Fastjet Chief’s Exit Shows Africa Left Behind by Aviation Boom

When a Fastjet Plc plane flew from Tanzanian business hub Dar es Salaam to Mwanza on Lake Victoria in...

When a Fastjet Plc plane flew from Tanzanian business hub Dar es Salaam to Mwanza on Lake Victoria in Nov. 29, 2012, Chief Executive Officer Ed Winter lauded the service as heralding the start of low-cost travel in Africa.

Barely three years on and Winter quit this week after a spat with backer and EasyJet Plc founder Stelios Haji-Ioannou as Fastjet bleeds cash. It’s the latest victim of a malaise that’s gripping African airlines just as the oil-price decline allows once struggling operators elsewhere to make money.

African carriers collectively lost $300 million in 2015 even as the global industry racked up record earnings of $33 billion, according to International Air Transport Association estimates. While Latin American airlines had similar losses, Africa’s per-passenger deficit was far worse, the trade body says.

The picture looks almost as bleak for 2016. African airlines may pare their losses to $100 million, but other regions will improve faster — with Latin America swinging to a $400 million profit — making the continent the only one where airlines are failing to make money, IATA says.

“Africa has huge potential with its large population, emerging middle class and rapid adoption of technology, and the simple approach has to be right,” said John Strickland at JLS Consulting in London. “But obstacles such as the high tax take, political interference and poor infrastructure are also significant.”

SAA, Kenya Air

Among those suffering are South African Airways, the sub-Saharan No. 2 by passenger traffic, technically insolvent and relying on 14.4 billion rand ($910 million) in state guarantees to raise debt and continue operating, and Kenya Airways Ltd., the No. 3, which said last week it’s planning a 70 billion-shilling ($690 million) restructuring after the largest loss in Kenyan corporate history.

Even today some 600 million sub-Saharan Africans — about 70 percent of the population — lack electricity, putting air travel beyond the means of many. Yet the population can be highly mobile, with tortuous road journeys of more than a day to visit friends and family, often in other countries, not uncommon.

Winter’s bet was that he could make those people airline clients by marrying low-cost principles honed in Europe, where he ran British Airways discount arm Go after its sale to EasyJet, to a booking system letting them buy tickets by phone, overcoming Africa’s lack of home computers, travel agents and banks.

Cellular Economies

In Kenya, more than 80 percent of the population has a cellphone, with funds flowing through mobile devices equal to about a quarter of economic activity. Still, the take-up of smartphones is patchier; while mobile-phone subscriptions in Nigeria — population 170 million — stood at 149 million as of the end of January, fewer than 10 percent are for Internet-enabled devices.

As a discount carrier modeled along Western lines, Fastjet also faces a more fundamental challenge in that each route must stand or fall on its own merits. The low-cost model as developed by the likes of Ryanair Holdings Plc permits only individual bases, rather than a single hub where flights across the network converge and people can change planes.

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Fastjet has six Airbus Group SE A319s split between Tanzania and Zimbabwe. Some of its 14 destinations may be cut to stem the cash outflow, it said March 7, when the stock fell 46 percent. Haji-Ioannou, who holds a 13 percent stake, had already called on Winter to leave, complaining of a “bloated cost base.”

Even the biggest African carriers, whose short-haul flights link up with more lucrative long-haul services at the continent’s biggest hub airports, are failing to show a profit despite the benign cost environment.

Kenya Airways could cut a third of its 4,000-strong workforce under a plan developed by McKinsey & Co, according to Eric Musau of Standard Investment Bank Ltd., while the state says it may raise its 28 percent stake to 50 percent and reconsider a partnership with No. 2 shareholder Air France-KLM Group.

It’s also offloading eight Boeing Co. 777s, crimping flights at one of the few carriers vying with Turkish Airlines and Gulf operators Emirates, Qatar Airlines and Etihad Airways as they divert African long-haul traffic via their hubs.

In South Africa, the government said last month it may seek to merge SAA with SA Express to create what Finance Minister Pravin Gordhan said in a budget speech would be a “bigger and more operationally efficient airline” in which a stake might later be sold to private investors.

SAA, which has had seven acting or permanent chief executive officers in four years, mostly imposed by the government, last posted an annual profit in 2011 and has yet to finalize financial statements for the year through March 2015.

Fastjet also encountered political machinations, with Winter saying talks to establish new bases had proved more protracted than envisaged. Changes of government also derailed accords already put in place.

Amid the losses, Ethiopian Airlines Enterprise, Africa’s largest carrier, remains a beacon of profitability, lifting earnings 12 percent to 3.53 billion birr ($165 million) in 2014-2015 as it cut costs and provided peers with catering, handling and maintenance. It has arms in Togo and Malawi and said in 2015 it was in talks about founding units in Nigeria, Uganda, South Sudan and the Democratic Republic of Congo.

–With assistance from Richard Weiss To contact the reporter on this story: Christopher Jasper in London at To contact the editors responsible for this story: Chris Reiter at, John Bowker, Benedikt Kammel

By: Christopher Jasper

©2016 Bloomberg News

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