On turning around FastJet
Nico Bezuidenhout was forced out of his job as CEO of Mango Airlines and Acting CEO of SAA by the then chairperson, Dudu Myeni. He was welcomed by struggling African low cost carrier FastJet, which desperately needed an injection of new management after the disaster of trying to manage a start-up African airline from London.
Guy Leitch asked Bezuidenhout what it takes to turn FastJet around.
GL: How sick was FastJet?
NB: There was no question that FastJet was properly poked. Its costs were way out of kilter. Its operating performance metrics were great from a safety standpoint, but from a commercial standpoint the average load factors and occupancy was just 48%. Yet it was without real competitors, other than Tanzanian airline Precision Air who operate turboprop ATR-42s.
When FastJet launched in 2012 the Tanzanian market was fairly strong. They started with an expensive fleet of six A319s, which they had chosen because of the EasyJet relationship, but the downside is that if you look around Southern Africa there are not many A320 operators, other than SAA. So, they were competing with SAA for pilots, and I was shocked to find that 70% of the pilot workforce was from SAA. This meant that FastJet was paying the SAA pilot cost structure, plus the premium to attract the pilots to live in Dar es Salaam. We were faced with an excessive total cost of employment for captains of U$20,000 per month.
And the Airbus A319 fleet? One of the first things you did was to downscale the aircraft gauge.
Yes, our aircraft were expensive because we were not using them well. Finance was expensive because of the back-end loaded leases. Sabena Technik were doing the maintenance, which was good, but Ed Winter, the founding CEO, had this grandiose ambition that he was going to have thirty aircraft in two years. So, he daisy-chained his supply agreements for a high cost for low volumes of aircraft, that should have become low cost as you scale up.
FastJet only owned one of their six A319s. The five leased A319s had leases which provided low initial costs, but over time the cost escalated enormously. An aircraft lessor looks to a lessee for U$250k per month for an A319 or A320, however it’s structured. This can be either from base leases or from maintenance reserves. In FastJet’s case the base leases were low, but its maintenance reserves were high. This contributed to their high cost structure, which combined with very poor asset utilisation, made the Airbuses extremely expensive.
Ed Winter seemed to think that he could get AOCs across the whole of Southern Africa within the space of a few months.
The African governments’ practice of airline protection was an expensive lesson for him. FastJet turnover got up to U$68m but their cost structure was so far out of line that they made a loss of U$48m. And since then things have got tougher. If I still had average fares as high as they were then we would be making a 15% net margin, but FastJet’s cost structure was way out of line. Average aircraft utilisation was in the nine hours per day range each.
The other issue was an expensive head office overhead. The head office was in the UK, with high salaries. You can see from the published results that pay for the Chief Financial Officer (CFO) was north of U$300,000 per annum. In South Africa I can get a quality CFO for R2m – half that. On average we cut costs by 35% cost for every position that I moved from the UK to here. And being based in Johannesburg means that I have a better understanding of what goes on in Africa than those sitting on London.
How did you find the commercial side of FastJet – particularly distribution?
FastJet had no partnerships with other airlines; no feed and de-feed. And they were not available on any Global Distribution Systems (GDS) for travel agencies. I have now fixed that, and we are on both Amadeus and Travelport.
What are the feed and de-feed partnerships that you have put together?
Emirates is the key one, Qatar is in process, and we are looking at Air France KLM and Delta.
Any alliances planned?
I am not going to join an alliance. A problem is that if you join Star Alliance you can’t play with any other alliance. However, the other alliances don’t have that restriction, so if you are with One World or SkyTeam you can be a lot more open and flexible. Nonetheless I may engage with Star Alliance to market a product I was developing shortly before I left Mango.
Your competitor in Tanzania is Precision Air – how are they doing?
In some respects, it reminds me of the old Nationwide. They don’t pay their bills. AfriExim bank and EDC (the Canadian Export Bank) haven’t been paid for two years on aircraft leases. One of their two ATRs is now grounded and has been cannibalised for parts to keep the other one going – and there’s nothing that EDC can do.
Would it make any sense to get into bed with either Kenyan or Ethiopian?
Maybe – that’s not something we would exclude from consideration as it makes sense not to be trampling all over each other. We are never going to be a wide body operator, so as we feed and de-feed those airlines, that could be useful.
You pioneered the commoditisation of airline seats by selling them through Checkers supermarket.
Yes, it has been very successful – which is why Mango has continued doing so. On average we are looking at 10-15% of distribution through supermarkets. So naturally FastJet is moving in that direction. We do a lot of business with Solenta Aviation and one of the Solenta shareholders is the controlling shareholder in Innscor Africa, which is the biggest listed company in Zimbabwe and holds all the major shop and fast food brands. They have a footprint of about 250 outlets. We are also in discussions with Shoprite who have a strong presence in Mozambique, and H&A in West Africa.
