Flydubai widens H1 loss as fuel costs weigh on earnings

Dubai airline flydubai has reported a loss of Dhs142.5m ($38.8m) for the first half of the year, compared to a loss of Dhs89.9m in the first half of 2016 – a difference of 58.5 per cent.

However, revenues during the period reached Dhs2.5bn, an increase of 9.9 per cent year-on-year.

Passenger numbers increased to 5.4 million – also up 10.5 per cent year-on-year while the number of passengers carried per departure saw an increase of 13.7 per cent for the same period. The number of business class passengers carried per departure saw an increase of 22 per cent compared to the same period last year.

The airline also said it contributed 19.4 per cent to the total year-on-year growth at Dubai Airports. Between January to June 2017, flydubai contributed 12.4 per cent of all traffic in Dubai.

The carrier started twice-weekly flights to Sylhet in Bangladesh on March 15, 2017 increasing to six flights per week in May. It also launched flights for the summer season (ending in October) to Batumi in Georgia, Qabala in Azerbaijan and Tivat in Montenegro.

“The demand for travel on flydubai remains strong and the airline has seen its overall market share grow,” the airline said in a statement.

“These factors have, however, been offset by the price performance determined by the market.

“The airline also faced comparatively higher fuel expenses during the reporting period with fuel costs accounting for 24.8 per cent of operating costs compared to 23.5 per cent in the previous reporting period. In addition, the airline added eight aircraft to its fleet since July 2016,” it said.

During the first half of 2017, flydubai took delivery of the last of its Boeing 737- 800 aircraft, receiving one aircraft in February and a second aircraft in April.

The closing cash and cash equivalents position including pre-delivery payments for future aircraft deliveries, stood at Dhs2.1bn.

Ghaith Al Ghaith, CEO of flydubai, said, “The demand for travel from the growing number of our passengers remains strong. We will however continue to manage our cost performance and balance this with our long-term view of the potential for air travel in the region.

“We know that we need to remain flexible to the market dynamics across our network. We will continue our disciplined approach to increasing capacity.”

Flydubai also said that, historically, the trend for the second half has been stronger than the first half.

Arbind Kumar, senior vice president, Finance, at flydubai, said: “During the first six months of this year, we have seen pressure on both yield and cost. We continue to focus our efforts on three key areas: improvement in our cost performance, a broadening of our distribution and optimisation of our network.

“Knowing that we have faced a similar seasonality and trend in previous years, we will move ahead cautiously but strong in the knowledge that there remains much untapped opportunity.”

The impact of higher regional capacity across all airlines has forced operators to slash fares, and with it, the erosion of yields has led to worsening margins, opined Saj Ahmad, chief analyst at StrategicAero Research.

“Despite Ramadan falling earlier in the year, flydubai can look to the second half of 2017 as a game-changing environment. Inducting the first of its new fuel efficient 737 MAX 8s will help curtail fuel costs,” he said.

Flydubai is the first airline in the region to take delivery of the Boeing 737 MAX 8 aircraft. The airline is set to receive six new aircraft by December 2017 with entry into service set to begin during the fourth quarter.

Meanwhile the Dubai Air Show will also provide a “much needed boost to demand”, said Ahmad.

“Bringing down unit costs is key for flydubai. Revenue increased by almost 10 per cent, so it’s evident that the airline has scope to push down harder on costs, despite the challenging price backdrop. As with 2016, flydubai is primed to turn around its losses before its reporting year ends in early 2018,” he added.