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Fastjet Survival In Question As Cash Runs Out For African Budget Airline

Fastjet Survival In Question As Cash Runs Out For African Budget Airline

Budget African Airline Fastjet plans to move its headquarters from London to Johannesburg and reduce its fleet from five to three leased aircraft to cut costs and  reassure investors as the airline bleeds money.

Fastjet shares fell 12 percent as vanishing cash and poor profits raised fears for the airline’s survival, This Is Money reported.

The airline’s cash balance has shrunk from $71 million in June 2015 to $3.8 million as of June 30, and the company hopes a stabilization plan can improve its performance.

Fastjet is a U.K.-based holding company for a group of low-cost carriers that are operating in Africa with plans to become the continent’s first low-cost, pan-African airline, according to an earlier AFKInsider report. The operation started with the acquisition of Fly540, an airline operating in East Africa. Flights in Fastjet’s name started in 2012 in Tanzania.

Fastjet has been burning through money due to a combination of weak passenger numbers, unhedged fuel prices and adverse currency exchange rates since its inception.

This casts doubt on “the group’s and the parent company’s ability to continue as a going concern and, therefore, to continue realizing its assets and discharging its liabilities in the normal course of business,” the company said.

Fastjet’s ambitious drive to fly more planes failed to pay off, Telegraph reported.

The airline increased seating capacity by 61 percent in the first half of 2016. It was not a commercial success, said Gerald Khoo, an analyst with Liberum.

“Challenging economic conditions in Tanzania and overly ambitious capacity growth resulted in a collapse in load factor,” Khoo said. “Neither passenger numbers nor revenue kept pace with the additions to seat capacity, and losses have grown.

“Passenger numbers rose by only 10 percent, resulting in a fall in the load factor to 48 percent from 70 percent.” Load factor is used to measure how much of a plane is full.

“Revenue per passenger fell by only 4 percent, but it was the load factor decline that caused the most problems,” Khoo said.

The recent appointment of Nico Bezuidenhout as CEO is expected to have a stabilizing effect on the business. Bezuidenhout joined Fastjet in August after serving 10 years as head of South African Airway’s low cost subsidiary, Mango Airlines.

He took over after previous CEO Ed Winter resigned over disagreements with EasyJet founder and investor Stelios Haji-Ioannou, who was demanding cost cuts, Bloomberg reported, according to Business Day Live.

Haji-Ioannou owns 12.6 percent of Fastjet and said that the airlne will “run out of cash sometime in 2016,” partly due to the expense of having headquarters at London Gatwick, nearly 5,000 miles from its main Tanzanian market.

This year has been “a very difficult and challenging time” for Fastjet, Bezuidenhout said.

Fastjet plans to return three leased 145-seat Airbus A319 jets by the end of September, sell the one it owns and sub-lease two, Bloomberg reported. It agreed to short-term leases on three Embraer E190s with less than than 120 seats each. The first is due in Tanzania within two weeks, according to Bloomberg.

The move to Johannesburg is expected to reduce headquarters expenses by as much as 35 percent.

Bezuidenhout is also changing FastJet’s routes, cutting frequencies on the route from Dar es Salaam — its main operating base — to Zanzibar, and replacing a daily flight from Dar es Salaam to Nairobi, Kenya, with a twice-weekly service from Nairobi to Kilimanjaro, Bloomberg reported.

The company plans to reduce expensive expat staff, such as pilots, the CEO said.

It plans to switch sales to a new mobile-payment platform and adopt a distribution system that will make Fastjet flights available to at least half of the travel agents in Africa. The carrier also plans to activate an existing sales agreement with Dubai-based Emirates.

‘The low cost airline model has proven to be successful on every other continent and we see no reason why this should not be the case in Africa too,” Khoo said, according to This Is Money. “We continue to believe in the long-term potential of African aviation.”

“I am confident that the business is becoming more stable and that we are slowly moving towards a platform from which, in due course, Fastjet will be able to consider gradual expansion opportunities and start to deliver on its undoubted potential,” Bezuidenhout said, according to the Telegraph.