African lowcost carrier FastJet is running on fumes as it seeks
to exit its Tanzania business, which faces an energised national
carrier, regulatory hurdles and its own fundraising problems.
The
London-listed Fastjet Plc is set to dispose of its 49 per cent stake in
the loss-making Tanzanian subsidiary, Fastjet Airlines, citing an
increasingly difficult operating environment.
This will leave the Dar operator with little muscle to fight off the government-backed Air Tanzania.
“Recent
changes in the competitive landscape in Tanzania, and the associated
impact on the Tanzanian airline and local company have been significant.
The Tanzanian market and economy are struggling with an ingrained below
cost yield embedded into the fare structures,” Fastjet said when it
released its latest results.
These are the challenges
the new owners will have to deal with as Tanzania spares no effort to
ensure that its national carrier succeeds domestically before going
international.
Complex business
Historically, Tanzania has been the most complex business and
biggest loss maker of all the Fastjet business units, and it will be a
relief for the parent firm to cut it loose, but a headache for its new
owners.
For if both the parent firm, which still has
operations in Mozambique and Zimbabwe, and the soon-to-be independent
Tanzania operator, fail to attract new investors who are willing to put
up more cash, then their six year experiment in the region will be a
failure.
The airline’s exit from its Tanzania
operations, its biggest revenue generator at $15.7 million in the six
months to June, with a loss of $8.9 million, is a result of the
rejuvenation of Air Tanzania operations, which has increased its
frequency on the domestic routes Fastjet flies in.
Economic slowdown
Fastjet
has struggled to compete on routes such as Dar-Mwanza and
Dar-Kilimanjaro after Air Tanzania deployed of its newly acquired Boeing
787-8 Dreamliner, adding 280 seats to one of Fastjets’ flight sectors.
The carrier has also been awaiting approval from the Tanzania authorities to deploy its newly acquired three ATR72-600 aircraft.
The
undeployed aircraft continue to accrue ownership and maintenance costs
running into $0.7 million, which has not helped the carrier’s bottom
line.
“There is little indication of when these hurdles
may be overcome. The regulatory challenges of the importation and
clearance of the ATR72-600 fleet, as well as domestic route right
approvals for both the ATR72-600 and ERJ190, has stalled, with several
months of delays. The planned introduction of the ATR72 aircraft and the
further growth of the ERJ190 network were severely impacted,” the
carrier said.
Fastjet added that it will now sublease these aircraft rather than introduce them into the Tanzania airspace.
The
Tanzania operator will also have to face the effects of slow economic
growth, which has adversely impacted consumer and business travel as the
first half of 2018 saw the available customer pool in the country fall
sharply.
Air Tanzania’s aggressive entry and pricing strategy are another challenge that has contributed to Fastjet’s dimmed performance.
“The
Tanzanian revenue stream came under increased pressure due to
substantial discounting by competing carriers and even lower yields
through most of the third quarter of this year following the
introduction of the Dreamliner,” the financial report indicated.
Investor reluctance?
In
the six months to June, Fastjet Tanzania flew over 201,000 passengers,
with the Dar es Salaam to Mwanza route being its strongest performing
with an average load of 80 per cent.
It, however, saw
its overall passenger volumes decline by 9 per cent, which it partly
attributed to fleet change from previous 144-seat Airbus A319 aircraft
to the 104-seat Embraer E190s, which reduced seating capacity by 15 per
cent.
Fastjet Plc has struggled to raise funds from its
shareholders in the past year, having raised only $28 million in
September last year of the $44 million it had targeted in fresh capital.
Its
shareholders have become increasingly reluctant to invest money in the
business. It raised $19.8 million in July 2016 and $28.8 million in
January last year.
Last month, and before the parent
firm’s decision on Tanzania, the airline warned that unless the company
was able to carry out an equity fundraise or reach an agreement with its
key creditors “in the coming days” it would no longer be able to
operate as a going concern.
Cash in Zimbabwe
The
firm has experienced financial instability, having sought $10 million
from its shareholders in July to fund working capital for the current
period, against operational costs that ran to $25.8 million in the first
six months of this year.
By the end of September, its
cash reserves stood at $4.2 million, with $2.8 million of this being
restricted cash held inside Zimbabwe.
The remaining
$1.4 million was external hard currency within the group, which it said
would be insufficient to fund operations into the fourth quarter this
year, possibly explaining its disengagement thereafter from the Tanzania
business.
In the six months to June, Fastjet Plc saw
its revenue increase 42 per cent to $30.1 million on the back of
year-on-year capacity and flight increases.
However, it also saw its group operating losses increase 13.4 per cent to $14.7 million.
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