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‘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.
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