Emirates Profit Slumps to Seven-Year Low as Oil Hits Margins

LAGOS (Capital Markets in Africa) – Emirates Group, owner of the world’s biggest long-haul airline, suffered a 44% decline in annual earnings as higher oil prices, a stronger dollar and lower occupancy levels hit margins at a time when the Dubai-based company faces increasing competition from rivals.

Net income shrank to 2.32 billion dirhams ($632 million) in the year through March, the lowest since fiscal 2012, according to a statement Thursday. Staff won’t get a bonus after the figure missed a 4.5 billion-dirham internal target, and the company reduced dividend payments to its state owner by 75%.

While all airline earnings are affected by the price of crude, the Persian Gulf giant is particularly sensitive to fluctuations. Too high, and rising fuel costs become difficult to manage, too low and demand for travel falls in the region’s oil-based economies. The carrier said last week that the sweet spot is between $50 to $60 a barrel, compared with the current level of about $70.

“Our performance was not as strong as we would have liked,” Emirates Chairman Sheikh Ahmed bin Saeed Al Maktoum said in the release. “Higher oil prices and the strengthened U.S. dollar eroded our earnings, even as competition intensified in our key markets.”

Route Rethink
Emirates is reporting earnings in a state of transition, with the carrier close to completing a review of its future network aimed at focusing on more-profitable routes and coping with the eventual exit from its fleet of the A380 superjumbo, which Airbus SE plans to stop building.

The double-decker plane’s unrivaled capacity has been a keystone of the super-hub model that’s helped Emirates dominate inter-continental flying, though the main airline unit has recently found it tough to find viable new destinations as rivals fight back with more direct flights, and saw full-year profit fall 69%.

The company will introduce a premium-economy-class offering next year to help broaden its appeal, with seats priced in the “high echelons of economy but well below business,” according to Tim Clark, the company’s president.

Demand for airfreight also ebbed, Emirates said. The Dnata ground-handling arm, by contrast, posted record earnings of 1.4 billion dirhams, aided by gains from a disposal.

Emirates revealed that employees won’t get a so-called profit-share payout in an internal staff announcement that also specified the earnings goal. The carrier, which last paid a bonus in fiscal 2018, has set no profit target for the current fiscal year, though that could change going forward, according to a spokeswoman.

Source: Bloomberg Business News