African LCC fastjet is battling to survive beyond March, triggering questions over the viability of its pan-African LCC strategy, which is entering its third major revamp.
Fastjet started life in 2012 with a relatively conventional LCC model and easyJet founder Stelios Haji-Ioannou as a high-profile shareholder. The group aimed to create economies of scale by becoming a pan-African LCC, using low fares to stimulate demand on Airbus A319-operated routes.
This model makes sense in the US and EU markets, which both have thriving LCC sectors, but their success was made possible by liberalization. Africa is yet to be fully liberalized, despite decades of work and multiple attempts to remove regulatory barriers.
“Africa is a tough market to make money in,” Naveo Consultancy managing director Richard Brown told ATW. “The continent remains one of two, including Latin America, that haven’t made overall profits in the past few years of ‘good times,’ in contrast to other regions. Political interference, restrictive bilaterals don’t help either.”
To succeed in becoming a pan-African LCC, this meant fastjet needed to build a new airline in every African market that it wanted to enter. To get over this hurdle, fastjet acquired the Fly540 group of African regional airlines before launching, giving it access to established air operator’s certificates (AOCs) in Angola, Ghana, Kenya and Tanzania.
Fastjet Tanzania launched in November 2012, with plans to build to at least five A319s within six months, growing to as many as 15 aircraft in its first year. But by early 2015—two years after launching—it had just three aircraft. Regulatory barriers meant fastjet struggled to secure the route rights and scale needed for the LCC model to succeed.
A second airline, fastjet Zimbabwe, launched in October 2015. By then, plans for fastjet Zambia were also at an advanced stage and further operations were planned for Kenya, South Africa and Uganda.
Fastjet had hoped to use the remaining Fly540 AOCs for its expansion, but these operations proved too difficult to transition. Fly540 Kenya was sold for a token amount in June 2014 following a legal dispute, Fly540 Ghana was grounded in May 2014 and sold for $1 in June 2015, while Fly540 Angola was mothballed.
The group had also looked to acquire or form joint ventures with local carriers, including grounded Kenyan carrier Jetlink Express, failed low-cost carrier 1time Airline and Nigeria-based holding company Red 1 Airways. Most of these negotiations failed to materialize, but another airline, fastjet Mozambique, launched in November 2017.
Expansion delays and high startup costs caused fastjet to burn through cash, triggering multiple restructurings. Fastjet’s African ownership credentials were also questioned, because of its London Gatwick headquarters, leading the business to relocate to Africa.
Ultimately, fastjet abandoned its A319s in favor of smaller Embraer ERJ145s and the group has since slimmed back its operations to just fastjet Zimbabwe and South African carrier FedAir, exiting its original Tanzanian venture. The most recent airline to suspend operations, on Oct. 26, 2019, was fastjet Mozambique.
In late 2019 and early 2020, fastjet warned that an urgent funding and further restructuring were needed to continue operating beyond March 2020.
“I think fastjet started out with all good intentions and the real hope that it was going to succeed in tapping the nascent African LCC opportunity. Focusing on Tanzania, winning the minds of politicians and operating the right equipment, its future looked optimistic. Now, sadly, after many financial challenges, changes of strategy, management, geography and operating the wrong equipment, it appears to have lost its way and a viable future now looks very uncertain,” JLS Consulting owner John Strickland observed.
Under its latest restructuring, fastjet Zimbabwe is to be sold to fastjet Group shareholder Solenta Aviation Holdings, acting together with a consortium of local Zimbabwean investors. Post-restructuring, fastjet group would retain FedAir, but essentially become a franchise house, comprising the fastjet brand and central services company fastjet Africa.
“It’s not clear to me what brand equity there is in fastjet as a brand at this stage,” Altair Advisory managing director Patrick Edmond told ATW.
Edmond noted that the LCC model relies on market-share growth, whereas fastjet has been contracting over recent years. He also questions the viability of a LCC operating 50-seat jets.
“I’m hard pressed to remember when fastjet could last be described as doing well. It has gone through successive retrenchments, capital raises and changes of management,” he said. “Fastjet seems to have struggled from the start and I find it hard to escape the view that it was for internal reasons as much as for external reasons.”
African LCC fastjet is battling to survive beyond March, triggering questions over the viability of its pan-African LCC strategy, which is entering its third major revamp.
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