Flydubai loss widens on falling yields and rising costs

Budget carrier says its revenues climbed as demand for travel through Dubai remains strong

Flydubai added 19 destinations last year, including flights to east Europe and Central Asia. Karim Sahib / AFP

Flydubai, the Dubai-based budget carrier, on Monday reported deeper losses for the first half of 2017, as yields remain under pressure and fuel costs mount.

The Dubai Government-owned airline recorded a loss of Dh142.5 million for the first six months to the end of June, compared with a loss of Dh89.9m for the same period in 2016. Flydubai's first-half revenues however climbed to Dh2.5 billion, a 9.9 per cent year-on-year increase.

Yields - an indicator of profitability measured by revenue earned from a flying passenger per kilometre - are under pressure and profitability margins tightening for airlines across the Middle East and North Africa (Mena) as economic growth has slowed. Etihad reported a $1.87bn loss for 2016, while Emirates, the largest airline in the world by passenger traffic, reported an 82.5 per cent decline in annual earnings.

Demand for global travel, however, is picking up, the industry body Iata said in August, adding that some major global airlines have reported better passenger numbers and improved profitability.

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“Despite reporting a loss, flydubai has demonstrated some positivity in its earnings,” Saj Ahmad, the chief analyst at StrategicAero Research said, adding that the impact of higher regional capacity across all airlines has forced operators to slash fares, which has resulted in the erosion of yields and worsening margins.

The rise in revenues for the period, he noted, points to flydubai’s capacity to push down harder on costs despite the challenging price backdrop. “As with 2016, flydubai is primed to turn around its losses before its reporting year ends in early 2018,” he said.

Flydubai said that the demand for travel through Dubai was still intact, and that the carrier’s overall market share has grown.

"These factors have, however, been offset by the price performance determined by the market," the airline said. It added that its profitability was weighed down by "comparatively higher fuel expenses during the reporting period with fuel costs accounting for 24.8 per cent of operating costs, compared with 23.5 per cent in the previous reporting period".

Management of cost performance and balancing it with the carrier’s long-term view of the potential for air travel in the region will be focal points for flydubai, said the airline's chief executive Ghaith Al Ghaith.

“We know that we need to remain flexible to the market dynamics across our network. We will continue our disciplined approach to increasing capacity whilst pursuing our broader goal of firmly establishing flydubai at the centre of the global travel industry,” he added.

Despite the tougher operating environment, the airline's passenger numbers for the first six months of the year rose by 10.5 per cent to 5.4 million. The number of passengers carried per departure also climbed by 13.7 per cent for the same period. The closing cash and cash equivalents position, including pre-delivery payments for future aircraft deliveries, remained robust at Dh2.1bn.

While full-service airlines remain cautious about route expansion, flydubai said it will expand its route network in Russia to 10 destinations. The airline, which is building a new headquarters in the emirate, is also set to take delivery of six Boeing 737 MAX 8 aircraft by December, which it says will give it greater flexibility, reliability and efficiency.