Fastjet: heading for higher altitude or a crash landing?

Fastjet shareholders have coughed up yet more funds to keep the dream of bringing low-cost air travel to Africa alive. But not all dreams translate to reality.

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Source: Bloomberg

‘At first, dreams seem impossible, then improbable, and eventually inevitable,’ – Christopher Reeve.

The opportunity looked ripe for the taking, ambitions were high and all the pieces of the jigsaw were in place to bring low-cost air travel to Africa. In an attempt to replicate the success seen by low-cost airline easyJet in Europe during the 1990s following the introduction of the Single Market, Fastjet aimed to bring low air fares to the ‘final frontier of aviation’.

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Mountains, deserts and jungles make air travel the perfect form of transport for the one billion people of Africa. But, plagued by a lack of infrastructure, corruption, political instability and the monopoly of inefficient national air carriers, Africa’s aviation market has still not taken off.

By now, Fastjet had expected to have revolutionised air travel across Africa using a fleet capable of generating $1 billion in annual revenue. Five years on, having burnt through over $200 million worth of shareholder cash, the airline stands closer to bankruptcy than ever.

Fastjet: slow takeoff

Fastjet was borne in 2012 by an unlikely partnership between renowned AIM investor and director David Lenigas and the founder of easyJet, Stelios Haji-Ionnau. Lenigas was looking to spin-off the aviation business of a small conglomerate in Africa named Lonhro that he chaired at the time, while Haji-Ionnau was looking for somewhere to channel his expertise and Fastjet brand after leaving the board of easyJet in 2010. Having clashed with fellow directors over the future direction of easyJet, Haji-Ionnau had launched a study as to whether low-cost air travel could work in Africa.  

Haji-Ionnau was prevented from taking a leadership role at Fastjet under an agreement he signed when he left easyJet, but he did become a major shareholder and license the Fastjet brand to the business. Lenigas, having initially chaired the new airline, quit following a bust-up with shareholders and a disastrous first 18 months in business.

As a result, much of Fastjet’s journey so far has fallen under the control of Ed Winter, the former chief operating officer of easyJet that went on to become the first chief executive of Fastjet. Having guided the airline through its first flight in Tanzania at the end of November 2012, Fastjet had grown to serve 12 routes to 11 destinations by 2015, flying from its base in Tanzania to South Africa, Zimbabwe and Uganda, with the addition of Kenya very late on in the year.

But, with over $230 million worth of cumulative pre-tax losses and having largely burnt through over $160 million of shareholder’s cash by the end of 2015, shareholders started to grow impatient with the airline. Despite being criticised for having overly-high aspirations and spreading the company too thin, Winter’s ambition did not falter: he prepared to take the airline from one generating $65 million in revenue using just three planes in 2015 to one that would be capable of generating $1 billion of annual revenue using 34 planes in just two years, by 2018.  

In hindsight, that criticism was justified. As quickly as Fastjet had expanded it was forced to start reviewing operations and reducing costs after economic conditions in Tanzania, which had proved a resilient home market steadying the ship while it expanded elsewhere, deteriorated following the Tanzanian general election in late 2015, which led to foreign exchange headwinds and weaker demand.

Although Winter had recognised spending was too high and that any further growth needed to be put on hold, it was all too late for the chief executive. Following pressure from Haji-Ionnau, who had become unhappy with how Winter was managing the airline, his pay-packet and the huge sums of investor cash that had been spent, the chief executive resigned in the first half of 2016.

Fastjet: old board, new tricks?

With their pockets emptied and not a return in sight, shareholders were pleased to hear some good news when current chief executive Nico Bezuidenhout took over the ailing airline in August 2016. He had spent the previous decade leading one of the only profitable low-cost airlines in Africa, Mango Airlines, part of South African Airways, and outlined a ‘stablisation plan’ to address Fastjet’s costly mistakes over the previous four years.

Tangible progress has been made and management have delivered results. Last year was Fastjet’s best performance since it was formed. Its pre-tax loss was still a hefty $24 million, but that was the smallest loss on record and its operations were not that far from being profitable.

The rest of the board has been overhauled with both the chairman and chief financial officer changing in 2017 (in fact, Bezuidenhout is already the second-longest serving board member less than two years into his tenure), its oversized fleet has been overhauled, and its routes rationalised.

