Fastjet – where did it all go wrong ?

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This topic contains 6 replies, has 6 voices, and was last updated by  openfly 10 Oct 2016
at 06:36
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  • Charles-P
    Participant

    An interesting article here from Aviation Business Magazine on the failure of FastJet in Africa and why the LCC model did not work in the one place it was expected to thrive.

    A little over a year ago, Ed Winter sat in his London office and talked about the future of Fastjet. The then-CEO of the first African low-cost carrier anticipated having a fleet of around 34 Airbus A320-family aircraft by 2018, generating annual revenues close to $1 billion. “It is all very doable,” Winter stated.

    As it turned out, nothing could have been further from the truth. At a time when the low-cost model is continuing its success story globally, and most impressively in the Asia-Pacific region, Fastjet has been the one exception. The airline failed miserably, in spite of multiple attempts and numerous capital injections. Fastjet is still there and undergoing another restructuring under its new CEO, Nico Bezuidenhout, but it is nowhere near where Winter thought it would be.

    Fastjet’s fleet, consisting of six Airbus A319s, will soon be down to three Embraer 190s on wet-lease, dozens short of its target. In the first half of 2016, the airline generated revenues of $33.1 million, almost all of which were directly converted into a $31.4 million operating loss. Given the contraction of its fleet, sales will fall off even more. It is therefore safe to say Fastjet is way off target in all important metrics.

    In spite of the low-cost model’s attractiveness, not all such carriers succeed, of course. There have been failures elsewhere, notably when entering new markets. That was particularly true in the 1970s and ’80s in the U.S., in the 1990s in Europe and to a lesser extent in the 2000s and later in Asia. But why did Fastjet turn into such a disaster?

    As usual, there are several factors that came into play, both Fastjet-specific mistakes and general market conditions. As a general rule, low-cost airlines only succeed in a liberalized environment that enables such carriers to operate with high productivity. But Fastjet’s environment was the exact opposite. The airline never secured the number of traffic rights it would have needed to turn its growth plans into reality. Fastjet tried unsuccessfully to acquire or create air operator certificates (AOC) in various African countries that it wanted to connect. At one time, the airline was trying to set up affiliates in Ghana, Nigeria and South Africa, among others. But none of these ventures ever took off.

    Fastjet’s management naively believed that it could quickly change the structure of African aviation. The potential benefits of liberalization have been obvious for many years and are well-documented in various studies. African countries have also been supportive of the idea, in theory. But the reality, of course, is a lot different, and Fastjet should have known that.

    Attempting to implement a low-cost concept in markets—many of which have had little exposure to any air travel, lack European-style distribution channels or even just the experience to know when passengers are likely to buy tickets (for proper yield management) or show up at the airport (for on-time, reliable service)—was also a very daring exercise. The disconnect between the operational level, the day-to-day running of the airline locally and senior management was surely made worse by the location of the corporate headquarters in London rather than in Dar Es-Salaam, Tanzania, the carrier’s main base. The remote headquarters location also did not help Fastjet’s management to cultivate relationships with African governments that would be essential for there to be any hope to conclude more liberal air service agreements.

    Fastjet’s new headquarters is once again where the CEO lives, but at least it is in South Africa this time, a country the airline actually serves. As the former head of low-cost carrier Mango, Bezuidenhout also has more experience in the region than his predecessors. And as the former interim CEO of South African Airways, he knows about the local politics involved in aviation and the difficulty of building a profitable intra-African network. But his mission for now can only be ensuring survival of the airline, currently operating a much smaller fleet than was envisaged and a different, smaller aircraft type. Flying Embraer 190s goes along with the manufacturer’s long-standing argument for adjusting capacity to demand, but Fastjet certainly no longer qualifies as a real low-cost carrier.

    Unfortunately for Africa’s businesses and travelers, the Fastjet story is not only about management failure. It is a broader story about the state of the industry in Africa and the heavily regulated and outdated environment that makes any progress in improving airline service so difficult. It is also about a missed opportunity and an adverse operating situation for airlines that is likely to continue for some time.


    mroo_ywg
    Participant

    The big mistake by many companies trying their luck as multinational companies is the naive assumption that Africa is one homogeneous entity! It is over 50 different countries, which do not talk to each other, and are very protective of the old political boundaries (regardless of the fact that they are almost all of foreign origin. Not a single multi-national airline has succeeded – although Ethiopian may have found a way to do this with its subsidiaries, Malawian and Asky, or Rwandair which has a small base at Entebbe. For East Africa (Kenya, Uganda, Tanzania, Burundi and Rwanda) which is in theory a free trade zone, there are numerous barriers. FastJets’ failure to capitalise on the collapse of Air Uganda, or the withdrawal of Precision Air on most routes in the region was telling indeed.


    AMcWhirter
    Participant

    The fact that Fastjet never did start a Nigerian service speaks volumes.

    There were ambitious plans to launch Nigrian flights three years ago in association with Red 1.

    Did it ever happen ? I don’t think so.

    http://www.nigeria.to/airlines/Fastjet/Fastjet-Flights.php


    SimonS1
    Participant

    The difficulty with running an African airline is dealing with Africans. Everyone has their own vested interests and wants a cut of the action/snout in the trough.

    Many countries have their own regime managed by politically connected types who don’t have a scooby. Cue arguments about whose AOC can be used and I believe in Zimbabwe for example there have been about 12 airlines authorised to operate, I think only Fastjet and FlyAfrica Zim ever got off the ground and if you want to go to Bulawayo it’s still Air Zim and that beaten up 737 they use.

    Good luck to Nico, a good airline professional, maybe he can turn it around. I think they have shifted their HO to South Africa now which is a start.


    openfly
    Participant

    Totally agree with SimonS1.
    The new CEO and the move to SA is a complete turnaround. The Fastjet name, and the image, are good. The CEO move from a rock-solid job at Mango wasn’t a decision taken lightly.
    Hopefully we are going to see a lot more of Fastjet
    It “hasn’t all gone wrong”….it’s all about to go right, at last!


    LuganoPirate
    Participant

    They do need to spend more on marketing though. Very few people have heard of them and there’s no presence ex Cape Town. I hope they will now succeed.

    As a by the way, Stelios was/ is involved in Fastjet though I don’t know to which extent.


    openfly
    Participant

    LP….I think with the new CEO in charge, and Stelios holding a rein, a “new” Fastjet will emerge. There is so much potential there. If they can secure the SA domestic/short-haul market, I can envisage a few long-haul routes appearing. Competition to SAA.

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