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Flydubai returns to profit in 2019, but says Max grounding ‘significantly impacted’ growth

Flydubai returns to profit in 2019, but says Max grounding ‘significantly impacted’ growth

The airline reported a 2.6 per cent drop in revenues, while passenger numbers fell by 12.7 per cent

Dubai-based airline flydubai has reported a full-year profit for 2019, after it posted a loss in 2018, although revenues were weighed down by the grounding of the Boeing 737 Max.

The airline reported a profit of Dhs198.2m, compared to a loss of Dhs159.8m in 2018. However, revenues fell to Dhs6bn, down 2.6 per cent from Dhs6.2bn in 2018.

The total number of passengers carried also fell to 9.6 million, a decline of 12.7 per cent from 11 million in 2018.

Ghaith Al Ghaith, CEO at flydubai, blamed the grounding of the Boeing 737 MAX for heavily impacting operations.

“We have had to manage a number of unprecedented issues faced by the aviation industry. Our results demonstrate that we have capitalised on the strong fundamentals in our business, but it is regrettable that our growth strategy has been significantly impacted by the grounding of the Boeing 737 Max.

“While 2019 has seen a return to profitability it does not reflect the loss of market position and the unfilled opportunities flydubai could have exploited,” he added.

The airline was forced to ground all 14 of its Max jets last year – constituting roughly 10 per cent of its fleet – and 19 per cent of its flying schedule has been cancelled as a result of the move.

Al Ghaith confirmed that the airline has reached an interim agreement with Boeing for compensation, which helped boost the 2019 results.

“We have concluded an interim settlement agreement with Boeing for certain compensation due to flydubai in relation to the grounding of the Boeing 737 Max. The details of the interim settlement agreement remain confidential. This agreement has contributed towards this year’s results, but in no way can it compensate for the loss of business opportunity or market share experienced by the airline.

“Discussions are continuing between the parties regarding the ongoing impact of the grounding.”

The airline also confirmed that fuel costs constituted for 25.8 per cent of total annual operating costs – down from 30 per cent in 2018 – mainly due to a drop in the average price of jet fuel by 9 per cent.

“The efficiency gains expected from the Boeing 737 Max have not been realised with the continued grounding,” it said.

Francois Oberholzer, CFO at flydubai, said: “We have had to be even more flexible with the abrupt interruption of our growth and fleet strategy. We have kept a firm grip on the business against the continued uncertainty created by the grounding. Direct operating costs reduced by 17.8 per cent, while we saw double digit growth in our yields minimising the reduction in revenue to 2.6 per cent compared to a fall in capacity of 15.8 per cent.

“Furthermore, we successfully refinanced our debut 2014 sukuk during this financial year.”

Looking ahead, the outlook remains “challenging”, the airline said.

“The preparation for this year’s outlook statement is challenging given the uncertainty around the timetable for the return to service of the Boeing 737 Max aircraft and the subsequent aircraft delivery schedule,” the statement said.

“With a current fleet size of 42 aircraft our ability to launch new routes and add frequencies will continue to be severely impeded. In order to further minimise disruption to our passengers’ travel plans we are currently exploring options to extend the term for the lease of aircraft that were due to leave our fleet in 2021.”

The current spread of the coronavirus is also likely to impact flydubai’s operations, opined Saj Ahmad, chief analyst at StrategicAero Research.

“With an earlier Ramadan and no summer impact of runway works that were seen in 2019, flydubai will no doubt take steps to manage capacity against demand with the virus impacting passenger travel patterns. The fallout has been contained in the GCC thus far, but it’s too early to tell whether flydubai will need to stand down any of its current fleet in sizeable numbers for a prolonged period of time,” he said.

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