Africa’s ‘Fastjet’ Heading Towards Collapse

Low-cost African airline ‘Fastjet’ (founded by easyJet founder Sir Stelios Haji-Ioannou), has warned it could collapse, amid heavy losses at the airline.

The London Stock Exchange listed airline launched with ambitious plans to become the continent busiest low-cost pan-African airline, but it has struggled to be the commercial success investors had hoped for, amid Africa’s high taxes, protectionist legal barriers, regulatory setbacks, and stubborn nationalism.

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Fastjet’s Route Network

Fastjet has been burning through cash and announced a half-year operational loss of $14.6 million in June. Despite receiving a cash injection in the weeks that followed its financial loss announcement, it was only enough to keep the airline operations flowing over summer, and the carrier is now back in financial difficulty.

Fastjet said today that it needs to obtain fresh capital, or reach an agreement with its main creditors in the coming days otherwise it would be unable to continue.

The African budget airline forecast that with some cutbacks it will have enough cash to see it through until the end of the month, but the airline admits the current funds are unlikely to enable the continuation of the airlines’ operations after this point.

In response to the bleak outlook, shares in Fastjet have fallen 12.6% to 1.53p on Friday morning, and the company is now valued at less than $13 million.

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Fastjet’s Tanzania division has now signalled its intention to disengage from its parent company in the UK to become a fully locally owned airline.

The Difficulty of Being ‘Low-Cost’ In Africa

Various fees and tax schemes have continuously hampered Fastjet’s financials, much like other African carriers. In the continent, taxes for fuel in some countries are almost twice the global average. IATA has called on African governments to ‘take off some of these burdens by lifting taxes’ — as it’s ultimately limiting growth across the continent. Even airport ground handling (of which are private companies) is over 40% more expensive in Africa, compared with Europe and Asia. 

While adopting an ‘open sky’ policy would help encourage competition and boost traffic, Africa remains very restrictive — and it’s hurting private airlines such as Fastjet.  In the absence of a truly established continental open-skies agreement, some airlines, such  as Ethiopian Airlines, works with its government to establish new bilateral agreements with neighbouring countries, and not just those outside of the continent. This is in addition to the treaty signed in January 2018, whereby twenty-three African states including South Africa, Nigeria and Kenya, signed to launch a single aviation market in a bid to boost connectivity, reduce fares and stimulate economic growth — but 11 months later, it’s yet to fully unravel. The hope is that eventually a scenario like the current liberalised aviation market in Europe can be achieved.

Airbus’ recent Global Market Forecast found that African traffic as historically been focused in the north and south of the continent. However, in recent years, airlines and airports in the west and east have gained in importance in terms of air transport.

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When the gravity of traffic at an airport level is calculated over time the centre of air traffic gravity has moved south and east reflecting these developments. Today, Africa’s centre of gravity is located centrally in the continent — indicating a more ‘balanced weighting’ between north, south, east and west.

Final Thought

The financial difficulty at Africa’s low-cost carrier Fastjet is nothing new, but this could be the airlines’ final warning. Fastjet’s hefty devaluation, little funds left, and lack of interest from any new potential investors has the airline en route to a collapse.

In a statement to the London stock exchange this morning, the airline said: “The company continues to review its current cash requirements and is able to continue operating during November due to some improvement in trading, cash generation and internal efficiencies.

However, if the airline will be able to continue its operations after November depends on fresh investment. Fastjet said “If the company is unable to carry out an equity fundraise and/or reach an agreement with its key creditors, the group would be unable to continue trading”

 

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