Case 17

Case 17

Kulula.com: Now anyone can fly

Reprinted with the kind permission of Wits Business School

It was January 2003, 17 months since kulula.com had taken to the skies for the first time.This low-cost airline had survived almost twoyears in an extremely tough industry and, inaddition, claimed to have been profitable sinceits inaugural flight on 1 August 2001.

Gidon Novick, Comair Limited’s executivemanager of marketing, was involved inkulula.com’s somewhat unusual communi-cation strategy from day one and main-tained a close relationship with the adver-tising agency, morrisjones&co. The brandhad been very effectively established andthe airline had received two awards: theMarketing Federation of Southern Africa’sprestigious 2002 Tusk ‘Service Launch ofthe Year’ award; and the Airports Companyof South Africa’s (ACSA) ‘Domestic Airlineof the Year’ annual customer survey awardfor 2002.

But despite the hugely successful cam-paign, which had required only a few minoradjustments over the past 17 months, Novickdid not feel comfortable. He realized that thebusiness might soon face a problem – thepossibility that the hype in the market haddeclined to a certain extent or could do so inthe near future. He knew that in the fiercelycompetitive airline industry – an industry thathad become even more competitive since theSeptember 11 terrorist attacks – one couldnever sit back and relax.

It was time to rethink kulula.com’s strat-egy. Novick could not afford to miss a singlesignificant fact in establishing whether the

current formula was sustainable or not.Other competitors entering the market –such as national carrier SAA with its ownlow-cost airline – was a lurking threat.Even the current relationship with kulula.com’s advertising agency needed somereconsideration. With this in mind hestarted studying all the necessary support-ing documentation that was lying on hisdesk.

Background to the low-cost airline industry1

Up until 1978 the global airline industry hadbeen controlled mainly by national govern-ments that owned or subsidized the so-called national flag-carriers, which carriedthe flag of their nation on the tail of the air-craft. Following the deregulation of thedomestic airline industry in the US in 1978and in the UK in 1979, the market was sub-sequently freed up for the entry of othercompetitors. The terrorist attacks on theWorld Trade Centre on 11 September 2001,however, left many of the world’s alreadyailing airlines in a state of crisis, with Swis-sair, Belgium’s Sabena, Australia’s Ansettand US Airways going bankrupt. The health-ier airlines – British Airways and Lufthansa –experienced a significant drop in passengernumbers.2

1

Excluding Ryanair, the European low-costsegment accumulated losses of almost $300million between 1996 and 2001, and AB Air-lines, ColorAir and Debonair went bankrupt.Compared to the flag carriers, however, thelow-cost carriers did very well after the Sep-tember 11 attacks. Despite the seeminglycrowded market in Europe and a 7% marketshare of the intra-European air travel mar-ket, discount airlines such as easyJet, Ryan-air, Buzz and Virgin Express had all grownstronger and had placed Europe’s traditionalflag carriers under severe threat.3 Betweenthe two of them, Ryanair and easyJetaccounted for 88% of the scheduled low-costmarket in Europe. A 2002 McKinsey Quarterlysurvey found a pattern that suggested thatthe first entrants to this market seemed tobe the winners. Entrants that came on boardlater with the same costs and prices had aharder time generating the traffic needed tofill their planes. The survey further predictedthat, given the saturated market, consolida-tion would surely follow.4

The operations strategy of the low-cost car-riers was simple: secondary airports wereused as their lower airport fees kept costsdown, and aircraft were of a single type. Therewere no business class and higher-densityclass divisions, no free refreshments, nofrequent-flyer programmes, no connectingflights, and no possibility of rebooking to otherairlines. In addition, direct bookings were pre-dominantly conducted through the internet.

At the time of deregulation in the US, themajor airlines had underestimated thepotential of the low-cost airlines. Operatorssuch as Southwest Airlines managed to cap-ture domestic market share within a shorttime but, although many budget operatorssprang up after the deregulation, over 80%of them eventually went out of business.Still, the low-cost airline industry in boththe US and Europe had shown excellentgrowth, with Southwest Airlines being themarket leader amongst the six largest low-fare carriers. The others included JetBlue

Airways (a three-year-old that served 20 cities,claiming to be low-fare, but offering luxuriessuch as live satellite television), AmericanTransAir, Air Tran, andSpirit Airlines (privatelyowned). These airlines together accounted forsome 30% of the US domestic air travelmarket.5

In South Africa the Domestic Aviation Pol-icy (accepted in parliament on 1 July 1990), inline with international trends, started theprocess of deregulation in the South Africanaviation industry. By December 2002 domes-tic airline operations in South Africa wereprimarily divided among four competitors.These were national carrier SAA (60% mar-ket share on average across routes) with itspartners SA Express (also owned by Trans-net) and SA Airlink (10% owned by SAA);British Airways Comair (about 22% marketshare) with its local BA franchise and its no-frills arm, kulula.com (about 10% marketshare); and the independent operator, Nation-wide Airlines (8% market share). Intensive Air,another low-cost airline, became operationalin 2001 but liquidated in 2002. Sun Air wasalso relaunched in 2001. It offered only busi-ness class flights between Johannesburg andCape Town from Lanseria airport.

Backgroundto kulula.com

Commercial Air Services (Pty) Ltd (Comair)took to the sky for the first time on July 14,1946, to operate as South Africa’s first pri-vate airline. Before the 1991 South Africanderegulation, Comair competed on secon-dary destinations, such as Margate, a popu-lar holiday resort on the Natal South Coast,and Skukuza in the Kruger National Park. In1992, however, it entered the main domesticroutes. On 27 October 1996 a British Airwaysfranchise agreement came into effect andComair became known as British Airways

2 Part four Cases

Comair (BA). This turned Comair into amainstream player in the corporate market.Comair remained a South African controlledcompany and in 1998 was listed on theJohannesburg Stock Exchange (JSE). In1999 British Airways plc purchased 18% ofComair Ltd. The company was structuredalong the lines of the two brands indicatedin the diagram below:

Comair Limited (the company)

BA (franchise) (brand) kulula.com (brand)

In 2002 BA had more than 380 departuresper week to destinations around the countryand across the border.6

Since 1999 the airline had realized thatthere was a growing need for affordable airtravel due to the increasingly changingmarket, one that had become seriouslyprice sensitive. The economy was generallyweakened at the time and travellingexpenses had been cut.7 This realizationled to the launch of kulula.com in July2001 (see press release in Exhibit 2) as aseparately branded Comair initiative: aSouth African low-cost, no-frills airlinemodelled on the successful European low-cost airline, easyJet. The new airline had itsinaugural flight on August 1, 2001.

Kulula.com offered return flights betweenJohannesburg and Cape Town for as little asR800, three times a day (see Exhibit 2), andreceived 2 000 bookings on its first day ofoperation. In 2002 kulula.com’s capacitymeasured about 750 000 seats per annum(162 seats on each aircraft) and its target loadfactor (occupancy) was above 80%.

The product offering was simple: easyonline booking directly with the airline andconsistently affordable fares. At the sametime, frills were kept to a minimum:

l no changes could be made to tickets oncethese had been purchased (policychanged in January 2003);

l no pre-assigned seating was available8;

l no frequent flyer programme wasavailable;

l no business-class seats were offered; and

l food and drink were sold on board ratherthan distributed freely.9

Comair also stripped as many costs fromkulula.com’s business systems as it possiblycould, including bypassing the expensive andproprietary electronic distribution networks,such as Amadeus and Galileo, used by travelagents around the world. These werereplaced by a cost-saving internet reserva-tion engine that was used by both travelagents and consumers with much success.Customers could, in return, expect to pay40% less than they would for a conventionalairline ticket, without having to compromiseon safety or service.

Research had found strong evidence tosuggest that independent players did betterin the low-cost segment because they werenot bogged down by the systems and cultureof the full-service airline. So, if kulula.comwere to succeed it would had to leverage thebenefits of belonging to the Comair group butalso transformed its business model.WhileComair had always been very conservative inits culture (because decisions had to be takeninvolving enormous costs, such as spendingR750 million on three aircraft) and its seniormanagement were almost all older than 55,the culture in kulula.com was chosen to bemore youthful. This new airline was launchedwith a staff count of 40 (now 250) – all young oryoung at heart and enthusiastic.

Several local and global factors preventedkulula.com from following a typical overseasmodel. The threat of competition was one ofthese factors: the price advantage that the newairline enjoyed could easily be matched by asubsidized parastatal competitor that wouldnot experience the same profit imperative.

