Airlines in Africa Not quite ready for take-off FastJet, an African low-cost carrier, struggles to establish itself Jun 8th 2013 | NAIROBI |From the print edition THESE days going home from his university job in Kenya’s capital, Nairobi, means 45 minutes on a plane for Walther Onyango. Getting to the lakeside city of Kisumu used to require a bone-shaking eight-hour bus ride for the engineering professor. Now he pops back for the weekend. He says the bus is for “people who have nothing to do” and that when you factor in time, it is cheaper to fly. A one-way bus ticket is $15, but the arrival of Fly540, a budget airline, means he can fly for $110. Previously tickets with the state carrier, Kenya Airways, were nearer $200. On a crowded Friday morning flight there are lawyers in suits, a big-hatted wedding party and mourners on a day trip to a funeral. The return flight in the afternoon is popular with tax collectors. Until recently many of them would have rattled along the potholed highway. Industrials Sector In Cape Town this week IATA, the international airlines’ group, opened its annual meeting with a call for African governments to liberalise air routes and cut their often onerous taxes on fuel and tickets, to make the most of air travel’s ability to boost growth. “Nowhere is the potential for aviation greater than on the African continent,” said Tony Tyler, IATA’s chief. Don Smith, the chief executive of Fly540, is also convinced that a wider African market is waiting for low-cost carriers like his Kenyan-based airline, whose annual turnover has grown from $12m in 2007 to $32m last year. The speed of this growth encouraged one of its main shareholders, Lonrho, a London-based conglomerate, to roll out the Fly540 brand in Ghana, Angola and Tanzania, flying to destinations more accustomed to receiving aid deliveries than commuters. One of the carrier’s best-performing routes in Kenya is between Nairobi and Lodwar, a desert outpost close to the “Jade Sea” of Lake Turkana. Many passengers are Lodwar traders who get off at Eldoret, a stopover en route, making a 1,000km (620-mile) round-trip to stock up at their nearest supermarket. Meanwhile flights to the coastal city of Mombasa and to Zanzibar in neighbouring Tanzania are filling up with the new middle class, Mr Smith says. This was the potential that a European low-cost pioneer, Stelios Haji-Ioannou, and his former management team at easyJet sought to buy into last year. Lonrho agreed to inject its interest in Fly540 into their investment vehicle, which was then rebranded as FastJet, with Ed Winter, a former easyJet executive, as boss. The plan was that the Fly540 name would be phased out as its planes were replaced with bigger ones in FastJet livery. Calling itself the first pan-African low-cost carrier, FastJet chose as its symbol the long-lived grey parrot, famed for its intelligence. Seven months on, the parrot looks less clever. FastJet has been embroiled in lawsuits and losses. Mr Winter blames the protectionism and corruption he has found in Africa and admits that things are taking “longer than expected”. Joining the dots of its separate divisions in east, west and central Africa has proved harder than envisaged. Permissions from Kenya to fly into and out of Nairobi have not been forthcoming. To date the FastJet brand has operated only as a domestic carrier in Tanzania. It has set no date for its first international flight. Moreover, its Ghana and Angola services, which are still branded as Fly540, are now operating at a loss. Its relationship with Mr Smith, who kept a controlling interest in the Kenya operation, deteriorated into a public spat. The two sides are now in talks to settle their disputes. FastJet has also run into turbulence in South Africa, where the local press has poured scorn on its announcement, in April, that it would join forces with Edward Zuma, the South African president’s son, to take over a bankrupt local carrier, 1time. Europe’s budget-airline boom came only after hard-fought battles for “open skies” treaties in the 1990s. An African equivalent has existed on paper since 1988 but little has been done to enact it. Christos Shepherd, an African-aviation expert with a London-based consultant, Mango, says the problems for new airlines on the continent go beyond protectionism and murky politics. There is demand for low-cost flights, he says, but low-cost airlines “cannot operate because the costs are not low.” Besides high fuel and ticket taxes, African airlines have to pay more to lease planes than carriers in other regions. A five-year-old Boeing 737 might cost a Nigerian carrier up to $400,000 a month to lease, compared with $180,000 in Europe, because of local carriers’ poor safety record and the courts’ sluggishness in dealing with previous bankruptcies. Insurance costs for African carriers can also be stratospheric, says Mr Shepherd. What would help bring down those costs is a partnership with an established international airline. Emirates, Dubai’s giant, has discussed a possible tie-up with FastJet to feed passengers into Emirates’ 24 African routes. FastJet’s struggle to turn a profit will soon get harder when Kenya Airways launches its own low-cost carrier, Jambo Jet (it has not yet set a date). As competition increases, ticket prices are likely to continue falling. This will be worrying news for shareholders but will delight the millions of Africans who are still dreaming of their first trip by plane.
Posted on: Tue, 11 Jun 2013 09:14:46 +0000
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