Fastjet’s cash in Zim comes with a catch: it’s stuck there
● A double-edged sword. That is what lowcost airline Fastjet’s venture into Zimbabwe has been since it first took to the skies more than two years ago.
The South Africa-based airline has seen rapid growth and demand for its services, but it has also found Zimbabwe’s economic terrain extremely tough.
Persistent cash shortages that are now in their third year are the latest issue threatening Fastjet.
A few years ago, the airline’s troubles were related to a boardroom squabble with its former majority shareholder Stelios HajiIoannou, the founder of easyJet.
Fastjet desperately needs access to $1.75million (about R24-million) in ticket sales which is stuck in Zimbabwe or it faces closure. It is understood to be talking to major shareholders about equity fundraising.
Financial turbulence
In a statement, the airline said this week it may not be able to continue trading as a going concern.
“Whilst initial discussions with certain shareholders have been positive, discussions are ongoing and there can be no guarantee of a successful outcome,” it said.
Listed in London and trading on the AIM market, its shares fell 72% to 4.25p on Wednesday afternoon, valuing the company at less than £20-million (about R360-million).
An International Air Transport Association report released last month ranked Zimbabwe third among African countries from which airlines were struggling to repatriate their funds.
Zimbabwe owes airlines $76-million. Sudan owes $170-million and Angola $386million.
Fastjet was able to expand quickly in Zimbabwe due in part to the moribund state of the national carrier, Air Zimbabwe, which is saddled with debt of $300-million. It has an ageing fleet of aircraft and is hemorrhaging staff.
Fastjet, as a low-cost carrier, lured customers not only from Air Zimbabwe but also from SAA and British Airways, with their higher fare structures.
Positioned as a pan-African airline, Fastjet went for the jugular when it launched in Zimbabwe, establishing flights on the lucrative Harare-Johannesburg and Harare-Victoria Falls routes.
Its fleet of Embraer jets provided a quick turnaround on these routes.
For the first quarter of this year, Fastjet said it had achieved “a 90% on-time performance” in the markets where it operates — South Africa, Tanzania, Mozambique, Zambia and Zimbabwe.
James Geldenhuys, the head of aircraft finance at Nedbank corporate and investment banking, said low-cost airlines were integral players in growing passenger numbers in Africa.
“Road infrastructure is limited and poorly maintained, and therefore air transport is more efficient . . . Low-cost carriers will play an important role in creating a new market for more affordable air transport.
“They are typically able to reduce the cost of flying through continuous improvement in efficiencies, such as turnaround times between flights and a general reduction in costs,” Geldenhuys said.
New route
Fastjet CEO Nico Bezuidenhout this week acknowledged the airline had had success in Zimbabwe.
“The airline has operated in the Zimbabwean market for just over two years now and has grown from one daily return between Harare and Johannesburg to four, and also increased our frequencies between Harare and Victoria Falls by 85% since last year this time.”
But the blight on Fastjet’s phenomenal growth in operations has been Zimbabwe’s cash crunch.
Bezuidenhout said the airline was “negatively impacted” by the challenge of repatriating cash from Zimbabwe.
“However, every effort is being made to engage positively with the authorities incountry to resolve the challenge and create a mutually beneficial outcome,” he said.
Despite Fastjet’s troubles, Bezuidenhout said the airline was investigating the viability of starting a new route between Harare and Bulawayo, now served only by Air Zimbabwe.
“We have not officially communicated any commencement of service and at present the route launch and Fastjet’s operations between Harare and Bulawayo are simply the consequence of social media chatter.
“It is a route we are highly interested in and when looking at the Zimbabwean market and the expected surge in GDP growth over the next decade, it continues to be a highly viable market for Fastjet,” Bezuidenhout said.
Jury still out
John Grant, an aviation analyst at OAG, a London-based aviation firm, said one of Fastjet’s strengths was its ability to adapt to market needs.
But in terms of long-term success, the jury was still out.
“They are at least now matching their product more to the market need and of course exploiting the new opportunities that a regional African aviation policy has created,” Grant said.
“Low cost in Africa isn’t quite booming, but the green shoots of a new operating model are.”
Bezuidenhout is optimistic about the airline’s future, despite its current challenges. “Fastjet is of the firm conviction that the market will continue to grow, and with the commodity cycle on an upward curve at the moment, GDP growth in many African countries will follow its rise,” he said.
“We have seen the potential, overcome many of the hurdles and partnered with flag carriers in some of our markets, and in a sense, are rewriting the rule book of what affordable air travel in Africa looks like.”
Market research company Euromonitor said that in South Africa kulula led the lowcost carrier segment last year with a value share of 39%.
But it said full-service airlines still accounted for 77% of the market in value terms, despite the growing popularity of cheap flights.
“[They] receive more corporate bookings than leisure bookings, while low-cost airlines attract budget-conscious travellers that are willing to forgo services such as inflight meals due to the shorter travelling time, which limits the need for these services.”