Turning the plane around
​fastjet is a low-cost carrier (LCC) that launched in Tanzania on 29th November 2012. The firm is presently in the process of being turned-around by newly appointed CEO Nico Bezuidenhout.
The objective is to be profitable and cash generative as soon as possible, which we interpret to be sometime in 2018. Undoubtedly this is not an insignificant task given that yesterday the group reported an underlying EBIT loss and cash-burn of $31.0m and $25.6m respectively for the 6 months' ending June 2016 on turnover of $33.1m.
The crux of the problem is that the group had previously scaled its infrastructure assuming at least double the current volumes. Not surprisingly therefore when the Tanzanian economy deteriorated sharply in the run-up to last October's presidential elections, load factors were impacted, declining to 48% in H1'16 vs 70% LY.
Going forward, the plan is 3-fold. Firstly to dramatically decrease the cost base, secondly better match future supply with demand, and finally to drive up traffic, revenue per passenger (-4% to $83 in H1) and aircraft utilisation (-4% to 9.4 hours/day). This will involve replacing 3 A319 jets with smaller 80-120 seater planes (15% cheaper), rationalising loss-making routes, initiating new marketing programs and cutting corporate overheads.
Mr Bezuidenhout has already done something similar before at Mango Airlines (South African Airways' low-cost carrier) and the good news is that the early indicators are positive. Indeed, subject to plane disposal and the wet-lease flight arrangements being approved by the relevant regulatory bodies, we would expect an improvement in H2'16. That would imply revenues and underlying EBIT of £40.9m and -£19m respectively, and the group ending December with circa $10 million of net cash.
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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