The Dream of a Pan-African Budget Airline Is Fading

When fastjet launched its first flights in the east African country of Tanzania in November 2012, the company’s senior management team was keen to talk up the possibilities on the continent.

After travelling onboard one of its first services Chief Commercial Officer Richard Bodin, said: “Today’s flights to Kilimanjaro and Mwanza mark the start of a new, revolutionary, smart way to travel for African people, and our first steps towards becoming a low cost, reliable pan-African airline.”

The CEOs of Etihad, Expedia, RouteHappy, and More Are Speaking at Skift Global Forum 2016. Join Us.

Four years and numerous profit warnings later those dreams lay in tatters.

This week the company published first-half results, revealing the huge problems the carrier is facing. Revenue may have increased by 4.9 percent to $33.1 million but its operating loss widened by a staggering 141 percent to $31 million.

Perhaps most worryingly, load factors – a key metric measuring how much capacity is being used – have fallen through the floor. Last year the airline posted a 70 percent load factor, this year it has fallen to 48 percent. A sign that while the airline flew more aircraft, not enough people chose travel on them.

“Neither passenger numbers nor revenue kept pace with the additions to seat capacity, and losses have grown,” said Gerald Khoo a transport analyst at Liberum Capital.

The company’s problems mean that it continues to burn through cash. It’s balance at the end of the period stood at $3.8 million a decrease of 94.6 percent. To help shore things up the company raised $20 million though a share placing in August.

In the days since the results were announced, the airline’s share price fell by as much as 21 percent.

Last Throw of the Dice

One of the few bright spots for fastjet in recent months has been the appointment of a new Chief Executive, Nico Bezuidenhout, who joined from South African Airways owned-subsidiary Mango. Since taking over he has initiated a stabilization plan with the aim of turning the company cashflow positive by the end of 2017.

To do this he is taking drastic action. Some routes and frequencies will be cut and the entire fleet of A319 aircraft (a mix of owned and leased) will be replaced by smaller jets. The headquarters of the company is also being moved from the UK to South Africa. This will no doubt save the company money in the long run but it will cost money now.

As of September 19, travel agents can also now book flights through the Amadeus GDS a measure that should have been introduced from the very beginning given that an estimated 80 percent of air travel on the continent is sold this way.

Bezuidenhout’s appointment was greeted with enthusiasm even by Sir Stelios Haji-Ioannou, the founder of easyJet, and shareholder in fastjet. He had been highly critical of the airline’s strategy and had advocating the ousting of a number of board members.

Now it is a question of time. Will Bezuidenhout be able to turn things around before the cash runs out?

“Certainly they have their work cut out. I think the market logic still remains for a low-cost airline in many parts of Africa in terms of the population and difficulty in moving by surface…” said aviation consultant John Strickland.

“The list of challenges for a low-cost airline to succeed is a pretty extensive one in Africa. Not only are there physical challenges in terms of operations and logistics but the human challenge is also great trying to get a meeting of minds and having the necessary people on board in terms of governments and regulatory authorities. All of that added together has got them into a position of the big losses that we see.”