in Air Transport / Features

Fast and furious…

Posted 12 December 2016 · Add Comment

Will a new CEO provide the necessary impetus to get stuttering low-cost carrier, Fastjet, out of its financial rut? Alan Dron looks at the issues.

It’s hard enough trying to establish an airline in Africa.
Dealing with local officials and politicians, handling the seemingly interminable regulatory processes that are an inevitable part of creating a carrier in one of the world’s most highly regulated industries, and trying to develop an immature market take up all management’s time.
But for the past year, Tanzania-based low-cost carrier (LCC) Fastjet has been fighting on another front: dealing with a stream of complaints from its largest shareholder and brand owner, Sir Stelios Haji-Ioannou.
The founder of giant European low-cost carrier EasyJet, and now chairman of parent organisation easyGroup, he holds 12.6% of Fastjet’s shares and has been a persistent critic of the airline’s policies and progress.
Neither the airline nor its largest shareholder responded to repeated requests for interviews, but the situation facing Fastjet can be pieced together from publicly available documents.
The airline has fought to maintain its progress in developing sister companies in several countries across east and southern Africa. Having begun operations from its initial base in Tanzania, its Zimbabwean operation made its inaugural domestic flight in October 2015 with international services to Johannesburg beginning in March this year.
The airline also received Kenyan Government permission to start operating flights between Dar es-Salaam and Nairobi, which it did in January, and it has plans to set up operations in Kenya, South Africa, Uganda and Zambia.
However, announcing its 2015 annual results in June this year, Fastjet said that a combination of external factors, including a 24% depreciation of the Tanzanian shilling against the US dollar and macroeconomic pressures, had led to continuing losses in 2015 and that the situation for the coming year remained “uncertain”.
Fastjet Tanzania saw its passenger numbers jump by 32% to 787,000. However, it reported that passenger numbers for several months of the latter half of 2015 were below expectations. A reduction in Tanzanian Government and civil service spending and what the airline described as a “dramatic downturn in consumer confidence” were among the reasons for this situation, which continued into 2016.
The Fastjet Group recorded a net loss for 2015 of $16.9 million – considerably better than 2014’s loss of $58.5 million, but with it still facing a challenging situation in the current financial year.
In an update released at the end of June, Fastjet said that the trading environment remained challenging and that while yields had started to improve, passenger numbers were lower than expected. Contrary to previous predictions, 2016 was no longer expected to be cashflow positive for the group and results were expected to be “materially below market expectations”.
An indication of the extent of Fastjet’s problems came with the announcement in April that it had agreed the early termination of the lease on one of its Airbus A319s, taking the fleet back down to five aircraft, just eight months after the sixth aircraft had joined the company.
In its operational review accompanying its annual results for 2015, it added: “The fleet will be reduced as aircraft reach the end of their leases and we match capacity with demand.”
A further two aircraft are expected to come to the end of their leases in the final quarter of this year and that “additional aircraft will be added to the fleet as appropriate”.
Having raised around $75 million through a share placement in April 2015, Fastjet raised a further $20 million through another shares offering in July this year.
These requirements to raise cash, according to Sir Stelios, demonstrate the fact that Fastjet is continuing to burn its way through its financial reserves and he has expressed concern that the company will run out of money.
He has been sharply critical over the costs of the airline maintaining a headquarters at London Gatwick airport, arguing that it should have its base in Tanzania. He has also complained of salary levels at the company and early this year sought the removal of CEO Ed Winter and general counsel Krista Bates.
He requisitioned an extraordinary general meeting (EGM) with the aim of removing Winter, who had already announced in January that he planned to depart after four years of toil setting up the airline and once a replacement was found. This was not good enough for Sir Stelios, who demanded Winter’s immediate departure.
In the event, the CEO brought forward his departure to March in the light of the planned EGM. Bates also left the company.
Sir Stelios called for a further EGM in June to remove executive chairman Colin Child, but shareholders defeated this.
However, over the summer, Fastjet announced something of a coup with the appointment from August 1 of Nico Bezuidenhout, who for the past 10 years has been CEO of the successful South African LCC, Mango.
As well as steering Mango to a fleet of 10 aircraft and achieving a profit in eight of the 10 years he was in charge, Bezuidenhout has twice stepped in as interim CEO of problem-plagued South African Airlines (SAA), where he created both a 90-day crisis plan and a long-term strategy aimed at steering the struggling flag-carrier out of its economic woes.
Even Sir Stelios approved of the appointment, although he grumbled at the length of time it had taken to appoint Bezuidenhout.
With his track record in a group whose internal politics are even more complex than those at Fastjet, Bezuidenhout would seem well qualified to stem the flow of red ink in the company’s accounts.
Even before he formally joined Fastjet, the company said that the board and he had “already identified a number of opportunities to stabilise the business and address many of the challenges” it faces.
“These include a fundamental review of our fleet, both the size and type of aircraft operated, the routes flown, the relocation of our head office to Africa and revenue generation initiatives.”
As the old saying goes, ‘a new broom sweeps clean’. Bezuidenhout’s arrival gives Fastjet perhaps its best chance to turn the corner financially… and maybe even keep its largest shareholder happy.
 

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