more so than employees. When a business is new, and there are all sorts of unpredictability and challenges, two heads are better than one. You have someone to lean on, and you can strategise together. It means two leaders can focus their abilities where they are best suited without being distracted by other issues.

Published September 2009 | Editorial Disclaimer
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