Dubai’s Emirates sticks to growth plan despite profit slump


DUBAI |
Thu Nov 3, 2011 1:44pm GMT

DUBAI (Reuters) – Emirates airline, the state-owned carrier which is on a hurried expansion path said it was sticking to its growth plans in the face of a 76 percent slump in half-year profit, hit by fuel costs and currency fluctuations.

The Dubai government-owned airline’s results reflect the gloomy outlook for the travel industry, which is struggling with slowing global demand and high oil prices.

Emirates would “stay on course and continue to grow despite the unsteady marketplace,” its chairman, Sheikh Ahmed bin Saeed Al-Maktoum, said in a statement.

The airline is the largest customer of the Airbus (EAD.PA) A380 superjumbo, with a fleet of 161 wide-bodied aircraft and orders for a further 190. It is expected to place new aircraft orders at the Dubai Airshow later this month.

“Emirates has weathered the storm of recession better than most airlines in recent years but even Emirates is not immune to an industry wide softening of demand,” said Sudeep Ghai, partner at London-based Athena Aviation.

Industry body IATA has warned that it expects airlines to suffer a weak end to the year due to in part to waning consumer confidence and sluggish international trade.

The airline said profit was 827 million dirhams for the six months ended September 30. That compared with profit of 3.4 billion dirhams in the prior-year period. Its financial year runs from April 1 to March 31.

Sheikh Ahmed said the airline paid an additional $1 billion in fuel costs compared to a year ago. Fuel typically accounts for a third of an airline’s operating costs. Emirates said fuel costs took up 41 percent of total operating costs in its half-year results, up from 33 percent in the prior-year period.

Brent crude, which peaked this year at around $127 in February, was some 30 percent higher during Emirates reporting period this year over 2010.

“Fuel effects may explain the sea change in profits but the decline in load factor is perhaps the greater concern as the airline continues to add huge amounts of capacity in the next few years,” said Ghai.

The carrier said its passenger seat factor, a key measure of profitability, was above 79 percent. That was below the 81.2 percent seen in the same period in 2010.

The airline also said currency translation differences resulted in a 24 million dirhams loss in the period compared to a 24-million dirham gain last year.

Revenue, including other operating income, was 30.3 billion dirhams, an increase of 15 percent on last year. Its cash position stood at 13.8 billion dirhams on September 30.

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Emirates has continued to grow exponentially despite a debt crisis that hit the Gulf Arab emirate and several of its government-related entities, leading to the restructuring of billions of dollars in debt.

It already operates in 67 countries and has 114 destinations. It launched five new destinations this year.

The rapid expansion of Emirates — as well as Gulf majors Etihad of Abu Dhabi and Qatar Airways — has unnerved older airlines and fuelled mutual accusations of protectionism. Many carriers fear Gulf-based superjumbos will drain their own hubs.

Ghai thinks Emirates should consider easing its expansion given the current climate.

“There are three things the airline could address to improve its position: take another look at fuel hedging, review the existing allocation of capacity across its network, and ease the pace of fleet expansion, if only for a while,” said the analyst.

Emirates already has an order backlog worth over $66 billion, including 73 more A380 aircraft. The company said that it secured financing for 10 new aircraft deliveries in the first half of the year.

The group launched a $1 billion bond in June, which was over five times oversubscribed.

(Reporting by Praveen Menon; Editing by Amran Abocar and Elaine Hardcastle)