Low-cost carrier Fastjet recognizes the value in the South African market, but smartly wants to proceed with caution.
Fastjet Plc is considering expanding in South Africa as new Chief Executive Officer Nico Bezuidenhout evaluates growth opportunities for the unprofitable discount airline and says the continent’s most industrialized economy is too big to stay out of.
While the Africa-focused carrier already connects Johannesburg with its hubs in Tanzania and Zimbabwe, it has no internal services in South Africa.
The market “cannot be ignored,” Bezuidenhout, 40, said in an interview in Johannesburg, where he’s relocating Fastjet’s headquarters from London after joining the company in August.
Bezuidenhout is starting to identify growth opportunities after beginning a fleet overhaul and cutting weaker routes to reduce costs and stem losses at Fastjet, which he anticipates will break even at a cash-flow level from the fourth-quarter of 2017. The carrier hasn’t made an annual profit since it was started in 2012. The CEO previously ran Johannesburg-based budget carrier Mango Airlines for 10 years and had spells as head of its state-owned parent South African Airways.
Bezuidenhout said he’d like to make progress in South Africa next year, though Fastjet would have to comply with regulations that cap foreign ownership of the country’s airlines at 25 percent. The company is owned by institutional shareholders and easyGroup, the investment vehicle of easyJet Plc founder Stelios Haji-Ioannou, according to data compiled by Bloomberg.
“Would we consider entering a joint venture agreement?” the CEO said. “Would we consider M&A activity or would we consider partnering with somebody and doing a greenfield operation? I think all of those options are on the table.”
If Fastjet entered South Africa, the airline would compete with Bezuidenhout’s former employers SAA and Mango. Other carriers in the market include FlySafair and Comair Ltd., which operates British Airways flights in the country and owns discount airline Kulula.
“The South African aviation market is reasonably overtraded,” Bezuidenhout said. “When one enters this market you have to do it carefully and in a considered and measured manner. So we are working on developing that plan.”
Fastjet is also evaluating expansion in other markets in southern Africa, though Bezuidenhout said it will resist deploying excess capacity by adding routes too quickly, describing that as “the quickest way that you drive an airline into the ground.”
The shares have slumped 78 percent this year in London, valuing the airline at 14.8 million pounds ($18.5 million). The stock was little changed at 15.25 pence on Wednesday. Former CEO Ed Winter quit in March following pressure from investor Stelios, as the entrepreneur is known.
Bezuidenhout declined to comment on the potential size of Fastjet’s third share sale in two years, announced last week along with the resignation of Chairman Colin Child. He said he’s “cautiously optimistic’’ that Stelios will participate as he supported changes including a switch to Embraer SA E190 regional jets from larger Airbus Group SE A319s.
Two-thirds of the company’s A319 planes have been removed from the fleet and seat occupancy rates have risen with the first of the smaller models, Fastjet said in a Nov. 25 statement. The airline expects to reduce operating costs by as much as 15 percent.
To contact the reporter on this story: Liezel Hill in Johannesburg at [email protected] To contact the editors responsible for this story: Tara Patel at [email protected], Antony Sguazzin at [email protected], John Bowker, Christopher Jasper
©2016 Bloomberg L.P.
This article was written by Liezel Hill from Bloomberg and was legally licensed through the NewsCred publisher network.
Photo credit: Fastjet is struggling to achieve profitability and find the ideal pace at which to try expanding. FastJet