Sharjah-based low cost carrier Air Arabia reported on Sunday a 10 per cent drop in first-quarter net profit as margins came under pressure because of higher competition and capacity in the market.
Net profit fell to Dh103 million from Dh114m in a year-earlier period, the company said. Revenue dropped 14 per cent to Dh810m from Dh945m a year earlier.
The airline took "operational cost control measures" to shore up its revenues, a spokesman told The National without giving further details.
“Competition and excess capacity has meant that in the search for passengers, like all airlines in the [Arabian Gulf] and beyond, lower pricing has meant yield erosion,” said Saj Ahmad, the chief analyst at StrategicAero Research. “With Ramadan here soon, we’ll see a softer start to the summer season – factor in the oil price volatility, it’s likely that things will ebb downwards for a while before they look more positive.”
In March, the Middle East carriers reported a slowdown in the traffic growth rate to 4.9 per cent, continuing the trend from January and February, that was “a considerable slowing” year-on-year, the International Air Transport Association (Iata) said last week.
Capacity in the region increased 9.4 per cent compared to the same period last year and the load factor dropped 3.1 percentage points to 73.1 per cent during the same time, Iata said.
“We are glad to see Air Arabia recording strong first-quarter financial results despite the impact of lower yield margins that the industry continued to witness in the first quarter of this year,” said Sheikh Abdullah Bin Mohammed Al Thani, the chairman of Air Arabia. “The strong measures that we took in driving cost margins lower while optimising revenue opportunities have proven once again the resilient and dynamic business model that we operate.
This year, Air Arabia hedged around 36 per cent of its fuel needs at US$51 a barrel. WTI crude was trending at $46.22 a barrel on Sunday morning.
Air Arabia has plans to lease six fuel-efficient A321neo aircraft that are expected to join the fleet in 2019. The carrier took delivery of one new aircraft in the first quarter, taking its fleet to 47 Airbus A320 aircraft.
About 2.1 million passengers flew with the airline between January and March, a 1 per cent increase from the first quarter of last year. Its average seat load factor during the period was 81 per cent with a drop of 1.4 percentage points.
Air Arabia added one new route, from Sharjah to Baku, in Azerbaijan, during the first quarter. It also announced seasonal flights from Sharjah to Trabzon, Turkey, from June. It started flying from Morocco to Catania in Italy.
Shares of the Dubai-listed airline closed unchanged at Dh1.03 on Sunday.
ssahoo@thenational.ae
Follow The National's Business section on Twitter
