Air Arabia boosted by cost cuts and Qatar fallout

LONDON: Air Arabia’s second-quarter profit jumped by 19 percent, helped by a cost cutting program and the fallout from a boycott of Qatar by some of its neighbors.
The low-cost Gulf airline posted a profit of 150.7 million dirhams ($41 million) in the second quarter. But profits were down by 13 percent compared to the previous quarter.
The profits exceeded analyst expectations, with some suggesting Air Arabia was able to take market share from Qatar Airways after a boycott of the country imposed by Saudi Arabia, the UAE, Bahrain and Egypt.
The four countries, known as the Anti-Terror Quartet, accuse Qatar of supporting extremist groups and helping destabilize the region.
“All the routes and slots awarded to Qatar Airways had to be re-allocated to other carriers after the ban and we believe that it helped tremendously Air Arabia in maintaining strong load factors while slightly growing their traffic,” said Amine Wafy, research analyst, at Renaissance Capital, based in Dubai.
Saj Ahmad, aviation analyst at Strategic Aero Research said that the airline may have also indirectly benefited from the now-lifted US ban on laptops and other electronic devices being carried on some flights out of Middle Eastern airports.
“They’ve also benefitted from transit travel out of Sharjah for passengers who’ve flown to Europe and other gateways to avoid the laptop ban,” he said.
Air Arabia said it carried more than 2.05 million passengers in the second quarter, while the average seat load factor — or passengers carried as a percentage of available seats — stood at 79 percent. In the same quarter last year, the airline carried 2.01 million passengers, with a load factor of 78.3 percent.
Analysts say the airline’s cost-cutting program launched at the end of last year also helped boost second-quarter profits.
“These cost cutting initiatives (mostly on operations and maintenance expenses) which started to deliver positive results in the first quarter 2017 already, were even more significant during the second quarter and it helped to push up EBITDA margin to 29 percent, from 23 percent in the second quarter 2016,” Wafy said.
Nishit Lakhotia, head of research at Sico Bahrain, said: “Air Arabia has been able to control costs very efficiently and margins have improved. These aspects have improved the bottom line.”
While market conditions for the region’s aviation sector remain challenging, Lakhotia sees Air Arabia’s performance continuing to improve in the next six months. “We are seeing a stabilization in yields and in the month of July the airline maintained high stable load factors. We could see a strong second half for the airline,” he said.
Traffic growth among Middle Eastern airlines grew at the slowest rate recorded for a first half since 2003, according to June data from IATA. The Middle East was the only region to see growth decelerate in the first half compared to the same time period last year.