DUBAI: Budget carrier flydubai, which does not hedge its fuel costs, is being hit by persistently high oil prices which have left it more exposed to short-term volatility than rival carriers, its chief executive said.
High fuel prices have crimped global airline profits, compounding the impact of slower global growth and waning consumer confidence.
Oil hit a two-month high above $116 a barrel in the past week, with year to date gains at 8.4 percent. Fuel accounts for about 40 percent of an airline’s operating cost.
"Fuel has never been so high for so long," Ghaith Al-Ghaith, the head of the Dubai-based carrier, told Reuters. "We’ve not done any hedging in flydubai because you forget we are not even three years old yet, so we are still growing."
Ghaith said the carrier, which began commercial flights in 2009, is considering several hedging instruments and would put them in place next year, depending on fuel prices.
"Anything above a $100 for fuel is not healthy for the airline," he added. "The impact is very strong of course, but we have raised our prices, like everyone."
During the Dubai Air Show, the carrier secured financing for two Boeing 737 jets and will take delivery of them in early 2012. That will bring its fleet, all made up of the 737s, to 23 with four more scheduled for delivery during 2012.
The deliveries are part of flydubai’s 2008 50 Boeing aircraft order. All the aircraft are expected to be delivered by 2016.
Aircraft financiers, especially European lenders, have become more risk averse because of the crisis in the euro zone, pushing giants such as Emirates to look to the more resilient Islamic finance market.
But flydubai’s chief executive said the airline received "overwhelming interest" from lenders.
Government-owned flydubai competes with regional low-cost carriers such as United Arab Emirates-based Air Arabia and Kuwait’s Jazeera Airways.
The unlisted carrier flies to secondary airports within a five-hour radius of Dubai, and has seen resilient demand.
"We are almost doubling in size over last year … margins are very good. We are on plan to make money (profit) by the end of next year," Ghaith said.
