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fastjet set to transform African commercial aviation?
TTMS
Sir Stelios Haji-Ioannou is once again demonstrating his entrepreneurial tendencies. Commercial operations have now started for fastjet, a new low-cost African airline which has been assisted with its start-up in part by a consultancy contract with Stelios. fastjet's first flight was on 29th November with its aircraft flying passengers from Dar es Salaam to Mwanza, and Dar es Salaam to Kilimanjaro in Tanzania. Eight sectors were flown, carrying more than 900 paying passengers and achieving an average booked load factor of 78%. Prices start at 32,000 Tanzanian shillings (£13) - plus the inevitable baggage charges and taxes.
fastjet's ambition is to become the pan-Africa low-cost airline. The business has merged with Fly540, an airline that will gradually disappear as Fastjet grows, but which provides it with assets in Angola and Ghana as well as East Africa. Broader expansion will mean working with other airlines, to circumvent red tape, although consumers will fly in aircraft branded with fastjet's African Grey Parrot logo and book through the same website. fastjet is reported to be in discussions to take over the recently liquidated South African airline 1time.
Commenting on the success of their first day of operations, fastjet Chief Executive Ed Winter said: "fastjet is delighted to see how the people of Tanzania are embracing the Low Cost Carrier model. Yesterday was a huge success and a great way to start operations. We are pleased to see reservations and bookings continuing to grow. The demand for this type of air travel has far exceeded the Company's expectations. Yesterday's passengers ranged from business people through to many first time flyers who were using fastjet as an economic alternative to conventional bus transport. Clearly, as predicted, our low cost model is stimulating a whole new market of people to fly."
Africa is a growth aviation market with regional and intercontinental traffic both growing rapidly as a result of the continent's continued economic expansion. With over one billion people, Africa is hampered by poor infrastructure, a lack of roads and railways and long distances between urban populations.
The following information is taken from the fastjet website:
The African aviation market is significantly underserved with air travel spending as a percentage of GDP a fraction of that of other emerging markets. With rapid economic growth and, as a result, the growing wealth of African citizens, more and more people will be able to benefit from aviation and fly for the first time. Airbus forecasts total passenger traffic in Africa will grow at an average yearly rate of 5.7% between 2010 and 2030, well above the 4.8 per cent world average growth rate and expects to deliver more than 1,100 new passenger aircraft, 4% of world deliveries, in the next 20 years to satisfy growing demand. Seven of the top 10 fastest growing global economies are now in Africa with consumer spending for the continent forecast to reach US$1.6 trillion by 2020.
A recent McKinsey report (June 2010) forecast that 128 million households in Africa are expected to have discretionary income to spend by 2020, while 50% of Africans are expected to live in cities by the same date with urban jobs bringing rising incomes. The McKinsey report concluded that today the rate of return on foreign investment in Africa is higher than in any other developing region and that early entry into African economies provides opportunities to create markets, establish brands, shape industry structure, influence consumer preferences and establish long-term relationships. The low-cost airline model seeks to attract large numbers of additional passengers by offering significantly lower fares. The fares need to be low enough to persuade people who did not previously travel by air to do so, and others to travel more often. The global experience of launching a low-cost carrier is that it creates a completely new market rather than a redistribution of market share in the existing market.
Fastjet's chief executive, Ed Winter, a former director of easyJet under Haji-Ioannou, said: "It takes a long time in Africa to work beyond the bureaucracy and the politics, but the vision is a network across Africa."
Africa is ripe for aviation investment, with huge distances between cities and poor road and rail infrastructure. However, a poor safety record has blighted African airlines, with many carriers barred from European airspace by safety regulators. fastjet seeks to change that through proper investment.
If successful the model will be a great boost for economic development but it will also require other related travel sectors to step up. In a recent report the Economist points to the dearth of hotels in Africa. Many hotels charge way above rates found in Europe due to high demand and lack of capacity. This is however set to change. According to the Economist article Marriott will have 50 hotels in Africa by 2020, a six-fold increase. Accor, a French hotel group, will add nearly 5,000 rooms in 30 hotels by 2016. Most international hotel brands are scouting African capitals.
They are busy because Africa is growing fast and does not yet have nearly enough hotels. Occupancy rates are sky-high, and so are margins. In many countries however security risks remain which might be an inhibitor of growth. Abuja in Nigeria for example is suffering from a series of terrorist attacks. Hopefully economic growth will be the answer and aviation and hotel expansion can be a key driver of that growth.
Perhaps the next announcement we will see from the easy Group is the African easyHotel?
fastjet Plc is quoted on the London Stock Exchange's AIM market. For more information see www.fastjet.com | 
