Before entering any given market, it is important to consider three important factors: where, when and how. Looking at the aviation industry in Africa, there are a couple of ‘’LCCs” at a domestic level i.e Mango Airlines, Kulala, Fly540. However, Fastjet has recently been attempting to create a different approach: a LCC creating a Pan African service within the continent. To a certain extent, they acquired a first mover advantage. However, if one were to start a LCC in Africa, I believe that now is the time and one has to learn from the mistakes of the first mover advantage in order not to repeat it. Also, having a second mover advantage is equally beneficial given as it enables a thorough market analysis.
Like several industries, the aviation industry has experienced deregulation and with deregulation, an increased competition. In some countries, deregulation has reduced the control of national airlines however; there are still airlines that are completely or partly owned by governments especially within the African continent. It is undeniable that government control implies a lack of freedom for airlines to operate adequately.
In view of this, what will be the best market entry mode for a LCC in Africa?
The choice of a market entry strategy is an essential part of international business strategy given as foreign involvement entails looking at several ways of expanding operations in foreign countries. There are five general ways of market entry methods (refer to the picture below).
Pertaining to establishing a LCC in Africa, I believe that in order to be successful and profitable, one could potentially opt for wholly owned subsidiary. Although there are some disadvantages with this strategy, some advantages include the fact that the subsidiary company acquires direct market knowledge, and gets access to local raw materials and labor. Air Asia and Air Asia X could be perfect examples of airlines that feed into each other through this strategy.
Likewise, given as protectionism is a significant challenge in Africa, it will be advantageous for the LCC to have the government’s support by being a subsidiary. For instance, looking at a country like Ethiopia with a total of 46 bilaterals with African states, this could potentially give rise to airport agreements in regards to easing landing rights and taxes within these countries for the wholly owned subsidiary LCC.
Do you believe that there is better market entry approach as a means to establish a LCC within Africa?
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