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Emirates profit slumps to 7-year low as oil erodes margins

May 09 2019 11:21
Layan Odeh, Bloomberg

Emirates Group, owner of the world’s biggest long-haul airline, suffered a 44% decline in annual earnings as higher oil prices and a stronger dollar hit margins at a time when its business model faces increasing competition.

Net income shrank to 2.32 billion dirhams ($632 million) in the 12 months through March, the lowest level since fiscal 2012, according to a statement Thursday from Dubai-based Emirates. Seat-occupancy levels also fell and the company reduced dividend payments to its state owner by 75%.

While all 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 US 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 come to dominate inter-continental flying, though the main airline unit has recently found it tough to find viable new destinations 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.

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