Fastjet encouraged by buds of May

Shares in fastjet (LON:FJET) rose sharply on Thursday morning after an upbeat passenger traffic update from the African airline.

In mid-afternoon trading shares were up 53% to 1.02p as investors got on board, following the news that the low-cost operator had its best month ever in May.

The airline said its operations in Tanzania, Ghana and Angola all made progress in May, but for many investors it is the company’s avowed intention to focus on establishing a presence in South Africa over the coming months that is the key issue.

The South African market is seen by the fastjet board as a significant opportunity and essential to fastjet’s pan-African ambitions. The company will start operating a route between Johannesburg and Cape Town in South Africa on 1 July. The really lucrative route the company has designs on, however, is likely to be Dar es Salaam to Johannesburg, and the company hinted in Thursday’s statement that there might be some news on this soon.

The company has also had its eyes on Kenya, the most mature market in East Africa, but a legal dispute between the company and the vendors of the 49.98% economic interest in Fly540 Kenya have delayed a launch there.

When the problems in Kenya have been ironed out, however, the board is convinced Kenya will be a “very significant low-cost operation under the fastjet brand”.

Discussions are also taking place in a number of other African countries with a view to launching airlines under the fastjet brand.

Thursday’s share price uplift should be welcome news for shareholders who will have been concerned by comments in last Friday’s results statement by fastjet’s auditors, KPMG, to the effect that the company will need to raise additional funds.

KPMG also said fastjet’s future prospects are dependent on improved trading, and highlighted a need to gain access to international routes.

The latter appears to be covered by Thursday’s statement in which fastjet said it is expecting to commence flights on international routes from Dar es Salaam shortly.

As for the improved trading, May’s update is certainly a large stride in the right direction.

The upturn in current performance also highlights another issue about the auditor’s comments, namely the short time period in which fastjet, in its present form; the company’s main service from Dar es Salaam only started operating at the end of November, one month before the end of the period covered by the results.

Things have moved on apace since the end of 2012, with fastjet quickly becoming the preferred option for those travelling between key hubs Dar es Salaam and Mwanza, with over 64% of the market share in April.

On the finance front, the group had net cash amounting to US$5.5 million at the end of December, but since that date the group has received £15.68mln of backing from a new investor, Bergen Asset Management.

Only a fraction of that amount has been tapped and the directors remain confident that the group has access to sufficient finance to continue operating as a going concern for the foreseeable future.