Headwinds continue for longer than expected
​fastjet (FJET) reported its Final Results for the year to December 2015 yesterday: revenue on continuing activities was up 21% in the year, to $65.1m, and passenger numbers were up 32% to 787,771. However, during H2'15 the Tanzanian economy fell off a cliff - negatively impacted by weaker consumer/government demand due to the presidential elections in October, a 24% fall in the currency (Shilling vs US dollar) and lower commodity/oil prices. Not surprisingly fastjet's profitability deteriorated as well, as it expanded directly into the teeth of these unexpected headwinds. Indeed the timing couldn't have been worse with 2015 load factors down 6.6% to 66.7% (vs 73.3%), revenues/passenger (-8% to $82.4 vs $90.0) and EBITA loss(-23.6% to $37.9m vs $30.7m).
These tougher conditions have also persisted into 2016, with the Board already cutting costs aggressively, eliminating underperforming routes and downsizing the size of the fleet (from 6 to 5 aircraft), with another two planes possibly coming out of service later this year as operating leases expire. Going forward, we believe these measures will help stem cash burn (-$15.3m during the 1st 4 months of 2016), leaving forecasted net funds of $2m as at the period close - compared to $28.9m in December 2015 and $13.7m as at 30th April 2016.
On top Fastjet should be able (if required although not planned) to 'sale and leaseback' the wholly owned A319 that was purchased for around $14m back in September 2015. As such given this potential backup source of capital, the directors reckon the group has sufficient liquidity to last until June 2017 based on current estimates. Further out the Board is reviewing all options - meaning another placing is probably on the cards.
We have reduced our 2016 sales projections ($78m vs $90m) reflecting the smaller fleet size and adverse forex swing that has affected dollar denominated ticket prices. Elsewhere in light of the uncertainty, our price target and 2017 estimates have been temporarily dropped - although they will be reinstated as soon as new funds are available.
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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