Question One

a.

Title: concept note on the establishment of an airline

1.0 Introduction

It is not arguable that a significant problem for airlines especially amid the Coronavirus (Covid19)
pandemic is on account of excessive capacity and suicidal strategies to flood the market with
excess capacity and wait for competitors to fall off. The large network players benefited from the
excess capacity strategy but then became victims at their own game with the entry of Low-Cost
Carriers (LCC) with them preferring the Point to Point strategy, using secondary airports to keep
their costs low, offering lower fares and thus increasing their market penetration and reach.
However, the hunger for growth and potential profitability has led to a bloodshed with most airlines
losing money and passengers in utter disbelief at the quality of service that has been on a down-
slide. This concept note is however awake of the foregoing and of a plethora of views from experts
advocating that there is no business case for the establishment of a national carrier and that airline
companies are closing up due to hard business times.

2.0 Background Information

2.1 Zambian Economic Context
Zambia has over the last decade experienced relative macro-economic stability attributed to
improved fiscal and monetary policies pursued by successive Governments since around 1996.
However, the local economy came under stress in the years 2015 and 2016 mainly due to external
shocks caused by world economic trends. This coupled with domestic burdens, in turn intensified
the economic pressures the Country was facing.

Zambia’s economy is driven by the Mining, Agriculture, Construction, Transport and

Communication industries. However, recent economic data shows that the largest percentage share
of the GDP is the Wholesale and Retail trade industry. The Country has a mixed economy
consisting of a rural agricultural sector and a modern urban sector that, geographically, follows the
line of rail. Currently, the construction sector contributes about fourteen (14) percent of the Gross
Domestic Product (GDP), agriculture contributes about nine (9) percent of the GDP,
manufacturing and mining sectors, together contribute about seventy (70) percent of the GDP. The
Living Conditions Monitoring Survey of 2010 estimated that sixty (60) percent of Zambians are
classified as poor. These are living away from the line of rail where the levels of literacy are also
said to be lower as compared to the later strata.

The Zambian Government officially launched its economic recovery program on October 20th,
2016. The program is designed to help the country restore its Gross Domestic Product growth,
currently standing at 3%, which is below the 7% levels required to reduce poverty and to drive
Zambia’s development strategy.

2.2 Population structure and estimated earnings

According to the 2017 labour force survey, Zambia’s total population was estimated at 16,405,229
of which rural areas accounted for 57.5 percent while urban areas accounted for 42.5 percent. The
female population accounted for 51.5 percent compared to the male population at 48.5 percent. It
is also a known factor that most rural household are female headed.

The working age population (15 years or older) was estimated at 9,056,840. The labour force
population was 3,398,294 and the youth labour force was counted at 1,886,645. The employed
persons accounted for 2,971,170. The number of employed persons in the formal sector was
1,357,186. The informal and household sectors employed 922,476 and 691,508 persons,
respectively. The employment to population ratio was 32.8 percent. The male and female
employment to population ratio stood at 41.7 percent and 24.7 percent, respectively. The
population outside the labour force was 5,658,546.

The average monthly earnings for paid employees was K3, 330. Females had higher earnings of
K3, 401 compared to K3, 301 for males. The average monthly earnings in urban areas were lower
at K3, 297 than in rural areas at K3, 425. The highest paid employees were persons in the formal
sector earning K3, 933 while the lowest paid employees were those in the household sector,
earning K1, 623. In addition, persons with formal jobs earned higher (K4, 261) than those with
informal jobs (K2, 313). These statistics indicate that the dependence ratio of the population is
better than it was in the 1990s in that it is lower and the average income to adopt air travel as an

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effective and efficient mode of transport for local routes is therefore increased at the level of the
persons who are getting an income.

2.3 Number of air passengers carried

In 2020, number of air passengers carried for Zambia was 8,717.8. Though Zambia number of air
passengers carried fluctuated substantially in recent years, it tended to increase through 2000 -
2020 period ending at 8,717.8 in 2020. The number of air passengers carried will continue growing
as illustrated by the trend above evident of an ever-growing demand for flight services.

2.4 Monthly Prices of Local flights of Selected Months

As it can be seen above, low priced flights are most commonly available by purchasing between
one and three months in advance. International or holiday flights may need to be purchased even
further in advance. The chart above shows the cheapest flight prices by month for Ndola to Lusaka
flights. This entails that the prices charged are profitable to airline companies in the Zambian
market.

3.0 Situational Analysis of establishment of a national airline

There is evidence that the solution to the challenges in the airline industry is what governments
had been doing well since ages and which did lead to inefficiencies in the past but those exact

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strategies might provide an answer but with a modern technological, customer focused approach.
Thus, a national airline can be successful if its creation is implemented its business conducted as
below.

3.0.1 Approach

A Net Promoter Score (NPS) can be used to increase in capacity since it focuses on all
stakeholders. This entails that the NPS should not be general but specific to the national airline
level. The NPS should also be at route Level and market level. Furthermore, key variables to be
added and weightages identified through experience and continuous learning. This entails that the
national airlines should pay attention to Customer Service, Value (Price V/s Benefits),
Infrastructure (Airline and Airports), Financial Viability/Strength, Safety, Security, Hygiene.

