Air Arabia Leads Second-Quarter Profits

Edward Russell

August 21st, 2023 at 12:06 AM EDT


Most airlines have now reported their financial results for the second quarter, and none so far has performed better than Air Arabia. The low-cost carrier, based in the United Arab Emirate of Sharjah, produced a stunning 27% operating margin, ranking it first among all carriers tracked by Airline Weekly.

In U.S. dollar terms, Air Arabia generated roughly $380 million in revenue during the quarter, up 25% from the same three months a year ago, and up 22% from 2019. The company earned an even higher net margin — 33% — thanks to contributions from joint ventures and other associated businesses. While flying passengers is Air Arabia’s core business, it’s also involved in hotels, tour packages, aircraft maintenance, real estate development, ground handling, aviation training, and catering. It has several joint venture airlines based outside of Sharjah as well, namely Air Arabia Egypt, Air Arabia Morocco, Air Arabia Abu Dhabi, Fly Jinnah in Pakistan, and Fly Arna in Azerbaijan. It hopes to soon launch a new airline in Sudan.

One of Air Arabia’s key advantages is Sharjah’s proximity to Dubai — the airport, in fact, is less than 30 kilometers (20 miles) from Dubai’s main airport. Tourism to Dubai has boomed this year, fueled by the post-pandemic travel surge. Also driving the increase is an influx of visitors from Russia, prompting Air Arabia to open three new Russian routes from Sharjah to Yekaterinburg, Kazan, and Ufa. That’s in addition to Moscow, which it’s served for many years. Its Abu Dhabi-based carrier flies to Moscow as well.

According to Cirium Diio, Air Arabia currently serves 73 cities in total from Sharjah, along with six routes from the neighboring Emirate of Ras al Khaimah. India, Pakistan, and Bangladesh are critical markets, accounting for 23 of its total destinations from the United Arab Emirates.  

Describing its second-quarter results, Air Arabia spoke of “remarkable growth” and “exceptional performance.” It said it “maintains a strong focus on cost control measures” and saw “steady customer demand” during the quarter. For the entire first half of 2023, Air Arabia flew nearly 8 million passengers, including those at its secondary hubs in Armenia, Morocco, Egypt, Armenia, and Pakistan. Load factor (the percentage of its flown seats filled with paying passengers) averaged 81%. During the half, it launched 18 new routes and added three new planes. “[The] H1 financial and operational performance underscores the resilience and effectiveness of the business model that Air Arabia follows,” the company stated in a presentation for investors.

The airline plans further growth, supported by an order for 120 new Airbus A320-family planes. These include the longer-range A321XLR Airbus will soon introduce. Air Arabia already operates nine A321LRs, also with longer-than-standard range. These have enabled more distant routes to the ASEAN region, for one, including both Kuala Lumpur and Bangkok. The LRs, and later the XLRs, will also provide options deeper into Europe and Africa. Air Arabia began the current quarter with 71 planes in total.

While confident it can continue to grow while maintaining strong profitability, Air Arabia does face lots of new competition. One of its closest rivals is FlyDubai, now with about 80 planes. Wizz Air, based in Eastern Europe, has aggressively expanded its footprint in the Middle East, operating an Abu Dhabi-based venture of its own. Jazeera Airways in Kuwait is growing, with plans for a Saudi Arabian joint venture. And speaking of Saudi Arabia, Saudia and a new state-owned airline called Riyadh Air have aggressive expansion plans underpinned by large aircraft orders. Several of the region’s major airlines, including Saudia, operate low-cost affiliates — in Saudia’s case Flyadeal. Earlier this month, Air Arabia Egypt launched a weekly route from Cairo to Yanbu in Saudi Arabia. It now flies to 12 cities in the Kingdom.  

Jay Shabat

In Other News

  • Turkey’s Pegasus, a low-cost airline, had a great second quarter. It was one of only five carriers reporting so far, in fact, that recorded an operating margin exceeding 20%. It achieved a 22% margin, more specifically, benefitting from red-hot demand among tourists visiting Turkey. They came from Europe, the Middle East, India, and more than usual last quarter from Russia. The carrier did say, however, that year-over-year unit revenue comparisons are getting tougher, and the market is becoming more “normalized” following extraordinary strength coming out of Covid. There’s still a capacity shortage, management suggested, but one that’s not as severe as it was a year ago. According to Skift Research, Turkey’s tourist market is now bigger than it was pre-Covid. Pegasus took advantage by growing its international second quarter ASK capacity 37% year-over-year, operating its largest international schedule ever, even larger than it ever operated in the ultra-peak third quarter. Ancillaries are an important part of its business model and faring well. Also essential is its business with Airbus; it now has 150 A320neos on order. Its Neos, by the way, are powered by CFM International Leap engines, not the Pratt & Whitney geared turbofan engines facing a recall.
  • Finnair CEO Topi Manner resigned last week to lead Finnish telecom and digital services firm Elisa. Manner will remain at the helm of the airline until a replacement is named or March 31, 2024, whichever comes first. Manner is recognized for successfully leading the airline through both the Covid-19 pandemic and closure of Russian airspace. The dual crises, which are particularly acute to Finnair due to its reliance on connecting East Asia with Europe, have forced the airline to pivot its network with more flights to North America, India, and the Middle East. Finnair posted a $72 million operating profit and 8.8% operating margin in the second quarter.
  • Delta Air Lines opened its new Propel Flight Academy in Florida last week. The program, a partnership with Skyborne Aviation, is the fourth pathway to flight deck careers at the Atlanta-based carrier, Delta said. The flight school, which joins similar offerings at Alaska Airlines and United Airlines, comes as the U.S. industry works to increase the supply of new pilots amid a shortage. One challenge is the cost of pilot training and certification, which can top $100,000 and take several years. Delta is offering students at the Propel Flight Academy up to $20,000 in financial assistance.
  • The Transport Workers Union and Southwest Airlines reached a tentative agreement last week that covers more than 17,000 ramp, operations, provisioning, and cargo agents. The accord, which includes wage increases as well as efficiency improvements for the airline, now goes to the employees for a ratification vote.

Edward Russell & Jay Shabat

Edward Russell

August 21st, 2023 at 12:06 AM EDT