Air Arabia’s numbers script a high growth story - its stock could be next beneficiary
DFM listed Sharjah airline will be looking to get same bounce from its stock too
The UAE tourism industry contributed a whopping Dh220 billion ($60 billion) to GDP in 2023, making up 11.7 per cent of the economy. Forecasts provide for even more growth in 2024, to a staggering Dh236 billion ($64 billion) and increasing its GDP share to 12 per cent.
This isn't just boosting the economy, it's creating jobs too, with 809,000 in 2023 and potentially rise to 833,000 this year.
The UAE’s tourism strategy has set a target of its GDP contribution clearing Dh450 billion ($123 billion) by 2031; attract Dh100 billion in investments; and welcome 40 million hotel guests over the next decade.
In the latest rankings from AirlineRatings.com, the Gulf has three airlines within the world’s Top 10, with Qatar Airways, Emirates, and Etihad securing the first, fifth, and eighth positions, respectively. Within the realm of low-cost carriers, flydubai and Flynas have secured spots in the Top 25. The surge in tourism is presenting a plethora of opportunities, and Sharjah International Airport is capitalizing on this wave of growth.
A gateway to success
Passenger numbers at Sharjah International Airport are skyrocketing, with a 10 per cent increase recorded in the first quarter of 2024. It handled over 4.2 million passengers and recorded 26,473 flight movements. This surge, despite Ramadan falling in the first quarter, is a testament to the airport’s services that have significantly boosted passenger confidence.
In 2023, the airport handled 15.3 million passengers—a 17.4 per cent increase from 2022—alongside a 12 per cent rise in air traffic, totaling over 98,000 flight movements. The addition of seven new destinations, including Kuala Lumpur, Bangkok, and Phuket, fueled the impressive growth.
With a massive $650 million expansion underway, the airport is gearing up to handle 25 million passengers annually by 2027. This includes a major terminal upgrade costing Dh1.2 billion), positioning Sharjah International Airport as a central hub in the region.
Air Arabia’s stock
Air Arabia, a low-cost carrier, is poised to benefit from this growth. The airline experienced robust passenger demand and revenue growth of 13 per cent and 8 per cent, respectively, in Q1-2024, carrying over 4.4 million passengers with an average seat load factor of 85 per cent.
It did face some turbulence in Q12024, including a 22 per cent drop in net profit to Dh266 million due to seasonal shifts during Ramadan, higher fuel prices, currency fluctuations, and ongoing aircraft supply chain woes. The market reacted to these turbulences, with Air Arabia’s stock price dropping nearly 20 per cent from its March 2024 high of Dh2.99 a share.
The fall in stock price could be a compelling opportunity for investors. Should the dollar retreat amid expectations of rate cuts by the US Federal Reserve, the currency-related headwinds Air Arabia faces could soon transform into tailwinds, more so if oil prices also decline.
Potential tailwinds
Air Arabia is well-positioned to benefit from the two Eid holidays in Q2 2024. The first, a 9-day Eid break in April, and the 5-day break this month, are likely to drive robust growth in travel demand, boosting revenues and, consequently, its stock price.
July is historically a strong month for Air Arabia, with an average stock growth of 6.54 per cent. Over the past 15 years, the stock has gained in 12 years during July, with a maximum gain of 29.9 per cent and a maximum loss of 6.5 per cent. This trend is supported by high travel demand during peak summer months.
Currently trading near October 2023 lows at Dh2.4, Air Arabia’s stock finds strong support in the Dh2.20-Dh2.33 price zone—a significant resistance area between May 2022 and May 2023. The next support level is around Dh2, making the current levels attractive for long-term investors.
Skyrocketing potential
In 2023, Air Arabia added 26 new routes and received 10 new aircraft, expanding its fleet from 16 Airbus planes in 2008 to 73 in 2023. Operating over 200 routes across the MENA region, Asia, and Europe, the airline’s revenue tripled from Dh1.85 billion in 2020 to Dh5.99 billion in 2023. The company's profitability has surged 50 per cent over the last four years.
With 120 new Airbus A320 family aircraft on order, set for delivery starting in 2025, and a recent approval to distribute a 20 per cent cash dividend for 2023, Air Arabia is poised for sustained growth. Offering an impressive dividend yield of 8.4 per cent, the company is quite a standout…