Complex Made Simple

Is Emirates flying high again?

Emirates Group saw its net profit surge 77 per cent to Dh2.3 billion ($600 million) in the first-half of its fiscal year, according to a statement released by the company on Thursday.

“Revenues for the first six months of 2017-18 financial year rose 6 per cent to Dh49.4bbn from Dh46.5bn during the same period last year,” said the statement.

It added: “Revenue growth was strong in spite of continuing downward pressure on margins, a rise in oil prices, and other challenges for the airline and travel industry.”

But how was Emirates able to make a profit?

Read: Emirates-Etihad merger: will they or won’t they? 

Read: Emirates and flydubai: from codesharing to terminal sharing

The group said that this result was driven by capacity optimisation and efficiency initiatives across the company, steady business growth, and a more favourable foreign exchange situation compared to the same period last year.

It added that revenues were boosted in part by improved seat load factors and tight control on capacity deployment.

In other words seats were full and demand for routes was supplied.

The 2017’s financial results of the company were certainly better than the previous year.

Must Read: Time to say goodbye to Emirates Airlines’ Airbus A380

2016 Slower performance

The financial year ending March 31, 2017 was much worse, but still allowed Emirates Group to post an AED2.5bn ($670 million) profit, down 70 per cent.

According to the statement, the group reported 70 per cent decline in profitability in the year 2016-2017 as lower oil prices weighed on Arabian Gulf economies and travel demand dipped globally, cut its employee base by 3 per cent in the in last six months to 102,669.

“That was a result of natural attrition together with a slower pace of recruitment, as various parts of the business adopted new technologies, streamlined business processes and re-allocated resources,” said the company.

Sheikh Ahmed bin Saeed Al Maktoum, chairman and chief executive of the airline and the group said: “Our margins continue to face strong downward pressure from increased competition, oil prices have risen, and we still face weak economic and uncertain political realities in many parts of the world,”

“The group has improved revenue and profit performance. This speaks to the resilience of our business model, and the agility of our people,” he added.

Is there more good news for the airline coming up?

Code sharing agreement

On Sunday, October 29, Emirates and flydubai began applying their codesharing agreement. However, it will take some time to tally the results, such as measuring the frequency of codeshare flights and the demand for them and surveying what passengers are experiencing, among others.

Al Maktoum said that “This is an exciting first step in unlocking the benefits of the partnership for passengers who will have the opportunity to enjoy the unique advantages each airline offers as well as greater choice and flexibility when connecting via Dubai. This is just the start and as we expand the partner network in the coming months we will open up more opportunities for our passengers to explore the world.”

In a recent conversation with Dubai Airports Chief Executive Paul Griffiths, Reuters has reported that proposals to improve connections for passengers between the two airlines are under consideration.

“We need to make a strategic decision about how the traffic distribution will work,” he told Reuters, “Then we need to move quickly into a design and construction phase to build whatever facilities are necessary for that, or adapt existing facilities around the new business model.”

The following analysis is by Saj Ahmed, Chief Analyst at StrategicAero Research

Given the earlier impact of the travel ban which was followed up by the electronics ban and a backdrop increased competition that had slashed both yield and profit margin, Emirates’ results show the fruits of a turnaround plan that involves leveraging the strength of its network and brand alongside smaller family member, flydubai.

With over 29 million passengers catered in the first half, with a cash war-chest of $5.2bn, Emirates has been keen to plough investment into new cabins products, the first of which will be the new First Class cabin that will debut on its 777-300ERs as well as revamping its lucrative business class offerings.

As the dominant holder of the A380 backlog, Emirates unique sale and leaseback of the leviathan airplane has allowed the carrier to de-risk the ageing asset off its books so that they can be handed back to lessors – and in the meantime, the development of its next new widebody family in 777X that arrives in mid-2020 will form the replacement of both existing 777s and A380s.

Better exchanged and currency rates are key to Emirates’ 111% profit rise for the first half of the year, underscored by a rise in loadfactors to 77% on the back of revenue passenger kilometres increasing by 5 per cent.

Behind the scenes, the steady rise of fuel, offset only by its homogenous A380 and 777 fleets, delivering better economies of scale, the pressure on yields has meant that Emirates is still facing wider competitive pressures as the impact of regional capacity increases and the chase for the same traffic ebbs away at fares and makes profitability harder to attain and sustain. Emirates has been more aggressive in clamping down on capacity by standing down aircraft and the phase out of older jets has help bolster the bottom line.

Despite the challenges, Emirates’ own footprint continues to expand and with the closer working relationship with flydubai, integrating their networks and operations to better deploy resources will become an ever-more judicious process as they combat markets where excess capacity has eroded yields for everyone.