Fastjet to enter South African market via partnership
Low-cost airline Fastjet today announced the signing of a memorandum of understanding (MoU) with investment company Blockbuster, with the objective of operating services in South Africa by the end of May 2013.
Blockbuster is associated with a number of high profile South Africans including Edward Zuma and Yusuf Kajee. It is anticipated that the new entity will be 75% owned by Blockbuster, in compliance with South African law, and 25% owned by Fastjet.
Tickets could go on sale within a few weeks and Fastjet is targeting May 31 to launch the initial Johannesburg to Cape Town route.
A commercial arrangement has been struck between Blockbuster and local operator Federal Airlines, a company with a 20-year history in South Africa, which will allow Fastjet to leverage Federal Airline’s existing licensing infrastructure and deliver its low-cost airline model to the South African public.
In recent months, Fastjet has been in discussions with a number of South Africa-based entities to support its market entry strategy, including negotiations regarding a potential purchase of liquidated airline 1time.
In the opinion of the directors, the value of 1time has diminished over time. As there is still no indication that 1time’s creditors will accept the Fastjet offer, the company has chosen to invest in the Blockbuster/Federal Airlines venture to pursue its entry into an important African market.
Fastjet also announced that it has raised additional working capital to assist with the South Africa launch though a successful placing with an institutional investor who is committed to low-cost air travel in Africa.
The company has received legally binding commitments to raise more than $3.05 million by way of the issue of 160 million new ordinary shares.
Federal Airlines commercial manager Mr Brad Dickson said: “We look forward to working closely with Fastjet and cementing a new relationship in the South African aviation environment.”
Fastjet chief executive Ed Winter added: “We believe that the operating agreements in place between Blockbuster and Federal Air represent a great opportunity for us, our local investors, our partners at Federal Air and, most importantly, the South African public.
“Though we have been in talks with a number of companies regarding licensing arrangements, we have ultimately decided that, in order to best serve South African customers, we should invest not in the past, but in the future.
“We are now firmly focused on quickly getting up and running in order to create a fresh, unique and commercially sustainable offering which will stimulate the market.
“Fastjet sees a strategic gap in the South African marketplace for a pan-continental, low-cost airline operating the yield management model required to keep fares affordable for passengers, not just at launch, but also in the long term.”
David Lenigas, Fastjet’s chairman said: “Air fares in South Africa have skyrocketed since 1time ceased flying at the end of last year and many planes are operating at full capacity – specifically on the key Johannesburg to Cape Town and Durban routes.
“Today is an incredibly exciting day for Fastjet, not just in South Africa, but across the entire continent. As populations grow and disposable income and consumer spending increases, there is greater demand for affordable air travel. We would like to be part of the solution.
“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 country, but we want to provide extra seat capacity to South Africans so that they can travel when and where they want at better prices.
“In South Africa, the airline intends to initially operate flights along the Johannesburg – Cape Town route twice a day, seven days a week in the prime business travel morning and afternoon slots. Flights to other key destinations will be launched once the Cape Town route is established.”