Low costs, lower profit: Africa's Fastjet is in trouble

Iran's plan to rebuild its airline industry
Iran's plan to rebuild its airline industry

The aviation industry is booming thanks to cheap oil and strengthening demand. But not all airlines are flying high.

Shares in Fastjet, a low-cost African carrier, dropped more than 35% Monday after a second profit warning in just three months.

The company said that its 2016 results are likely to be "materially below market expectations," and that it no longer expects positive cash flow for the year.

"The challenging market conditions affecting much of the African aviation industry have been a lot more prolonged than management originally forecast," Fastjet said in a statement.

The London-listed carrier was hoping to replicate the success of European budget carriers in Africa, where there is growing demand for air travel among the continent's expanding middle class.

Fastjet was launched in Tanzania in 2012, but has since expanded to six other countries including Kenya, South Africa and Zimbabwe. It's backed by Stelios Haji-Ioannou, the owner of successful European low-cost airline EasyJet (ESYJY).

Fastjet said it has flown nearly 2 million passengers since its launch, offering fares as low as $10.

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The airline's profit warning comes after many global carriers reported strong results in 2015. The International Air Transport Association said global passenger traffic rose 6.5% in 2015, the biggest increase since 2010.

Fastjet said that it had $20 million cash available in February, which will cover its current financing requirements. But the company said it may consider raising more funds later this year.

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