February 20, 2013
When Ed Winter decided to accept an offer to become CEO of Fastjet, a new highly ambitious low-cost carrier (LCC) for Africa, the challenges seemed clear: infrastructure constraints, taxation and other regulatory issues, low Internet penetration. It was not exactly going to be easy.
But around three months after the launch of flight operations, it is becoming increasingly apparent that there are other and unexpected issues threatening the fast growth of Fastjet: a series of lawsuits, some partially connected and some unrelated. All of these legal battles, which are complex and difficult to judge without insider knowledge, can be traced back to the way Fastjet was set up. It was built by taking on existing regional air operators’ certificates. The new airline hoped this would be a good way to speed up the process of becoming established.
As it turns out, it is slowing it down. Fastjet already saw itself forced to buy another operation in Kenya to get around the troubles of Fly540—its original local base—in hopes of not repeating mistakes. The idea of buying into defunct local airlines also was followed in South Africa, where Fastjet is trying to get bankrupt carrier 1time back in the air. But that process, too, is taking much more time than expected given the slow negotiations with 1time’s former owners and creditors.
So Fastjet has not yet reached the stage where it can prove that the low-cost model works in Africa; it still needs to prove a new airline can be set up within a reasonable time frame. The progress is being closely watched by would-be airline investors who are looking at participating in the expected huge growth in air travel in the region. Air France in particular plans to be part of new operations in Central Africa and Ivory Coast, at least one of which is to be launched this year.
The hurdles to simply getting the airline up and running are more tedious than expected, and the fact that the process is moving more slowly than expected surely has had an impact on the Fastjet business plan. While it is OK to start with a three-aircraft operation in Tanzania, that will not be sustainable for an extended period. The whole organization is built on the expectation that the fleet will become much bigger pretty quickly.
Fastjet has been talking about developing a fleet of around 40 aircraft within two-three years, given the current difficulties. And as things drag on, regional Fly540 operations in Ghana and Angola cannot be turned quickly into the low-cost offers they were intended to become, adding a further drain on management and financial resources. None of the above says anything about the model as such. In fact, there is no reason why Africans should not accept low-cost flying the same way Americans, Europeans and Asians have done over the past decades.
Of course, there needs to be some adaptation to local conditions. That was the case when European LCCs were launched in the 1990s, and the first Asian operators got started 10 years later. Similar adaptations will be needed, and some will have to come as the result of a learning process. However, in order for that process to begin, Fastjet needs to win its legal battles.
With operations in Kenya, Angola and Ghana still some way off, Fastjet continues to focus on Tanzania. However, the market has its limits. There may be room for a couple more aircraft at the local base. But the airline is already looking at international destinations: Entebbe, Uganda, and Johannesburg are on the list. Getting the local South African airline 1time back in the air quickly is therefore all the more important.