He has expanded Fastjet into Mozambique and bought the brand from Haji-Ionnau that was previously being used under a licensing deal, providing them with greater control and lower running costs. He also made the obvious decision to move the headquarters of Fastjet – ‘an airline for Africa, in Africa, by Africa’ – to Africa from London.

But such an overhaul does not come cheap, and shareholders would be right to think the new board isn’t that different from the last one: it is still squeezing them for more money and failing to deliver on all its promises. Fastjet has raised over $75 million from shareholders since announcing Bezuidenhout was to take over the business, and another $35 million of equity has been sold to its biggest shareholder Solenta.

And while its losses have started to shrink, Fastjet has failed to deliver on the most important promises, and Bezuidenhout’s ‘stablisation plan’ may be completed but the flight is anything but stable at present. When it launched its last bumper fundraising only last September, raising $44 million of equity ($28 million from retail investors), it said the funds would be enough to get the company’s cashflow to break even, when shareholders would finally be able to put away their purses. But now, having splashed out on new aircraft, Fastjet’s financial position is once again precarious, warning in late June that it needed to raise more funds or face being grounded for good.

So, is this a new board burdening the cost of Fastjet’s legacy, or a new board up to old tricks?

Fastjet burns through cash and suffers heavy losses

These turbulent times have come at a huge cost to the airline, and more specifically its shareholders, who have had to plump up hundreds of millions of dollars to keep Fastjet afloat over the past five years. In fact, shareholders have had to plump up the cash to keep Fastjet in business every single year.

Fastjet losses and cash burn continue, but signs of improvement in 2017

($, millions) 2012 2013 2014 2015 2016 2017
Revenue 21.1 53.4 55.4 65.1 68.5 46.2
Gross loss 30.1* 47.6* 34.6 13.1 28.5 5.7
Operating loss 53.6 79.1 56.6 42.3 65.6 25.3
Pre-tax loss 55.3 82.4 57.8 41 67.5 24.4
Net operating cashflow (19.9) (31.1) (27.2) (36.9) (52.3) (34.8)
Net proceeds from share issue 28.6 36.6 27.2 71.9 19.2 56.9
Closing net cash 5.5 3.7 1.4 28.9 3.6 20.1

(Source: company reports. *operating loss excluding exceptionals)

Fastjet shares fail to find altitude

Having hit an all-time high of 120p in May 2015, Fastjet shares were in freefall mode over the following two years before finding steadier ground. But shares have since fallen to their lowest level since April 2015 at just 8.6p.

Fastjet raises $10 million to avoid being grounded

‘Naturally I am very disappointed at this news. It had been my hope to see safe, low-cost air travel thrive in Africa – as elsewhere. However, I have been increasingly concerned over the last few years at the way Fastjet was being run – first by Ed Winter and his team and now by Nico Bezuidenhout,’ – easyJet founder Stelios Haji-Ionnau.

The new board is delivering mixed results and failing to stem the flood of cash leaking out of the business, and shareholders are now starting to feel a serious case of déjà vu after being asked to bail out the business yet again.

Although Fastjet’s share price has collapsed, it has largely managed to demand a premium price during its rampage for funds over recent years. But still, that has not been enough to offset the diving share price: Fastjet raised funds at 50p per share in July 2016, then at just 16.3p in January 2017 before demanding 20p per share under the most recent round in September 2017.

But the latest fundraising was priced at just 8p per share, raising $7 million from investors and another $3 million from Solenta, who Fastjet signed a brand licence agreement with last year to open up in Mozambique. But, much like the last $44 million fundraising late last year, the funds are not just to keep Fastjet in business but to try its luck at expanding, again.

Fastjet’s cashflow would have been breakeven in the final quarter of 2017 if the business had not been hit by the costs incurred restructuring the business (and a $7 million hit from engine troubles), suggesting there is light at the end of the tunnel. It is still a long-haul flight ahead, but the steps taken in the journey so far look to be working.

