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Fastjet Running On Fumes

Fastjet’s ambition to become the first pan-African low-cost carrier looks to be evaporating after auditors questioned whether the London-listed company could continue as a going concern.

KPMG said that a net loss of $56m in the 18 months to December 31, 2012 and an operating cash outflow of $20m would sink the company unless trading improved and Fastjet secured additional funding.

Fastjet’s management, in contrast, are confident that it can continue trading for “at least a year” and chief executive Ed Winter was in bullish mood at IATA’s Cape Town AGM yesterday (June 4).

"When you look around the world at where low-cost airlines have gone in and brought affordable, good-quality travel to people ... the market expands," he told Reuters.

That hasn’t won over investors, whose furious sell-off has caused Fastjet’s share price to dive more than 70 per cent this year, down to just 66p in trading today (June 5).

A big portion of Fastjet’s losses have been attributed to Fly540, the Kenya-based carrier it bought last year from London-listed Lonrho, which along with Stelios Haji-Ioannou’s Easygroup is a shareholder in Fastjet.

Since the takeover, Fastjet has been involved in a long-running and damaging financial dispute with the management of Fly540’s Kenya operation, while in Tanzania – where Fly540 now flies under the Fastjet brand – load factors have dropped to 66 per cent despite stimulatory fares as low as $20.

According to Fastjet, Fly540 has “seriously underperformed”, running up a pre-tax loss of $18m, and the company is considering selling down its stakes in Fly540’s Tanzanian and Ghanaian operations.

Yet Fly540 is only one of several problems facing Fastjet: partly as a result of Africa’s under-liberalised aviation market, its cost base is still too high for profitable budget operations; questions also remain about how effectively it can sell tickets – despite some innovative sales strategies – in a region with low internet use.

The company appears to be pinning its hopes on a soon-to-be-launched South African joint venture and successful lobbying of other African governments to reduce passenger taxes.

Yet even modest success could bring its own problems if established African flag carriers with their tighter political connections decide to muscle in on the low-cost game.a

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