Fastjet Drops Airbus Jets for Embraer While Planning HQ Move

LAGOS, Capital Markets in Africa: Africa-focused discount airline Fastjet Plc will switch to a fleet of Embraer SA regional jets from larger Airbus Group SE planes as new Chief Executive Officer Nico Bezuidenhout seeks to stem losses by better matching capacity to demand.

The fledgling carrier also plans to move its headquarters to Johannesburg from London to pare expenses and bring the company closer to its key markets, Bezuidenhout, who took over as CEO last month, said in an interview in the South African city, the base of his former employer South African Airways.

Fastjet will have returned three leased 145-seat Airbus A319 jets by the end of September and plans to sub-lease two, with a sixth, which it owns, up for sale. The carrier has agreed short-term leases on three Embraer E190s with 108 seats apiece, the first of which is due in Tanzania within two weeks.

Bezuidenhout took over after predecessor Ed Winter quit following clashes with investor Stelios Haji-Ioannou, the EasyJet Plc founder, who had demanded cost cuts. The move to Johannesburg will be made in stages following consultation with the workforce, starting with the commercial department by the end of 2016. It should reduce head-office expenses by as much as 35 percent.

“Right now it’s about stabilization,’’ Bezuidenhout said. “The right steps are being taken and it’s going in the right direction.”

Based on current projections Fastjet should break even in terms of its cash flow from the fourth quarter of next year, he said. The company, which is yet to report an annual profit and lost 16.9 million pounds ($22 million) in 2015, said in June it remained cash flow negative. It raised 15.2 million pounds in a share sale last month to cover working capital. The shares have dropped 64 percent this year in London.

The initial batch of Embraer planes will be taken on so-called wet-lease terms, including pilots, cabin crew and maintenance staff, so that they can start flying immediately. Bezuidenhout said he plans to replace them, probably with aircraft of the same type, on standard leases and manned by Fastjet employees by April.

“I can get wheels on the ground now,’’ he said. “Every flight that takes off that you are only selling half the seats, you are losing money.’’

Load Factor Boost
The switch from A319s should lift Fastjet’s load factor from the 47 percent reported in June to above 70 percent, Bezuidenhout said.

While that’s a healthier occupancy level, the majority of the world’s low-cost airlines prefer the greater efficiencies of Airbus and Boeing jetliners. Many costs also remain fixed whatever the size of plane.

Bezuidenhout is also making changes to Fastjet’s route network, cutting frequencies on the route from the Tanzanian city of Dar es Salaam — its main operating base — to Zanzibar, and replacing a daily flight from Dar es Salaam to Nairobi, Kenya, with a twice-weekly service from Nairobi to Kilimanjaro.

The company has begun consultation on restructuring its workforce and is targeting a reduction in numbers of costly expatriate staff, such as pilots, the CEO said.

Sales should benefit from switching to a new mobile-payment platform and adopting the Amadeus distribution system, which will make Fastjet flights available to at least 50 percent of travel agents in Africa. The carrier is also planning to finally activate an existing sales agreement with Dubai-based long-haul giant Emirates.

Stabilization can be achieved without additional capital, and further funds should only be sought for expansion, possibly from the end of next year, Bezuidenhout said. Growth plans will focus initially on South Africa, the continent’s largest market and one the former CEO of SAA’s Mango Airlines arm knows well.

Source: Bloomberg Business News