Fastjet announces profit warning, blames 'bumpier' Africa industry

Monday March 7 2016

Ebola outbreak and Kenya Airways’ plan to turn to low-cost carriers have also been cited as reasons contributing to the low consumption of jet fuel. PHOTO | FILE

EasyJet entrepreneur Sir Stelios Haji-Ioannou has used his position as a major shareholder of African budget carrier Fastjet to demand that two key directors be sacked. PHOTO | FILE 

By BRIAN NGUGI
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Africa-focused British budget airline Fastjet PLC Monday issued a profit warning for 2016 citing "prolonged" challenges in the African aviation industry.

The low-cost carrier whose entry into Kenyan skies sparked off price wars with regional airlines said challenging market conditions affecting much of the aviation industry on the African continent have been "a lot more prolonged" than it had originally forecast, and therefore, results for 2016 will be "materially below" market expectations.

Fastjet launched Tanzania to Nairobi flights in January, stepping up competition for Kenya Airways (KQ) and its associate Precision Air which also flies the same routes.

The company's shares dropped 34 per cent after the profit warning announcement.

Fastjet no-longer expects to be cashflow positive for the year, it said, but added it has sufficient funds to meet its operational requirements, with over USD20 million (Sh2 billion) of cash available at the end of February.

The airline also said in a statement it may consider raising further funds during the year to provide additional headroom and to ensure it has the necessary resources to fund future growth as market conditions improve.

"The company remains confident in its low-cost airline model and is well positioned to capture the significant growth potential of the developing African aviation market," it said in a statement.

MANAGE COSTS

Fastjet added that it has taken action to manage its operating costs and overheads and is implementing further measures including reducing capacity and rationalising the route network to align it with current demand.

While the Kenyan national carrier showed signs of recovery last year with a significant reduction in its operational losses it recorded a loss after tax of Sh11.9 billion for the six months ending September 2015 compared to a net loss of Sh10.5 billion in 2014.

The UK budget airline announced daily flights from Dar es Salaam and Kilimanjaro to the Jomo Kenyatta International Airport (JKIA) at prices that are relatively cheaper than the two main carriers currently flying these destinations.

Kenya Airways owns a 41.23 per cent stake of the Tanzanian registered Precision Air.

Fastjet Tanzania was given clearance by the Kenyan government to operate flights between Kenya and Tanzania under the Bilateral Air Services Agreement between the two countries.

Last April Fastjet raised Sh7.5 billion to fund its penetration of the African market, operating a budget model where passengers who make advance bookings pay less.

Passengers who want extras like food, baggage and seat choices pay extra, making it cheaper to fly for those seeking minimal additions.

The London Stock Exchange-listed carrier has been using this model in its flights to South Africa, Uganda, Zambia, Malawi and Zimbabwe.
Its plan to introduce it locally was expected to shift market dynamics on the Tanzanian route.