x Abu Dhabi, UAEMonday 24 July 2017

Air Arabia net profit takes first-quarter hit

While revenue and passenger numbers soared for Air Arabia, investors punished the discount airline for delivering a lower first-quarter net profit than analysts had expected.

While revenue and passenger numbers soared for Air Arabia, investors punished the discount airline for delivering a lower first-quarter net profit than analysts had expected. The region's first and biggest no-frills carrier released its earnings report to the Dubai Financial Market after the market closed on Thursday, saying its net profit had fallen more than 50 per cent to Dh50 million (US$13.6m) from Dh103m in the same period a year earlier. Air Arabia shares closed 3.4 per cent lower at Dh0.91 yesterday with more than 23m shares changing hands. The shares are down 24 per cent from their peak in October.

Adel Ali, Air Arabia's chief executive, blamed the downturn on higher fuel prices and pressure on yield margins. However, the Dh50 million net profit was far off what market observers were anticipating. Shuaa Capital had been expecting a net profit of Dh66m. "The miss in the bottom line, in our opinion, is either the result of underestimation of the impact of fuel prices or a one-off item, which pulled profitability below our estimate," said Kareem Murad, a transport analyst at the investment bank.

Airlines worldwide have struggled to cope with declining profitability and increasing cost of operations, largely caused by a rise in oil prices. Mr Ali said that despite all challenges, Air Arabia had posted "appealing profits for this quarter and maintained its positive growth", an attempt perhaps to appease investors who were clearly not impressed with the carrier's latest financial performance.

Chahir Hosni, the equities sales manager at EFG-Hermes in Dubai, said the airline's stock was hit by a combination of the disappointing earnings and generally negative global sentiment related to Greece's debt problems. Air Arabia flies to 60 destinations across Europe, the Middle East, Africa and Asia from its hubs in the UAE and Morocco. skhan@thenational.ae