Air Arabia records 20% drop in third-quarter profits on higher fuel costs and currency volatility

Sharjah-based budget carrier expects "fundamentally strong" outlook for regional low-cost carriers

"While Air Arabia’s liquidity status and profitable operations remain intact, this step aims to serve the best interests of the company and its investors," Air Arabia said. EPA

Air Arabia, the UAE's only publicly-listed airline, reported a 20 per cent drop in third quarter profits as higher fuel costs and currency volatility squeezed margins, but it remained optimistic on the outlook for regional low-cost carriers.

The Sharjah-based budget carrier made a net profit of Dh300 million in the three months to September 30 compared with Dh376m in the prior-year period, Air Arabia said in an emailed statement on Tuesday. Revenues for the period rose 10 per cent to Dh1.28 billion year-on-year.

The results "remained strong despite profit margins being impacted by the sharp rise in fuel price and the currency devaluation witnessed in several key travel markets," Sheikh Abdullah Bin Mohamed Al Thani,  Air Arabia's chairman said in the statement.

A rebound in oil prices cresting to above $85 per barrel in October following a three-year slump, has also dented Dubai-based Emirates' first-half profits and posed a "tough" year for its low-cost sister carrier FlyDubai, the airlines said separately on Tuesday. Oil price changes represent a double-edged sword for airlines in the oil-rich Arabian Gulf, with high crude prices boosting demand from premium travelers in the oil and gas industry while also inflating the carriers' fuel bills.

Air Arabia said it carried more than 2.4 million passengers in the third quarter, a five per cent increase on the same period a year ago. However, average load seat factors, a  measure of the percentage of seats on planes filled by paying passengers, remained unchanged at 81 per cent.

Global airlines are facing pressure on yield margins and increasing costs amid political and economic tensions that are driving currency and oil price volatility, Mr Al Thani said.

“We believe that such impactful challenges are temporary and the long term outlook for low-cost travel in the region remains fundamentally strong," he said.

Air Arabia is planning to expand its fleet to more than 100 planes by 2025, from 60 currently, as it increases its operations across the Middle East, Africa and Asia, its chief executive Adel Ali told The National last month.

The Dubai-listed company is in talks with manufacturers including Boeing, Airbus and Embraer to purchase new aircraft to replace and grow its fleet, with a view to place an order before the end of 2019, he said.

Air Arabia will continue focusing on "strong" cost control measures to deliver a "robust" financial performance, Mr Al Thani said.