Furthermore, policy adjustments may need to be made so as to require an equal representation

between the airline, regulator and customer group to ensure the system and the algorithm is robust
and does not favour any side in the tripartite stakeholder framework.

3.0.2 Benefits of the Approach

Once the above are implemented the following benefits ewill accrue and make the national airline
a success.
1. This will lead to the national airline needing to ensure better standards in offering value to
passengers as well as maintaining profitable operations.
2. The national airline would be proactive and potentially look at newer markets leveraging on
their bilateral agreements and de-congesting airports, offering better connectivity
3. Right sizing of aircrafts and improved network planning and structure
4. Stronger and effective pricing and revenue optimization – Excessive price gorging might lead
to drop in NPS and increasing capacity induction and vice versa
5. An optimum level of profitability with right demand patterns and price elasticity.
6. With more diversity and efficiencies coming through, there might be longer term profitability,
optimal capacity and longer-term resilience.
7. Early red flags towards operational and financial problems
8. The scores can be used as one of the many inputs into the financial lending decisions by banks.
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It is not debateable that this is potentially a road less travelled by most experts but it can be a
stepping stone to a much better method which might have the potential to change aviation forever
not only in Zambia but across the globe.
b.
Firstly, Zambia Airways should have had its assets sold to keep it afloat. This is because Zambia
Airways had properties in London, New York, Tokyo, Nairobi, Johannesburg, Dar es Salaam,
Rome and Frankfurt and in Zambia, the company had Ndeke House and Chrismas Hotel. Further,
Zambia Airways had houses in Lusaka, Kitwe, Ndola etc. Thus, selling these assets would have
reduced a lot of expenses and overheads such as maintenance costs and insurance. Further, the
money that would have been realised from such a sale of property could have been ploughed back
in the company to improve its cashflow and finance new strategies to give the company a
competitive edge.

Secondly, Zambia Airways should have down sized or trimmed down the number of employees to
reduce on the wage bill and expense towards fringe benefits. This is because at the time of
liquidation, Zambia Airways had about 1200 employees which was a burden on the balance sheet
of Zambia Airways. Furthermore, streamlining the operations and removing unnecessary routes
would have made the running of the airline efficient and effective as the company lacked the
efficient and effective use of scarce resources such as fuel and manpower. Cutting unnecessary
routes would have saved the company a lot of money that it could have invested elsewhere. Lastly,
the Management of the Airline should have been restructured and the non- economical fringe
benefits for staff such as free flights should have been completely scrapped off.

c.

i. The Registrar of Companies may object to register as the name of a company a name which
in his opinion is likely to cause confusion with the name of another company or is otherwise
undesirable.
ii. The Registrar of Companies may object or will not, without the written consent of the
Minister, register as the name of a company a name which in the Registrar's opinion
suggests that the company enjoys the patronage of the President.

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 iii. If the Registrar is not satisfied that the name is a registered business name of the person or
persons.
iv. If the Registrar is not satisfied that the name is the name of an unincorporated association
consisting of or represented by the person or persons.
v. If the Registrar is not satisfied that the name is a name under which the person or persons
are trading or conducting business, or is such a name with minor modifications or additions.

d.

Zambia Airways should have adopted a focus strategy as a strategic business orientation on the
basis that a focus strategy targets a narrow segment or domain of activity and tailors its products
or services to the needs of that specific segment to the exclusion of others. Since focus strategies
come in two variants, depending on the underlying sources of competitive advantage, cost or
differentiation. Zambia Airways should have followed a cost focus strategy of the two strategies
in the similitude of Ryanair airline. This strategy has worked for Ryanair in that Ryanair follows
a cost focus strategy, targeting price-conscious travellers with no need for connecting flights.
Zambia Airways should have adopted the same strategy which would have forced it to cut
unnecessary routes and focus on the most profitable ones. This way, Zambia Airways would have
achieved a competitive advantage by dedicating itself to serving its target segments better than
others that are trying to cover a wider range of segments. As you may be aware, serving a broad
range of segments can bring disadvantages in terms of coordination, compromise or inflexibility
and these are some of the factors that may have led to the downfall of Zambia Airways. A focus
strategy would, therefore, have been able to seek out the weak spots of broad cost-leaders and
differentiators that Zambia Airways was in competition with at the time.

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Question Two

Entrepreneurship can be defined as the setting up of a new business venture and taking financial
risks in the pursuit of success and profit. In today’s world, where job opportunities are shrinking
and unemployment is at an all-time high, entrepreneurship may be the path to financial success
and independence. The world today is witnessing the rise of start-ups. People with brilliant ideas
can now pitch their ideas to investors and raise funding for their ventures. From booking tickets
and hotels rooms to delivering groceries, modern day businesses are based on the making life in
the 21st century easy. An entrepreneur is a person, who sets up a business or in other words
undertakes an enterprise. However, simply coming up with a great idea is not all that is required
for successful entrepreneurship. You also have to raise funds and resources for the enterprise and
figure out a way to make profits.