Operating and overhead costs were both cut broadly in half in 2017 and its decision to downsize its fleet to smaller, cheaper Embraer E190 aircraft that it leases from Solenta. With its routes rationalised and a fleet fit for purpose Fastjet’s efficiency has improved:

Fastjet’s operational performance improves in 2017

  2014 2015 2016 2017
Passengers 597,432 781,238 783,317 537,763
Load factor 73.3% 66.7% 53.7% 70.9%
Revenue per passenger $89.98 $82.74 $87.50 $86.00
Revenue per available seat km 7.95 cents 6.75 cents 5.92 cents 7.87 cents
Cost per available seat km 11.27 cents 9.28 cents 11.78 cents 12.03 cents
Aircraft utilisation (hours) 7.9 9.9 9.8 9.4


Fastjet reported a 45% rise in passenger numbers and a 29% jump in revenue in the first four months of 2018. Revenue per seat climbed 11% to beat guidance while costs fell 7%. The airline said earnings before interest, tax, depreciation and amortisation (EBITDA) increased 20% and profit after tax rose 23%.

Route change: Fastjet looks to escape turbulence

‘The funds to be raised are expected to provide the group with sufficient working capital for the remainder of 2018,’ – Fastjet.

Half of the $10 million recently raised will be used to support its operations in Mozambique and Zimbabwe, where it believes its expansion plans are key to reaching breakeven.

Having struggled to enter new geographies in the past, Fastjet now pursues partnerships with national carriers and established airlines to enter new markets, demonstrated by the Solenta deal to enter Mozambique. In March 2018 it signed a deal with the country’s national carrier, LAM Mozambique, including interline agreements that allow them to share passengers who can only reach their destination via a connection.

In Zimbabwe, the company is committed despite having considerable trouble repatriating funds out of the country and getting its hands on hard-currency. A big chunk of Fastjet’s cash is tied up in Zimbabwe which has not been helpful for the cash-strapped business, but the company has been swayed by the improving conditions and growth it is generating, with revenue from Zimbabwe more than doubling last year to help profit jump over 40%.

Mark Hurst, chief executive of Solenta’s aviation division, has joined the Fastjet board following the latest fundraising and will now take charge of operations in Zimbabwe and Mozambique, while ‘working closely with CEO Nico Bezuidenhout on an ongoing basis’. Whether that is to provide support or to keep a watchful eye is up for debate.  

The other half of the funds will be deployed in its core market of Tanzania where it is looking to capitalise on improving conditions, as well as to fund the next step of its expansion plan that will see Fastjet make its big entry into South Africa.

Its plans for South Africa are also based on a partnership, having signed a deal with Federal Airlines in preparation for its big push into the country. While it already flies routes to the country it is keen to make a full entry because South Africa’s economy is several times the size of all its current markets combined. It also has strong trade and tourism connections with its existing markets in Tanzania and Zimbabwe.

This would be a major play by the airline, but shareholders will be cautious. Fastjet has said scheduled services in South Africa will start ‘in early 2019, subject to obtaining suitable additional fleet and the associated finance’, – bearing in mind Solenta has already provided a $12 million loan to fund Fastjet’s investment in three ATR72 planes that will be introduced into its key markets in the final quarter of 2018.

Additionally, although FedAir is acting as a platform for the airline to launch into South Africa, Fastjet still has to find a joint venture partner before it can make its move, or (shareholders gulp) ‘explore financing’.

Fastjet aims higher despite cash woes

‘Today's capital raising will give Fastjet the adequate headroom it needs for the remainder of 2018. Although there were some unexpected headwinds in 2017, the Stabilisation Plan put in place by the Board has significantly reduced the cost base of the company and right-sized the business. Trading in the year to date has been in line with market expectations and the company is now well-positioned to capitalise on future growth,’ – Bezuidenhout.

Fastjet had warned it may need to raise cash when it released its 2017 annual results earlier this year, when Bezuidenhout said ‘2018 will not only deliver the fruits of these labours but will see further foundations laid for future successes’.

The addition of the three new aircraft in September 2018 is the last major piece of the first puzzle. If delivered on time, passenger numbers are forecast to rise 50% in 2018 and Fastjet’s load factor should improve to 74% by the last quarter of the year. Margins should also improve as the airline is set to raise average fares by about 18% having already lowered costs by moving offices, sourcing cheaper fuel suppliers, renegotiating contracts for spare parts as well as with airports.

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