Africa’s New Low-Cost Airline FastJet Prepares for Take-Off

on Aug 8, 2012

The new low-cost carrier FastJet (FJET), scheduled to launch in October, has already started fundraising by means of an ordinary shares placement, as noted on the airline website. FastJet, which is backed by EasyJet (EZJ) founder Sir Stelios Haji-Ioannou, is expected to democratise Africa’s air transport and explore the potential of the continent’s largely untapped market.

The new business is owned by Rubicon Diversified Investments Plc, with Sir Stelios’ EasyGroup holding 5 percent of the company, and the London- and Johannesburg-listed pan-African conglomerate Lonrho (LONR), owning 73.7 percent, according to Bloomberg data. More precisely, Lonrho’s existing carrier Fly540, which operates in Ghana, Kenya, Tanzania and Angola, will be rebranded as FastJet, using Sir Stelios’ business model which made EasyJet one of the most popular low-cost airlines in the world. According to a Financial Times article, EasyGroup will also receive royalty fees from Rubicon over ten years for the use of the brand. The FT also reports that the aircraft will be decked in the familiar orange hue, with the FastJet logo evolving from red to an orangey “warm red” after research indicated that Africans felt the Fly450’s crimson logo was “a little more confrontational”.

!m[](/uploads/story/242/thumbs/pic1_inline.png)On 25 July 2012, Rubicon Diversified Investments announced that it has raised £5.5 million by way of placing 137,500,000 new ordinary shares at 4p per share with institutional and corporate investors. “The additional funding will strengthen Rubicon’s balance sheet and should increase the ability to lease aircraft on better commercial terms and assist with the roll-out of the Airbus A319 fleet in Africa”, comments Rubicon CEO Ed Winter in a news release on the FastJet website.

FastJet has picked Airbus A319 for its fleet, with Mr Winter pointing out that the choice of aircraft will enable the airline to expand rapidly, and that the company plans to add at least five leased Airbus A319 to its fleet within six months of launch and up to 15 within a year. Bloomberg reports that the first aircraft, which will be leased from the investment bank Nomura Babcock Brown Co., are scheduled for handover in September, with further deliveries due later in 2012.

While it remains to be seen whether FastJet will replicate EasyJet’s success on the African market, Sir Stelios has described the continent as “the aviation industry’s last frontier”, as quoted by the CNN in a recent article. “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 points out. CNN also quotes aviation expert Linden Birns who noted that in 2011, low-cost carriers occupied as little as nine percent of the African market, suggesting that there is room for significant growth. The aircraft manufacturer Airbus on the other hand has predicted that Africa’s traffic will expand by about 6.5 percent a year between 2011 and 2020 and by 4.9 percent for the 2021-2030 period.

Despite the positive outlook for the African aviation market, FastJet is likely to experience some turbulence as well, such as increasing competition, lack of market liberalisation and as well as high aviation taxes imposed by governments particularly in West Africa where the airline is looking to expand. Still, CNN reports that Mr Winter seems rather hopeful about the venture, pointing out that there is no better time to enter the African market. “Five years ago it just wasn’t that level of GDP growth, the spread of wealth amongst the population and the level of investment,” he notes, as quoted by CNN.