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Fastjet to keep its hands on the joystick even when it is the junior partner

Published: 09:35 17 Jun 2013 EDT

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"No battle plan survives contact with the enemy" – Field Marshal Helmuth von Moltke (the elder).

Airline Fastjet (LON:FJET) started its low-cost operating model in Africa in November of last year, and it would be fair to say that the company has faced a few headwinds in that time.

As the quotation from the Prussian general at the top of this item indicates, that has necessitated a few changes in the heat of battle.

The plan is still to criss-cross the African continent, bringing low-cost air travel to millions of Africans, but how it goes about achieving that aim has undergone a subtle transition.

“I think what we have learned in the first six months is the political risk is much greater than we thought,” said chairman and chief executive Ed Winter, in an interview with Proactive Investors.

There are plenty of countries in Africa keen to encourage more air travel. Equally, there are plenty of flag-carrier airlines that are less than keen on Fastjet entering their territory and providing high quality service at what Winter calls "reasonable prices".

Politically, life is made a lot easier for Fastjet if it is the junior partner, in terms of equity ownership, in any joint venture.

The problem that poses for Fastjet is the maintenance of standards, so it can establish a trusted brand, one that offers competitive prices, good customer service and the highest of safety standards.

“We’ve been reviewing the decisions, why is it [getting permission to fly international routes] taking so long? How can we change things?

“We’re now looking at saying, right, we can fulfil this by looking at minority shareholdings; it’s a little bit like a franchise model, but we’ve got to ensure we have the ability to roll out this reliable, safe, international standard service.

“So, how can we do that while having minority holdings? The way we do that is by putting in a service agreement with each individual company, which will include a management services company, and we’ll provide the brand.

“The brand and our distribution is the lever, and if that is not there, then we haven’t got a business. What we’re bringing is that global distribution, that global brand, across the whole continent,” Winter explained.

The appeal of this model was demonstrated last week when the company signed a memorandum of understanding with Nigeria’s Red 1 Airways to form a JV called Fastjet Nigeria, which will be entirely funded by Red 1.

As well as the deal with Red 1, the company also announced last week it had secured permission to operate routes from Tanzania to South Africa, Zambia and Rwanda.

That breakthrough was after a long hard slog, and could be the first major step in opening up the African aviation market which Winter says is as much of a closed shop as Europe was in the eighties.

“Africa is very much like the old situation in Europe; you have to get an agreement to fly anywhere from anywhere,” Winter disclosed.

There is much for the entrenched operators to protect, particularly in South Africa, described by Winter as “the powerhouse of Africa”.

Having found it harder to secure bilateral air service agreements (BASA) with several countries than it had originally anticipated, Fastjet has been all set to switch to plan B, which was to tap the lucrative domestic market in South Africa with flights from Cape Town to Johannesburg.

Those plans have now been put on hold, so that resources can be used on plan A, the creation of a pan-African network.

Winter notes that it is currently the quiet season in the South African travel market, anyway, and that things won’t begin to pick up until the South African spring/summer, which starts at the end of August.

“We clearly want to be there,” Winter said, “but the key time to be there is when the traffic starts picking up again.”

“It was a difficult decision,” he conceded. “You want to do everything, but you can’t do everything.”

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