At Mango I had a deal with Edgars where we were paid upfront, even though the flight may be in a month’s time. The consumer seemed happy to pay 8% more because it was attached to the credit mechanism. This is one of the big differences between airlines such as Airlink and ourselves – our cost cycle is much quicker.
Are many of your sales made through travel agents?
It’s building up now that we are on the GDS. Historically around 65% of our sales were through the internet.
Talking about your fleet, has it been difficult to replace the Airbus A319?
No. North America has successfully managed to remove excess capacity from its regional jet market. That created a wonderful supply of feeder airline jets for markets like ours.
How is it going with the Embraer 190s?
They are doing well for us. They are leased from Solenta who have been excellent partners. For example; if I have a maintenance problem they have no issues releasing the funds – even for expensive items like new fan blades. We struggle with this because of bird strikes in Tanzania where they don’t have the runway control that we need.
Where do you get experienced Embraer pilots from?
I have ten instructor pilots from Embraer which gives me both flexibility and the ability to gear up. In Zimbabwe and Tanzania there is a feeder market of pilots. I also have a lot of my aircraft based here, so I can crew them with South Africans at local rates. The ATRs I am bringing into Tanzania will be crewed by new pilots under instruction from the manufacturer.
Is there a pilot shortage - are pilots becoming hard to get?
Not yet. On the ATR side it may happen because of Indigo and Spice Jet, who have just taken delivery of 50 ATRs. I am a director of an airline in Kazakhstan where we are struggling to find Q400 pilots – but there we can turn to eastern-bloc sources.
Why did you drop Zanzibar, your most popular route?
FastJet had been flying the worlds shortest jet commercial sector - just 15 minutes – you can imagine what that does to your engines and cycle count. But the ATRs will be perfect for the short hops to reconnect Zanzibar with Dar es Salaam and Kilimanjaro. Also, the ATRs will give us access to many more runways than we can get into with the pure jets, and we will be able to go head to head with Precision Air on their high yielding domestic routes.
Your other airline is FastJet Zimbabwe. Has it been easy to set up? Does Zimbabwe have a genuine ‘Open Sky policy?’
Externally yes, but not for inside Zimbabwe, and I find it frustrating because Tanzania already has internal open skies. In Zimbabwe, every time we want to open a new route we have to apply to the Transport Secretary well in advance. And that is very frustrating. Still, Tanzania has this bizarre concept that when you change your business plan their Civil Aviation Authority has to approve the new plan – and that’s like pulling teeth.
And your expansion into Mozambique?
Mozambique fortunately has an open internal market. The Mozambican Minister of Transport is quite switched on. And we are starting to build an operating relationship – perhaps because LAM is a mess. LAM has a very diverse fleet which needs rationalising, as there were excessive costs loaded into the lease agreements by the predecessor. But it will not be that easy to do a complete fleet restructuring there.
You must need a team of specialists just to handle the government interface?
Yes, there are people who seem able to unlock doors, but I am increasingly trying to get it done myself. I don’t like any taint of bribery or corruption and I don’t necessarily trust the middle men either.
Perhaps the model going forward is to partner with state owned airlines?
Yes, that’s exactly what I’m trying to achieve. What do African countries have in common? Everyone wants a flag carrier, yet none of the governments have an endless pit of money to sustain these flag carriers. We need to find a solution where we say to a flag carrier; “I am not your enemy. I am not trying to take your flag away. I will co-operate with you. We will assist each other. You will get your flag flown, even if it’s on a slightly smaller scale.”
Would you look at joint branding of aircraft? It costs you nothing to have a flag on your tail.
Yes – I would if I had to, and we will probably have to do something like that for some of our countries. Our model is to combine these airlines under different flags. Imagine four overhead structures rolled up into one head office in Bedfordview. That gives us the scale to be efficient and profitable as a no-frills airline. But consider Namibia, Botswana, Zimbabwe and Mozambique; none of them are as infatuated with their flag carrier as we are at SAA.
Botswana is looking for someone to run their airline. Are you not interested?
I thought that CemAir had got the deal, but it seems like something has gone a bit sour there.
Are you wedded to the idea of always being a Low Cost Carrier?
When we have an airline that connects all 52 African countries, then we can add services like a full-service carrier on selected routes – with for example eight lie-flat seats for the six-hour sectors between say Dar es Salaam and Lagos.
You have been attracting some key talent from SAA such as Sylvain Bosc, their suspended route network specialist. I see your wife Glynnis has also moved across from SAA to join you as an airline IT specialist. Do you manage to separate work from home pressures?
Yes – as husband and wife we have made it work – we both work so hard during the day that we get saturated with airline stuff and don’t bring it home.
And finally, tell me some stuff we don’t know – what do you drive?
I drive a 2010 Toyota Prado. I may be a bit of a car hoarder though. I have a replica AC Cobra built by my father in law – a retired SAA flight engineer. And I have its total opposite – one of the original Audi TTs with its small, high-output 1800 turbo engine.