Kulula.com takes on tour operators

Last week Kulula.com launched Kulula Travel, which will bring the cost benefits of online retail to package holidays. As the largest online retailer in South Africa, generating R2-billion worth of transactions a year with more than 650 000 unique users, Kulula is well positioned to become a large player in the South African travel industry by using its size and cost efficiencies to create affordable travel packages.

Using its sister company, British Airways (BA), Kulula is also offering international flights through its newly launched online platform.

Chief executive Gidon Novick says Kulula will aggressively offer holiday packages in direct competition with tour operators.
The advantage of booking with Kulula will be both convenience and affordability. When a package deal is provided through a travel agent there is usually a wholesale tour operator, such as Thompsons, for example, which puts the package together and sells it to the agent. Each player takes their commission, which Novick says can add about 30% to the total cost.

Although Kulula will be making money on the deals, it can be far more cost-effective because of its online channel and the fact that the tours are booked directly with the partners rather than through a wholesale operator. “We make a lower margin so we can provide value for the customer,” says Novick. A key factor in its success with online travel will be the trust that is associated with the Kulula brand and customers who are familiar with booking and paying online. The 650 000 people who are already familiar with the process should be confident about spending more money with the online retailer. “Trust is a big issue. It has taken time for Kulula to build the trust to transact online. I have been surprised by how comfortable people have been buying a Mauritius package. It can be a R20 000 transaction and all they get is a piece of paper.”

This week the new Kulula site was launched and travellers can book flights to Mauritius, Lusaka, Ndola, Windhoek and Harare through the BA partnership. Discovery Vitality members will receive further benefits by being able to book overseas flights to most BA destinations. Vitality members will also receive a discount of 5% to 60% on the ticket depending on their membership status. Novick says that although these discounts are already offered through Vitality, Discovery is moving the incentive bookings on to the Kulula platform, which can better handle the complexity of the booking.

The partnership with Discovery already provides Vitality members with a minimum 15% discount on local flights booked through Kulula. Novick says this has been a successful partnership and that Discovery flights are the most affordable in the market as they are further discounted. About 30% of Kulula customers are members of Discovery’s Vitality programme, but Novick says that the intention is to expand the overseas flights to all travellers once the system has been tested.

The real key to Kulula’s success will be the ability to keep the transactions simple while catering for hotels, packages, car hire and various levels of customers including loyalty programmes both with Kulula and Discovery. The online travel industry in the United States processes about $65-billion worth of transactions a year, but there has been a migration back to the travel agent as complexities have started to frustrate users. Although South Africa is a long way from these levels, Novick says a lot of effort has gone into maintaining the ease of use.

He says, apart from the cost effectiveness, online trip planning allows people to plan their trip in the evening at home in consultation with the family and then book it immediately. Novick says the bookings and availability will be instantaneous, so people do not have to wait to find out if accommodation is available on specific dates. The site also allows for hotel-only bookings, even if you do not fly with the airline. Kulula’s loyalty programme will allow customers to earn Kulula moolah to put towards free Kulula flights on many of the products and services purchased through the site.

When Kulula launched in 2001, only 4% of South Africans travelled by air each year. Today, more than 10% do. “Having learned from our collaboration with SA Tourism to convince more South Africans to explore their own country, we see a similar opportunity in travel overall with less than 3% of South Africans having enjoyed a package vacation last year,” says Novick.

So far Kulula has not been affected by the cut-back in consumer expenditure, although Novick says it is expecting to see a cut-back at some stage. But Kulula seems to be benefiting from a trend to buy down in the search for affordable air travel. Many people still need to travel, but are looking for more affordable options. Novick says many small businesses are moving to booking through Kulula.com rather than an agent.

Testing out the deals
After trawling the new site, it certainly seems that Kulula has got the pricing benefit. Although the flights are limited—for example, you can fly to Mauritius only on a Wednesday or Saturday—the pricing looks very aggressive.

A flight booked through Kulula.com to Mauritius for September 14 was R1 000 cheaper than the same flight booked directly through British Airways. The Mauritius holiday packages were a bit limiting in that they offered only a three-day package.

Most people would want a longer stay. Given the shorter length of the stay it was hard to compare with other operators.

The local packages are outstanding value—for example, a three-night stay, including flights, at a luxury country lodge near Kruger Park was cheaper than just the accommodation booked directly through the hotel. The number of packages available on the site is limited.

I suspect Kulula is probably first testing the waters with the initial offerings. There is a hotel review site in progress, which will be an added benefit of booking through the site. The reviews will be along the lines of website tripadvisor.com, which publishes reviews from actual hotel guests who rate the accommodation. “We need to have more than a brief from hotels; we need to get information on customer experience. We are building that at the moment,” says Kulula chief executive Gidon Novick.

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