Fastjet gains from low oil prices

London - Fastjet, a UK-based budget airline operating in southern Africa, said low oil prices were delivering”substantial" cash benefit that was likely to extend into next year, sending its shares higher on Tuesday.

Cheaper crude, from which jet fuel is derived, is a welcome boost for Fastjet, which has struggled to match rock-bottom prices offered by competitors on domestic flights in Tanzania.

New supply

Like many smaller airlines, Fastjet does not hedge its jet fuel purchases. By choosing not to lock payments on future deliveries, the company is exposed to any spike in the oil price but will feel the immediate benefits of a decline.

Oil has fallen by more than a third since June, reaching its lowest in more than five years on Monday as new supply from North America overwhelms demand.

Fastjet CEO Ed Winter said fuel represented about 40% of the company's operating costs. The company is "directly benefitting" from prices that are forecast to remain low through early 2015, he said in a statement.

For the six months ended 30 June, Fastjet's operating costs were $56.3m.

Full benefits

The airline, which also operates flights in South Africa, Zambia, Uganda and Zimbabwe, buys its jet fuel together with a number of small airlines across Africa to benefit from economies of scale.

Fastjet started flying in Tanzania in November 2012.

Many European airlines, which have hedged fuel purchases, are expected to feel the full benefits of lower oil prices only next year.

Fastjet's shares were up 6.5% at 0.83 pence on the London Stock Exchange just before lunch.