Jazeera reports $28m losses but optimistic over leasing acquisition

Chairman Marwan Boodai said “By year-end we generated KD 46 million in revenues and a net loss of KD 8.2 million on the one hand, and on the other we came out with the largest market share in our airline’s history. It was clearly a year of operational success and commercial loss.”

In 2009, Jazeera Airways became the largest operator out of Kuwait International Airport in terms of aircraft movement and flown passengers, with about one in every four passengers in Kuwait flying Jazeera Airways. Passengers increased by 32% to 1.8 million, bringing the total number of flown passengers since the airline’s first flight to 5.2 million.

On the cost-side, Jazeera Airways successfully managed its Cost per Available Seat per Kilometer (CASK) excluding Fuel, which registered below 2007 levels at 3.66 cents. This was achieved through savings in direct operating costs by 23%, crew costs by 19%, and overhead costs by 22%. Jazeera Airways also generated a sector growth of 48%, marginally higher than capacity growth of 44%, and continued aircraft utilisation at 13 hours, one of the highest in the industry.

Boodai said, “Despite our operational success, we faced significant challenges in 2009 that ranged from major operational realignment in the second quarter resulting from changes in the regional regulatory environment, to dealing with major overcapacity on the routes we operate, all while navigating through one of the toughest travel downturns in history.

“We immediately responded with a redeployment of capacity and a re-engineering of our pricing structure and network - from two hubs to one. Unfortunately, this increased the pressure on yields and impacted Jazeera Airways’ bottom line.”

  Shareholders at the AGM approved the company’s 2009 financial statements as well as the board’s recommendation to fund the acquisition of Sahaab Aircraft Leasing, announced earlier in the year, by raising the company’s capital from KD 22 million to KD 42 million through a rights issue of 200 million shares at a share price of 150 fils (par value 100 fils).

In February 2010, Jazeera Airways announced the acquisition of Sahaab as a first step execution of the airline’s phased vertical integration strategy, which is based on investing in services that enhance its commercial offerings and growth prospects.

According to a statement from the airline, the transaction immediately boosts shareholder equity and brings significant long-term value to Jazeera Airways shareholders, and provides access to local and global aircraft leasing markets that are expected to experience long-term growth. The acquisition will appear in Jazeera Airways 2010 consolidated results and Sahaab will continue to operate as a subsidiary of Jazeera Airways.

Boodai said, “The acquisition will also bring predictable revenue streams for the airline, immediate earnings, return contribution to Jazeera Airways, and stronger shareholders’ equity capitalisation. In a nutshell, Jazeera Airways now has a new stand-alone leasing platform that will help us navigate cycles and bring new revenues.

The transaction will also enable Jazeera Airways to consolidate Sahaab’s earnings beginning from January 1, 2010, adding an expected KD1.2 million in operational earnings in the first quarter of 2010.

Boodai said: “We closed the year with a well-established airline, with a great overall product, a market-leading position in Kuwait, a wide network of 24 destinations, and the highest on-time performance score in the Middle East. Moving on into 2010, our core business will continue to focus on yield optimisation, new sales channels, better network reach and strict cost control.”

“The acquisition of an aircraft leasing vehicle enables Jazeera Airways to be in control of its own destiny whenever possible, and not have its future or financial performance impeded or be at the mercy of government entities or unfavourable market conditions.”

“As we implement our strategy to build Jazeera Airways into one of the leading regional airlines in the Middle East, we look forward to returning to profitability by the end of the year.”