Case 17 Kulula.com: Now anyone can fly 3

There were also structural difficulties, includ-ing the fact that load factors10 needed to beconsistently high for kulula.com to remainprofitable.

Other constraining factors were:

l kulula.com’s being in the same stable asComair;

l the fact that secondary airports were notas available or as well equipped to dealwith the volumes of low-cost passengersas their overseas counterparts;

l the fact that the weak currency and lowinternet and credit card penetrationhampered cost-reduction efforts; and

l the reduced adspend (advertising budget)available to encourage direct sales so thatcosts could be kept to a minimum.

This last factor meant that the low-cost mod-el’s marketing and advertising had to delivergreater volumes of responses with fewerresources.11

To deal with these constraints, the mar-keting objectives were to establish the airlineprofitably, maintain passenger load factorsof 80% (compared with the industry averageof 60%), and achieve at least 30% bookingsonline to ensure low-cost distribution.

Marketing Strategy12

If you feel 100% comfortable about yourcommunication strategy, it probably is agood one, but not a great one.Colin Jowell, strategic planning director:

morrisjones&co

Morrisjones&co, a small advertising agency(originally M&C Saatchi SA), had been lookingfor an account that would give it the break it sodesperately needed. Consisting of only fiveyoung but highly skilled people, the companywas bare-boned when it was short-listed forkulula.com’s account. The brief for the pro-posal was just that – very brief. A few calls

weremade to subcontractors and to Novick onthe golf course to get some more detailedinformation on the proposed new airline. Afew frantic weeks and many sleepless nightsfollowed.

During the brainstorming, creative directorAngel Jones came up with the superhero ideabased on the hidden desire of everybody thatthey could fly. Once this main idea was inplace, the rest came fairly easily. Adamantthat the corporate colours should be bold,the agency team considered colours likeorange, until the bright green eventuallyemerged. At the time, Comair expressed itsconcern at the time that the green corporatecolour could be confused with that of conser-vative financial services group, OldMutual, butin the end the two could hardly have beenmore different.

Passion and enthusiasm became a trade-mark of the company. Jowell reckoned thatthe ‘going beyond what was asked for’ thememight certainly have helped morrisjones&coto win the account but that the very detailedturnkey solution, covering literally everythingfrom uniforms to signage, also played a bigpart. This thoroughness equalled depend-ability and set the foundation for good rela-tions. Both Comair and morrisjones&co heldthe view that the key to success was therelationship between the company and theagency. Mutual trust and transparencyexisted from day one of the relationship –so much so that Jowell described the rela-tionship as a ‘magic experience’.13 A commonlove for basset hounds, amongst other things,eventually turned the professional relation-ship between Jowell and Novick into a lastingfriendship.

The agency took the kulula.com’s market-ing campaign very seriously (Jowell jokinglyremarked that they had to as it was their onlyone at the time) and kept a close watch onevery development. It was a risky businesswith a relatively small budget of R3 million,but his viewpoint was always that ‘if it feelssafe, it may be that people won’t notice it at

4 Part four Cases

all, which is much more risky. If it is bold andin your face, it will stand out.’14

And stand out, it certainly did. So much so,that two complaints were lodged at the Adver-tising Standards Authority of South Africa(ASASA). A certain Mrs McNally claimed shefound a sexual scene depicted on one of thebillboard advertisements (see Exhibit 3) assuitable only for one of the pornographic mag-azines whose names she was able to list care-fully. Jowell found the complaint somewhatamusing as the advertisement was clearlyintended to amuse and not arouse. A letter tothe ASA was drafted, defending the claim’s‘complete lack of substantiation’. The excerptthat follows is taken from the letter.

‘We must consider what the ASA guide-lines refers to as a ‘fair proportion’ of thepopulation. A single letter surely does notconstitute this, and were the board overtlydepicting sex, we should expect many moresuch complaints. The guidelines also refer tothe care when depicting the human body.The fully clothed superhero with a passengerhanging on for dear life could hardly be con-sidered disrespectful. In addition, we do notbelieve that children without any sexual expe-rience will in their innocence recognize thisas a sexual act. We mention this group spe-cifically to demonstrate that we believe wehave taken sufficient care to ensure that anyreaction (other than a laugh) was accountedfor and the creative concept modified accord-ingly,’ it said.

The billboard remained until the timeoriginally scheduled for its replacement.

The dust had just settled when a secondand completely different kind of complaintlanded on Novick’s desk. This time a MrMance believed that the company’s position-ing line – Now Anyone Can Fly – was mislead-ing, as only credit card holders or people ableto travel to the airport could purchase a ticket.Novick and Jowell responded by pointing outthat the true meaning of the word ‘anyone’was ‘whatever individual is chosen’ and shouldnot be confused with the meaning of ‘every-

one’ (‘each or all’). The other word ‘can’ wasequally clear in its description: ‘to be able to’;‘to be permitted to’; ‘to have the right to’.

Therefore, as stated in their response,‘when one totals owners of cars, people withaccess to public transport to the airport, andfinally credit card holders, one surely reachesa significant sum of the population. While itcertainly does not include everybody, it cer-tainly is a significant enough portion to warranta claim of anybody.’ Mr Mance was alsoreminded of the fact that he could purchasetickets from travel agents.

Kulula.com was morrisjones&co’s bigbreak and the company received many callsfrom clients asking them to do a ‘kulula’ forthem, but not every company was prepared totake the risks Comair had. The communica-tion strategy that the agency prepared forComair, which was ready for implementationwithin a matter of six weeks, is outlined below:

Positioning and branding

The overall aim of the strategy was to createstrong consumer affinity that went beyond retailand price point. It was commonly accepted thatprice was not a source of sustainable compet-itive advantage. Instead, the following value tri-angle was developed for the brand:

COSTConsistently low prices

Always good value

QUALITY • Safety • Friendly service • Customer is the hero

TIME

Take no more of

our customers'

time than is

absolutely

necessary

BRAND CORE

SIMPLE

VALUE

The search for a name for the airline thatcould encapsulate value, simplicity and ease

Case 17 Kulula.com: Now anyone can fly 5

was not a simple matter. ‘Comair Lite’ wasComair’s original suggestion, but the agencyfelt a different name was needed for sixreasons.

l The new airline would appeal to a broadertarget market than that comprisingtraditional flyers. Breaking namingconventions such as ‘air’, ‘airways’,countries of origin, etc would reflect thisbroader appeal.

l The offering would be dramaticallydifferent from anything that had beenavailable before. The act of flyingwould be the only common experience,as all the frills associated with flyingwould be removed. A different namewould make this distinction clear.

l Internationally, the success ofindependent low-cost carriers over low-cost carriers attached to full-servicecarriers was evident. While brandassociation at this level was oftenintended to add a sense of importance,the direct association made the full-service airline appear to be ‘unnecessarilypricey’, while the low-cost sibling mightappear to be ‘cutting corners’. A separateidentity would help combat customers’negative perceptions.

l The internet as the main channel ofdistribution was envisaged. Therefore,the name had to carry information aboutthe distribution channels, namely onlinesales. The stature of the ‘.com’ identityrather than a ‘.co.za’ identity gave anindication of the stature and safety ofthe new brand and permitted strongerpronunciation.

l Bearing in mind the low penetration of theinternet, a name that could be easilyincorporated into an 0861 call centrenumber was imperative.

l A name that was too literal could limit thebrand in the long term in terms ofexpansion.

It was Jowell who exhausted every Englishdictionary and thesaurus, but no suitable‘.com’ name was available. In desperationhe went to a local bookshop and purchaseda Zulu dictionary from which he short-listed acouple of names, checking possible negativeconnections with a professor in linguistics at alocal university before the presentation toComair. The end result was ‘kulula’ – whichtranslates as ‘easily’ in Zulu. At first therewere concerns that kulula would be difficultto pronounce and the short list was consultedagain. The second choice was ipiku, whichresembled a word meaning ‘wing’. But in theend ‘kulula’ prevailed, with only one last hur-dle to be removed: a small bus transportcompany had already registered the trade-name ‘kulu’. Comair subsequently offered tobuy the name, the company agreed, and kulu-la.com was born.

While the policy was never deliberately eth-nic or empowering, the implications of thename were welcome. They appealed to newmarkets, promised a real difference to exist-ing ones, and met all practical considerations.

