Adam Bouyamourn
Profits at Air Arabia fell 6 per cent year-on-year in the three months to September despite a rise in revenue and passengers.
The low-cost airline said profit fell to Dh235 million in the third quarter, down from Dh251m the year earlier. It is the third quarter of lower profits for Air Arabia in the last year.
Sheikh Abdullah bin Mohammed Al Thani, Air Arabia’s chairman, cited “increased pressure on yield margins, spare capacity in the market and protracted political uncertainty within the region” as the reason for the decline in profit.
But chief executive Adel Ali told Reuters in September that third quarter profits would be down against previous years because of the impact of fuel hedging. Declines in profit in the second quarter of this year, and the fourth quarter of 2014, were both due to fuel hedges, Mr Ali said.
In February, reporting its fourth quarter 2014 figures, the airline also blamed lower profits on “a temporary downward correction in the fuel hedge portfolio, which will regain its benefits going forward”.
While the collapse of the oil price should be good news for airlines, on whose bottom-lines the cost of kerosene, an oil product, weighs heavily, many airlines including Air Arabia have hedging arrangements in place dating back to before the oil price rout.
That means that airlines are paying prices for petrol that looked attractive when the oil price was near its $110 per barrel peak – but look much less attractive now that oil has fallen to just under $50 per barrel.
Mr Ali told Reuters that he was comfortable with the airline’s decision to hedge fuel prices into 2016.
The airline is considering the purchase of a 49 per cent stake in Indian budget carrier FlyEasy, according to reports.
abouyamourn@thenational.ae
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