Passengers board a Fastjet plane. The low-cost airline lost Sh21.9
billion in its operations in Tanzania in the first half of this year.
PHOTO| FILE
By Veneranda Sumila The Citizen Reporter
Posted Thursday, October 3 2013 at 07:55
Posted Thursday, October 3 2013 at 07:55
In Summary
Some aviation experts say the loss
won’t affect Fastjet operations in Tanzania, but the figures released
show a contrasting reality
Dar es Salaam. Low-cost airline
Fastjet recorded a whopping $13.3 million (Sh21.9 billion) loss from
its Tanzania operations in the first half of 2013, casting a bleak
future to an airline, which many thought would be their new saviour.
Though some aviation experts including the
company’s Chief Executive Ed Winter say the loss won’t affect Fastjet
operations in Tanzania, the figures released show a contrasting reality.
To put things into perspective, the airline, made
an average loss of $2.21 million(Sh3.6 billion) a month between January
and June, this year as it sought to build its empire in a country where
both private and state owned airlines have been in a shambles. The
loss Fastjet posted in Tanzania is 53 per cent of $24.9 million, which
the low-cost airline recorded at group level during the same period, an
interim report released by the company says.
“Earnings Before Interest and Taxes (EBIT) loss
$24.9million including $13.3million trading losses in the Tanzanian
operation…Tanzanian operation reported quarterly EBIT loss of $9.1
million in Q1 and $4.2m in Q2 – a 54% reduction quarter on quarter,”
says the report seen by The Citizen.
According to the interim report, the company’s
net cash by the end of June, this year was $4.4million. Subsequent to
this $9.3million (gross) raised via equity issuance, whereby in Tanzania
Fastjet achieved $81 revenue per passenger in June – almost two times
$46 it recorded in January, this year..
However, the company downplayed the poor
performance it recorded in the first half, saying the future was still
bright in Tanzania’s aviation sector.
“Tanzanian operation is now profitable on an
underlying route level basis; and based on current performance once
scale increases with additional routes and fully utilised resources the
business is expected to become profitable at the EBIT level… Growing
endorsement of the Fastjet brand and low cost airline model by Tanzanian
consumers”
The company’s interim report further states,
“Though it did post operational losses of $9.1million and $4.2million in
first quota and second quota of this year respectively, and based on
current performance once scale increases with additional routes and
fully utilised resources the business is expected to become profitable
at the EBIT level.”
The whopping losses, according to the company,
were also caused mainly by start-up losses associated with launching
Fastjet Tanzania in 2012.
“The company remains optimistic about the future,
expecting its financial situation to considerably improve in the second
half of 2013 with further network expansion planned in Malawi and
Zambia.”
Though some aviation experts including the
company’s Chief Executive Ed Winter, say the loss won’t affect Fastjet
operations in Tanzania, the figures released show a contracting reality.
“Normally when an airline begins operations it is
not easy to record profit in the first year, because it uses a lot of
cash to establish itself,” said a Tanzania Civil Aviation Authority
official, who preferred anonymity because he is not the authority’s
spokesperson.
SOURCE: THE CITIZEN
He said that it takes up to three years for an airline to start getting a return on capital invested.
“I believe that Fastjet is among few airlines that
are growing very fast and that in the coming few years it will be among
the largest couriers in the country,” he said.
Another aviation stakeholder who also didn’t want
his name named on newspaper because of business ties he has with Fastjet
said that it is not surprising for a young company as Fastjet to record
losses.
“I think we need to give them time before they
start to record any profit, starting any business is very challenging
especially during the first two years,” he said.
He said that sustainability of any airline depends more on the ability to sustain losses.
“Very few airlines that perform well today have
emerged without making losses at the beginning, but because they managed
to sustain the losses that is why they flourished,” he said adding
that, “If Fastjet shareholders and the management will fail to sustain
the losses it is automatic that the company will collapse.”
He, however, said that the factors that could have
contributed to Fastjet making losses was low utilisation of its leased
airline.
“Fastjet has good expansion plans, they wanted to
start flying to South Africa, Nairobi and Songwe, but so far they have
not been granted permission to fly to those countries so their
aeroplanes are underutilised, despite the fact that they pay a huge
lease cost,” he said.
Due to that, he said, Fastjet spends more than
their income, “I am confident that Fastjet will perform very well in the
coming years.”
The airline plans to further increase the endorsement of the Fastjet brand and low cost airline model by Tanzanian consumers.
“We also plan to develop an Airline Management
Services organisation, enabling the Fastjet brand to be rolled-out more
rapidly across Africa; reducing shareholder risk and minimising capital
requirements,” says the statement.
SOURCE: THE CITIZEN