In order to create the positioning line, itwas decided to translate ‘simple value’ into aconsumer benefit. The following positioningequation was used to explain this benefitstatement:

SIMPLE VALUE = lesstime and money

NOW ANYONECAN FLY

CONSUMER TRUTH BRAND TRUTH

POSITIONING STATEMENT

More people would fly ifthey could afford the

time and money

The positioning was further fleshed out ina dual mission statement – a sign to custom-ers as to what they could expect and aninternal rallying call. (See Exhibit 4.)

6 Part four Cases

Pricing strategy

As a low-cost airline, kulula.com adhered toa strong commitment to passing on costadvantages to its customers. In addition, atleast 30% of any given flight would be avail-able at the advertised lowest price, withoutrestriction. This approach was brand new, ascompetitors, although able to match certainprices, made available only a very limitednumber of lowest-price fares. Competitorsalso stipulated booking restrictions, suchas an advanced-purchase requirement, areturn-booking requirement and a require-ment for a Saturday-night stop-over.

The kulula.com pricing model was delib-erately simpler, so that the customer wouldlearn that the value offered was more con-sistent and lived up to the brand notionof ‘simple value’. For this reason limitedprice promotions or discounting were neveroffered. In this way customers would not begiven the impression that kulula.com couldcut costs even more if it chose to.

Product innovation: Withinlow-cost constraintsEvery area of the product offering wasexamined for strategies that could make thekulula.com experience easier, simpler andunique for customers, without costs beingadded to the business. One of these strategieswas to offer special benefits to flyers ratherthan to award costly points or discounts. Thefirst of these benefits was kulula.com/cars,where simple and extremely competitive rateson car rental were offered. This was achieved,without additional costs to the airline, througha partnership with Imperial, a leading SouthAfrican car rental company.

Branded service delivery was another impor-tant strategy. Kulula.com’s staff uniforms weredesigned for greater comfort and improvedfunctionality, and reflected more open and cas-ual brand values. Staff were also trained on howto deliver service that was not just good, butalso appropriate to the brand. Where appropri-

ate, customers were addressed by first namesand staff were encouraged to make themost of their natural personalities and theirsense of humour. This more relaxed approachwas never allowed to undermine the pro-fessionalism of staff or the safety of theirpassengers but, according to Jowell, the staff’sin-flight antics were a great source of word-of-mouth references.

Other ways of making kulula.com easy touse for customers and of containing costsstemmed from:

l ticketless flying: all that was required wasan identity document;

l the removal of complimentary food andthe selling of snacks instead;

l a simple website design that downloadedquickly;

l call centre scripts that were designed sothat information could be processed asswiftly as possible, and waiting times keptto a minimum; and

l additional benefits that were self-sustainingand that neither brought in profits norincurred costs, such as kulula.comic (anin-flight magazine published at its ownexpense by an independent publishinghouse).

Alternative marketsegmentationThe traditional segmentation model wasbased on frequency of flying (high/low) andpurpose of flying (business/leisure) as illus-trated in the graph below:

Purpose

Business Leisure

Frequencyof flying

High

Low

Traditional segmentation model

Case 17 Kulula.com: Now anyone can fly 7

While this model certainly went some waytowards helping inform the marketing proc-ess at Comair, it did not adequately define thesegment that kulula.com sought. Nor did ithelp define how kulula.com would differ fromthe BA service. For example, one could easilyhave assumed that a frequent business trav-eller might choose the service benefits of BA.But it was well known that privately-ownedbusinesses might well choose the value ben-efits at kulula.com. New segmentation wasclearly required if kulula.com was to targetcorrectly and avoid cannibalization.15 (AMcKinsey survey revealed that most passen-gers who flew with low-cost airlines were notdefectors from the incumbents, but that lowerprices rather encouraged people to fly whenthey would otherwise have travelled by roador rail, or not at all.)16

Key marketing dimensions that kulula.com considered were:

l the person responsible for the flight costs(the passenger, his/her family or theemployer);

l passengers’ flexibility (high forholidaymakers or low for businesspeople);

l the expectations of the passengers aboutcomforts (high for CEOs, for example, orlow for students, for example); and

l the purpose of the flight (business,personal, leisure).

From an analysis of these dimensions, itwas easy to see that kulula.com suited indi-vidual/family payers better, as they had aminimal need for flexibility (although kulula.com later introduced a facility to exchangetickets). In terms of the purpose, it could bebusiness or personal, but kulula.com’s busi-ness people were more likely to be fromsmall and medium enterprises (SMEs) thanemployees of large corporates.

BA still had its own path for people whorequired flexibility, were more likely to havetheir employer pay the bill and had a need for

luxury benefits. Again, the purpose of travelshowed variation, but these passengers weremore likely to come from larger companies.

These dimensions were added to an incomefilter (LSM 6+ ).17 At these income levels peo-ple start utilising bus transport for long dis-tances and, given that the bus fares on thesame routes were only 10% lower at kulula.com’s launch, these customers were, for thefirst time, included in the airline target market.

This greater understanding by the agencyof an additional target market influenced themessaging, media choices and productdevelopment over the first operational year.Morrisjones&co found that the key differen-tiator in the past (business or leisure) hadlittle bearing on the choice of airline definedby the new segmentation.

Advertising and promotionA number of key vehicles were leveraged topromote the airline: above the line media18

to reach the mass audience required; belowthe line elements19 to maximize visibility andoptimize the budget in this way; and publicrelations and events.

This kind of direct promotion was vitalbecause of the alternative distribution chan-nels. Traditionally, agents had primarily beenresponsible for the distribution of tickets.While call centres and web sites had beenavailable for some time on traditional airlines,these direct channels were not often used bycustomers.

Advertising and communication spendingwould therefore act as a substitute distribu-tion cost and had a few key objectives. The firstof these was to drive top-of-mind awareness.Research had found that people’s need ordesire to travel was related more to theirexternal needs than to a specific limited-pricespecial. Top-of-mind awareness was thusvital because one could never be sure whensomeone was entering the buying cycle. Thekey action was to check with kulula.com first.

8 Part four Cases

The second objective was to build bigbrand security and trust. There was alwaysa concern that the meaning of ‘value’ wouldbe transposed into meaning ‘cheap’. Sus-tainable spend (constant promotion) andhigh production values were always chosenin order to counter these impressions.

The third was to capitalize on criticaltimes, driving a strong call to action at timeswhen people would be more predisposed tofly, such as during school holidays and onValentine’s Day.

Implementation and tactics:Advertising and above-the-linemediaBecause of the large audience size, above-the-line media was chosen as the mostcost-effective launch route. But within theconstraints of the launch budget, a particularlyunique campaign was required to cut throughthe clutter. Conventional airline advertisingshowed a selection of common images: com-fortable seats, great food, smiling cabinattendants or exotic destinations. All of thesewould hardly have reflected the brand valuesimplied in ‘simple value’.

With the positioning ‘Now Anyone can fly’,Jones developed what she called a ‘brutallysimple’ creative route: if anyone could fly,this meant that ordinary people couldbecome superheroes (in ad-land at least).The idea, therefore, was to show as manytypes of ordinary South Africans as possible,dressed as the superheroes they could nowbecome with kulula.com. It was a tongue-in-cheek dramatization of the philosophy thatthe customer was the hero. (See Exhibits 5,6 and 7 for examples of advertisements.)

Media deployment

The base of the campaign was outdoor adver-tising. This medium was chosen for its abilityto deliver a branded message over a sustain-able period of time with a regional focus. Out-

doors at the airport and in and around thedestination centres (Johannesburg, CapeTown and later Durban) were the basis ofawareness building. Burst strategies wereused to coincide with specific activities andproduct development. (See Exhibit 8 for totaladspend per month.)

The media campaign had three phases asoutlined below.

Phase 1: Airline Launch (July 2001 –October 2001).

l The weekend press chosen includedSunday Times, Rapport, Saturday Star.These publications offered mass reachand communicated product details, suchas routes and price points.

l Regional radio was used in Gauteng(Highveld Stereo, Radio 702, Jacaranda,Kaya FM) and the Western Cape (K FM,Cape Talk). Durban radio was not used asflights to Durban were not operational atthe time of the launch. Nationalbroadcasting was also used in the form ofMetro FM and together these gave abroad diversity of audience. Ad spots weredesigned to encourage immediate sales.

l Online coverage was used to great effectat the launch. A wide range of sites waschosen for banners20, pop-ups andkeywords. Online usage was later largelydiscontinued, not because of lack ofeffectiveness, but because kulula.com’sown traffic swiftly became moreextensive than most sites available foradvertising.

l Cinema advertising was used in theWestern Cape only, to compensate for alack of available outdoor opportunities.

