Jazeera Airways shrugged off second quarter losses, announcing that it will receive two new Airbus aircraft this autumn.
Jazeera halves quarterly losses
ABU DHABI // Jazeera Airways shrugged off second quarter losses with an announcement that it will receive two new Airbus aircraft this autumn - 12 months earlier than expected - and decide on a third hub by the end of this year. The budget airline based in Dubai and Kuwait reported second quarter losses of 897,895 Kuwaiti dinars (Dh12.3 million) and saw its shares slide to an all-time low of 460 fils.
The carrier halved the losses sustained in the second quarter of last year, when it lost 1.79m dinars. Jazeera has seen its stock slide 4.2 per cent since it announced the quarterly results last Thursday, and is 22 per cent off of its high of 590 fils on March 13. Marwan Boodai, the chairman and chief executive of Jazeera, blamed the results on a combination of the seasonal nature of airline demand plus high fuel prices. Mr Boodai said the second quarter typically witnessed a slump in demand for air travel. The cost of jet fuel had also risen to 48 per cent of operating costs in the second quarter, up from 35 per cent a year ago.
"We're focusing on business as usual, and hope to show the results to our investors at the end of the third and fourth quarter that we will meet and exceed profitability forecasts for the year," Mr Boodai said. Karim Murad, a transport analyst at Shuaa Capital, said Jazeera's fortunes this year reflected a wider challenge for airlines. "All airline businesses are suffering lower margins as a result of increasing fuel costs - the trend now is margins are being squeezed," he said.
Jazeera has been forced to raise its fuel surcharge on several occasions this year, with a fuel hedge of only 10 per cent - the industry standard is roughly 50 per cent, although budget airlines such as Jazeera typically hedge less. "We've had no choice but to follow the market," Mr Boodai said. Next year, Jazeera had not hedged at all, but Mr Boodai said he did not expect this to be a problem. "We don't expect any more sharp rises."
The second quarter losses are the latest sign that the global airline malaise over fuel prices is spreading into the Middle East. Last week, Air Arabia reported lower than expected second quarter profits, while Emirates airline slashed its annual profits forecast. The events reflect ominous developments in the US and Europe, where more than 24 airlines have shut down this year. Worldwide, airlines are expected to lose between US$2 billion (Dh7.34bn) to $6bn this year because of a slowing global economy and record fuel prices.
The rising costs were enough to offset a growth in revenues for Jazeera of 47 per cent to 11.4m dinars, compared with the same period a year ago. While the high cost of oil has hurt the airline's costs, it has helped usher in higher revenues from its Middle East customers. As a result, the airline has agreed to receive two new A320 single-aisled aircraft from Airbus this autumn after another airline customer pushed back its deliveries.
The aircraft will be used on existing routes plus new destinations that will be announced in October. Jazeera currently flies with a fleet of six A320s and has 34 aircraft on order. Jazeera, which launched in October 2005 and now flies to 27 destinations, plans to expand its operations throughout the Middle East with new hubs. The company will ultimately operate "at least" three or four hubs in the next five years, with the third likely to be announced this December, said Mr Boodai.
In the short term, analysts such as Mr Murad said the only thing that could bring relief to the region's airlines was the price of oil subsiding. "If oil came down further, it would automatically enhance margins and you would see a rise in profitability," he noted. @Email:firstname.lastname@example.org