Before going forward with any business idea, you have to consider your customer base and develop
a strategy to reach out to your potential clients or customers. You also have to be rooted in ground
reality and be aware of the fact that profits will not just start pouring in. A new business or
enterprise will initially operate at a loss, next it has to break even and then finally start operating
at a profit. What an entrepreneur has to keep in mind is that the business has to continuously grow
and expand. However, too much expansion in a short period of time can also destabilise the
business. While setting up a new venture, the most important thing is to have a sound business
plan.

Today, in the age of start-ups, new success stories are being written every day. There is no fool-
proof plan for running a business. If you look at the success stories of different business leaders,
then you will see that each person had to chart their own path, in their own characteristic way.
Although entrepreneurship is the process of creating an innovation and turning it into a viable
enterprise taking both the risks and rewards concomitant with the enterprise, it may not be linear
in that the entrepreneur may need to use his own work experience and knowledge to map out a
good business plan. In order to do so, he must also look at successful businesses and learn from
their success stories. However, what is even more important is for the entrepreneur to look at
businesses that have failed. He must study and analyse what went wrong and avoid making the
same mistakes. He has to make other people’s failures the stepping stones to your success.

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Question Four

The majority of the Zambian population engage in informal business as sole traders. A sole trader
is not required to satisfy any legal requirements to undertake business, because this form of
business by its nature does not confer legal personality on the business. This encourages
entrepreneurship as the process of formation is very easy and quick. The other advantage of being
a sole trader is that a sole trader is not subject to certain legal regulations, compared with other
forms of business. This also encourages even entrepreneurs that may not have attained formal
education to establish themselves as a legitimate business without incurring any costs of hiring a
lawyer to prepare certain pertinent documents. Registering as a sole trader is quick, easy and
involves no cost, while preparing sole trader accounts is usually quite straightforward. However,
the disadvantage is that the legal liability of a sole trader is unlimited. This means that once loses
are incurred, they extend to the properties of the owner and this sometimes leads to business failure
and probably the death of the entrepreneur.

It is not arguable that there is a relationship between business registration and entrepreneurship in
that business registration can promote entrepreneurship. For example, the concept of liabilities of
newness has been a key element in scholars’ understanding of the emergence and growth of new
ventures. Recognizing that new ventures have higher mortality rates than older more established
ventures, new ventures are asserted to lack a track record of past performance on which to base
claims of legitimacy, reliability, and accountability and to be perceived as competent, effective,
and worthy. Registering is, thus, a way of enhancing legitimacy because registering suggests that
a business complies with other laws and regulations, such as paying taxes and has the appropriate
licenses and certifications, and thereby generally contributes to the overall societal good, signalling
stability, quality, and/or and reducing liabilities of newness.

Nonregistration, conversely, is seen to lead to a lack of legitimacy which negatively affects nascent
firm performance. Ventures starting up unregistered should therefore have worse subsequent
performance levels than those registered from the outset, all other things being equal.

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Question 5

Too many budding entrepreneurs have endeavoured to launch a successful start-up only to meet
failure, oftentimes before their project has even left the ground. With the nearly countless ways in
which start-ups can acquire funding, it is also more important than ever that founders are aware of
the financial fundamentals for their start-ups. The real difficulty these days lies in keeping that
great idea alive. The best way to do so is through a rigorous understanding of the financials
involved in running a start-up. Most companies continued success will rely heavily on securing
investor funding, but competition for money is fierce and without it long-term viability and
profitability is unlikely. A start-up can avoid premature failure due to finances with the following
financial advice:

1. Skills and abilities.

The skills and abilities to lead a team and turn a business idea into an actual business are not by
chance. Start-up founders need to be able to reasonably talk about the future of their company,
including finances. The inability to do so will be a huge turnoff to investors from the very start.

2. Resist the temptation to overvalue your venture.

If you are fortunate enough to land a coveted investor meeting, presenting a defensible valuation
of your company is of the utmost importance. Just because companies like Snapchat are making
billion-dollar headlines does not mean you, too, need to overstate the value of your company in an
effort to compete. Overvaluing a venture runs several risks, including appearing inexperienced or
unreasonable, attracting incompatible investors, or securing the funding you need only to price
yourself out of future funding rounds.

3. Seek the funding you need to be successful.

Some of today’s top companies started out with small and realistic rounds of funding. AirBnB, for
instance, began with just $20,000 in seed money and grew into a company now valued at around
$2.5 billion. Skype started off as an independent company with just $250,000 in angel investment,
and continued its growth all the way towards acquisition by Microsoft in 2011. You do not need
millions to get started and keep your start-up a float, just the know-how to strategically raise the
funds you need and to be able to demonstrate that the money will be spent in the right places.

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Keep in mind, new ventures are risky for investors, especially with first-time entrepreneurs. They
want a clear go-to market strategy that is scalable. No one expects your start-up to be an instant
hit. Those are rare. They do expect you to have found a niche in the market that needs to be filled
and know how to financially guide your idea into a long-term reality.

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