SAA and Comair are facing what may potentially be a tough challenge from London-registered low-cost airline Fastjet, which unveiled plans yesterday to enter the South African market at the end of next month.
Fastjet planned to start by operating two flights a day seven days a week between Cape Town and Johannesburg “in the prime business travel morning and evening slots”, chief executive Ed Winter said.
Even though consumers may well welcome the additional choice, it is not clear if the market can sustain all these players.
Fastjet, in which Lonrho is the major shareholder, has entered into a partnership with local investment company Blockbuster, which will own 75 percent of the South African operation, overcoming national regulatory hurdles.
And it has avoided any delay in acquiring a licence. Blockbuster has made a commercial arrangement with local operator Federal Airlines, whose licence will be used. Federal operates scheduled services from Johannesburg to Mozambique, Zimbabwe, Durban and Ulundi, as well as charter flights.
A spokesperson for Fastjet said that Blockbuster was associated with “a number of high profile South Africans”, including Edward Zuma, a son of President Jacob Zuma.
Fastjet has been negotiating to buy low cost airline 1time, which stopped flying in December last year, out of provisional liquidation and incorporate it in a pan-African route network that it is developing. This would have enabled it to use 1time’s operating licence.
But provisional liquidator Aviwe Nyamura said this week that 1time’s debts were so high that a compromise arrangement could not be made with creditors and he was applying for the date of final liquidation to be brought forward.
Fastjet’s statement issued yesterday included the information that it had raised additional working capital “to assist with the South Africa launch through a successful placing with an institutional investor who is committed to low-cost air travel in Africa”.
The company had received legally binding commitments to raise £2 million (R28m) by way of the issue of 160 million ordinary shares at a price of 1.25p a share.
David Lenigas, the chairman of Fastjet, said air fares had rocketed since 1time ceased flying and many planes were operating at full capacity, particularly on the key Johannesburg to Cape Town and Durban routes.
Travel agents said yesterday fares had risen 5 percent on average since last year.
Lenigas claimed yesterday: “We do not seek to be a hostile competitor in the market place as we fully understand and appreciate the significance of the national carrier and existing airlines in the country.”
But its expansion plans throughout Africa and the Indian Ocean islands, as well as in the golden triangle of Johannesburg, Durban and Cape Town will bring it into conflict with SAA and its low-cost division, Mango. This is particularly the case now, when SAA is starting on a new campaign to become sustainably profitable.
Erik Venter, the chief executive of Comair, a franchise holder of British Airways, said he expected that “we’ll be fine”, faced with the new competition. It would create “a bit of excitement in the market place”. Comair closed unchanged at R2.95.