African lowcost carrier FastJet is running on fumes as it seeks to exit its Tanzania business, which faces an energised national carrier, regulatory hurdles and its own fundraising problems.
The London-listed Fastjet Plc is set to dispose of its 49 per cent stake in the loss-making Tanzanian subsidiary, Fastjet Airlines, citing an increasingly difficult operating environment.
This will leave the Dar operator with little muscle to fight off the government-backed Air Tanzania.
“Recent changes in the competitive landscape in Tanzania, and the associated impact on the Tanzanian airline and local company have been significant. The Tanzanian market and economy are struggling with an ingrained below cost yield embedded into the fare structures,” Fastjet said when it released its latest results.
These are the challenges the new owners will have to deal with as Tanzania spares no effort to ensure that its national carrier succeeds domestically before going international.
Historically, Tanzania has been the most complex business and biggest loss maker of all the Fastjet business units, and it will be a relief for the parent firm to cut it loose, but a headache for its new owners.
For if both the parent firm, which still has operations in Mozambique and Zimbabwe, and the soon-to-be independent Tanzania operator, fail to attract new investors who are willing to put up more cash, then their six year experiment in the region will be a failure.
The airline’s exit from its Tanzania operations, its biggest revenue generator at $15.7 million in the six months to June, with a loss of $8.9 million, is a result of the rejuvenation of Air Tanzania operations, which has increased its frequency on the domestic routes Fastjet flies in.
Fastjet has struggled to compete on routes such as Dar-Mwanza and Dar-Kilimanjaro after Air Tanzania deployed of its newly acquired Boeing 787-8 Dreamliner, adding 280 seats to one of Fastjets’ flight sectors.
The carrier has also been awaiting approval from the Tanzania authorities to deploy its newly acquired three ATR72-600 aircraft.
The undeployed aircraft continue to accrue ownership and maintenance costs running into $0.7 million, which has not helped the carrier’s bottom line.
“There is little indication of when these hurdles may be overcome. The regulatory challenges of the importation and clearance of the ATR72-600 fleet, as well as domestic route right approvals for both the ATR72-600 and ERJ190, has stalled, with several months of delays. The planned introduction of the ATR72 aircraft and the further growth of the ERJ190 network were severely impacted,” the carrier said.
Fastjet added that it will now sublease these aircraft rather than introduce them into the Tanzania airspace.
The Tanzania operator will also have to face the effects of slow economic growth, which has adversely impacted consumer and business travel as the first half of 2018 saw the available customer pool in the country fall sharply.
Air Tanzania’s aggressive entry and pricing strategy are another challenge that has contributed to Fastjet’s dimmed performance.
“The Tanzanian revenue stream came under increased pressure due to substantial discounting by competing carriers and even lower yields through most of the third quarter of this year following the introduction of the Dreamliner,” the financial report indicated.
In the six months to June, Fastjet Tanzania flew over 201,000 passengers, with the Dar es Salaam to Mwanza route being its strongest performing with an average load of 80 per cent.
It, however, saw its overall passenger volumes decline by 9 per cent, which it partly attributed to fleet change from previous 144-seat Airbus A319 aircraft to the 104-seat Embraer E190s, which reduced seating capacity by 15 per cent.
Fastjet Plc has struggled to raise funds from its shareholders in the past year, having raised only $28 million in September last year of the $44 million it had targeted in fresh capital.
Its shareholders have become increasingly reluctant to invest money in the business. It raised $19.8 million in July 2016 and $28.8 million in January last year.
Last month, and before the parent firm’s decision on Tanzania, the airline warned that unless the company was able to carry out an equity fundraise or reach an agreement with its key creditors “in the coming days” it would no longer be able to operate as a going concern.
Cash in Zimbabwe
The firm has experienced financial instability, having sought $10 million from its shareholders in July to fund working capital for the current period, against operational costs that ran to $25.8 million in the first six months of this year.
By the end of September, its cash reserves stood at $4.2 million, with $2.8 million of this being restricted cash held inside Zimbabwe.
The remaining $1.4 million was external hard currency within the group, which it said would be insufficient to fund operations into the fourth quarter this year, possibly explaining its disengagement thereafter from the Tanzania business.
In the six months to June, Fastjet Plc saw its revenue increase 42 per cent to $30.1 million on the back of year-on-year capacity and flight increases.
However, it also saw its group operating losses increase 13.4 per cent to $14.7 million.