FastJet confident in African aviation domination, despite foreign competition
There’s no question that African aviation is poised for growth, but it’s yet to be determined whether homegrown carriers can overcome high operating costs and weak infrastructure to reach sustainable growth.
Dogged by a series of snags in its attempt to create Africa’s first continent-wide low-cost airline, FastJet remains confident it can tap a market of 1 billion people after early success in Tanzania.
Protectionism, red tape and poor infrastructure have hampered FastJet since it launched operations six months ago in the world’s poorest continent, where people fly once in 15 years on average compared with twice a year for Americans.
“Africa is a bit like Europe in the 70s, all the routes are controlled by governments … often with a lot of protectionism built in,” said Ed Winter, chief executive of FastJet, which is backed by Lonrho and the UK’s easyJet.
When flying in Tanzania from capital Dar es Salaam to Kilimanjaro or Mueza, Winter says 38 percent of passengers are first-time flyers, testament to Africa’s potential for growth.
“These are routes where people have in the past been travelling by bus or just not travelling at all … now they just jump on our airplane and move, exactly what the low-cost model is designed for,” Winter told Reuters on the sidelines of an IATA meeting of global airlines in Cape Town.
Fastjet flights in Tanzania sell for as little as $20.
Despite its problems, Africa’s aviation sector is set to soar on the back of robust economic growth in the resource-rich continent. Plane makers such as Boeing and Airbus are eyeing potentially buoyant orders as more Africans turn to air travel.
“When you look around the world at where low-cost airlines have gone in and brought affordable, good-quality travel to people … the market expands,” Winter said.
Capturing just 2.5 million regular customers making four trips a year would be enough to fill 40 aircraft, said Winter. And at $100 a ticket, this could translate into a $1 billion business within a relatively short space of time.
But cracking a tough and unforgiving market will be no easy ride for FastJet, as it competes with established global players who control 82 percent of the air traffic between Africa and the rest of the world.
African executives attending IATA airline talks in Cape Town complained they risked losing a battle for African skies to Middle Eastern and European airlines such as Turkish, which are quickly expanding routes. In many cases it is easier to fly out of Africa to change planes and then fly back in.
But Dubai’s Emirates defended the influx, saying it created opportunities that otherwise would be blocked by a lack of political approval for many direct routes within Africa.
“Intra-African demand is huge but they restrict themselves,” said Emirates airline President Tim Clark in an interview. “Africa is a powerhouse. We are moving African business that has demand for the points that we serve. I am not unsympathetic but they need to improve infrastructure and market access.”
FastJet, which intends leasing Airbus planes, also faces high operating costs, especially for fuel, which in Africa is on average 21 percent more costly than elsewhere.
Landing fees can range anywhere from $80 to $800 for small planes in Africa, said Raphael Haddad, regional vice president for Canada’s Bombardier, which sees a flourishing market for its new CS100 CSeries jet.
According to airline consultant Nick Fadugba, chief executive of African Aviation Services, FastJet has a relatively high-cost structure despite its low-cost business model. “It will need deep pockets to succeed,” he said.
Yet Fastjet’s growth potential has piqued the interest of other African airlines, which are wary of losing more passengers and revenue as the local aviation industry struggles with operating margins averaging less than 1 percent.
“I don’t know if it will happen tomorrow, but if it makes sense we will go ahead and do it,” said Titus Naikuni, chief executive of Kenya Airlines, asked if it would consider a low-cost carrier option.
Successful low-cost carriers already operate in South Africa, Africa’s largest economy, where FastJet intends launching in early July to compete against South African Airways’ Mango and Comair’s Kulula.com.
Nico Bezuidenhout, chief executive of Mango, said challenges in Africa, which include the problem of distributing tickets to passengers because of weak online access and credit card usage, could be overcome.
South African customers can purchase Mango tickets with at Shoprite for instance, or even use a clothing store credit card to buy tickets and pay the bill over 12 months.
“These are all ways … that we bring the low-cost carrier model into the hands of the population,” he told Reuters.
Copyright (2013) Thomson Reuters.