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Make no mistake about it, I am a fan of Fastjet (LSE:FJET). I have been watching Fastjet work through its growing pains (See “Fastjet on Fast Track,” “Fastjet Cleared for Takeoff,” and “Fastjet Story Still Fascinating“). After months of preparation, a myriad of red tape, and scores of setbacks, Fastjet flew its first international flight from Dar es Salaam on the coast of Tanzania to the South African capital of Johannesburg. This major milestone has come with a cost to shareholders as Fastjet’s share price has suffered almost in sync with the company’s frustrations trying to internationalize its operations.
On 23 October 2012, FJET shares were at 38.00. As the outlook grow rosier for the airline to shed its image as a local carrier within Tanzania, so the share price rose to 46.25 on 7 January 2013. However, during 2013, despite relatively good operating activities inside Tanzania, ongoing efforts to overcome obstacles to reach its goal of establishing a low-cost, direct route to Johannesburg have frightened investors as they have watched the value of their shares diminish into the single digits during the summer and now into the low single digits. Fastjet shares closed at 4.00 on Friday, 18 October and seem to be having a hard time getting off the ground in trading today, slipping below the 4.00 mark, hanging around 3.95. Those who have been been along for the ride for a year or more are waiting for the oxygen masks to drop. On the other hand, if anyone has been thinking about getting on board, this might be the most opportune time. I predict that Fastjet is going to take off. If you plan to soar with it as its share price returns to the skies, you can stand in the terminal thinking about it.
Last Wednesday, 16 October, CEO Ed Winter commented on Fastjet’s September operations, saying, “We are pleased to report better than expected passenger statistics for September, having achieved a 76% load factor despite coming out of the peak summer travel period and increasing the number of Fastjet flights. This demonstrates the growing popularity of the low cost model amongst Tanzanian consumers. The start of our international route network expansion this Friday will take the Fastjet brand further afield, in line with our goal of becoming truly pan-African.”
In a separate statement released Friday, 18 October, Winter subtly pointed out the significance of the Dar es Salaam to Johannesburg route, commenting that, “For many years, the Dar es Salaam to Johannesburg route has been operated by just one airline, and the lack of competition has led to inflated fares. It can cost almost the same for the 11 hour flight between Johannesburg and London as it does for a 31/2 hour flight from Johannesburg to Dar es Salaam, which just doesn’t make sense. Fastjet will substantially reduce the route’s average fare and in doing so will make it possible for more people to afford to fly between Tanzania and South Africa, whether they are travelling on business or for pleasure.”
The important thing for the airline and its investors is that the new international route should be the beginning of the airline seeing a revenue flow that will get the operations into the black (and I don’t mean flying at night) where the skies will actually be bluer and where Fastjet will be able to reduce its debt and begin to report positive EPS. That is part of the strategic plan. Until now it has been nothing more than a plan. Now that the planes are flying to Johannesburg, I predict that it will not be long before the share price starts flying also.
