Budget carrier flydubai posted a 60 per cent drop in 2015 net profit on Wednesday, as tough market conditions, the airline's fuel hedging policy and the impact from a stronger dollar outweighed higher revenue.

Flydubai made a net profit of Dh100.7 million ($27.4 million) in 2015, down from Dh250 million a year earlier, according to a bourse statement in Dubai.

The airline said its overall yield in terms of per revenue passenger kilometre (RPKM) - a leading gauge in the industry - was pressured by factors including the strong dollar and the cost of launching new routes.

The UAE dirham is pegged to the dollar, which has been recently trading at multi-year highs against a number of global currencies, and this strengthening makes tickets booked in other currencies comparatively more expensive.

Among the largest impact from this was the reduction in passenger numbers between Russia and Dubai, which fell 22 per cent on the year.

Passenger numbers were also impacted by the suspension of some routes by the airline. In January 2015, the airline halted flights to Iraq for a month after one of its aircraft was hit by small arms fire upon landing in Baghdad.

However, the number of passengers carried by flydubai rose 24.7 per cent to 9.04 million in 2015, aided by the launch of 18 new routes which took total destinations to 90.

This helped lift revenue 11.4 per cent to Dh4.9 billion.

Ghaith Al Ghaith, chief executive officer (CEO) of flydubai, added: “The overall trading environment has remained challenging but we have maintained our growth story and ended the year positively.  Our robust passenger growth of 30 per cent in terms of RPKM, underlines the demand for travel within our geographic focus; the continued appeal of Dubai as a destination; and the popularity of our service.”

While fuel expenses dropped to 30.3 per cent of operating cost, profitability was further dragged by fuel price hedging on 41 per cent of its fuel.

Fuel hedging is a contract that airlines use to reduce exposure to volatile and potential rises in fuel costs. If the oil price falls below the hedged level though, the airline is forced into taking an accounting loss against the difference.

Oil prices continued to slump during 2015, hitting what was a more than 11-year low in December.

Flydubai has hedged 16 per cent of its fuel requirements for the next 24 months. - Reuters