Air Arabia provides a discount to optimism

Air Arabia's 12 per cent decline in profits for the first quarter is expected to dent optimism among investors after Kuwait based Jazeera Airlines said it expects improving profitability into the summer holiday and Ramadan season.

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Air Arabia's results are expected to dent optimism on the outlook for discount airlines after a 12 per cent decline in profits for the first quarter.

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At the end of trading yesterday, the first and largest low-cost airline in the Middle East and North Africa reported a net income of Dh44.2 million, from Dh50m a year earlier.

An average of analyst estimates compiled by Bloomberg News was for Air Arabia to report Dh47m.

Shares of Air Arabia were up by 0.4 per cent yesterday to 74 fils after Marwan Boodai, the chief executive of Kuwait's Jazeera Airways, said seat yields were expected to improve in the coming quarters as the summer holiday and Ramadan season approaches.

Jazeera Airways, which swung to a profit of 1.1m dinars for the first quarter from a loss of 4.5m dinars for the same period last year, advanced 5 per cent to 126 fils yesterday.

Rising uncertainty in the region caused by social unrest, combined with higher fuel costs posed a challenge for regional airlines, Sheikh Abdullah bin Mohammad Al Thani, the chairman of Air Arabia, said in a statement to the Dubai Financial Market.

The price of jet fuel is more than 50 per cent higher than the average for last year. Air Arabia, which has hedged only 15 per cent of its fuel needs for this year, was expected to be hit by this rise.

Fuel is the largest cost item for Air Arabia, accounting for 34 per cent of revenue in last year.

"While we see value in Air Arabia's differentiated and low-cost growth story in the long-term, we are not convinced that the near-term outlook is as positive as airline managements portray," said Scott Darling, an analyst at Nomura in Dubai.

Air Arabia said it had received the third and fourth of 44 A320 aircraft it had ordered from Airbus.

The airline will receive four more A320s this year, in line with its plan to expand flight destinations and increase the size of its fleet by 2016.