Can Africa’s new low-cost airline replicate the success of easyJet?Follow @MadeItInAfrica
Africa’s new low-cost carrier FastJet has announced that it will take to the skies by October this year. The airline, backed by easyJet founder Stelios Haji-Ioannou, believes it can shake up Africa’s aviation industry.
FastJet is a partnership between Lonrho, the pan-African investment group, and easyGroup. As part of the deal, Lonrho’s Fly540 carrier that operates in East Africa, Angola and Ghana, will be rebranded as FastJet. The plan is to greatly expand Fly540’s current routes and offerings.
“Air travel in the African continent appears to us to offer an attractive opportunity based on the outlook for economic growth and rising consumer spending in the continent,” says Anthea Alexander, an analyst at Renaissance Capital. “First the vast distances separating Africa’s major hubs, and the infrastructural challenges impeding road and rail travel, present a good case for air travel demand in Africa. We note that the number of passengers flying into Africa has seen strong growth over the years; in 2010 more than 150 million passengers transited through African airports, up 9.5% on 2009.”
She also believes that easyGroup’s association will give FastJet access to a wealth of experience in the aviation industry.
However, according to Alexander, the new airline can expect some turbulence. “Airline capacity is growing in Africa, which implies increasing competition. If FastJet can offer true low-cost rates, we think this will give it a significant advantage over its competitors,” she notes.
One challenge to offering true low-cost fares is the high departure taxes charged in Africa. For example, in Kenya the tax is roughly US$60. “We expect management will pursue negotiations with various ministries to lobby for lower intra-Africa taxes,” she says.
A lack of market liberalisation in Africa could also delay FastJet’s expansion into other countries. Stuart Cochrane, an executive manager at South Africa’s Comair, operator of both British Airways in southern Africa and low-cost brand Kulula.com, last year told How we made it in Africa that a lack of bilateral air service agreements between African governments has traditionally been the reason for the low number of flights between African countries. A bilateral air service agreement is in essence an agreement which two nations sign to allow civil aviation between their territories. For many countries one of the major motives for not signing these agreements has been to protect their own national flag carriers.
Cochrane said the industry is seeing greater liberalisation although the continent is still far from an “open skies” system.
However, according to Alexander, the fact that Fly540 is not a national flagship should reduce political interference over awarding of flying routes. “A strategy which has also assisted the airline in obtaining fly rights is the establishment of local operations within the hubs themselves e.g. Fly540 Tanzania was set up as part of the East Africa hub. Having more local franchises gives them the ability to match up two-way flights which is more attractive to ministries that are tasked with awarding flying rights,” she explained.
EasyJet founder Stelios Haji-Ioannou is certainly optimistic about FastJet’s prospects. “This is another small but significant step in bringing the dream of low-cost air travel to millions of people in Africa – the aviation industry’s last frontier,” Haji-Ioannou recently commented.
“Past experience shows by halving fares, a successful low-cost carrier can encourage those people, who have never previously travelled by air, to fly. For Africa, with its densely populated cities separated by great distances – this means a potential new market of millions,” he added.
Only time will tell if Haji-Ioannou and his team can replicate easyJet’s success in Africa.