Flydubai reduces losses, despite Boeing 737 Max restrictions

The ongoing grounding of the Boeing 737 Max aircraft continues to impact Flydubai’s operations and profit, with the carrier announcing a half-year loss of $53.6 million (AED196.7m) – a 38 percent reduction compared to H1 2018.

To date, the airline has taken delivery of 11 Boeing 737 MAX 8 and three Boeing 737 MAX 9 aircraft, all of which Flydubai continues to maintain while grounded. With a total of 251 on order from Boeing, Flydubai had expected to have at least double that number of aircraft in its fleet, and to have expanded its network to new and existing markets. 

Instead, the airline is facing the possibility of returning to its 2014 level in terms of fleet, according to Ghaith Al Ghaith, CEO at Flydubai.

“Our performance has however been significantly impacted by the grounding of the Boeing 737 MAX aircraft and our half-year results are not representative of what we had expected to report; we were expecting a significantly improved performance,” said Al Ghaith.

“Without any deliveries of new aircraft and no visibility of the timelines, we will see our operating fleet reduce in size to what it was in 2014. This is disappointing.

“We are in ongoing discussions with Boeing, as our long-standing partner, to resolve the unprecedented nature of this grounding and the significant impact it has had on our business and growth strategy. If the grounding continues until the end of the year we expect our performance to continue to be impacted,” he added. 

Flydubai chairman Sheikh Ahmed said in April this year that it will seek compensation from Boeing, and that the airline is now exploring the option of modifying its $27 billion order place in 2017. 

“That [the groundings] gives me an option to talk to Airbus,” Sheikh Ahmed said. “I have to leave that option. I can’t just not do anything about it.”

With five aircraft retired so far this year, and a further four planned later this year, Flydubai has managed to negotiate an extension to the lease for two Next-Generation Boeing 737-800 aircraft, which were due to leave the fleet in 2020, and will now leave in 2022.

Flydubai said it will continue to explore short to medium-term leasing options including aircraft, crew, maintenance & insurance (ACMI) as it looks to optimise its schedule and minimise disruption over the upcoming holiday period.

Reduced capacity

The half-year figures announced today reflect a reduced capacity. Available seat kilometres (ASKM – a measure of passenger carrying capacity) was down 14.9 percent compared to the period ending June 30, 2018. This reduction in capacity saw passenger numbers dropping to five million in the first six months, a decrease of 7.5 percent.

Despite the fleet constraints, Al Ghaith said, “We had seen positive results as our routes matured and during the first few months of the year we saw strong demand across the network.”

Francois Oberholzer, the airline’s chief financial officer, said in light of the grounding, Flydubai has, “taken every effort to minimise flight cancellations and maximise revenue opportunities”. 

“Unavoidably, this led to a reduction in ASKM by 14.9 percent which meant that we were not able to fully exploit demand opportunities. The cost efficiency programmes we introduced at the beginning of the year have yielded the planned benefits with the exception of the fuel efficiencies from the MAX deployment plan.  These programmes were never intended nor could have offset the financial impact of the grounded Boeing 737 Max aircraft,” Oberholzer said.

Some of those cost efficiencies were achieved in fuel costs, traditionally one of the highest costs airlines face. Flydubai reported fuel costs of AED740m ($201.5m) – a decrease of 17.3 percent on 2018 – achieved through lower fuel prices and reduced ASKM.

Flydubai said the full potential saving has not been realised due to the deployment of the Next-Generation Boeing 737-800 aircraft on its longer routes.

The airline’s ancillary revenue, comprising baggage, cargo and inflight sales, is reported at AED 249 million ($68 million) – compared to AED 263 million ($72 million) in the same period in 2018 – similarly reflecting the reduced passenger numbers.

Flydubai will relocate a further seven flights to Terminal 3 from October 27, as it grows its cooperation with Emirates airline. Flights to Almaty, Basra, Dar es Salaam, Kilimanjaro, Nur-Sultan, Sofia, and Zanzibar will operate from T3, giving increased connectivity for passengers.

Flydubai also plans to launch daily flights to the Thai destination Krabi from December 10, which will be operated via a stop in Yangon in Myanmar. 

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