Air Arabia profits climb 32%

The Sharjah-based budget airline posts a 32% first quarter net profit, gaining from lower fuel prices and the downturn.

SHARJAH, UNITED ARAB EMIRATES – April 6: Air Arabia office in the Sharjah International Airport in Sharjah. (Pawan Singh / The National) *** Local Caption ***  PS05- AIR ARABIA.jpg
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The budget carrier Air Arabia, based in Sharjah, posted a net profit in the first quarter of Dh103 million (US$28.1m), a 32 per cent rise on the first quarter of last year, after gaining from lower fuel prices and passengers switching to low-cost travel. The results contrast sharply with the global airline industry that is expected to lose $4.7 billion this year due to sharply falling demand. The growth in net profits exceeded the pace of both new revenues and passengers, the airline said Saturday. Revenues were up 21 per cent compared with the first quarter last year to Dh463m, while passenger traffic rose 26 per cent to about 951,000 customers. "Globally, the aviation industry faced extraordinarily difficult market conditions in the first three months of this year, primarily due to the worldwide financial crisis and its direct impact on the travel habits of both business and leisure passengers," said Adel Ali, the chief executive of Air Arabia. "We are extremely pleased to have been able to continue our own positive momentum in the first quarter of 2009." Air Arabia, which introduced no-frills travel to the region in 2003, is enjoying a bumper year with new routes being launched out of Sharjah and a second centre opened in Morocco last week. Air Arabia recently launched two new destinations, Goa and Athens, that underscore the airline's core markets, which are the Indian middle class and UAE holiday makers. Last week it launched Air Arabia Maroc, based in Casablanca. The budget airline, which flew its first flight to London's Stansted Airport, is planning to fly to other European destinations including Paris, Barcelona, Brussels, Lyon, Marseille and Milan. The airline's first-quarter results follow an equally profitable performance last year, when it banked a net profit of Dh510m after a 33 per cent rise in passengers to 3.6 million. Full-service airlines bet on rising fuel prices to climb even higher last year and hedged significantly, leaving them with liabilities as the global economy and crude oil prices plummeted. But Air Arabia, following the bare-bones approach of budget airline management, did not hedge fuel and has profited from lower costs. The current jet fuel price of $58.40 a barrel is a 59 per cent drop from prices of a year ago, according to Platts and the International Air Transport Association. That should translate into a more than Dh200m windfall on fuel costs this year for Air Arabia, even as it adds new planes and destinations, Citi Investment Research said in a report. Middle East budget airlines are also gaining from the depressed global economy that has seen travellers "trade down" from business to economy class, and from full-service airlines to no-frills. One example has been rival Jazeera Airways, based in Dubai and Kuwait, which is reporting a surge in new corporate accounts over the past few months. By contrast, Southwest Airlines, based in Dallas, reported a first-quarter net loss of $91m this year, while Europe's Easyjet, another leading budget airline, tripled its first-half pre-tax losses ending in March to £130m (Dh727.3m). Citi downgraded its earnings and revenue outlook for Air Arabia due to the economic slowdown, but still forecast the airline would prosper. "We believe Air Arabia is well placed to handle a slowing economy," it said in a report, citing weak competition, the low presence of budget airlines in the Middle East and the trend of business travellers trading down. The report said that Air Arabia Maroc, which the Sharjah airline launched in partnership with Regional Air Lines of Morocco and Ithmaar Bank of Bahrain, would be a "critical growth engine" in the future.