African budget carrier Fastjet is having to rethink its development strategy after the Fly540 regional carrier businesses it inherited from Lonrho Aviation failed to evolve as a suitable foundation on which to build the low-cost airline.
Fastjet turned in an operating loss of $79 million last year, including exceptional losses of $31.5 million, although revenues more than doubled to $53.4 million.
It has been revising its plans because the various operations of Fly540 have proven “disappointing”, it says, and have “not performed as contemplated”.
The company's centre of operations is in Tanzania where it set up a Fastjet division to replace the small local company Fly540 Tanzania.
Fastjet's operating losses for the year include $21.9 million attributable to the Tanzanian arm but the carrier says that it has achieved “solid growth” of domestic routes in the country. It says it is facing competitive pressure from Precision Air and Air Tanzania but does not regard this as a "long-term threat".
Its remaining Fly540 businesses have either been sold – in the case of Kenya – or suspended for restructuring, the situation in Ghana and Angola.
Converting Fly540 Kenya to the Fastjet business model would "not be economically viable", says the company, while infrastructure, logistics and other issues have hampered development in Ghana and Angola.
Fly540 Ghana had an adverse impact of $11.7 million on Fastjet’s financial results last year while Fly540 Angola’s impact was worse at $22.8 million.
Fastjet aims to find alternative ways to broaden the budget model adopted in Tanzania, including establishing a new carrier in Kenya. It expects to expand to a fleet of 24 aircraft, carrying 6 million passengers, by 2018.
Despite the losses the carrier’s directors say they are “confident” that the company has access to sufficient funding for at least another year.
Chief executive Ed Winter points out that the airline has secured fresh financing recently and that the company has had an “encouraging response” from the market and its shareholders.
“Our experience to date confirms our long-held view that people across Africa are embracing the opportunities offered by Fastjet's reliable, safe and great value air travel,” he adds.
Fastjet’s plans for the next four years rest on building up its Tanzanian operation, increasing frequency on current routes from Dar es Salaam and expanding to new destinations in Kenya, Malawi and Uganda. The airline also wants to establish itself in South Africa and Zambia.
It also intends to arrange commercial and marketing connections with third-party airlines – notably intercontinental carriers – to increase distribution outside of Africa.
But Fastjet points out that it dealing with a region which has “very little regulatory freedom” in terms of aviation liberalisation, against which it is having to lobby, and that it is also imposing its own constraints to ensure that it is complying with operating standards equivalent to those enforced in Europe.