Fastjet, a low-cost carrier operating in Africa has issued yet another warning to its investors that the airline will not meet its expected results and stated that it might have to increase its liquidity.
The airline has said that financial results for 2016 will be considerably lower than market expectations, which follows two previous warnings made in September and December of the same nature. It has also revealed that it “no longer expects to be cash flow positive.”
Upon the news Fastjet’s share price fell by 36 per cent on the London Stock Exchange, down to 43 pence per share.
The carrier stated that although it had $20 million cash at the end of February it still needed to increase those funds in order to secure the continued growth of the company and to also “to provide additional headroom”.
However, last year in April the airline gained funding of £50 million from investors, the largest amount amid multiple share sales which were used to support the airline’s expansion plans.
Ed Winter, Fastjet’s chief executive announced in January that he would be resigning from his position and said during the time of the cash-call that no more fundraising would take place.
Fastjet’s co-founder is also easyJet’s founder, Sir Stelios Haji-Ioannou and he raised his concerns about the company’s lack of funds weeks before the African-focused carrier announced its warning. The easyJet entrepreneur also called for the chief executive to leave his position straightaway even though the company has no successor to take his place.
Sir Stelios stated that if Winter remained in his position he would interfere with the cost-cutting regime and also accused Winter for Fastjet’s “ridiculously high cost base”.
Fastjet commented today and said:
“It has already taken action to manage its operating costs and overheads and is implementing further measures.”
“Reducing capacity and rationalising the route network to align it with current demand.”
The budget airline has been victim of the political instability of the 2015 presidential elections in Tanzania, which is the biggest market for the company. This instability has resulted in a decline in demand for flights. Also the airline has suffered from the impact of the drop in value of the Tanzanian shilling, as well as Zambia’s kwacha which have implicated its finances.
Sir Stelios again urged for the immediate resignation of Winter amid the news:
“Fastjet has a bloated cost base which was created by Ed Winter and his staff. The only way to reduce the overhead is for Ed Winter to leave the company now and the chairman to start the cost cutting.”
Gerald Khoo, an analyst for Liberum which is also Fastjet’s broker downgraded his “buy” recommendation for the shares of the airline.