Phase 2: Durban Launch (November 2001 –January 2002). The same focus of Phase 1wasmaintained in Phase 2 but with supplements forDurban residents.

Case 17 Kulula.com: Now anyone can fly 9

l The weekend press chosen includedSunday Times, Saturday Star (Gauteng)and Sunday Tribune (Durban).

l Regional radio broadcasting was carriedout by Highveld Stereo, Jacaranda, KayaFM, and East Coast Radio (Durban-based).

l A small amount was spent on SABC 3 (aSouth African television station). With theDurban launch national television becamea viable option and served to supplementthe cinema commercial.

l Additional outdoor advertising was donein Durban.

Phase 3: Maintaining the media campaign(February 2002 – June 2002). Additionalmedia elements such as sponsorship andstreet pole advertising were added to the cam-paign so that the consumer could be reachedin new and surprising ways.

l Kulula.com acted as the official airline toMNet’s (South African pay television)programme Idols and supportingadvertising;

l Regional radio broadcasting was carriedout by Highveld Stereo, Jacaranda, KayaFM, K FM, Cape Talk, YFM (also Gauteng-based), and East Coast Radio; and

l Additional outdoor advertising took theform of street pole ads.

Implementation and tactics:Below the line elements

To maximise the budget, the theme for theabove the line campaign was carried into allelements of service delivery and design. Everylast detail, down to the call centre holding tune,was carefully crafted. The airplane design hadthe positioning line included to make it a flyingbillboard and the uniform design was func-tional and friendly. (See Exhibit 9.) Airportkiosks and interactive (internet) displays, bro-chures and timetables all carried the importantmessage. (See Exhibit 10.)

Public relations and events

Press relations had always been key to thepromotional strategy, always on the under-standing that news is made; it does notalways just happen. Kulula.com encouragedthe media to experience its service by flyingCape Town journalists to Johannesburg, andJohannesburg journalists to Cape Town andlater on to Durban. Other events that wereused included:

l an in-flight engagement on Valentine’sDay;

l a free Guinness on St Patrick’s Day;

l guaranteed low-price fares to passengersstranded by Intensive Air’s collapse;

l go-cart racing to launch kulula.com/carson August 14, 2002; and

l offering a R100 return special to allpassengers over 100.

The welfare organization, SOS Children’s Vil-lages, was also supported by kulula.com fromits inception. The children from the villageshad benefited in many ways. Probably themost memorable of these was the first flightto Durban, where 30 children were takenalong for their first visit to the sea.

Communication Results21

The kulula.com campaign is like a breathof fresh air, being most amusing andrelevant, it certainly helped prod SAA intoreaction.

Heather Holt22

Comair stated in its 2002 Annual Reportthat domestic air travel had been charac-terized by over-capacity, aggressive pricingand flat passenger demand in traditionalairline markets. It noted, however, that withkulula.com attracting a new travel market,Comair had nevertheless performed welland that the combined British Airways andkulula.com brands had achieved improved

10 Part four Cases

domestic market share.23 (See Exhibit 11for a five-year review of Comair’s incomestatement and balance sheet.)

In the first year of operation, 500 000 ticketswere sold. Load factors remained consistentlyabove the industry average of 65%, whilecapacity (available seats) tripled. The salesrange, in which with the minimum and max-imum monthly load factors experienced (75%and 85%) were multiplied by available capacity(see Exhibit 12) illustrated that the marketingefforts had achieved their objective of creatingexcellent levels of demand for the capacityavailable.

Advertising spend was used strategicallyto increase sales to the next level (effectivelymaking it a distribution cost). In the case ofthe third increase of capacity, less spendingwas needed since the capacity increase wassmaller and the cumulative brand equity wasstronger. (See Exhibit 13.)

Distribution costs had dropped dramati-cally. Comparing the average kulula.comcase to the lowest case scenario for CapeTown (which accounted for the bulk of thevolume), its distribution costs measuredover 50% less than those of its competitors(see Exhibit 14).

Exposure to communication significantlyimproved perceptions of service among kulu-la.com’s own passengers even if they werenot topics covered directly by the advertising,such as leg room, reliability and safety (seeExhibit 15). Moreover, of all airline users,Kulula.com flyers had the highest recall oftheir airline’s advertising (see Exhibit 16).Morrisjones&co argued that this demon-strated that the advertising itself that was astrong driver of choice. Kulula.com’s advertis-ing also scored well (see Exhibits 17 and 18) inincreasing curiosity about the brand, provid-ing information and improving perceptions ofsafety, although the bus market seemed torecall SAA advertising slightly better thankulula.com’s advertising (see Exhibit 19).

Since the launch the local airline markethad grown by 12%, which was roughly equal

to the capacity that kulula.com added to themarket. Web bookings accounted for 65% ofsales (its ‘look to book’ ratio being 20%),exceeding the target by more than 100%. Thiswas supported by the 1.5 million unique visits(excluding revisits from the same people) tothe website in the first year of operation. Addi-tional press coverage to the value of R3millionwas received over the launch period as aresult of the attempts to establish good pressrelations.

Conclusion

If we are forced to make an emergencylanding on water, all superheroes whocan swim please exit on the left-handside of the plane. All passengers whocan’t, thank you for flying kulula.com.

kulula.com cabin attendant24

While humour was appreciated during timescharacterized by increased crime in SouthAfrica, Novick still struggled with some issues,one of them being the sustainability of the air-line’s totally unconventional approach to mar-keting and customer service. Kulula.com andmorrisjones&co were well aware of the factthat not everybody embraced its advertisingcampaign with open arms. There were com-plaints from the public from time to time, butthe excellent historic booking rates spoke forthemselves and the strategy remained verymuch in its original format.

Some questions, however, still remained.Would the marketing strategy still beappropriate or would certain aspects of itneed to be modified as kulula.com becamemore established and the macro and com-petitive environment changed? Alternatively,even if the strategy was still appropriate,would the communication campaign needan overhaul, particularly in its creative execu-tion? The possibility remained that the greenimage and irreverent humorous advertisingcampaign might become trite or, even worse,

Case 17 Kulula.com: Now anyone can fly 11

obsolete. It might even be time to reconsideradvertising agency morrisjones&co’s involve-ment if the public had outgrown this approachto communication.

How could kulula.com ensure that it wouldkeep flying high?

Exhibit 1: Backgroundto the low-cost airlineindustry

Global airline history

Europe’s national governments influencedthe early post-World War I aviation industry.The privately owned commercial airlines thatarose after World War I were soon amalga-mated into small national ‘flag carriers’ – socalled as they literally carried the flag oftheir nation on the tail of the aircraft. Thesepredecessors of British Airways (BA), AirFrance, Lufthansa and others were ownedand subsidized by their respective govern-ments. Services focused on internationalroutes and domestic flights were limited,serving only to connect provincial cities tothe capital city. Fares on domestic routeswere often kept high to subsidize interna-tional service.

The aftermath of World War II broughttechnological advances that made air traveleconomical for the first time. American dom-inance started to become a threat in airtravel and for this reason the InternationalAir Traffic Association (IATA) set interna-tional fares, thereby limiting free competi-tion. Governments negotiated agreementsthat regulated all aspects of air travelbetween two countries. ‘Pooling arrange-ments’ became the norm in Europe, whereroutes between, say, France and Italy, wouldbe given exclusively to Air France and Alita-lia. The two flag carriers would then agree topool their capacity and revenue, and share

the proceeds. Carriers were banned fromflights that did not begin or terminate ontheir national soil. Domestic services werealso regulated and fares were set by govern-ment authorities.

In 1978, US Congress approved the dereg-ulation of the domestic US airline industry.Pricing, route scheduling, entry and exitwere freed up and this allowed for a dra-matic drop in fares. The market became verycompetitive between 1978 and 1980, butmany of the new airlines that were estab-lished failed.

