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Shares of African budget airline carrier Fastjet drops on profit warning

(Credit: Bruce Bennett/Getty Images) WASHINGTON, DC - DECEMBER 09: An aerial view of Reagan National airport photographed on November 30, 2011 in Washington, DC.New York Scenics
March 8
6:32 AM 2016

Fastjet, an African-based airline, issued a profit warning once again owing to weak demand for flight journey. The shares of the airline plunged over 40%, following the news. The prolonged hurdles in the airline industry led Fastjet to project annual results below market anticipation. The company said that it does not aim to produce any capital in 2016.

The airline said it had sufficient cash of over $20 million as of February end to meet corporate operations. However, Fastjet might plan to raise additional capital by the end of 2016. In December, the airline blamed weak demand in Tanzania and low value of African currencies for poor revenue growth. But, Stelios Haji-Ioannou, founder of EasyJet Plc, condemned the management team for high corporate expenditure that led the company to report low profit.

Initially, Fastjet aimed to carry over 12 million passengers per year, but it took a longer period for the company to establish hubs in nations like Zimbabwe and Zambia. Currently, the management team expects 2016 results to be "materially below market expectations". Meanwhile, Stelios Haji-Ioannou, who has invested huge capital in the airline, has asked Fastjet's directors to reign from the board as situation gets worsen. Moreover, chief executive officer Ed Winter is under pressure from Stelios and wanted to resign as soon as a successor is found, as reported by theguardian.

On an average, two analysts expected 2016 profit before tax to be $1 million after a loss of $35 million in the previous year. In addition, Stelios wants to shift the airline's base to Tanzania's Dar es Salaam from Gatwick in London. The shares of the African budget carrier dropped 46%, or 30.75 pence, to 36.50 pence in the Monday trading session, according to Bloomberg.

The new government in Tanzania, the carrier's main operation spot, has declared travel ban for members and bureaucrats belonging to the government. As a result of this travel ban, demand weakened in Tanzania leaving the airline industry in a miserable state. New hubs in Zimbabwe and Zambia are yet to develop and that the company expects to achieve a breakeven load factors from these hubs in 2016, eTN Global Travel reports.

The company was created with an aim to become Africa's first budget carrier, hoping that recovering global economy, bookings through mobile phones and the developing middle class community will stimulate its survival in the airline playground. However, unexpected difficulties in the global market coupled with other risk factors have nailed the revenue growth of the African-based carrier.

Fastjet is attempting hard to withstand these risk factors in the industry in order to position itself in the airline market. The company is executing various cost cutting policies to overcome the gloomy situation in the sector.

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