Rough flight for Air Arabia

Profits down for the quarter but rise in passenger numbers

Air Arabia, the Middle East's largest low-cost airline, has ended a turbulent second quarter with profits falling 44 per cent and fuel costs rising from a year earlier. But the airline saw strong growth in passenger numbers, which rose 11 per cent from the second quarter last year to 1,108,310 as its new centre opened in Alexandria.

"Air Arabia continues to post sustained quarterly profits with a high seat-load factor and rising passenger traffic," said Sheikh Abdullah bin Mohammed Al Thani, the group's chairman. "These results demonstrate the strength of Air Arabia's business model and long-term expansion strategy." The company said the decline in profits, to Dh50 million (US$13.6m) from Dh90m a year earlier, was in line with global industry performance, which continues to be affected by "an increase in fuel costs and continuous pressure on yield margins".

Budget carriers worldwide have suffered a similar dip in profits, with Ryanairexperiencing a loss of 24 per cent of net income in the second quarter compared with a year earlier, largely blamed on the Icelandic volcano Eyjafjallajokull grounding flights across Europe in April. EasyJet, a rival carrier, is yet to announce its earnings. Kareem Murad, an aviation analyst at Shuaa Capital in Dubai, said the impact of fuel prices, which have increased 16.9 per cent in the past year, would soon fall on travellers.

"High fuel costs mean lower margins and put pressure on profitability, but the airline itself cannot bear that cost," Mr Murad said. "It's likely you'll see some sort of fuel surcharge being applied to offset that increase." But he was optimistic Air Arabia should see clearer skies in the coming months. "Generally the third quarter is the best quarter for the airlines in the region," Mr Murad said.

"We'll see them recording the growth in terms of revenue and you'll see higher margins. "That quarter is going to be a bit tricky, given that Ramadan is coming in the first month of the quarter, but I believe you'll see an improvement in revenues and some relief on yields." Mr Murad said one reason for confidence was the high number of seats filled on every plane. "Over 82 per cent is something that's excellent and has increased year on year, quarter on quarter."

Air Arabia stock has fallen by about 7.8 per cent so far this year.