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fastjet LCC seeks rapid South African market entry by foregoing JV control to Fastjet Holdings

Having abandoned plans to take-over failed South African LCC 1time, aspiring pan-African carrier fastjet has entered into a complex and controversial deal to gain access to the important South African market where it plans to launch services in Jul-2013.

But the London-listed carrier, which already operates in Tanzania, is coming under increasing pressure from its opponents to lift the veil on the ownership and management structure of its South African partnership designed to satisfy domestic ownership requirements.

Under the structure fastjet has reportedly given up 75% ownership to South African investment company Blockbuster, which has been renamed Fastjet Holdings. The company is reportedly fronted by the eldest son of South African President Jacob Zuma, playboy businessman and lawyer Edward Zuma, along with his business partner Yusuf Kajee.

Opponents, both rival airlines and politicians, allege Fastjet Holdings is little more than a front for fastjet to gain access to South African air rights through a separate arrangement with charter carrier Federal Air, which will operate the fastjet services using its operating licence.

South African Airways' future hinges on a new strategic plan and CEO

South African Airlines will spell out its future in a strategic plan to be presented to the South African Government in early Apr-2013. But history suggests that implementation of a new strategy is far from assured at the carrier which suffers from extensive government meddling.

A new CEO is also expected to be appointed by the end of Mar-2013, replacing Siza Mzimela who resigned, along with several top executives in Oct-2012 in the wake of a mass board resignation the previous month, citing a “breakdown in the relationship with the shareholder”, testifying to the deep divisions between management.

Details are emerging of what led to those events, with media reports suggesting a decision by Minister of Public Enterprises, Malusi Gigaba, to block a ZAR10 billion (USD1.08 billion) decision to purchase a fleet of A350 aircraft to replace the carrier’s A340-600s was at the centre of the falling out between the board and management.

Meanwhile SAA survives on the basis of a ZAR5 billion (USD540 million) government guarantee granted on 02-Oct-2012 for a two year period effective 01-Sep-2012. The guarantee is intended to enable SAA to borrow on the financial markets and remain solvent.

Fastjet secures Nairobi base, but expansion in East and South Africa may be on hold

Fastjet has secured its entry into the Kenyan market and its first expansion outside Tanzania and access to the key Nairobi hub by throwing a lifeline to collapsed local carrier Jetlink Express.

The two carriers signed a memorandum of understanding (MOU) on 28-Jan-2013 to create a joint venture allowing fastjet to launch its brand in Kenya in the next few months.

Fastjet launched two domestic routes from Dar es Salaam in Tanzania in Nov-2012 with A319 aircraft, rebranding and refleeting its newly acquired Fly540 operation in the country. The carrier also owns the Fly540 regional operations in Angola and Ghana.

The bigger Kenyan market will provide a strong launch pad for further Eastern African expansion, including the development of links with international carriers which are already being explored.

South African Airways and Comair could face new LCC competitor following demise of 1Time

South Africa has lost two airlines this year with the collapse of low-cost carrier 1time on 02-Nov-2012 and short lived LCC start-up Velvet Sky in Mar-2012. The demise of the smaller carriers has in effect returned the South African domestic market to a duopoly of South African Airways and Comair and their respective subsidiaries.

SAA dominates the market with its main brand supported by LCC subsidiary Mango and regional subsidiary SA Express. Comair operates a full-service British Airways franchise and competes in the LCC market with its Kulula brand. The two groups probably have until about the middle of 2013 to consolidate their positions in anticipation of an inevitable new entrant, likely to come from former 1time executives who appear to be planning to launch new LCC Skywise early in 2013.