Following the deregulation of the US avi-ation, there was similar pressure on Europeto deregulate. In 1984 the European Com-mission proposed the abolition of poolingarrangements, price fixing and governmentsubsidies. Despite resistance from tradeunions and flag carriers, 1986 saw the Sin-gle European Act, which called for the cre-ation of a unified European market by theend of 1992 to ensure the free movementof goods, persons, services and capital inthe market.25

The United Kingdom was one of the firstcountries to liberalize its domestic airlineindustry against the background of state-owned European carriers. The prime ministerat the time, Margaret Thatcher, encouragedderegulation after her election in 1979, andfor the first time a bill required that regulatorsgave the interests of consumers equal weightto the interests of operators when allocatinglicenses for new routes. Thatcher’s govern-ment, which was in favour of the privatizationof state-owned enterprises, promoted the pri-vatisation and complete restructuring of BA.The airline was turned around from making aloss of UK£102 million on revenue of UK£750million in 1981 to showing record profits in1984. By 2002 BA’s worldwide route networkcovered 263 destinations in 97 countries with348 aircraft – one of the largest fleets inEurope.26

The terrorist attacks on the World TradeCentre on 11 September 2001, however, forced

12 Part four Cases

many of the world’s already ailing airlines intoa serious crisis, leaving Swissair, Belgium’sSabena, Ansett in Australia and US Airwaysbankrupt, while British Airways and Lufthansaexperienced a significant drop in passengernumbers.27

Europe’s low-cost airlines

Excluding Ryanair, the European low-costsegment accumulated losses of almost $300million from 1996 to 2001, and AB Airlines,ColorAir and Debonair went bankrupt. Com-pared to the flag carriers, however, thelow-cost carriers did very well after the 11September 2001. Despite the seeminglycrowded market in Europe and a 7% marketshare of the intra-European air travel market,discount airlines such as easyJet, Ryanair,Buzz and Virgin Express had all grown stron-ger and had placed Europe’s traditional flagcarriers under severe threat.28 Between thetwo of them, Ryanair and easyJet accountedfor 88% of the scheduled low-cost market inEurope. A 2002 McKinsey Quarterly surveyfound a pattern that suggested that the firstentrants to this market seemed to be thewinners. Entrants that came on board laterwith the same costs and prices had a hardertime generating the traffic needed to fill theirplanes. The survey further predicted that,given the saturated market, consolidationwould surely follow.29

The operations strategy was simple: theuse of secondary airports (low airport feeskept costs down), a single aircraft type, nobusiness class and higher seat density, nofree refreshments, no frequent-flyer pro-grammes, no connecting flights and no pos-sibility of rebooking to other airlines. Inaddition, direct bookings were predomi-nantly conducted over the internet.

Ryanair.30 Vathal and Declan Ryan, twobrothers, initiated Ryanair, an Irish low-costairline, in 1985. Ryanair competed indirectlywith Aer Lingus, the official airline in Ireland

but was only licensed to run a servicebetween Waterford in the southeast of Ire-land and Gatwick Airport, one of London’ssecondary airports. Later, in 1986, it oper-ated between Dublin and Luton, another ofLondon’s secondary airports. Ryanair man-agers had their eye on the roughly three-quarters of a million round-trip travellersthat opted to use rail and sea ferries ratherthan aircraft. The journey took nine hours byrail and ferry compared to one hour by air,and it was priced at I£55.31 Ryanairannounced its fare of I£98, offering first-ratecustomer service and a ticket with norestrictions. Aer Lingus and BA reacted bylowering their fares. A price war followed,leading to fares as low as I£70 in 1989.Expansion followed as customers respondedenthusiastically to the simple fares. Trafficon the Irish Sea ferries fell substantially.Despite Ryanair’s growth in terms of passen-ger volumes, some large losses occurredover the years until 1991, when the companyfaced a severe cash crisis.

In 1991 the company restructured as atrue low-cost carrier, when CEO MichaelO’Leary came on board and managed to turnit into a company with a E4.9 billion marketcapitalization, listed on the stock exchangeby 2001.32 The Ryan family owned 10.9%,O’Leary 7.2% and the rest was publiclytraded. Ryanair had been Europe’s biggestlow-cost airline, with operating margins ashigh as 26%,33 and the market leader for 10years until August 2002, when the merger ofeasyJet and Go forced Ryanair into the num-ber two market share position.34

easyJet.35 EasyJet was founded inMarch 1995by the heirs of Greek shipping tycoon, SteliosHaji-Ioannou. Despite its phenomenal growth, itremained in the number two position until itbought another rival, Go, for £374 million ($525million) to create Europe’s biggest low-cost air-line. The deal was completed on August 1 2002.Go, founded by BA in May 1998, had previouslybeen sold in June 2001 to 3i, Europe’s largest

Case 17 Kulula.com: Now anyone can fly 13

venture-capital firm, for $153 million. In 2002the combined airline already carried approxi-mately 14 million people. The phenomenalgrowth of easyJet turned it into Europe’s num-ber one low-cost airline, with an operatingmar-gin of 9.5%.

EasyJet kept its costs low by operating fromsecondary airports, flying carefully selectedroutes and providing the minimum of service,including no seat allocation or complimentarydrinks or meals. The cabin crew cleaned theplanes after flights and the company handledall its own marketing and advertising in-house.36 All bookings were made directly withthe company, either by telephone or via itswebsite.

Virgin Express.37 Virgin Express was origi-nally established in 1992 by City HotelsGroup as EuroBelgian Airlines (EBA) andwas acquired by Richard Branson’s VirginGroup Investments Limited in April 1996. Vir-gin Travel held a 59% share of the airline,while the rest was publicly owned. DAT, theremnant of the bankrupt Sabena, expressedan interest in merging with Virgin Express in2002, but by the beginning of 2004, nothinghas been finalized.

In 2002 Virgin Express carried more than2.7 million passengers on its scheduledservices. During the last nine months of2002, Virgin Express carried more passen-gers than any other airline at Brussels Air-port, thus making it the first major airport inEurope where the market leader was a low-cost carrier.

Buzz. Buzz launched its services in Janu-ary 2000. The airline formed part of KLMUK Ltd, which was wholly owned by KLMRoyal Dutch Airlines. According to theparent company’s annual report for 2000/2001, the airline was not yet profitable,having experienced start-up losses in itsfirst year of operation.38

The USA’s low-cost airlines

At the time of deregulation in the USA themajor airlines had underestimated thepotential of the low-cost airlines. Operatorssuch as Southwest Airlines managed to cap-ture domestic market share within a shorttime but, although many budget operatorssprang up after the deregulation, over 80%of them eventually went out of business.Still, the USA’s low-cost airline industry hadshown similar excellent growth as had itsEuropean counterpart, with Southwest Air-lines being the market leader amongst thesix largest low-fare carriers. The othersincluded JetBlue Airways (a three-year-oldthat served 20 cities, claiming to be low-fare,but offering luxuries such as live satellitetelevision), American Trans Air, Air Tranand Spirit Airlines (privately owned). Theseairlines together accounted for some 30%of the US domestic air travel market.39

Southwest Airlines, as the dominantplayer by far, holding 50% of the USA low-cost market, is discussed below.

Southwest Airlines. Air Southwest, foundedin 1967 by Rollin King and Herb Kelleher,managed to keep a high-value position formore than 30 years through its reliabilityand convenience and, above all, its excellentcustomer-service record. The manner inwhich Southwest managed to restore ahuman dimension to the airlines industrywas clearly communicated by its presidentand Chief Operational Officer (COO), ColleenBarrett, ‘It was simple respect, decency andfriendliness. Southwest does not purport tobe all things to all people, and we’re veryupfront about it. We tell our customers whywe don’t do this, that and the other. And thenwe just kill them with kindness and caringand attention.’40

While Barrett gave customers a good deal,former CEO, the flamboyant Herb Kelleher,who stepped down in 2001, made it onceclear that his employees always came first

14 Part four Cases

and that customers were not always right.He was once quoted saying that the cus-tomer was frequently a drunk or a drugaddict and abused his staff, and that his jobas CEO was to make sure that this kind ofcustomer never flew with them again.41

Southwest’s emphasis on relationshipswas reflected in its heart-shaped logo andthe names it gave to items on its menu:beverages were ‘love potions’ and snacks‘love bites’.

Operational costs were kept low (some-times as much as 69% lower than those ofcompetitors such as US Airways) by its policyof flying only one type of aircraft (Boeing 737),which lowered training costs for maintenanceand flight crews. The airline also did not havepre-assigned seats on its planes, but relied ona first-come, first-served system. Costs werefurther kept down by not serving meals, usingonly secondary airports and keeping employeeturnover low. Employees were trained to havefun, allowed to define what ‘fun’ meant, andgiven authority to do what it took to makeflights light-hearted and enjoyable experien-ces. People were hired at Southwest for theirattitudes, because the company felt that tech-nical skills could always be acquired throughtraining. They were the most productive workforce in the US airline industry.42

By 2002 Southwest Airlines had becomethe fourth largest major airline in America,with an employee count of 35 000. The airlineflew 64 million passengers a year to 58 citiesall over the Southwest and beyond – morethan 2 700 times a day. Internet bookingsaccounted for 40% of its business.

