Fastjet's breakthroughs in 2015 included securing an operating certificate to launch Fastjet Zimbabwe in October.
The carrier is in the middle of the largest expansion of its
international route network since it commenced operations three years
ago, the Australia based aviation outfit said in a regional analysis of
the sector late last week.
According to it, the airline plans further expansion in Africa’s
international market throughout 2016, including from a new base in
Zambia.
“Two newly launched routes to Kenya from its original base in
Tanzania represent a breakthrough after three years of regulatory
delays. Two new upcoming routes to South Africa from its second base in
Zimbabwe are also a major milestone as they represent the first
international routes outside Tanzania, a stepping stone in Fastjet’s
connect the dots pan-Africa strategy,” the analysis reads in part.
Capa says Fastjet has huge opportunities for further growth –
particularly after the suspension of services by flyafrica.com, the only
other pan-African LCC group. However, there are also huge challenges to
overcome, including regulatory hurdles and unfavourable economic
conditions in some of its markets, it adds.
The latest regulatory setback occurred in Malawi, prompting the
carrier to suspend services to Lilongwe. Malawi has bitterly denounced
the move saying Fastjet has been let down by its business model.
Fastjet flights between Dar es Salaam and Lilongwe took off in late
July last year, marking the launch of the LCC’s sixth international
route in Africa. The development was applauded by the Malawian
authorities with Transport minister Francis Kasaira saying the company
had responded to calls for affordable air travel in the region.
Flight tickets for the route have been costing from US$50 (about
110,000/-) one-way, excluding taxes compared to the US$300 (about
660,000/-), plus taxes, charged by other carriers. The airline, which is
yet to breakeven, said the Malawian market had become commercially
unviable.
Reasons for the Malawi withdrawal
It cited the major reasons for withdrawing from the southern Africa
market as depreciation of the Malawian currency (the kwacha) and the
government's unwillingness to grant it 8th freedom cabotage traffic
rights for flights between Lilongwe and Blantyre despite earlier
assurances they would be granted.
The government responded by saying that Fastjet should blame its
business model and not the country for its decision to withdraw from
Malawi.
“They should just say they have failed in business instead of
finding the government as scapegoat. Their fares were too low to sustain
in the airline business. They had very few passengers. They thought by
offering low fares they would attract more passengers but this never
happened,” minister Kasaira was quoted saying by the local media.
The load factor has been a huge challenge across the board in the
company’s operations. This is a measure that determines the number of
seats available, which are filled.
According to Capa figures, Fastjet’s load factor dropped to only 60
per cent in November 2015 compared with 77 per cent during the
corresponding period in 2014. Its load factor was only 63 per cent in
October 2015, and 64 per cent in September 2015.
The company said it carried 62,843 passengers in November, down 0.5
per cent from the 63,146 it carried a year earlier. According to its
official data, the airline carried the highest number of passengers
since its inception in 2012 in July last year.
The travellers increased to 71,763 from the 65,216 who used the
airline in June and they were 3,600 more over the previous record of
April 2015. Fastjet carried over half a million passengers in the first
nine months of 2015 in Tanzania, which was 44 per cent more over the
same period performance in 2014.
The airline data show that most of the 588,825 passengers were
transported in the third quarter of the year. During the three quarters
of 2014, Fastjet Tanzania carried 408,590 passengers.
Had it sold all the seats available during the period, the carried
passengers would have been around 840,000. The company passenger
statistics show that the average load factor for the period was 70 per
cent leading to the carrier flying with 30 per cent of the available
seats empty.
“This is the first in a series of analysis reports on Fastjet. This
first instalment will focus on the Kenya market, which is initially
being served by the Tanzanian subsidiary, while the next instalment will
focus on Zimbabwe, South Africa and the overall 2016 outlook for the
group,” Capa said.
Fastjet slowly picks up pace of expansion
Fastjet launched operations in late 2012 with a Tanzanian operating
certificate and three A319s based at Dar es Salaam. Multiple regulatory
setbacks prevented the group from launching several planned
international routes from Tanzania and establishing affiliates in other
African countries.
“As a result Fastjet’s initial fleet was underutilised, impacting
profitability, as the group was confined primarily to Tanzania’s
relatively small domestic market,” the analysis further reads.
Late last year, the company revised its revenue and profitability
projections downwards after business slumped due to several factors,
including the outcome of the General Election in Tanzania.
In a December statement, Fastjet said it was proactively taking
steps to cut operating costs and overheads after October's poll led to
reduced government and civil service traffic and lower travel demand.
The new government has instituted several austerity measures to boost
national coffers and curb misuse of public funds.
““The process of forming a new functioning government has been
protracted,” said Gerald Khoo, analyst at LIberum, said last month.
“Concerns about the outlook for government spending have also weighed on
consumer sentiment, given that a large proportion of the population
works for the government.”
The airlines monetary fortunes have also been adversely affected by
weakening of the shilling in Tanzania and the kwacha in Zambia. The
statement said tough markets and currency headwinds would lead to lower
than expected revenue in 2015 and 2016.
The Fastjet Group Plc. board of directors said they were however
optimistic that 2016 would be a year of network growth and that it
expected to be cash-flow positive for the next financial year.
Financials
The shilling weakened 25 per cent against the dollar last year and
the kwacha by 72.4 per cent. Former chief executive Ed Winter said the
currency turmoil combined with a worldwide reduction in commodity prices
caused an economic downturn in both Tanzania and Zambia.
“Fastjet is proactively taking steps to manage its operating costs
and overheads, and fully align its growth strategy with demand,” the
group said in an operational and trading update on December 22.
“As such, despite the current challenging market conditions and
currency headwinds, which are expected to lead to lower than anticipated
revenues in 2015 and 2016, the company remains confident that these
actions will ensure it continues to be well placed to capture the
significant growth potential in the African aviation market,” it added.
The Tanzania based carrier reported a 2015 half-year net loss of
US$10.1 million, which was nearly half the US$20 million interim loss it
posted in 2014. It warned in a statement that the second half of the
year would be worse than originally forecast.
Sectoral insiders estimates 2015 losses at US$31.1 million, compared with US$19.5 million previously.
Fastjet Tanzania launched its first international route in October
2013, from Dar es Salaam to Johannesburg, after eventually overcoming
regulatory delays with South African authorities. It was able to launch
three more international routes in 2014 – to Lusaka in Zambia, Harare in
Zimbabwe and Entebbe in Uganda – enabling full utilisation of its
initial fleet of three A319s.
In 2015, there were more breakthroughs, as Fastjet was able to
secure an operating certificate from a second African country, enabling
the October 2015 launch of Fastjet Zimbabwe. The group also expanded its
fleet for the first time since its late 2012 launch, adding two A319s
in Tanzania and one A319 in Zimbabwe, for a total of six aircraft.
“The expanded fleet in Tanzania enabled the group to launch
services to Lilongwe in Malawi, and expand capacity on several of its
existing domestic and international routes. Fastjet’s passenger traffic
for the 12 months ending 2015 was up 39 per cent to 791,000,” the Capa
analysis reads in part.
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