FastJet, a new African discount airline backed by easyJet’s founder Stelios Haji-Ioannou, will take to the skies by October, potentially redefining air connectivity on the continent – if the group can navigate Africa’s tricky low-cost market.
The airline was established out of the reverse takeover of pan-African conglomerate Lonrho’s aviation division by AIM-listed Rubicon Diversified Investments. Stelios became a 5 percent shareholder in Rubicon via his easyGroup Holdings, establishing a brand license agreement to re-launch Lonrho’s Fly540 airline – which operates in Kenya, Tanzania, Ghana and Angola – as ‘FastJet’, using the easyJet discount model.
Stelios, who sees Africa as “the aviation industry’s last frontier”, is looking to tap into the continent’s growing markets and expanding middle class. If successful, the no-frills carrier could bring air travel to millions of people who previously could not afford it.
“Low-cost carriers in the intra-Africa market would usher in a new era of rapid capacity growth, paving the way for growth in travel…which in turn could result in the greater linking of African economies,” explains Brendan Sobie, chief analyst at the CAPA Centre for Aviation. “The potential economic implications are huge.”
The timing is right, according to FastJet’s new CEO Ed Winter. “The middle class is growing; wealth is being spread more widely than in the past.” ”I’m very hopeful that we will be a big influence in Africa in changing the way aviation happens, raising the bar on reliability and safety and cost. The market is prime for change, and now is exactly the right moment.”
Africa’s commercial air traffic is expected to grow 5.4 percent annually between 2011 and 2030, according to estimates by Embraer, an aircraft manufacturer, putting the continent ahead of the more mature markets of North America and Europe, which will see respective growth of 3.5 percent and 4.4 percent.
But not everyone sees Africa as a ripe market for discount air travel, with analysts citing infrastructure constraints, low demand and lack of liberalisation as inhibitors. Under the 1999 Yamoussoukro Decision countries were supposed to deregulate air services, opening up markets to international competition, but the initiative has stalled, leaving an antiquated system of bilateral agreements that protect national interests. High taxes have rendered air travel unaffordable for most Africans, and have made discount models difficult to operate. Low-cost carriers account for only 12 percent of total seat capacity within Africa, according to CAPA. Within central and west Africa, that figure drops to less than 2 percent.
“There are big limitations of low-cost travel in Africa… To have a proper low-cost model you really need the volume, and I don’t believe that in most of Africa you have those volumes,” a senior official at Embraer said last year. “At the moment there is probably not room for an easyJet or a Ryanair,” he said at the time.
Speaking to the difficulty of making discount models viable, only days after the FastJet deal was completed, one of South Africa’s handful of low cost carriers, Velvet Sky, received a final liquidation order, after months on the ground.
It has been a testing time for African aviation more broadly, with Virgin Atlantic cancelling flights to Kenya, and South African Airways calling an end to Cape Town to London Heathrow flights. Meanwhile a crash in Lagos, Nigeria, killed all 153 passengers, highlighting continuing air safety issues.
Fly540 has also been loss-making, though that hasn’t put easyGroup off. “That just demonstrates how long it takes to get licenses in place and to become established,” Mr Winter argues. “We now have that structure in place and FastJet can move forward with that. That is hugely valuable.”
Government perspectives on market liberalisation are also changing, he says, based on an understanding of the broader economic implications of air connectivity. “The governments we have been talking to fully understand that need to change in order to liberalise air travel, democratise air travel and allow low-cost airlines to succeed,” he says.
FastJet will re-launch the airline using the low-cost easyJet model, replacing the existing fleet with Airbus 319s. Passenger numbers should double from current levels of around 750,000 passengers per year within six months of launching the new fleet in October. Within a year the group also hopes to have scaled up the fleet to 15 aircraft, envisaging that each of the new carriers will transport 250,000 passengers annually.
The low-cost market remains untested for most of Africa, but FastJet is bullish. The blend of Fly540′s existing four country platform, Lonrho’s African expertise, and easyGroup’s experience in operating low-cost carriers is “the best combination you could ask for,” Mr Winter says.