Jazeera Airways has cancelled orders for 25 Airbus A320 jets worth an estimated US$2.12 billion (Dh7.7bn) at list prices, citing overcapacity in the market.
The order significantly reduces the Kuwaiti budget airline's growth plans and is the second indication of trouble in the country's aviation market, after Wataniya Airways ceased commercial operations last month.
"The decision to resize our fleet is the right decision for Jazeera Airways at the time being, given the overcapacity we've seen in the market in 2009 and 2010, when we saw close to half of the seats offered by our peers on the routes we operated were being flown empty," said Marwan Boodai, the chairman of Jazeera.
He added Jazeera could still buy additional new aircraft from Airbus. "We might revisit this decision in the future as Airbus introduces new A320 models to the market," he said, referring to the A320 new engine option, which was unveiled late last year.
The airline placed an order for 30 A320s in 2007, supplementing an initial 10 of the type at a time when the Middle East aviation market was growing the fastest worldwide and the region's airlines were placing large order books to fuel the next decade of growth. But Jazeera's prospects became more complicated with the crowding of the Kuwaiti market, with Kuwait Airways, Jazeera and Wataniya all based in a nation of three million residents.
Jazeera now has outstanding orders for 15 A320 single-aisle, short-haul jets. It received one aircraft in January last year and will receive another four between next year and 2014.
The order cancellation, which was also posted on Airbus' orders and deliveries website, is part of Jazeera's turnaround plan that began last May.
The company reported a third-quarter net profit of 4.4 million Kuwaiti dinars (Dh58.1m), the airline's best third-quarter result yet, and a fourth-quarter net profit of 2m dinars, making the second half of last year the airline's best since 2008.
Jazeera operates six Airbus A320s, while it has leased out another five to Virgin America and Sri Lanka Airlines through its business.
Last year, it carried 1.3 million passengers, or 15 per cent of all passengers in and out of Kuwait International Airport, on 14,000 flights. Its network serves regional destinations within five hours' flying time, including to cities in the GCC, Levant, Egypt and Turkey.
Last month, Jazeera's competitor, Wataniya, announced it was ceasing all commercial operations, citing its precarious financial situation and regional instability. It also blamed "the lack of fair-trade requirements in the local market" for its difficulties, without elaborating.
Wataniya's business model included a single aircraft type, the Airbus A320, a strategy popular with budget airlines to cut maintenance costs, although the carrier offered a full suite of services, including a "BusinessFirst" cabin.
The challenges for Wataniya included higher fuel prices, security concerns and pressure from stronger competition from Emirates Airline, Etihad Airways and Qatar Airways, said Scott Darling, an analyst with Nomura Securities in Dubai.
