Is this the FastJet recovery?

Once hotly tipped as a sure-fire way to play economic growth in Africa, budget airline Fastjet has struggled to live up to expectations. It's why the share price plunged from over 40p at the beginning of 2013 to less than a penny. This year, however, they have doubled in value to 1.4p, and the budget airline's latest passenger numbers look promising.

In Tanzania, 55,695 passengers were carried on Fastjet flights in January, up 78% on the year, with its load factor - a measure of how well an airline can fill its planes up - reaching 69%, up 900 basis points.

"January is traditionally the month of the year when airlines see the lowest consumer demand," explains interim chairman and chief executive Ed Winter. "We are therefore very pleased with our trading figures as we build upon our market leading position in Tanzania. We have clearly demonstrated that our low-cost model is stimulating the market and encouraging more and more people to use our reliable and affordable flights rather than road transport."

Fastjet hopes that launching its Spring flying programme will help continue the recent positive momentum with its new route connecting Kilimanjaro and Mwanza. After losing money in the first half of 2014, the carrier announced last month that it actually made an operating profit during the busy December holiday season.

This is significant as analysts at research company Equity Development hadn't expected break-even for another nine months. They believe FastJet made an underlying operating profit of $500,000 during the month on revenue of $7 million. What's more, they think that the subdued outlook for oil prices over the next year "could be a dream come true" and "prove a major turning point for the business".

Unlike the much larger international carriers, FastJet does not hedge its fuel costs, which means any drop in prices feeds straight through to profits. It's estimated that before the slump in oil prices began, fuel made up about 40% of the company's cost base.

Clearly, investing in Sub-Saharan Africa's first budget airline is incredibly speculative, relying as it does on commercial development in Africa, which is at an early stage. FastJet is also heavily exposed to a whole raft of issues for which Africa is notorious, not least government bureaucracy, corruption, instability and protectionism.

Equity Development's 4.9p target price looks incredibly ambitious given the potential headwinds, but with cheaper oil giving a boost to numbers and the carrier's popularity clearly rising among the local population, things are at least moving in the right direction. EasyJet founder Sir Stelios Haji-Ioannou still owns over 9% of the company, too, and doesn't like backing losers.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.