fastjet (AIM:FJET), Africa’s low-cost airline, today provided DirectorsTalk with an update on current trading and its operations, in particular the progress it has made with its Stabilisation Plan and the Company’s current outlook.
STABILISATION PLAN
Fleet
Further to the operational fleet update on 3 October 2016, the Company has continued to implement the Stabilisation Plan and is transitioning its fleet from the existing 145-seat A319 aircraft to smaller aircraft, initially through short term wet leases (aircraft, crew, maintenance and insurance), to be superseded by dry leases (aircraft only) in the start of H2 2017. Material progress has been made and two-thirds of the Company’s A319 aircrafts have now been removed from fleet and the first wet-leased Embraer e-Jet E190 aircraft was introduced in Tanzania during October 2016.
Based on initial experience with the aircraft the Board remains confident that the original expectations of a 10 – 15% reduction in operating cost will be achieved whilst seat occupancy rates on flights conducted with the E190 has to date showed an 18-percentage point increase and average yields have increased by approximately 12%.
Rationalisation of routes
The Company has continued the process of assessing its route network and has aggressively rationalised routes and/or reduced frequencies to more sustainably match supply levels with demand. This process is nearing completion, with rationalisation of flight activities between Tanzania and Kenya, Tanzania and Uganda as well as between Tanzania and Zimbabwe taking effect on 5 December 2016. Service frequency between Harare, Zimbabwe and Johannesburg, South Africa, has been increased whilst services between Johannesburg and Victoria Falls, Zimbabwe, will be suspended as from next month. The remaining routes within Zimbabwe and Tanzania, and between these countries and South Africa, are all projected to positively contribute to fixed cost during December 2016 and will continue to be closely monitored thereafter.
Organisation
The process of relocating the Company’s Head Office function from London to Johannesburg has commenced, and is expected to be substantially completed by March 2017, with timings influenced by contracted notice periods and business continuity in critical functions. In this regards the Company expects annualised Head Office cost-savings of c.35% whilst achieving increased responsiveness to Passenger needs, resulting from being in closer proximity to the Company’s operating markets.
The Company has furthermore embarked on an organisational restructuring process in both Zimbabwe and Tanzania, the consequence of which is a substantial reduction in the size of our expatriate workforce in these countries and a greater reliance on local talent, which will result in significant cost savings.
Revenue generating initiatives
The Company has successfully integrated a Global Distribution System (GDS) which facilitates access by Travel Agencies to fastjet’s inventory, generated its first passenger-flows from its interline agreement with Emirates, and introduced new fare products aimed at connecting the various fastjet routes into single passenger journeys. These measures, along with continued leverage of fastjet’s growing social media presence, has supported revenue generation despite a reduction in seats flown.
OUTLOOK
Based on the steps taken in stabilising the business, we expect Q1 2017 to show a c.25% reduction in fixed operating cost & overheads year on year and a c.35% reduction in variable operating cost year on year, in aggregate amounting to c. US$8m and contributing to a significant improvement in Q1 2017 performance relative to the current year. Although the Company has made good progress in executing the Stabilisation Plan, and fastjet is entering its busiest trading period, additional costs associated with delivering the stabilisation plan, in particular the cost and terms associated with returning leased aircraft being more onerous than previously expected, has placed greater strain on available cash-resources. For this reason, as well as allowing the Company to pursue possible synergistic opportunities identified by the CEO, the Company needs to raise further capital and expects to initiate a fundraising exercise which it plans to complete in Q1 2017.
DIRECTORATE CHANGE
Fastjet also announces that Colin Child, Non-Executive Chairman, has resigned as Chairman and as a Director of the Company. Having led the fund raising exercise in July this year Colin believes that it would not be appropriate for him to continue in this role given the Company is initiating, sooner than originally expected, a further fund raising exercise.
Rob Burnham, Non-Executive Director, commented “Colin has chaired the Board through a period of considerable organisational change and demonstrated a total commitment to the success of the Company which has been much appreciated by his colleagues.”
Colin stated: “Although the trading and operational environment has been challenging I have much enjoyed my time on the fastjet Board. I leave the Board with an extremely good and experienced CEO in place and I have every confidence that he will successfully complete the Stabilisation Plan and pursue some exciting strategic initiatives that will allow fastjet to deliver its full potential.”
Following Colin’s resignation Nico Bezuidenhout, CEO, will assume the role of Interim Chairman pending the appointment of a new Non-Executive Chairman in due course.
Nico Bezuidenhout, Interim Chairman and CEO, commented:
“I sincerely thank Colin for his invaluable contribution to fastjet and for the guidance he has provided to me personally. Since my arrival in August, the Company has made substantial progress in implementing the Stabilisation Plan and has, in the process, resolved and attended to the key financial, contractual and structural legacy matters that would otherwise have served to impede the future performance of the Company. The journey has not been a straightforward one but with our costs due to substantially reduce in the New Year as various legacy and restructuring costs come to an end, with our revenue generating initiatives beginning to bear fruit and with various geographic and strategic expansion opportunities being identified I am confident that, with the necessary capital, the Company can break even by Q4 2017, and be well-positioned to pursue sustainable growth and value-creation for Shareholders going forward. Furthermore, based on my experience in African Aviation, I am convinced of the tremendous market opportunity there is for a truly pan African LCC.”
