UAE’s budget carriers report falling profits as yield margins show no signs of improvement

Flydubai profits have fallen 87 percent from 2014; Air Arabia lost 33 million in Q4 2016
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Profits at both Air Arabia and Fly Dubai fell in 2016, according to annual results, as turbulence in the regional industry continues to threaten low-cost carrier fortunes.

Dubai-based Flydubai carried a record 10.4 million passengers in 2016, but its net profit plummeted 69 percent from 2015 to AED 31.6 million. In two years, the carrier’s net profit has sunk 87.4 percent. Its last high came in 2014 when it posted figures of AED 250 million.

A slow economic environment created by low oil prices and a strong US dollar continue to pressure yields, and chief executive Ghaith al-Ghaith said he doesn’t expect the situation to improve this year.

“We will remain prudent throughout 2017 as we will continue to operate in a challenging socioeconomic environment. Yields will remain under pressure and we expect to report flat growth in the year ahead,” he says.

Air Arabia’s fortunes have also faltered, though less precipitously compared to its competitor. The Sharjah-based carrier’s recorded AED 500 million in profits in 2016, a four percent drop from last year. Its 2015 profit of 531 million was also a single digit decline in percentage terms from 2014 when it posted AED 566 million, its highest ever.

Air Arabia chairman, Sheikh Abdullah bin Mohammad al Thani, attributed losses to an overcapacity in the market. “The fourth quarter of 2016 was impacted by deteriorating yield margins that the industry in general and the Middle East region in particular is witnessing” he says.

“High seat load factor was impacted by continuous drop in yield margins as a result of the overcapacity deployed in the market and the slow growth environment in major economic hubs”.
Air Arabia lost AED 33 million in the fourth quarter despite maintaining a high aircraft load of 80 percent. The carrier’s traffic increased by 12 percent from 2015.

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