‘fastjet Zim safe from London squabbles’

‘fastjet Zim safe from London squabbles’
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Budget carriers are revolutionarising African skies?

FASTJET Zimbabwe has dismissed fears that its local operations could be disrupted by boardroom squabbles that have rocked in London and Tanzania.
The budget carrier has been hit by a boardroom crisis after Stelios Haji-Ioannou, who controls 12 percent shareholding in the African airline, warned of trouble ahead for fastjet and demanded the ouster of Krista Bates from the main board.
A week earlier, the airline’s chief executive officer (CEO), Ed Winter had thrown in the towel.
Many, therefore, fear that the squabbles in the Pan African budget carrier’s boardroom could negatively impact on fastjet Zimbabwe.
But the airline’s flight operations director in Zimbabwe, Ed Lanca, last week said they were not anticipating the wrangles to cascade to domestic operations.
“I don’t think it will have much bearing on us because we are a majority-owned Zimbabwean company,” Lanca told the Financial Gazette’s Companies & Markets.
“But, as you know, Ed Winter has resigned. He resigned a week ago and they have engaged Head Hunters (to look for a new CEO). I don’t know much about the boardroom squabbles, but if you phone me, say by the end of the week, I will be able to give you the details,” he added.
With African operations headquartered in Tanzania, fastjet has been operating low cost flights in countries such as South Africa, Zambia, Zimbabwe, Uganda, Malawi and Kenya following its launch in 2012.
Most of its African business had until recently been generated in East Africa, but in the past two years, the airline has taken a serious look into other markets.
It would appear, however, that the low cost model has failed in the region, where frequencies and traffic densities are low due to subdued demand.
In Zimbabwe, other low cost airlines, such as fly Kumba, have folded, and fly Africa is currently grounded.
In South Africa, 1 Time closed in 2012.
In the markets that fastjet is targeting, there are no cheaper secondary airports to help budget carriers contain costs.
In countries such as Singapore, budget airlines land on separate airports, where costs are low as passengers do self service.
But in southern Africa, civil aviation authorities are reluctant to agree to such concessions due to high costs of operating airports.
But despite these handicaps, economic analyst, Prosper Chitambara, said the low cost airline model is now one of the best strategies being pursued by airlines worldwide.
He said even in the United States of America, some of the biggest airlines like South West Airlines were riding on the low cost model, although in Africa, the strategy may still face hurdles due to high operational costs and tariffs.
“It is one of the best models. The world over this is the trend. They try to minimise costs by using small aircraft and they don’t offer in flight food. They actually sell food. Largely, it is a good business model. That is why in Zimbabwe a number of players are trying to enter. In Europe and East Africa, the low cost model is viable,” said Chitambara, chief economist at the Labour and Economic Development Research Institute of Zimbabwe.
After being granted permission to operate domestic flights through fastjet Zimbabwe, the ambitious airline kicked off services on the Harare-Victoria Falls route last year, offering US$20 fares for a one way trip.
Last month, fastjet launched five weekly frequencies into Johannesburg from Harare, challenging the established South African Airways, Air Zimbabwe and British Airways.
It also operates flights into Tanzania from Zimbabwe where travellers can pay about US$50 for a one way trip.
fastjet’s business model has caused shockwaves on the domestic market, as well as the Harare-Johannesburg route, where passengers pay about US$80 fares for a one way flight.
Recently, Haji-Ioannou warned that the airline was operating on high cost structures, which were draining its cash reserves.
In a letter to the fastjet board, Haji-Ioannou blamed Winter for “burning some £80 million in the past three years” and demanded the ouster of Bates, one of the company’s directors.
“The company has a ridiculously high cost base…Winter has burnt some £80 million in the last three years. We believe the company will run out of cash sometime in 2016. We now have about six months left to steady this ship. Time is of the essence,” Haji-Ioannou said in his letter quoted by the Guardian newspaper.
He criticised fastjet for setting up its head office in London.
“This is not only a high cost location, when revenues are reported in local Tanzanian currency, but is also 4 750 miles away from Tanzania where the main operations and customers of fastjet are located,” the Guardian quoted him as saying. He reportedly said that “fastjet was making unrealistic revenue forecasts for a fleet of six aircraft”.
fastjet’s bold moves into Africa were underpinned by a £50 million equity funding injected into the business in April last year.
The airline appears to be targeting countries with weak national airlines including Zimbabwe. Budget carriers revolutionarising African skies?
In Africa, travelling by air had largely been expensive until the arrival of the low cost model, which is revolutionising the industry.
Fifteen years ago, flying from Harare, for instance, to North Africa often meant a connection via Europe because there were no direct flights.
Budget airlines have changed the state of affairs, and their flights are linking African cities, serving routes that traditional airlines had hitherto shunned, and serving routes that cater for Africa’s growing middle class.
This has not been an easy journey.
African nations signed an “open skies” agreement in 1988.
It is pretty much the same as the one in Europe that cleared hurdles for such low cost carriers as easyJet, which is owned by one of fastjet’s shareholders.
Although countries of the region have not yet appended their signatures to the policy, budget airlines have been slowly convincing governments to implement the agreement to open skies.
But as the number of potential travellers grows, the new low-cost airlines are slowly convincing governments about the benefits of increased air travel.
“There are more than one billion people on the African continent,” Winter said last year.
“(Africa) is home to just three percent of the world’s aviation business. It is clear that the continent remains in desperate need of improved and affordable aviation connectivity.”
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