a man takes a selfie in front of a new Etihad Airways A380. The Abu Dhabi-based carrier attributed the losses to one-off impairment charges and fuel hedging losses. The $1.9 billion in impairments were mostly from a $1.06 billion charge on aircraft. Image Credit: AP

Dubai: Etihad Airways said it expected to continue facing headwinds in 2017 on the back of a challenging environment for the global aviation industry as the carrier reported $1.87 billion (Dh6.86 billion) in net losses for 2016.

The losses for the year mark a significant plunge from the $103 million in profits recorded in 2015. The plunge was due mainly to $1.9 billion the airline paid in impairments.

In a statement, the Abu Dhabi-based carrier attributed the losses to one-off impairment charges and fuel hedging losses. The $1.9 billion in impairments were mostly from a $1.06 billion charge on aircraft.

There was also an $808 million charge on certain assets and exposures to equity partners, mainly related to airberlin and Alitalia, the Italian carrier that went into administration in May.

Ray Gammell, Etihad’s interim group chief executive officer, said in a statement that the “ever-evolving competitive environment is likely to impact overall performance in 2017.”

In terms of revenues, Etihad reported $8.36 billion in total revenues in 2016, a 7 per cent decline over the $9 billion in revenues recorded in 2015. Passenger numbers, however, rose to 18.5 million in 2016 from 17.6 million a year earlier, the airline said.

Strategic review

Etihad said it is continuing to “implement changes across the group as part of the comprehensive strategic review, with a focus on improving revenues and reducing costs.” The carrier did not provide details on how it plans to raise revenues or cut costs.

It is currently in the midst of a strategic review that includes reviewing its investments in European carriers Alitalia and airberlin, in which Etihad owns a 49 per cent and a 29 per cent stake respectively.

“A culmination of factors contributed to the disappointing results for 2016. The board and executive team have been working since last year to address the issues and challenges through a comprehensive strategic review aimed at driving improved performance across the group, which includes a full review of our airline equity partnership strategy,” Mohammad Al Mazroui, chairman of the board of Etihad Aviation Group, said in a statement.

Peter Baumgartner, chief executive officer of Etihad Airways, said the aviation industry was facing “overcapacity, declining market sizes on key routes, and changing consumer behaviour as a weak global economy affects spending appetite”.

“Yields were under pressure in all cabins, with business class impacted particularly as corporate travel policies continued to encourage flyers to downgrade to economy. Our fuel hedging position, which helped manage fuel spend during the oil price boom yet significantly impacted our cost base last year, will taper during 2017,” Baumgartner said in a statement.

The losses come amid challenges facing airlines including those in the region. In May, Dubai-based Emirates airline reported an 82 per cent year-on-year decline in its net profits, citing “a turbulent year for aviation and travel.”

Analysts agree with the general sentiment about prevailing challenges in the aviation industry.

Peter Morris, chief economist at Ascend, a UK-based consultancy, said Etihad will face challenges this year both from its own operations and from its investments in other carriers, namely Alitalia and airberlin.

“The challenges that those individual business models have; one at a low-cost level and one at a national carrier level, are just too much to be facing at the same time as the challenges you’ve got in your core business, so I think a period of retrenchment is called for,” he said.

Morris cited slower demand, impact of exchange rates, and US policies impacting travel from the Middle East as some of the challenges facing Etihad’s core business.

“So many of [those challenges] are driven by the overall economic and political environment, so it’s not within your control. What you’ve got to do is scale your business according to those constraints, and that probably involves… just retrenching to make sure you have the best routes and the best yields you can given the circumstances,” he said.