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.
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.
“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.
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, reported by Veneranda Sumila, from Dar es Salaam, Tanzania
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