Air Arabia: revenue accelerated to +13.4%, but profit fell 40.3% as margin normalised from a strong base

Air Arabia reported third-quarter 2026 results: revenue rose 13.4% year on year to AED 2,318.0 mn, after a 0.2% decline in the second quarter – growth accelerated. Net profit, however, came in at AED 347.5 mn, 40.3% below a year earlier, and the net margin compressed to 15.0% from 28.5%. Our conclusion: rather unattractive – on the portal's model the share trades 21% above its estimated fair value, and EV/EBITDA of 17.1 is more than double its own three-year average of 8.4. Our view: the share is rather unattractive at the current price; upside on the portal model -21%.

Our view: is there upside

Our view in numbers

Key takeaways

— Revenue rose 13.4% after a 0.2% decline in the second quarter – an acceleration, but profit did not follow

— Net margin compressed to 15.0% from 28.5% – the year-ago base was exceptionally high

— Operating profit of AED 264.7 mn on revenue of AED 2,318.0 mn – an operating margin of 11.4%

— Free cash flow is negative: operating cash flow of AED 707.2 mn did not cover capital expenditure of AED 869.1 mn

— Net debt rose from AED 0.8 bn on 30 September 2025 to AED 1.5 bn on 30 September 2026

— Dividend yield of 5.9% rests on a payout funded by profit from earlier periods

— EV/EBITDA of 17.1 versus its own three-year average of 8.4 – a 103% premium to history

Key figures, AED bn

Revenue rose 13.4% after a 0.2% decline in the second quarter – an acceleration, but profit did not follow

In the third quarter of 2026 Air Arabia's revenue reached AED 2,318.0 mn, 13.4% more than a year earlier. In the second quarter the dynamics were negative – minus 0.2% – so growth accelerated. Over the trailing twelve months revenue reached AED 8,100.0 mn.

The revenue acceleration did not translate into profit: quarterly net profit fell 40.3% to AED 347.5 mn. Operating profit was AED 264.7 mn, or 11.4% of revenue. The gap between revenue and profit dynamics is explained primarily by the comparison base: the year-ago quarter was exceptionally strong.

Net margin compressed to 15.0% from 28.5% – the year-ago base was exceptionally high

The net margin in the third quarter of 2026 was 15.0% versus 28.5% a year earlier. The near-halving is explained not so much by the absolute decline in profit as by the high base of the previous year: profit then was disproportionately large relative to revenue.

The operating margin in the reported quarter was 11.4% of revenue. With revenue of AED 2,318.0 mn, operating profit of AED 264.7 mn leaves a visible gap to net profit of AED 347.5 mn – net profit exceeds operating profit. This means there are below-the-line items supporting net profit.

Operating profit of AED 264.7 mn on revenue of AED 2,318.0 mn – an operating margin of 11.4%

Operating profit for the third quarter of 2026 was AED 264.7 mn on revenue of AED 2,318.0 mn. That is 11.4% of revenue – a level noticeably below last year's, when the quarter was exceptionally strong.

Quarterly EBITDA was AED 480.2 mn, and AED 1,426.9 mn over the trailing twelve months. The difference between EBITDA and operating profit is depreciation, a substantial line for an airline with a large fleet. It is operating profit, not EBITDA, that shows what remains after all operating costs.

Free cash flow is negative: operating cash flow of AED 707.2 mn did not cover capital expenditure of AED 869.1 mn

Operating cash flow in the third quarter of 2026 was AED 707.2 mn, capital expenditure AED 869.1 mn. Investment spending exceeded operating cash flow, so free cash flow for the quarter was negative. Over the trailing twelve months operating cash flow was AED 2,442.3 mn.

Negative free cash flow means the company funded investment not only from current operations. This is consistent with the rise in net debt: from AED 0.8 bn on 30 September 2025 to AED 1.5 bn on 30 September 2026, i.e. by AED 0.6 bn over the year. Over the quarter debt rose from AED 1.0 bn on 30 June 2026 to AED 1.5 bn on 30 September 2026.

Net debt rose from AED 0.8 bn on 30 September 2025 to AED 1.5 bn on 30 September 2026

Net debt on 30 September 2026 was AED 1,491.5 mn. A year earlier, on 30 September 2025, it was AED 0.8 bn, so it rose by AED 0.6 bn over the year. Over the quarter debt increased from AED 1.0 bn on 30 June 2026 to AED 1.5 bn on 30 September 2026.

The ratio of net debt to trailing-twelve-month EBITDA is 1.05. That is a moderate level for an airline, but it reflects both the rise in debt and the decline in EBITDA from last year's peaks. Leverage remains manageable, yet negative free cash flow means that without an improvement in operating profitability debt may continue to grow.

Dividend yield of 5.9% rests on a payout funded by profit from earlier periods

The trailing-twelve-month dividend yield is 5.9%. The payout rests on profit from earlier periods, when the quarterly margin was significantly higher: trailing-twelve-month net profit is AED 1,074.6 mn, whereas in the third quarter of 2026 it was only AED 347.5 mn.

Our estimate of the current-year dividend is a question not so much of yield as of the sustainability of the base. With a net margin of 15.0% and negative free cash flow, a payout of the previous size requires either sustained high profit or a further increase in debt. A yield of 5.9% looks attractive against the current price, but it does not offset the premium to fair value on the portal's model.

EV/EBITDA of 17.1 versus its own three-year average of 8.4 – a 103% premium to history

Trailing-twelve-month EV/EBITDA is 17.1 versus its own three-year average of 8.4. That is a 103% premium to history – the share is valued substantially above its usual level. Trailing-twelve-month P/E is 22.3, which also implies high expectations.

On the portal's model the share's fair value is 21% below the current market price. The model uses EBITDA growth and a target multiple; at current EBITDA and price it points to overvaluation. Market capitalisation is AED 23,940.2 mn, which against trailing-twelve-month EBITDA of AED 1,426.9 mn gives a high multiple.

Valuation on the latest reported figures

Bottom line

The strong side of the report is the acceleration of revenue to 13.4% after the second-quarter decline and moderate leverage of 1.05 net debt to EBITDA. The weak side is the 40.3% fall in net profit and the compression of the margin to 15.0%, as well as negative free cash flow funded by rising debt. The 5.9% dividend yield is attractive, but it rests on profit from earlier periods and does not offset the overvaluation. Our conclusion: rather unattractive – on the portal's model the share trades 21% above its estimated fair value, and EV/EBITDA of 17.1 is more than double its own three-year average of 8.4. Our view: the share is rather unattractive at the current price; upside on the portal model -21%.