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FastJet looks to overcome obstacles to African airline growth

Tue, 04th Jun 2013 15:01

* Early success in Tanzania but expansion delayed

* Carrier faces regulatory, infrastructure, cost problems

* African aviation set to grow rapidly

By Wendell Roelf

CAPE TOWN, June 4 (Reuters) - Dogged by a series of snags inits attempt to create Africa's first continent-wide low-costairline, FastJet remains confident it can tap a marketof 1 billion people after early success in Tanzania.

Protectionism, red tape and poor infrastructure havehampered FastJet since it launched operations six months ago inthe world's poorest continent, where people fly once in 15 yearson average compared with twice a year for Americans.

"Africa is a bit like Europe in the 70s, all the routes arecontrolled by governments ... often with a lot of protectionismbuilt in," said Ed Winter, chief executive of FastJet, which isbacked by Lonrho and the UK's easyJet.

When flying in Tanzania from capital Dar es Salaam toKilimanjaro or Mueza, Winter says 38 percent of passengers arefirst-time flyers, testament to Africa's potential for growth.

"These are routes where people have in the past beentravelling by bus or just not travelling at all ... now theyjust jump on our airplane and move, exactly what the low-costmodel is designed for," Winter told Reuters on the sidelines ofan IATA meeting of global airlines in Cape Town.

Fastjet flights in Tanzania sell for as little as $20.

Despite its problems, Africa's aviation sector is set tosoar on the back of robust economic growth in the resource-richcontinent. Plane makers such as Boeing and Airbus are eyeing potentially buoyant orders as more Africansturn to air travel.

"When you look around the world at where low-cost airlineshave gone in and brought affordable, good-quality travel topeople ... the market expands," Winter said.

Capturing just 2.5 million regular customers making fourtrips a year would be enough to fill 40 aircraft, said Winter.And at $100 a ticket, this could translate into a $1 billionbusiness within a relatively short space of time.

But cracking a tough and unforgiving market will be no easyride for FastJet, as it competes with established global playerswho control 82 percent of the air traffic between Africa and therest of the world.

African executives attending IATA airline talks in Cape Towncomplained they risked losing a battle for African skies toMiddle Eastern and European airlines such as Turkish, which arequickly expanding routes. In many cases it is easier to fly outof Africa to change planes and then fly back in.

DIRECT ROUTES

But Dubai's Emirates defended the influx, sayingit created opportunities that otherwise would be blocked by alack of political approval for many direct routes within Africa.

"Intra-African demand is huge but they restrict themselves,"said Emirates airline President Tim Clark in an interview."Africa is a powerhouse. We are moving African business that hasdemand for the points that we serve. I am not unsympathetic butthey need to improve infrastructure and market access."

FastJet, which intends leasing Airbus planes, also faceshigh operating costs, especially for fuel, which in Africa is onaverage 21 percent more costly than elsewhere.

Landing fees can range anywhere from $80 to $800 for smallplanes in Africa, said Raphael Haddad, regional vice presidentfor Canada's Bombardier, which sees a flourishingmarket for its new CS100 CSeries jet.

According to airline consultant Nick Fadugba, chiefexecutive of African Aviation Services, FastJet has a relativelyhigh-cost structure despite its low-cost business model. "Itwill need deep pockets to succeed," he said.

Yet Fastjet's growth potential has piqued the interest ofother African airlines, which are wary of losing more passengersand revenue as the local aviation industry struggles withoperating margins averaging less than 1 percent.

"I don't know if it will happen tomorrow, but if it makessense we will go ahead and do it," said Titus Naikuni, chiefexecutive of Kenya Airlines, asked if it wouldconsider a low-cost carrier option.

Successful low-cost carriers already operate in SouthAfrica, Africa's largest economy, where FastJet intendslaunching in early July to compete against South AfricanAirways' Mango and Comair's Kulula.com.

Nico Bezuidenhout, chief executive of Mango, said challengesin Africa, which include the problem of distributing tickets topassengers because of weak online access and credit card usage,could be overcome.

South African customers can purchase Mango tickets with atShoprite for instance, or even use a clothing storecredit card to buy tickets and pay the bill over 12 months.

"These are all ways ... that we bring the low-cost carriermodel into the hands of the population," he told Reuters.

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