Fastjet to enter South African market

African airline fastjet (LON:FJET) is to expand its operations to South Africa, after raising funds through a share placing with an institutional investor.

The company has signed a memorandum of understanding (MoU) with Blockbuster, a South African investment company, to set up a joint venture (JV) to operate a service between Johannesburg and Cape Town.

The JV will be 75% owned by Blockbuster, with the rest owned by fastjet.

If all goes well, the first flight on the new service will be on May 31, 2013, and tickets for the service could be on sale within a few weeks. In time, the company hopes to operate flights along the Johannesburg – Cape Town route twice a day, seven days a week, in the prime business travel morning and afternoon slots.

Once the Johannesburg – Cape Town route is established, flights to other key destinations will be launched.

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, a statement from fastjet said.

The new deal throws doubt on fastjet’s mooted takeover of South African carrier 1time. 1time’s creditors have shown little inclination to accept fastjet’s offer for the failed South African carrier and, what with South African being such an important market in Africa, fastjet has opted to invest in the Blockbuster/Federal Airlines venture.

That investment will be made following a successful placing of 160m new shares at 1.25p each, to raise £2mln.

“We believe that the operating agreements in place between Blockbuster and Federal Air represent a great opportunity for fastjet, our local investors, our partners at Federal Air and most importantly, the South African public," said fastjet’s chief executive officer, Ed Winter.

“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,” Winter continued.

“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,” he concluded.

Since 1time went belly-up, air fares in South Africa have “sky rocketed”, fastjet chairman David Lenigas noted, with many aeroplanes operating at full capacity, especially on the key Johannesburg to Cape Town and Durban routes.

“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," Lenigas maintained.