African LCC fastjet accelerates expansion with three new bases and 10 more aircraft by end-2015

fastjet has so far been slow to expand – and has been highly unprofitable

fastjet launched services in late Nov-2012 with a fleet of two A319s serving the Tanzanian domestic market. It added a third aircraft by the end of 2012 but has since repeatedly delayed fleet expansion due primarily to regulatory setbacks in trying to expand its international network and portfolio. The group’s fleet plan initially envisioned 15 aircraft and multiple bases by the end of 2013.

fastjet has essentially lost two years as the group’s latest business plan envisions 13 aircraft and four bases by the end of 2015. A second base inZimbabwe with an initial fleet of two A319s is expected to be opened by the end of 2014. The new three-year business plan envisions two more aircraft for Tanzania in 2015 along with the launch of new three-aircraft bases in the larger markets of Kenya and South Africa.

The slower than anticipated expansion over the past 18 months have been costly and disappointing. fastjet reported on 26-Jun-2014 an operating loss before exceptional charges of USD48 million for 2013, including a loss of USD22 million at fastjet Tanzania. The remaining losses were incurred in Angola, Ghana and Kenya – where the group until recently operated regional aircraft under the brand fly540.

Including exceptional items, which were mainly related to aircraft impairment charges at fly540, fastjet incurred a group operating loss of USD79 million in 2013. Group operating and net losses have exceeded USD130 million since mid-2011 while total revenues have been only USD74 million. Revenues in 2013 were USD53 million, with about half from fastjet Tanzania and half from fly540.

fastjet group financial highlights: 12 months ending 31-Dec-2013 vs 18 months ending 31-Dec-2012

Source: fastjet 2013 results announcement (26-Jun-2014)

fastjet focusing on “pure” LCC model following fly540’s exit

fastjet on 24-Jun-2014 sold its stake in fly540 Kenya. The divestment enables the group to focus on the fastjet brand and a pure LCC model as operations were suspended at fly540 Angola in Apr-2014 and at fly540 Ghana in May-2014. Smaller fly540 Uganda and fly540 Tanzanian ceased operations previously.

fastjet initially acquired a stake in the fly540 group in mid-2012 as part of a deal with Lonrho Aviation, which took a majority stake in London-listed fastjet but exited as a fastjet shareholder in 2013. fly540 has always followed a regional hybrid model operating turboprops and small jets.

fastjet is aiming to re-enter the Kenya market in 2015 with a new local partner and duplicating the model it has used in the smaller Tanzanian market. The group concluded converting and re-branding fly540 Kenya into an LCC was not economically viable. fly540 Kenya will continue to operate without fastjet involvement while fastjet works towards establishing a new entity in Kenya. The group will continue to evaluate re-entering Angola and Ghana using its A319 fleet and the fastjet brand but for now the focus is on Kenya, Zambia and South Africa.

fastjet Zambia plans to launch services by end of 2014 with an initial fleet of two A319s

Zambia emerged in early 2014 as the planned second fastjet base after Tanzania. As CAPA previously analysed, the Zambian market is relatively small but has potential and is much less competitive, with fewer obstacles to entry than the other African markets fastjet has been looking to enter.

See related report: Zambia provides fastjet with easier affiliate option than South Africa, Ghana, Kenya or Nigeria

fastjet Zambia initially aimed to launch services in mid-2014. As has been the case with almost every fastjet project, the venture in Zambia has encountered delays. But fastjet CEO Ed Winter told CAPA that the new carrier still aims to launch both domestic and international services by the end of 2014.

Mr Winter says the group is now looking to source two A319s for fastjet Zambia. His preference is aircraft which are between seven and nine years old.

fastjet Tanzania’s three existing A319s are between 10 and 15 years with an average age of 13.3 years, according to the CAPA Fleet Database. fastjet Tanzania is operating CFM56-powered A319s but Mr Winter says the group is open to also leasing IAE V2500-powered A319s as having two engines in two different bases would be manageable.

Mr Winter says fastjet Zambia’s launch and the lease of the initial two aircraft will be contingent on securing approvals to operate international flights. There is some potential to stimulate demand in the Zambian domestic market, which is currently only served by small regional carriers. But fastjet only expects significant traffic on one domestic route, Lusaka to Ndola, which is now served by a few daily turboprop flights and a few hundred daily buses. The international market is absolutely critical for the franchise to be viable.

While fastjet has received a warm reception from Zambian authorities, fastjet Zambia will ultimately need approvals from foreign countries. South Africa is the most important as South Africa is Zambia’s largest market, accounting for about 37% of total international seat capacity.

Zambia international seat capacity by country: 30-Jun-2014 to 6-Jul-2014

Source: CAPA – Centre for Aviation & OAG

There are available traffic rights for Zambian carriers as the Zambia-South Africa market is now dominated by South African carriers, which account for all 14,500 of the current weekly seats between the two countries.

But as fastjet Tanzania encountered, securing approvals from South African authorities can be a long and tedious process even once designated for the route. fastjet Tanzania encountered multiple delays in entering Johannesburg, which it finally began serving in Oct-2013 – several months after initially planned.

See related report:  Low-cost airlines start to penetrate African international market, led by fastjet

Zambia will be a small but important base for fastjet

Lusaka is expected to be relatively small base, having been allocated only three of the 24 aircraft in the group’s projected fleet for the end of 2017. The third aircraft is slated to be added in 2016. Ndola, Johannesburg and Harare in Zimbabwe may end up being the only main routes. There are several other potential low frequency routes. Lusaka is already linked with Dar es Salaam by fastjet Tanzania.

fastjet believes a three-aircraft base is sufficient as fastjet Zambia will be able to leverage the resources of the broader group including IT anddistribution. The group also does not plan to have maintenance activities and a full complement of spare parts at every base. fastjet expects Zambian authorities will be flexible in allowing the wet lease of aircraft from other fastjet entities to cover when one of the aircraft in the small Zambian-registered fleet is not operational or out for heavy maintenance.

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