Fastjet shares dive after chairman resigns

25th Nov 2016 09:02

(ShareCast News) - Africa's low-cost airline Fastjet tanked in early markets after its chairman resigned due to the company requiring further capital.Chairman and Director of the company Colin Child stepped down as he felt it would be inappropriate to stay on after the company decided to initiate a further fundraising exercise so soon after he led one in July.Accendo head of research Mike van Dulken said: "Shares in loss-making African budget airline Fastjet (FJET) are bouncing from their worst levels following news that the Chairman has quit because the company already needs to raise more capital. A management departure from the top of the tree is seldom good news, far less when the company also needs more money so soon after a July cash call."Nico Bezuidenhout will assume the role of interim chairman until a new non-executive chairman is found.The company has continued to implement the stabilisation plan and is transitioning its fleet from the existing 145-seat A319 aircraft to smaller aircraft. The associated costs with delivering the plan has however been more "onerous" than expected placing a greater strain on cash resources, leading to the need for another fundraiser by the first quarter of 2017.On the plus side, the airline is engaging in a number of cost cutting exercises to improve its performance.The group has nearly completed its assessment of its route network and has rationalised routes and reduced frequencies to more sustainably match supply levels with demand. Seat occupancy rates on flights conducted with the E190 have shown a 18% increase with average yields up by around 12% to date.The relocation of the company's head office function from London to Johannesburg, which should save around 35%, has commenced and is expected to be substantially completed by March 2017. The company expects to achieve cost savings of around 35% from the move.It has also started an organisational restructuring process in both Zimbabwe and Tanzania which means a substantial reduction in expatriate staff and more focus on local talent.The board remains confident that through all these measures its original expectations of a 10-15% cut in operating costs will be achieved.The company has successfully integrated a Global Distribution System (GDS) which facilitates access by Travel Agencies to fastjet's inventory. The GDS generated its first passenger flows from its interline agreement with Emirates and introduced new fare products at connecting various fastjet routes into a single passenger journeys.According to the board, these measures along with the airline's growing social media presence has supported revenue generation despite a reduction in seats flown.The company expects performance to improve in the first quarter of 2017 after a predicted 25% cut in costs is achieved.Looking ahead, Bezuidenhout said: "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 forwar."Fastjet shares fell 11.87% at 0942 GMT on Friday.