Emirates reports 69% profit drop as high oil prices, strong dollar hit earnings

Dubai-based Emirates airline reported a 69 per cent drop in full-year profit on Thursday, blaming higher oil prices, a strong dollar and increasing competitive pressure for the drop in earnings.

The airline made a net profit of Dhs871m ($237m) in the year to March 31, compared with Dhs2.8bn in the previous year. Revenues during the 2018-2019 fiscal year increased by 6 per cent to Dhs97.9bn ($26.7bn).

“The relative strengthening of the US dollar against currencies in many of Emirates’ key markets had an Dhs572m negative impact to the airline’s bottom line, a stark contrast to the previous year’s positive currency impact of Dhs661m,” the airline said in a statement.

Total operating costs increased by 8 per cent over the 2017-18 financial year, with the average price of jet fuel climbing by a further 22 per cent during the period after last year’s 15 per cent increase.

With the airline boosting capacity by 3 per cent, its fuel bill increased “substantially by 25 per cent” over last year to Dhs30.8bn.

“This is the biggest-ever fuel bill for the airline, accounting for 32 per cent of operating costs, compared to 28 per cent in 2017-18. Fuel remained the biggest cost component,” the statement added.

Read: Emirates chairman: ‘I always want to see the price of oil below $60’

Overall passenger traffic remained steady, as Emirates carried 58.6 million passengers – up 0.2 per cent, during the period.

With seat capacity increasing by 4 per cent, the airline achieved a passenger seat factor of 76.8 per cent, down slightly from 77.5 per cent last year.

The slight decline in passenger seat factor “reflects the impact of slowing regional economies on travel demand, and strong competition in many markets”, the statement said.

During the year, the airline said it raised Dhs14.2bn to fund its fleet growth, using a combination of term loans, finance and operating leases.

It closed the financial year with a Dhs17bn ($4.6bn) of cash assets.

Sheikh Ahmed bin Saeed Al Maktoum, chairman and CEO, Emirates Airline and Group, said: “2018-19 has been tough, and our performance was not as strong as we would have liked. Higher oil prices and the strengthened US dollar eroded our earnings, even as competition intensified in our key markets.

“The uptick in global airfreight demand from the previous year appears to have gone into reverse gear, and we also saw travel demand weaken, particularly in our region, impacting both dnata and Emirates.

“Every business cycle is different, and we continue to work smart and hard to tackle the challenges and take advantage of opportunities.”

In terms of its fleet, Emirates received 13 new aircraft during the financial year, comprising of seven A380s and six Boeing 777-300ERs, including the last 777-300ER on its order book.

The next 777 delivery is planned for 2020, when Emirates receives its first 777X aircraft.

Read: Emirates to retire seven B777 jets, take delivery of six Airbus A380s in 2019

During 2018-19, Emirates also phased out 11 older aircraft, bringing its total fleet count to 270 at the end of March.

This fleet roll-over involving 24 aircraft was again one of the largest managed in a year, keeping Emirates’ average fleet age at 6.1 years.

In February, Emirates also announced a commitment for 40 A330-900s and 30 A350-900s worth $21.4bn at list prices in an agreement signed with Airbus, to be delivered from 2021 and 2024 respectively.

The airline will also receive 14 more A380 deliveries from 2019 until the end of 2021, taking its total A380 order book to 123 units.

Dnata

For 2018-19, dnata recorded its most profitable year with Dhs1.4bn ($394m) profit. This includes gains from a one-time transaction where dnata divested its 22 per cent stake in the travel management company Hogg Robinson Group (HRG), during HRG’s acquisition by Amex Travel Business Group. Without this one-time transaction, dnata profits will be down 15 per cent compared to the same period last year.

The company’s total revenue rose 10 per cent to Dhs14.4bn, with growth reported across its four business divisions – both organic through customer retention and new contract wins; as well as via its new acquisitions.

Dnata’s international business now accounts for 70 per cent of its revenue.

Emirates group

Overall, the Emirates group posted a profit of Dhs2.3bn ($631m) for the financial year ended 31 March 2019, down 44 per cent from last year. Revenues rose 7 per cent to Dhs109.3bn.

The group’s cash balance was down 13 per cent to Dhs22.2bn mainly due to “large investments” into the business, including significant acquisitions and payment of last year’s Dhs2bn dividend, the statement said.

In line with the overall profit, the group declared a dividend of Dhs500m to its owner, the Investment Corporation of Dubai for 2018-19.

Across its more than 120 subsidiaries, the group’s total workforce increased by 2 per cent to 105,286, mainly influenced by dnata’s new acquisitions and its international business expansion.

Sheikh Ahmed said: “In 2018-19, we were steadfast with our cost discipline while expanding our business and growing revenues. By slowing the recruitment of non-operational roles, and implementing new technology systems and new work structures, we’ve improved productivity and retarded manpower cost increases.

“It’s hard to predict the year ahead, but both Emirates and dnata are well positioned to navigate speed bumps, as well as to compete and succeed in the global marketplace.

“We must continually up our game, that’s why we invest in our people, technology, and infrastructure to help us maintain our competitive edge.”