Oil's fall since its record high in July has brightened earnings prospects among the Middle East's publicly-traded airlines. That, coupled with investors pulling money out of Gulf bourses due to a widening global credit crisis, has made some airline stocks "excellent value" according to analysts. Projections on the average price of fuel for the fourth quarter were readjusted by analysts this month to between US$100 (Dh367) and $110 a barrel for crude oil. While this is still at least 30 per cent higher than fuel costs in 2007, it is well off the high of $147 on July 12. Fuel was once a secondary to labour costs for airline expenses, but it now often accounts for 40 per cent or more of operating costs. Oil's rise this year has helped lead to the failure of more than two dozen airlines this year. "All airline businesses should look more attractive at these levels of oil," said Karim Murad, a vice president of logistics and transport at Shuaa Capital, the Dubai investment bank. "Lower oil prices will automatically bring more improvement in profitability and margins." Although the Middle East was the fastest growing aviation region last year, most carriers remain government-owned and unavailable to investors. Only Air Arabia, Jazeera Airways and Royal Jordanian trade on local stock markets, with little clarity on when Emirates airline will list shares, if at all, despite its chairman and CEO raising the possibility last year. Citigroup Global Markets issued a report yesterday with a bullish outlook on Air Arabia, raising its 2008 earning per share forecast by 11 per cent. "As we are doing for other airlines, we are raising earnings forecasts using a crude oil price of $100 a barrel," the company said. Shares of Air Arabia, traded on the Dubai Financial Market, have tumbled 29 per cent this year. Citigroup called the Sharjah-based budget carrier's negative performance "illogical". "Air Arabia now trades on lower multiples than low cost airlines in more mature and weaker Europe and the US," Andrew Light, an analyst at Citigroup, said in yesterday's report. Shuaa Capital has given Air Arabia's stock a fair value of Dh2.17 per share based on its long-term prospects, compared with yesterday's price of Dh1.39. Both Citigroup and Shuaa have listed the airline as a long-term bet, but deepening worries about the global financial system may underline why investors are shying away from Gulf airline stocks. Mr Murad attributed Air Arabia's poor stock performance to a growing global financial panic that has affected confidence in the UAE stock markets. "It's not just Air Arabia, a lot of shares look attractive based on the company's economic fundamentals." Royal Jordanian also received a positive outlook from analysts. Its first half revenues were up 33 per cent from the year before, ahead of expectations, and revenues per passenger - a key measure for profit margins, increased by 13 per cent. "By focusing on Jordan and the Levant sub-region, it cleverly avoids the potential overcapacity being created by Gulf-based carriers intent on building global hubs to serve predominantly intercontinental traffic," Mr Light said. Like other growing airlines, Royal Jordanian's stock price has failed to keep pace with its revenue growth however, and is just up 1.3 per cent on the year. Meanwhile Jazeera Airways, a budget carrier based in Dubai and Kuwait, reported second quarter losses and its stock has fallen 32 per cent over the past three months. Analysts have not yet updated their forecasts for Jazeera Airways based on lower fuel prices, although NBK Capital in Kuwait is expected to release a research note in the coming weeks. igale@thenational.ae
"All airline businesses should look more attractive at these levels of oil," said Karim Murad, a transport analyst at Shuaa Capital. Citigroup Global Markets issued a report yesterday with a bullish outlook on Air Arabia, raising its 2008 earning per share forecast by 11 per cent. "As we are doing for other airlines, we are raising earnings forecasts using a crude oil price of $100 a barrel," the company said.
Royal Jordanian also received a positive outlook from analysts. First half revenues were up 33 per cent from the year before and revenues per passenger ? a key measure for profit margins ? increased by 13 per cent. Royal Jordanian's stock price has failed to keep pace with its revenue growth however, and is just up 1.3 per cent on the year. Jazeera Airways reported second quarter losses and its stock has fallen 32 per cent over the past three months. Analysts have not yet updated their forecasts for Jazeera Airways based on lower fuel prices.
igale@thenational.ae