A year can be an eternity in the aviation industry, but can be very difficult for airlines to stop their existing momentum and action a complete transformation of operations. Well, that has been exactly the case at African carrier fastjet since Nico Bezuidenhout took up his position as chief executive officer in August-2017. The implementation of business stabilisation efforts has seen a re-fleeting process, relocation of its headquarters from London to Johannesburg and a right-sizing of its operations in Zimbabwe and Tanzania.
fastjet now aims to achieve a cashflow break-even position for the final quarter of 2017 and is working to leverage its relationship with Solenta Aviation Holdings, a strategic investor who acquired a shareholding in the carrier in January-2017 and who has an operational footprint in a number of African countries, to evaluate expansion options to further geographies across the Continent.
The stabilisation plan has also seen fastjet acquire all intellectual property rights associated with the fastjet brand from easyGroup Holdings Ltd allowing it full control of its activities rather than flying under licence. However, Stelios Haji-Iannou, who established the fastjet brand in 2012 after founding easyJet in Europe in 1995 retains shares worth about £1.3 million in the company and therefore remains a significant shareholder.
Mr Bezuidenhout, formerly boss of South African Airways (SAA) subsidiary Mango, says these steps are having the desired effect and helping to overcome an over capacity that was blunt the effectiveness of the carrier’s former low-cost business model and its intent to develop a pan-African low-fare network.
Therefore key to the turnaround was the removal of fastjet’s former Airbus A319 fleet and their replacement with smaller equipment. This has come in the form of 50-seat Embraer ERJ-145s in Zimbabwe and will soon see the arrival of Embraer E190s in a move which is expected to yield an approximately 15% cost reduction for fuel, maintenance, handling and navigation charges.
IMAGE – fastjet will shortly add two Embraer E190s into Tanzania operation where it links its Dar es Salaam base to Kilimanjaro, Mbeya, and Mwanza, and offers international routes to Lusaka in Zambia and Harare in ZimbabweSource: via @IamMrHaas
There is no denying that higher density aircraft reduce unit cost. This is the simple maths of low-cost aviation. But the true low-cost model also requires high aircraft utilisation; so high utilization with high seat density means a substantial number of seats to sell, and that’s where it starts to challenge financial or commercial viability.
“Very few African city pairs have got large enough point to point traffic flows to sustain this type of seat supply, and price elasticity (the amount of traffic you stimulate for each price decrement) is not as high as the one we can count on in Europe or the US for example,” Sylvain Bosc, chief commercial officer, fastjet told AviaDev Africa, an annual event focused on building air connectivity to, from and within the African continent.
“Therefore, applying the standard low-cost model to Africa results in flying lots of empty seats around… a situation which investors will not appreciate very much,” he added in the recent interview.
fastjet is now adopting a general maturity model, starting with smaller aircraft and looking to upgauge as markets develop. “We believe in a gradual approach to traffic flow building,” explained Mr Bosc. “We can start routes on ERJ145s, with a relatively low utilisation in the beginning (given the low ownership cost of these units) and gradually increase frequencies as we manage to stimulate the market through affordable prices and most of all regular, dependable and on-time services.”
Then, when the airline sees that it has generated enough traffic to sustain higher gauge it can then move to bigger aircraft. While you could argue that this strategy doesn’t enable the operator to benefit from economies of scale through fleet commonality, fastjet believes that “a mismatch between supply and demand” eventually costs “much more than the savings that can be achieved through standardised fleet procurement,” according to Mr Bosc.
“Over the next 12 months, we will prudently approach growth in our ‘historical’ markets, Tanzania and Zimbabwe. In Tanzania we will deploy two Embraer E190s from October to offer more frequencies at the right gauge on all our routes; in Zimbabwe, after adding a second aircraft from July-2017 we will be looking at up-gauging if market response continues to be as good as it is today,” he added.
CHART – fastjet began flight operations from its Zimbabwe base in October 2015, and now flies domestically from Harare to Victoria Falls, links Harare to Dar es Salaam and both Harare and Victoria Falls to Johannesburg in South Africa. However, it remains just a small player in the local marketSource: CAPA – Centre for Aviation and OAG
fastjet is also exploring the deployment of turboprop aircraft within domestic markets across Africa, reliant upon securing necessary route rights and operating licences. The airline believes there are many routes all over Africa that demand turboprops (either because of short runways or short flight time) to offer the lowest possible cost.
“We are currently looking at three new African countries in which we could allocate a combination of jets and turboprops, mostly on domestic services. We noticed that domestic traffic flows are much easier to stimulate through low fares than international ones,” said Mr Bosc.
But while fastjet may have left no stone unturned in the past few months in order to bring the airline back to financial stability, a number of general hurdles continue to impact air service development across Africa that significantly add to the cost of operating in the Continent and could act as barriers to development. The cost issue impacts all operators so fastjet’s own lower cost structure will still enable it to offer competitive fares to customers. However, restricted cross-border access which significantly impacted the airline previously, remains a factor across Africa.
Mr Bosc said that while people have been talking about the liberalisation of air transport in Africa for decades, you “can either lament about its slow progress, to little effect, or, work within current constraints and still achieve benefits for the travelling public in those markets where a level playing field is more or less in place”. fastjet is attempting the latter to a degree of success.
“Africa is a huge continent with a vast mosaic of different situations and circumstances in each of its markets; it will not liberalise at once nor overnight and we’ve built this reality into our business model already,” he added.