South African Airline historyThe Domestic Aviation Policy of May 1990 wasdrawn up against the background of a highlyregulated domestic aviation environment.The 1990 policy (accepted in parliamenton July 1, 1990), in line with internationaltrends, started the process of deregulationin the South African aviation industry. It facili-

tated the establishment of alternative airlineoptions to the services provided almostexclusively by SAA.

At the time of the policy review it wasfound that the South African market wasdominated by SAA, which generated 81% ofthe total revenue of the domestic air servicesindustry and conveyed 94% of all passengersand 97% of all air freight on its servicesduring 1987/88. It was found that competitionin the South African domestic air transportmarket could possibly be economically ben-eficial to the consumer and the country as awhole, provided that sufficient steps weretaken to ensure equitable competition andto protect the safety of the public. The policyalso facilitated the creation of associatedaviation infrastructure and service provisionbased on sound commercial principles.

The following principles formed the basisof the domestic aviation policy established in1990:

l economic decisions should be left tomarket forces, subject to ordinarycompetition legislation and considerationof the interests of users;

l all airlines should be treated equally; and

l entry criteria for operators, as applied bythe Air Licensing Council, should pertainto safety and reliability, the registration ofaircraft and the ownership, control andmanagement of airlines.

The Domestic Aviation Policy had beenunder review since May 2002, as part of acomprehensive aviation policy review, but bythe beginning of 2003, the date for publicationof the revised policy has still not been set.43

By December 2002 domestic airlineoperations in South Africa were primarilydivided among four competitors. These werenational carrier SAA (60% market share onaverage across routes) with its partners SAExpress (also owned by Transnet) and SA Air-link (10% owned by SAA); British AirwaysComair (about 22% market share) with itslocal BA franchise and its no-frills arm,

Case 17 Kulula.com: Now anyone can fly 15

kulula.com (about 10%market share); and theindependent operator, Nationwide Airlines(8% market share). Intensive Air, anotherlow-cost airline, became operational in 2001but liquidated in 2002. Sun Air was alsorelaunched in 2001. It offered only businessclass flights between Johannesburg and CapeTown from Lanseria airport.

The major South Africandomestic competitorsSAA. South African Airways (SAA), the airlinethat had dominated the South African avia-tion industry for 69 years, was one of theworld’s oldest airlines. On 1 February 1934the former Union of South Africa acquired allassets and liabilities of a private airline,Union Airways, and absorbed it into a newnational airline, SAA.44 The airline fell underthe control of the department of South Afri-can Railways and Harbours.

SAA started out with chartered and sched-uled flights between Cape Town, Durban andJohannesburg. On 1 February 1935, a yearafter its establishment, SAA absorbed SouthWest African Airways.45 The years leading upto the 1980s saw SAA steadily expand its inter-national and African routes. In 1984 SAA tookthe decision to divide the airline’s routes intoan international and a domestic leg to providespecific services geared to these markets. On1 February 1985, the airline followed this upwith the introduction of a business class sec-tion on SAA’s domestic flights.

SAA’s former parent company, South Afri-can Transport Services, later entered a newera as Transnet in 1990, a company in terms ofthe Companies Act, but still in effect govern-ment controlled. On 1 April 1999, SAA priva-tized and was renamed SAA (Pty) Ltd, butTransnet still retained a share in the company.

SAA had an established network, bothglobally and locally. This network made itsloyalty scheme, Voyager, very powerful asthe opportunities and the variety of routes onwhich points could be awarded were broad

and appealed to the business person – thecore domestic traveller at the time.46

SAA carried more than five million pas-sengers to 32 international and domesticdestinations annually.

Intensive Air. At the time of kulula.com’slaunch, another local low-cost airline hadalready been in operation for 15 months. Inten-sive Air offered domestic services to Cape Town,Durban and Margate as well as non-scheduledservices (charters) to international points.Flights between Johannesburg and Cape Town(the route that kulula.com was targeting) wereoffered at return fares of between R850 andR999, including free wine, beer or fruit juiceand a snack. The airline was headed by CEOand owner, Kobus Louw. The airline targetedthe leisure market to avoid competing withBA and SAA, but when kulula.com invaded itsmarket, it introduced an 07h00 flight fromJohannesburg to Cape Town to accommodatethe business sector (self-employed and profes-sional people travelling on business) – a sectorthat eventually made up 25% of its business.47

The airline flew average passenger loads of 90%on its route between Johannesburg and CapeTown.

Financial difficulties forced the airline tosuspend its flights abruptly on 8 April 2002,leaving hundreds of passengers stranded.The other airlines came to their rescue byoffering them substantially discounted fares.The claim of the banking group, Absa, towhich Intensive Air was indebted to the tuneof R33 million, was settled out of court, butIntensive Air was eventually placed into pro-visional liquidation by the oil company, Total,in May 2002.48 Bad debt of R1 million plusinterest eventually led to Louw’s personalsequestration on 22 December 2002.

Dollar-related costs that had risen sub-stantially and an insurance bill that had morethan doubled to R12 million from R5 millionsince the World Trade Centre attacks weresome of the reasons given to explain why theairline had landed in financial difficulties.49

16 Part four Cases

Nationwide.50 The Nationwide Air Groupestablished itself in South Africa in 1995 byproviding scheduled domestic airline serviceswithin South Africa. The airline initially oper-ated under the trade name of Sabena Nation-wide. Sabena’s liquidation later did not affectNationwide as it had other international com-mercial partners, including Virgin Atlanticand TAP Portuguese Airlines, while Sabenaaccounted for only 3% of its business. Sabe-na’s logo was exchanged for that of VirginAtlantic. According to CEO Vernon Bricknell,the policy was one of improving on the overallservice provided by its competitors but ineffect its positioning was based on providinga price discount in opposition to the mainoperating airlines.51 Its high standard ofservice included, amongst other things,hot meals, a complimentary bar andbundled offers with hotel groups. Nation-wide, a fully-fledged airline catering forboth business-class passengers and holi-daymakers, averaged 740 return flights permonth in 2002 from Johannesburg to CapeTown, Durban, George, East London, PortElizabeth, Mpumalanga, Livingstone (Victo-ria Falls, Zimbabwe) and Lusaka (Zambia).

At the time of kulula.com’s inaugural flight,Nationwide made a limited number of cut-price fares available to meet the challenge.

Exhibit 2: Press reporton kulula.com’s launch

Three-month test flight forviability of cut-price airlinesCape Town – The next three months wouldshow whether cut-price, no-frills air travelwould succeed in the South African mar-ket, travel industry executives said at theweekend.

Kulula.com was launched last week byComair with heavy emphasis on its R400one-way fare between Cape Town and Johan-

nesburg, but some customers complainedthat they were asked to pay more. It emergedthat there was a fare structure with five dif-ferent prices, with R1 000 each way as thetop price. However, Gidon Novick, Comair’ssales manager, said on Friday that no onehad yet been asked to pay R1 000 for a seat.

‘That price is in the system only to have itavailable in the foreseeable future,’ he said.‘The top price we actually expect to chargeis R800 each way and no one has yet beenasked to pay this. We expect to have a mini-mum of 30 per cent of seats available forR400, and 80 per cent of seats sold so farhave been at this price. The British low-costairlines, including easyJet, on which kululais modelled, also have a range of differentfares, and prices vary according to howmany seats are available on a particularflight.’

Novick would not divulge how many seatshad been sold, but expressed surprise at thestrong response and number of people will-ing to forgo meals and other amenities pro-vided on most flights.

The domestic airline market has fallen byabout 4% in the past year as standard fareshave risen. South African Airways, BritishAirways/Comair and Nationwide have alloffered discounted fares to avoid emptyseats.

There has been speculation on Comair’sreason for launching a cut-price airline incompetition with its established operationwith a British Airways franchise, and alsoon whether it could be made to profit in thelight of high fuel costs and a weakeningrand. Most of the airline’s costs are in USdollars.

Novick said kulula was following a busi-ness model that was successful overseas. Itwas aiming for people who did not normallyfly and those who were not frequent flyers,and therefore not concerned with earningpoints on a loyalty programme.

