Emirates Profits Down 75% Since March Due To Dampened Travel Demand

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Emirates has published its financial data and reported a 75% drop in net profit which they attribute to a dampened travel demand amid economic slowdown.

ek-a380-copy-2At the same time, the popular ME3 carrier also reported increased operating costs, yet the overall profit is impressive compared to the broad industry.

Even though 75% is a massive number, Emirates is also a massive company so the remaining 25% is still a very healthy number and the financial reports show.

You can follow these latest updates at Arabian Business (access here).

Emirates airline has reported a 75 percent drop in net profit in the first half of the 2016-17 financial year – attributed to economic uncertainty and subdued travel demand.

The airline’s net profit was AED786 million ($214 million), down 75 percent from the same period last year, when Emirates reported one of its best half-year performances.

Revenue including other operating income was AED41.9 billion ($11.4 billion) was down by 1 percent compared with AED42.3 billion ($11.5 billion) in the first half of last year, Emirates said.

Its operating costs grew by 5 percent against an overall capacity increase of 9 percent. On average, fuel costs were 10 percent lower compared to the same period last year, according to the half-year financial statement. However, fuel remained the largest component of the airline’s cost, accounting for 24 percent of operating costs compared with 28 percent in the first six months of last year, Emirates said.

Meanwhile, overall capacity during the first six months of the year rose by 9 percent to 30.2 billion available tonne kilometres (ATKM).

Emirates also reported a 9 percent increase in passengers compared to last year, up to 28 million passengers between 1 April and 30 September. The volume of cargo remained stable at 1.3 million tonnes, it said.

The aviation industry is a cut throat business and having such profit margins means that Emirates management must be doing something right even though business might have slowed down to a certain degree.

Of course there is still the controversy about government subsidies in regards to fuel and airport fees.

The airline attributed the drop in profit and revenues to the unfavorable currency environment and increased competition resulting in lower average fares.

In particular, it was impacted by currency devaluation and hard currency shortage in some African countries, as well as dampened travel demand due to ongoing economic uncertainty and security concerns across several markets in its network, the statement said.

Emirates, along with the other ME3 carriers, are often accused of receiving generous government subsidies that distort their operational success and allow them to post profits while the competition is under pressure. I only agree with this assessment to a limited degree. Especially in the case of Emirates, the carrier has been established for a long time and was able to build a huge customer base with a solid product.

I think that out of all the Middle East carriers, Emirates provides the best product in terms of service, classes, and ground amenities, with the only downside being the lack of an alliance membership (especially from a frequent flyer point of view).

That a state carrier receives certain benefits shouldn’t surprise anyone and not all countries have laws prohibiting a direct influx of funds or other tangible benefits. One could argue that even the existence of Chapter 11 bankruptcy protection in the U.S. and the protectionist policies of governments in the EU (such as in Germany) are somewhat of a subsidy.

Conclusion

A company can’t grow forever, especially after expanding their network at a pace which Emirates did over the past few years. Considering that the carrier moves mostly hub traffic and constantly has to explore new markets, I’m positively surprised about their ongoing performance.

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