Slight fall in FlyDubai bookings expected but no ‘knee-jerk reaction’, analysts say

Analysts say that, in the short term, people will be shocked at this incident but they don’t see any “knee-jerk reaction” whereby bookings evaporate, such as what happened to AirAsia in the wake of its A320 crash in December 2014.

FlyDubai’s reputation as a youthful travel business will serve it well in times of economic strife and human tragedy. The airline, with its recognisable livery, is one of the world’s safest airlines, and analysts say its prospects may be damaged only ‘momentarily’. Randi Sokoloff / The NationalShow less

ABU DHABI // FlyDubai will suffer a temporary drop in its bookings before its operations recover, say analysts, after its FZ981 flight crashed, killing 62 people.

The Dubai airline, which was launched in 2008 and took to the skies in 2009, aimed to connect the emirate to other cities within a five-hour radius. It was also meant to complement Emirates Airline’s network and connect underserved markets in Russia, former Soviet republics, Eastern Europe and Africa.

Analysts said that, in the short term, people would be shocked at the incident but they did not see any “knee-jerk reaction” whereby bookings evaporated, such as what happened to AirAsia in the wake of its A320 crash in December 2014.

“This will be the first time that a UAE airline will be liable to respond with financial compensation to its passengers, the crew and with third-party liabilities but they believe that the financial impact will be offset with the insurance cover already in place,” said Mark Martin, the chief executive of Dubai’s Martin Consulting.

FlyDubai anticipated a tough year in 2016, after the carrier posted a 60 per cent drop in last year’s net profit, and as tough market conditions, its fuel hedging policy and the impact of a stronger dollar hit earnings

Moving ahead, Saj Ahmad, the chief analyst at StrategicAero Research, said: “There might be a short-term fall in bookings but we have to remember that despite FlyDubai being a young airline, it is one of the safest in the world and this is their first incident where a flight has crashed.

“I don’t see the brand being affected, certainly not in the way that bigger, established airlines like Malaysian Airlines has struggled in the wake of the MH370 disappearance and the MH17 shooting down.”

Other analysts were less sanguine and stated that FlyDubai could temporarily lose market share to competitors.

“We believe this event might give the competition, such as Transavia, Wizz Air, Aeroflot, DobroLet and S7 Airlines, an upper hand with winning the travellers, momentarily,” said Mr Martin.

In February, FlyDubai reported Dh100.7 million of profit for 2015, compared to Dh250m a year earlier. It generated Dh4.9 billion in revenues last year, reflecting an increase of 11 per cent over 2014.

During the year FlyDubai carried 9.04 million passengers, an increase of 25 per cent over 2014.

FlyDubai operates a fleet of 45 planes dominated by Boeing 737-800 single-aisle aircraft, the same model as the one that crashed. The airline flies to 90 destinations and operates more than 1,400 flights a week. It has the biggest network to Russia, which includes flights to Moscow, Samara, Kazan and Krasnodar.

FlyDubai flies twice a week to Rostov-on-Don, leaving Dubai on Tuesday and Fridays. It has been flying the route since 2013.

The airline has expanded rapidly in Russia and parts of the former Soviet Union, as Dubai is a popular destination for Russians.

FlyDubai has a good safety record. In January last year, one of its planes was struck by what appeared to be small-arms fire shortly before it landed in Baghdad. That flight landed safely with no major injuries reported.

Aviation is a pivotal sector in the UAE that is essential to diversify the economy away from oil and mitigate the dwindling oil prices. The aviation industry is expected to contribute 32 per cent to Dubai’s GDP by 2020, according to government estimates.

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FlyDubai crash ‘unlikely to adversley affect tourism’

Tourism should not be adversely affected in the long term by Saturday’s crash, analysts said.

“We do not expect such isolated incidents to have a significant long-term impact on the sector,” said Rashid Aboobacker, the associate director at TRI Consulting, a Dubai management consultancy.

It was difficult to anticipate the effect until more information became available about the cause of the accident, he said.

With popular winter destinations such as Turkey, Egypt and Tunisia closed to Russians due to security concerns, many Russians came to the UAE this year. Russian tourist numbers to Ras Al Khaimah, for example, rose by 23.6 per cent to 2,224 in January year on year.

The FlyDubai flight was mostly carrying families visiting Dubai, said Igor Egorov, a board member of Russian Business Council in Dubai. “But the incident is not expected to affect tourism because this was an accident due to, so far we know, bad weather,” he said.

Low oil prices and a weak rouble took a toll on the tourist numbers from Russia to the UAE last year.

Guests from Russia to Abu Dhabi were down by 17 per cent last year compared to 2014. Meanwhile in Dubai, there was a 22.5 per cent decline in the number of tourists from the Russian region.