‘Piet van Hoven, our managing director,saw a gap in the market,’ he explained.

Case 17 Kulula.com: Now anyone can fly 17

He said there were considerable cost-savings in kulula:

‘Meals for business class passengers costbetween R30 and R50 each. Providing loungesand a frequent flyer programme are also veryexpensive and so are the usual ticket distri-bution costs. kulula bookings are made on-line either by the general public, travel agentsor through our call centre, and no tickets areissued. We have been able to take a galley outof the Boeing 727–200 used for kulula, usingthe space for more seats.’ said Novick.

Source A d’Angelo, Business. Report, 23 July 2001.Reprinted with the permission of Business Report.

Exhibit 3: Billboardadvertisement

Source Reprinted with the permission of Comair Limitedand morrisjones&co.

Exhibit 4: MissionStatement

To our superhero customers and staff wedream of being:

The Easiest Around

Ł This means we must constantly provide theeasiest way to book, the easiest way to pay, andabove all, the easiest to afford.

Simple

ŁWe don’t complicate things. We don’t use high-and-mighty language or overly wordy descrip-tions. We get to the point and that’s that.

Totally Honest

Ł This means we tell it like it is. We’re not shyof being straight and down-to-earth. There’sno bullshit. There are no hidden costs. Whatyou see is what you get.

Great Fun

ŁWe help people lighten up. Smiles and jokesare free. We always want to be genuinelyfriendly and provide the right environment forour staff’s natural talent to shine.

Safe and Professional

ŁAt no time is our dedication compromised. Ourmost important principle is ‘Safety First’.

Inspirational

ŁWherever possible, we provide our staff withthe best opportunities to develop their skills,and take their abilities to new heights in theservice of our customers.

We are already more than an airline . . . nothingis impossible.Wherever our customers see the kulula.combrand, they can expect these values.

Source C Jowell, kulula.case: How kulula.com ExercisedReal Marketing Muscle, Entry Document for the AnnualTusk Awards, sponsored by the Marketing Federation ofSouthern Africa, October 2002. Reprinted with the per-mission of Comair Limited and morrisjones&co.

18 Part four Cases

Exhibit 5: Examples oflaunch: Outdoor advertising

Source Reprinted with the permission of Comair Limitedand morrisjones&co.

Exhibit 6: Example oflaunch: Press adverts

Source Reprinted with the permission of Comair Limitedand morrisjones&co.

Exhibit 7: Example oflaunch: Press advert

Source Reprinted with the permission of Comair Limitedand morrisjones&co.

Exhibit 8: Total advertisingspend per month

TOTAL SPEND BY MONTH

R–

R 200,000

R 400,000

R 600,000

R 800,000

R 1,000,000

R 1,200,000

Jul-01

Sep-0

1

Nov

-01

Jan-0

2

Mar

-02

May

-02

Source Reprinted with the permission of Comair Limtiedand morrisjones&co.

Case 17 Kulula.com: Now anyone can fly 19

Exhibit 9: Examplesof kulula.com’sbelow-the-lineadvertising

Plane design included the positioning line

Uniform design

Airport kiosks

Source Reprinted with the permission of ComairLimited and morrisjones&co.

Exhibit 10: Examplesof kulula.com’s below-the-line advertising(continued)

Brochures and timetables

Interactive displays

Source Reprinted with the permission of Comair Limitedand morrisjones&co.

20 Part four Cases

Exhibit 11: Comairfinancial analysis(five-year review)

‘The domestic air travel market has beencharacterised by over capacity, aggressivepricing and flat passenger demand in the

traditional airline markets. With kulula.comattracting a new travel market, Comair hashowever performed well with the combinedBritish Airways and kulula.com brandsachieving improved domestic market share.Regional routes growth was however, con-strained by the fall in international travel andthe continued turmoil in Zimbabwe.’

Five-year Review for the year ended 30 June 2001

2001

R’000

2000

R’000

1999

R’000

1998

R’000

1997

R’000

Group income statement

Revenue 1 160 000 977 036 608 997 513 498 389 777

Operating profit before

exceptional items

73 843 151 807 98 997 87 243 35 738

Profit on sale of aircraft 25 483 1 970 – – –

Operating profit 99 326 153 777 98 883 87 243 35 738

Net investment income 8 706 12 863 34 743 9 498 2 618

Net income before taxation 108 032 166 640 133 626 96 741 38 356

Taxation (15 070) (46 735) (40 059) (34 834) (13 937)

Net income after taxation 92 962 119 905 93 567 61 907 24 419

Sun Air investment

written off

– – (11 627) – –

Share of associate

company income

– – – 5 377 –

Outside shareholders

income

– 8 (8) 2 (1)

Earnings attributable to

ordinary shareholders

92 962 119 913 81 932 67 286 24 418

Note: Previous year figures have been restated in accordance with the new aircraft depreciation policy.

s

Case 17 Kulula.com: Now anyone can fly 21

2001

R’000

2000

R’000

1999

R’000

1998

R’000

1997

R’000

Group balance sheet

Assets

Fixed assets 309 989 186 600 185 733 108 989 113 743

Loan to share incentive trust 14 000 15 120 15 120 15 120 –

Unlisted investments 80 493 67 331 56 823 17 877 835

Current assets 372 881 383 834 264 574 157 870 52 254

777 363 652 885 522 250 299 856 166 832

Equity and liabilities

Share capital and reserves 368 621 309 259 218 747 160 380 90 974

Outside shareholders‘

interest

– – 507 39 265

Long-term liability 181 237 135 490 133 261 6 584 –

Deferred taxation 31 168 28 284 20 158 11 159 16 836

Current liabilities 196 337 179 852 149 577 121 694 58 757

777 363 652 885 522 250 299 856 166 832

Salient features

Operating margin 6,4% 15,5% 16,2% 17,0% 9,2%

Profit margin 8,0% 12,3% 15,4% 12,1% 6,3%

Earnings per share (cents) 22,1 28,6 19,5 16,9 6,1

Headline earnings per share

(cents)

22,1 28,6 22,3 16,9 6,1

Dividends per share (cents) 8,0 7,0 5,0 3,3 1,1

Weighted ordinary shares

issues (’000)

420 000 420 000 420 000 399 000 399 000

Current ration (times) 1,90 2,13 1,77 1,30 0,89

Gearing ratio 49% 44% 61% – –

Source: Comair Limited Annual Report 2001/2002. Reprinted with the permission of Comair Limited, 2003.

22 Part four Cases

Exhibit 12: Sales range (capacity � min/max monthlyload factors experienced)

0

10000

20000

30000

40000

50000

60000

Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02

75% Load Minimum 85% Load Maximum

Source Reprinted with the permission of Comair Limited and morrisjones&co.

Exhibit 13: Advertising spend vs sales

0

10000

20000

30000

40000

50000

60000

Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02

R 0

R 200,000

R 400,000

R 600,000

R 800,000

R 1,000,000

R 1,200,000

75% Load Minimum 85% Load Maximum ADSPEND

Source Reprinted with the permission of Comair Limited and morrisjones&co.

Case 17 Kulula.com: Now anyone can fly 23

Exhibit 14: Comparison of distribution costs

R 0

R 5

R 10

R 15

R 20

R 25

R 30

R 35

kulula.com: average* Tradional equivalent:

lowest cost** scenario for

Durban

Tradional equivalent:

lowest cost** scenario for

Cape Town

*kulula.com average: includes adspend per sector (regardless of Cape Town or Durban), and all sector commissions(R25 per sector) average across all tickets sold.**lowest cost scenario =75% commission to agent on lowest fares available (R280 Durban, R450 Cape Town) andexcludes adspend

Source Reprinted with the permission of Comair Limited and morrisjones&co.

Exhibit 15: Perceived performance of kulula.com

Can our current communication campaign address this?

Perceived Performance of kulula.com

200

300

400

500

600

700

8.00

9.00

10.00

high safety

excellent value for money

reliable flights

crew service

kulula affordablepriced fares

leg room

can change ticket

many domesticcomplementary refreshmentsin cabin perks

pre-assigned seating

many international

airline lounge facilities

car hire

accommodation

FF benefit

valet parking

kulula.com flyers claiming tohave seen advertising

kulula.com flyers claiming tohave not seen advertising

kulula.com flyers that claimed to have seen vsnot seen any kulula.com advertising

Ranked according to perceived importance of allkulula.com flyers

Source bi5 Resources. Reprinted with the permission of Comair Limited and morrisjones&co.

