Challenging conditions continue
​fastjet is a low-cost carrier (LCC) that launched in Tanzania on 29th November 2012. It operates a single type fleet of modern, fuel efficient, jets on a short haul, point to point network.
Back in December we felt that, after being impacted by October's Tanzanian presidential elections, demand for fastjet's low-cost services would rebound in Q1'16. Unfortunately (in hindsight) it appears our timings were 6-9 months too early, with the Board saying yesterday that the "challenging conditions" had persisted longer than initially thought. As a result 2016 results are now predicted to be both "materially below expectations" and cashflow negative, with the company perhaps having to consider a fresh capital raise later in the year.
Not wishing to make the same mistake again, we have 'kitchen sinked' our revised forecasts (see below), with 2016 sales cut in half to $90m vs $180m before. However, despite these drastically lowered estimates, we still think there should be sufficient funds to see the group through to operational break-even next year.
Indeed, any future equity raise would be a worst case scenario. For one, there was still $20m of cash available as at the end of February, even after consuming $7-8m during the seasonally weaker 1st 2 months. Next, there have already been tentative improvements in flight bookings over the past couple of weeks ahead of the Easter holidays. And finally, in the unlikely event that trading failed to pick up, it should be possible to 'sale and leaseback' the A319 jet (worth around $14m) which was purchased outright in September 2015.
Looking ahead, the industry's medium/long term fundamentals remain strong. Jet fuel prices seem likely to stay low in light of significant over-capacity in the world's crude markets. Africa's aviation industry suffers from relatively expensive airfares (3x-4x higher than Europe), frequent delays and poor customer service. Nonetheless, given the cautious near term outlook, we have re-calibrated our price target from 110p to 60p/share.
Fastjet is a pan-African low cost airline. Co. operates domestic and international routes in all economically viable African markets. As of Dec 31 2016, Co. had three aircraft, two Airbus A319s in Tanzania and one Solenta Embraer E145 in Zimbabwe. As of Dec 31 2016, Co. held two Air Operator Certificates in Tanzania and Zimbabwe and operated six routes.
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