Emirates airline’s 2011 net profit down 72% on high fuel costs

1.1021019-2694533700 — Despite fundamental challenges, the group’s revenue reached a record high, climbing to Dh67.4 billion ($ 18.4 billion) an increase of 17.8 per cent on last year’s results, as per the group’s 2011-12 annual report. Image Credit: Supplied

Dubai: Emirates airline Thursday said it had suffered a 72.1 per cent decline in net profit for financial year 2011-12 owing to high fuel prices.

The airline's net profit for the financial year ended March 31 was Dh1.5 billion ($409 million) compared to the previous year net profit of Dh5.38 billion.

"The stifling cost of jet fuel impacted Emirates' bottom line with the airline's profit sitting significantly lower than the previous year," the carrier said in a statement, adding that in 2011-12 financial year Emirates' fuel bill increased by 44.4 per cent over last year to reach Dh24.3 billion.

With the carrier's operating costs increasing by 24 per cent compared to a revenue increase of 16.2 per cent over last year, Emirates said it "bore the brunt of the crippling cost of fuel for nearly one year", before reluctantly introducing a fuel surcharge on all tickets.

The airline also stated that in addition to the cost of fuel, Emirates had an "operationally challenging year with the political unrest across the Middle East and North Africa affecting flight schedules".

Carrying a record 34 million passengers last year, Emirates' seat factor, meanwhile, stood at 80 per cent.

"Managing volatile exchange rates, coupled with our highest ever fuel bill has required immense tenacity. Retaining growth and remaining profitable in these challenging economic times shows our profound understanding of the markets that we do business in," said Shaikh Ahmad Bin Saeed Al Maktoum, President of Dubai Civil Aviation and Chairman and Chief Executive of Emirates airline and Group.

But even though Emirates' profits declined, analysts are of the view the airline's results are enviable.

As Andrew Charlton of Geneva-based consultancy Aviation Advocacy, puts it: "There will be a lot of airline executives around the world looking at these figures today with some concern. It is clear that Emirates generates envy and opposition in many airlines with the apparent ease they generate profits. That will need increasing attention as its competition will not rest easy."

Echoing his views is John Strickland, director of aviation consultancy JLS Consulting.

"Emirates was hit like all airlines by fuel price rise, but very good growth in passengers and revenues is still being achieved despite tough market conditions in a number of areas," he told Gulf News.

The challenge for Emirates, though, will be to "take greater market share from a smaller market", says analyst Peter Morris, chief economist at Ascend Worldwide.

"Although Emirates with its fleet of fuel-efficient aircraft is better suited to deal with high fuel prices than other airlines, nonetheless there is a definite market impact of fuel on ticket prices, to which customers will in time react by buying less long haul travel," he said.

Well received

Further, in a tight credit environment, Emirates Group's cash balance of Dh17.6 billion ($4.8 billion) provides a strong cushion. The company said it grew its cash balance last fiscal by 9.5 per cent.

Having launched its $1 billion bond in June last year, Emirates said that the bond was well received by global investors reflecting confidence in the airline's business model despite many traditional financing partners suffering from the Eurozone debt crisis.

In addition to this, Emirates repaid a S$250 million bond in full that matured in June 2011. The bond, listed on the Singapore Stock Exchange, was originally issued in 2006 with a five-year term.

Meanwhile, revenue generated from across Emirates' six regions continues to be well balanced, the airline stated, adding that no region contributed more than 30 per cent of overall revenues.

It added that East Asia and Australasia remained the airline's highest revenue contributing region with Dh18.2 billion up 17.6 per cent from 2010-11. The Gulf, Middle East and Iran, revenue was, meanwhile, up 15.1 per cent to Dh6.3 billion, the carrier stated.

Emirates' earnings were also hurt by the grounding of its Airbus A380s due to wing cracks detection. The biggest customer of the Airbus A380 aircraft, Emirates was forced to ground almost its entire A380 fleet due to the problem.

"The loss of capacity will certainly have impacted Emirates' commercial and operational performance," said Strickland of JLS Consulting.

"Emirates has been affected by the A380 wing crack inspections and repairs more than other operators as it has the largest fleet."

Of the total order of 90 Airbus A380s, Emirates today has 21 superjumpos in service, and will be adding ten more A380s to its fleet in the current financial year ending March 31, 2013, Thierry Antinori, the airline's executive vice-president of passenger sales worldwide, told Gulf News in a recent interview. "The plan is to add ten additional A380s in this financial year," he said.

Commenting on the status of the grounded A380s, Antinori said the carrier is currently conducting checks on the wings. "We have checked some planes and some are being checked now. And for the time being, we're able to operate with our mainline fleet, including 777, A330, A340 fleet, for the flights that were supposed to have been done by the A380s put on the ground. We will have a little fewer A380s in the air for the next few weeks," he said, adding that while most of the aircraft are back in operation now, there are still a couple of them on the ground for inspection.

Fleet and route growth

Last fiscal saw Emirates receiving 22 new aircraft, its highest in any single year, according to the airline, adding 11 new destinations and increasing capacity to 34 cities.

Continuing its aggressive growth, Emirates has 171 planes in its fleet at present, with another 232 on order worth $84 billion at list prices (Dh308.49 billion).

The airline launched 11 new destinations in 2011-12 and is laying strong focus on US routes. The first quarter of the year saw Emirates launching Rio de Janeiro, Buenos Aires, Seattle and Dallas-Fort Worth. And Washington D.C. will be added to the airline's network in September this year.

Shaikh Ahmad said earlier this month that expanding to any big city on the US was a possibility for Emirates, including to Chicago and Florida. "Like other carriers, Emirates has been hit hard by surging fuel bills and also by the provision it now has to make for the controversial ETS [emissions trading scheme].

"While there's no immediate concern about profitability becoming losses, there will be pressure either to expand faster and recover economies of scale, or it will have to expedite the retirement of some of its less efficient airplanes, such as the A330-200s, A340-300s, A340-500s, 777-200As, 777-300s and 777-200ERs," said aviation analyst Saj Ahmad of StrategicAero Research.

Performance: Emirates' annual results