24 Part four Cases

Exhibit 16: Recall of advertising – Was the advertisingnoticed?

19% 23%19%

52%

15%

30%24%

18%

35%

26%

78%

10%

22%17%15%

30%24%

51%43%

58%69%

58%66%

56%60%

56%

66%

51%

60%

0%

20%

40%

60%

80%

100%

kulula.com BA SAA NW Virgin AirwaysEmirates

Ads featuring ...

Nationwide flyers SAA flyers BA flyers kulula.com flyers weighted average

34%

Source bi5 Resources. Reprinted with the permission of Comair Limited and morrisjones&co.

Exhibit 17: Recall of advertising

How did consumers react?

Recall of Advertising

2.72.5

3.53.1 3.23.0 3.1

4.1 4.13.9

3.2 3.23.0 3.02.8

3.2 3.23.2 3.22.9

4.34.0

3.33.5

3.2

1.0

2.0

3.0

4.0

5.0

Made you like them Curious facts/info want to fly secure to fly

kulula.com advertising ……..

Nationwide flyers SAA flyers BA flyers

kulula.com flyers Weighted Average

Source bi5 Resources. Reprinted with the permission of Comair Limited and morrisjones&co.

Case 17 Kulula.com: Now anyone can fly 25

Exhibit 18: Responses to advertising – Non-flyers

.

Recall of Advertising

3.10 3.00

4.05

3.543.76

3.523.84

3.14

3.73 3.70

0.00

1.00

2.00

3.00

4.00

5.00

Made you like them curious facts/info

Kulula.com.

want to fly secure to fly

Drivers Bus passengers

Source bi5 Resources. Reprinted with the permission of Comair Limited and morrisjones&co.

Exhibit 19: Recall of advertising – Non-flyers

0%

29%

20%

48%

3%

41%

53%

42%

73%80%

62%

20%

40%

60%

80%

100%

BA SAA Virgin Airways Emirates

21%

0%kulula.com NW

Drivers Bus passengers

Source bi5 Resources. Reprinted with the permission of Comair Limited and morrisjones&co.

Notes

This case was prepared by Research Associate, Stephanie Townsend, with Senior Lecturer Geoff Bick. The caseis not intended to demonstrate effective or ineffective handling of an administrative situation; it is intended forclassroom discussion only.

Copyright ª 2003 Graduate School of Business Administration, University of the Witwatersrand. No part ofthis publication may be reproduced in any format – electronic, photocopied, or otherwise – without consent fromWits Business School. To request permission, apply to: The Case Centre, Wits Business School, PO Box 98, Wits2050, South Africa, or e-mail [email protected].

26 Part four Cases

1 See Exhibit 1 for detailed background to the global and local airline industry.

2 JM Fletcher, ‘Cheap Fares Forever?’ Time, 3 February, 2002, p 62–63.

3 U Binggeli and L Pompeo, ‘Hyped Hopes for Europe’s Low-Cost Airlines’, The McKinsey Quarterly, No. 4,2002, available www.mckinseyquarterly.com (accessed 15 November 2002).

4 Ibid.

5 F Brassington and S Petitt, Principles of Marketing (2nd ed), Prentice Hall, London, p 881.

6 www.britishairways.com/regional/sa/docs/comair/ (accessed 7 January 2003).

7 Interview with Gidon Novick, Comair: executive manager: marketing, 10 October 2002.

8 Changed in March 2003.

9 Taken (with minor adjustments) from: C Jowell, kulula.case: How kulula.com Exercised Real MarketingMuscle, Entry document for the annual Tusk awards, sponsored by the Marketing Federation ofSouthern Africa, 2002.

10 ‘Load factor’ refers to the proportion of seats sold in relationto the total number available.

11 Taken from: Jowell, C. kulula.case: How kulula.com Exercised Real Marketing Muscle, op cit.

12 Taken from (with minor adjustments): C Jowell, Kulula.case: How Kulula.com Exercised Real MarketingMuscle, op cit.

13 Interview with Colin Jowell, 9 December 2002

14 Ibid.

15 ‘Cannibalism’ in this context refers to the threat of stealing market share from the parent company.

16 U Binggeli and L Pompeo, ‘Hyped Hopes for Europe’s Low-Cost Airlines’, op cit.

17 The South African Advertising Research Foundation (SAARF) Living Standards Measure (LSM)) hadbecome the most widely used marketing research tool in Southern Africa. It divides the population intoten (formerly eight) LSM groups, 10 (highest) to 1 (lowest). The SAARF LSM segments the South Africanmarket according to its living standards, using criteria such as degree of urbanization and ownership ofcars and major appliances.

18 Traditionally defined as advertising on radio, TV, printed media and outdoors. Banner advertising, althoughsometimes placed in a category of its own, was regarded as above the line advertising by morrisjones&co.

19 Traditionally defined as advertising by direct mail (post, e-mail, SMS, etc), point of sale advertising, events,etc.

20 Banners are online advertising space in a prominent place on popular websites. The success ratio iscalculated by the number of click-throughs to obtain more information.

21 Taken from C Jowell, kulula.case: How kulula.com Exercised Real Marketing Muscle, op cit.

22 Quote from the journalist in MarketPlace, 6 August 2002.

23 Comair Ltd, Annual Report, 6 June 2002.

24 Author Unknown, ‘Kulula is out of Frills not out of Humour’, Business Report, 6 June 2002, availablewww.bus rep.co.za, accessed 20 November 2002.

25 JW Rivkin, Dogfight over Europe: Ryanair (Parts A & B), Harvard Business School case study 9-700-115, rev.October 23, 2000.

26 Airlines: British Airways, available www.cnn.com/2002/BUSINESS/11/14/bbair.ba/ (accessed 17 December2002).

27 JM Fletcher, ‘Cheap Fares Forever?’ Time. Op cit.

28 U Binggeli and L Pompeo, ‘Hyped Hopes for Europe’s Low-Cost Airlines,’ op cit.

29 Ibid.

30 JW Rivkin, Dogfight over Europe: Ryanair, op cit.

31 GBP1 ¼ US$1.6 (20 February 2003).

32 U Binggeli L and Pompeo, Hyped Hopes for Europe’s Low-Cost Airlines, op cit.

Case 17 Kulula.com: Now anyone can fly 27

33 Ibid.

34 Airlines: Ryanair, available www.cnn.com/2002/BUSINESS/11/14/bbair.rynair/ (accessed 17 December 2002).

35 www.easyjet.com (accessed 4 January 2003).

36 F Brassington and S Petitt, Principles of Marketing (2nd ed), Prentice Hall, London, 2000, p34.

37 www.virgineexpress.com, (accessed 6 January 2003).

38 JM Fletcher, ‘Cheap Fares Forever?’ op cit.

39 S Brassington and S Petitt, Principles of Marketing (2nd ed), Prentice Hall, London, p 881.

40 F Frei, Rapid Rewards at Southwest Airlines, HBS case study 9-602-065, revised 5 November 2002.

41 LF Pitt, Marketing for Managers: a Practical Approach, Juta, Kenwyn, 1988, p 8.

42 V Zeithaml and J Bitner, Services Marketing: Integrating Customer Focus across the Firm (2nd ed), McGraw-Hill, Boston, 2002, p 21.

43 Electronic interview with Mr Johan Bierman, section manager: Bilateral Affairs, Aviation and MaritimeRegulation, Department of Transport, on 27 January 2003.

44 www.flysaa.com/about_saa/company_information/2002.html (accessed 30 December 2002).

45 SAA Museum, ‘South African Airways: A Brief History,’a available www.saamuseum.co.za (accessed 30December 2002).

46 Taken (with minor adjustments) from C Jowell, kulula.case: How kulula.com Exercised Real MarketingMuscle, op cit.

47 A D’Angelo, ‘Kulula’s Take-off may Hatch New Flock of Flyers,’ Business Report, 3 August 2001, availablewww.busrep.co.za, (accessed 20 November 2002).

48 P Malan, ‘Grootbaas van Intensive Air Gesekwestreer,’ Rapport, 22 December 2002.

49 A D’Angelo, ‘Troubled Intensive Air Negotiating with Prospective Buyers,’ Business Report, 10 April 2002,available www.busrep.co.za (accessed 20 November 2002).

50 www.nationwideair.co.za (accessed 8 January 2003).

51 Interview with Gidon Novick, Comair: executive manager: marketing, 19 March 2003.

28 Part four Cases