A slimmer Jazeera Airways has reported record profits for the three months (second quarter) to 30-Jun-2011, reversing the losses suffered in the same period last year. The carrier achieved a KWD2.2 million net profit, compared to a net loss of KD4.7 million in 2Q2010, despite battling the unrest in the Middle East and higher oil prices.
The result marks the carrier’s fourth consecutive quarterly profit and represents a dramatic overall improvement in its outlook since the introduction of its Turn-Around Plan (TAP) by CEO Stefan Pichler in May-2010.
In 2009, Jazeera slumped to its first ever full-year loss. As the global financial crisis led to a downturn in traffic and other carriers entered the Kuwaiti market, bringing in significant amounts of fresh capacity, the carrier suffered five consecutive quarterly losses.
Under the TAP, the LCC cut its workforce by 30% and reduced its fleet from 11 to six aircraft. It dropped loss-making routes and optimised its network based around a two-hour operating radius from Kuwait, following on from a more modest network revision in late 2009. The carrier now focuses almost exclusively on the Middle East and North-eastern Africa, with the sole exception in its route to Istanbul.
2011 performing above expectations
Despite the negative affects of the Arab Spring, financial and operational performances at the airline have exceeded the carrier’s expectations. During 1Q2011, the carrier estimated that it lost around 14,000 passengers due to the social unrest and set up an Emergency Response Team. Jazeera has managed to mitigate the effects over the second quarter by increasing capacity to destinations such as Dubai,Cairo, and Jeddah, which have witnessed a surge demand as alternative regional tourism destinations. Syrian traffic remains a concern for the airline and it will continue to monitor the situation.
During 2Q2011, revenue improved 63.6% year-on-year to KWD13.9 million. Against this, costs rose just 7%, to KWD11.1 million. The increase was driven primarily by fuel costs. Jazeera Airways’ average fuel price increased from USD85 per barrel in 2Q2010 to USD120 per barrel in the latest quarter, an increase of 41%. This added KWD1.1 million to the airline’s overall fuel bill.
Jazeera Airways revenue and net profit: 1Q2010 to 2Q2011
Jazeera Airways reported an average load factor of 66.6%, a 23.7 percentage point increase over the same period last year and an indication of how successful the carrier’s turnaround efforts have been. But clearly there is still room for improvement. In 2Q2011, rival Middle East LCC Air Arabia reported an impressive average passenger load factor of 82.5%.
Yields at Jazeera Airways have also increased substantially, surging by some 52% in 2Q2011 year-on-year. Overall, yield levels have nearly doubled since the end of 2009 and are expected to improve again in the third quarter, typically the busiest period for the carrier.
Jazeera Airways yields: 1Q2009 to 2Q2011
A long-term turnaround
The airline has also consciously and progressively increased its market share across its network. Jazeera Airways controls majority market share on only four of its 18 routes, but has captured more than a third of the market on another six. In May-2011, the carrier launched a new route to Cairo. By the end of Jun-2011 it had a 23% market share on the route and planning to up this to 33% market share, operating three flights per day.
The carrier has also initiated a major revision to its fleet plan, cancelling 25 of the 40 A320s it had ordered from Airbus in 2007. Deliveries of the remaining four aircraft from the order have been spaced out until the end of 2014, a remarkably slow rate of fleet expansion in comparison to most carriers in the Middle East.
During 2010, the airline also acquired full ownership of Saahab Aircraft Leasing, using it as a vehicle to deploy the unneeded capacity on profitable leases. It has leased out A320s to Virgin America and SriLankan Airlines.
Jazeera has been cutting capacity since the end of 2009. Over 1H2011, capacity is down 35% year-on-year, while passenger numbers have fallen 18%. Over the same period, yields have risen 59%. Net margins have been at double-digit levels for the past 12 months.
Jazeera Airways net margins: 1Q2010 to 2Q2011
The outlook for the remainder of the year is also positive. After a better than expected first half of the year, the carrier anticipates strong demand in 3Q2011, roughly in-line with its earlier forecasts. Jazeera expects to wrap up its turnaround plan by the end of the year, but will keep its focus on rigorous cost control and measured growth to ensure that it can sustain its run of profits.