Africa's first low-fare airline isdepending on political change to succeed
Fastjet has just launched its first scheduled services. But whether the low-cost model will become a resounding success will depend on much more than just airline economics. The willingness of African governments to liberalize is a key factor in Fastjet's development.
The carrier's first scheduled flight took place Nov. 29. Initially, two daily round-trips from Tanzania's economic center, Dar es Salaam, to two domestic destinations, Mwanza and Kilimanjaro in the north of the country, are available. Fastjet plans to expand operations to Kenya with services from Nairobi to Dar es Salaam and Zanzibar, as well as domestic flights to Mombasa. The two countries combined will create sufficient demand for Fastjet to grow its fleet to about 15 aircraft by the end of 2013, CEO Ed Winter believes.
Bookings have exceeded expectations, Winter says, and the airline anticipates near-capacity flights in its first few days of scheduled operations.
But Fastjet's ambitions go far beyond Tanzania and Kenya. The carrier wants to establish a new business model and become the first true pan-African airline. While Kenya and Tanzania are important markets in the eastern part of the continent, there appear to be abundant opportunities in population-rich Ghana and Nigeria in West Africa.
In a way, Fastjet will have to grapple with situations that are similar to those thatfaced in the 1970s, and in the 1990s, and Air Asia and the likes in the 2000s. For Southwest, the problem was a highly regulated market and legacy opponents such as Texas Air or that tried to block the then-nascent airline's every initiative. Fastjet's environment is regulated in every aspect imaginable.
Open skies initiatives in this region rarely exist; although there is one paper, it has never been ratified. And legacy competitors such as powerfulor will consider Fastjet a serious threat to their business. In most cases, travelers require visas that can cost up to $250, on top of departure taxes as high as $70 (Ghana and Nigeria) or even $130 (Senegal). “That makes the model less effective, it inhibits price elasticity,” admits Winter.
The challenge for Fastjet will therefore not only include infrastructure constraints and influencing people's travel patterns, it will involve establishing the model in spite of the added ancillary costs. Air passenger tariffs in the U.K. and Germany are a fraction of what some African governments charge, yet they still have a severe impact on air travel demand.
“We do not assume in our business plan that liberalization will come in the near future,” Winter admits. However, if a more liberal climate does not occur, operating up to 40 aircraft by the end of 2015 may well be a stretch.
Fastjet's choice of Tanzania to be its first base was not only related to market potential. If that had been the main factor, the airline would have opted for Ghana. But Ghana has been reluctant to abandon its high departure tax. Kenya was ruled out because it failed to complete the paperwork to put, the airline's mainstay aircraft, on the local registry.
Tanzania, on the other hand, is interested in improving its air services. But even so, while Fastjet managed to transition from the early planning stages to first flight within a year, infrastructure development is not keeping pace. The airline's management has been pushing the country's airport authorities to upgrade facilities, but so far nothing has happened in Dar es Salaam, and Fastjet also has to operate out of a tiny terminal in Mwanza. Thanks to large streams of tourists into Kilimanjaro, the airport there does not need upgrades.
The new airline is based on Fly540, a regional carrier with air operator certificates (AOC) in Kenya, Tanzania, Angola and Ghana. The Fly540 brand is gone in Tanzania with the launch of Fastjet, and it will disappear in Kenya once the low-cost carrier moves in by the first quarter of 2013. Using existing AOCs has enabled Fastjet to speed up the certification and planning process.
But the most obvious market for a low-cost airline in Africa is South Africa. Fastjet is believed to have considered acquiring 1time, a local carrier that recently collapsed. Neither Winter nor Chief Commercial Officer Richard Bodin would comment on those negotiations.
Winter only says that he continues to look at opportunities in many African countries as the new airline strives to expand its market. Opportunities in this case can either mean acquiring another AOC or building up an airline from scratch. The Fastjet CEO is currently traveling the continent for government meetings to prepare the ground for expansion. But he concedes that making the Tanzania model work is a key priority.
With all other airlines in the region following a legacy model, Fastjet will have a lot of explaining to do to passengers about extra charges for luggage or food and other ancillary fees.
Distribution is another matter. With Internet penetration still at around 10% in Tanzania, this cannot be the only sales channel. Fastjet is selling tickets via travel agents and call centers and is preparing for sales via mobile phones, which are already very popular in the region.
Operationally, Fastjet is initially planning for 35-40-min. turnarounds, but hopes to reduce that to 25 min. once all parties involved are accustomed to the faster speed.
The company's management largely comprises former EasyJet executives, and its first aircraft has previously been operated by the British low-fare airline. Ed Winter has been EasyJet's chief operating officer and Bodin has also worked for the carrier. Fastjet is headquartered atand is a U.K.-registered company. EasyJet's main shareholder, Easygroup, holds a small stake in the airline, and founder Stelios Haji-Ioannou is advising the carrier on strategy. Fastjet is mainly backed by Lonrho, an African business conglomerate.
Once Fastjet has developed a regional network that reaches large markets such as Dar es Salaam and Nairobi, the airline could become attractive as a feeder for international airlines flying into Africa. But Winter is cautious. “Interlining is difficult for low-cost carriers. People are only beginning to understand how you can link with an intercontinental airline. It is in its infancy.” But he counts on tourists booking Fastjet on their own, when they travel within Africa as part of their holidays.