Emirates profit falls after 'turbulent year’

Dubai: Emirates airline reported on Thursday an 82 per cent year-on-year plunge in its net profits, citing “a turbulent year for aviation and travel.” Profits reached Dh1.3 billion for the financial year ended March 31, 2017.

The airline’s revenues remained stable at Dh85.1 billion during the year, as it carried 56.1 million passengers, up eight per cent over the previous year.

Commenting on Emirates’ performance, His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, tweeted: “We are very proud of our national company, which successfully reinvented the concept of travel, becoming the world’s top company in the aviation sector as millions of passengers can testify. Our national company is one of the UAE’s greatest assets and it reflects our ability to compete on the global stage in spite of all challenges.”

In a statement, Shaikh Ahmad Bin Saeed Al Maktoum, President of Dubai Civil Aviation and Chairman and CEO of Emirates airline and Group, said 2016-2017 was one of the company’s “most challenging years to date”.

“We remain optimistic for the future of our industry, although we expect the year ahead to remain challenging, with hyper competition squeezing airline yields, and volatility in many markets impacting travel flows and demand,” he said.

Shaikh Ahmad also cited “destabilising events” that impacted travel during the past year from “the Brexit vote to Europe’s immigration challenges and terror attacks, from the new policies impacting air travel into the US, to currency devaluation, and funds repatriation issues in parts to Africa.”

Policies impacting air travel into the US include the recent ban announced in late March on carry-on electronics devices from direct flights from the UAE, Qatar, Kuwait, Saudi Arabia, Egypt, Jordan and Turkey.

The US also earlier this year issued a ban blocking entry of citizens from certain Muslim-majority countries. (The executive order behind the ban has been blocked, however, by various courts in the US, but has dampened sentiment towards travelling there.)

Emirates has since announced it would introduce a service loaning tablets to US-bound First and Business Class customers.

“No matter what the remedies put in place, the bans are an added hassle factor. What is worrying is that no timeline for remedies or reduction of bans exists, and the rules for US, UK, Europe are clearly anomalous. The regional airlines’ US markets are particularly hit by the bans of restrictions …” said Peter Morris, chief economist at Ascend, a UK-based aviation consultancy.

He added that most airlines globally are finding results less profitable compared to last year as the operating environment becomes more challenging.

“Costs have risen and yield weakened. Emirates [is] no exception. Going forward, profits will be challenged further if the unstable political environment continues. This is particularly so if visa and tourism bans and restrictions impact heavily on previously-profitable markets,” Morris said.

Emirates said its passenger yield dropped in the past year to 24.7 fils due to pressure from the weakening of all major currencies against the US dollar.

The carrier said that the “relentless rise of the US dollar” against currencies in most of Emirates’ key markets had a Dh2.1 billion impact on revenues and on its bottom line.

Fuel bill

Another challenge Emirates’ chairman pointed was the “continued knock-on effect of a sluggish oil and gas industry on business confidence and travel demand.”

According to its statement, Emirates’ total operating costs increased by 8 per cent year-on-year, with fuel remaining the biggest cost component for the airline. Though average jet fuel prices fell slightly during the year, Emirates’ fuel bill increased by 6 per cent to Dh21 billion due to capacity increase. Fuel is now 25 per cent of the airline’s operating costs, compared to 26 per cent in 2015-16, Emirates said.

Revenue drivers

Meanwhile, Europe was the highest revenue-contributing region, with Dh23.9 billion in airline revenues coming from the continent, unchanged from a year earlier. East Asia and Australasia followed, with Dh22.6 billion in revenues (up 1 per cent year-on-year).

The carrier received 35 new aircraft during the year, comprising 19 Airbus A380s and 16 Boeing 777-300ERs (extended range). It also phased out 27 older aircraft, bringing Emirates’ total fleet count to 259 at the end of March 2017.