Emirates airline annual profit soars 40% to $1.2 billion; lower oil prices provide relief

Published May 10th, 2015 - 08:05 GMT
Al Bawaba
Al Bawaba

Dubai's Emirates airline said Thursday annual profit surged 40 per cent to $1.2 billion as revenues increased and fuel costs dropped.

The Middle East's largest carrier said revenues rose seven per cent to $24.2 billion with passenger numbers up 11 per cent to 49.3 million in the financial year 2014-15.

Emirates Chief Executive Officer Ahmed Bin Saeed Al Maktoum said the profit was achieved "despite a tough market and stiff competition".

The company said a significant drop in the price of jet fuel had reduced operating costs by seven per cent to $7.8 billion.Fuel represented 35 per cent of operating costs, down from 39 per cent the previous year. The Emirates chief described the drop in oil prices as a "welcome relief" that impacted the second half of the financial year. A global supply glut has eroded prices by around 60 per cent since last year.

Emirates said it faced challenges including a weaker US dollar, to which the United Arab Emirates (UAE) dirham is pegged, as well as an 80-day runway closure at its hub for upgrading.

Competitors 'lobbying' 

Sheikh Ahmed also spoke of the challenge from competitors, alluding to US carriers pushing Washington to take action against fast-growing Gulf carriers over alleged state subsidies.

"Our competitors challenge us everyday and some are lobbying their government to restrict us," he said in a clear reference to big US carriers — Delta, United and American Airlines.

The carriers allege that the Gulf Big Three: Emirates, Qatar Airways and Abu Dhabi's Etihad have received government subsidies worth $40 billion.

They accuse the Gulf three of enjoying interest-free loans, subsidised airport charges, government protection on fuel losses and below-market labour costs that are considered unfair subsidies by the World Trade Organisation. 

"On this front, our position has always been clear: we embrace competition because it is good for the consumer ... industry and ... also us," he told reporters. "We just have to stay ahead of our competition." 

Sheikh Ahmed charged that the "noise" was coming from legacy carriers which "thought nobody can overtake them".

The three Gulf carriers have seized a large chunk of global travel, turning their hubs into major stops on transcontinental routes.

The US carriers do not differentiate between what is a subsidy and what is "legitimate" for a state-owned carrier, according to Qatar Airways Chief Akbar Al Baker.

Etihad Airways Chief James Hogan had said his company was a "David" battling the US "Goliaths", accusing the three US carriers of themselves hiding behind protection.

Emirates operates a fleet of 219 passenger aircraft and 14 freighters, serving 144 destinations in 81 countries.

The airline operates the world's largest fleets of Airbus A380s and Boeing 777s.

The carrier said Europe was the highest revenue contributing region with $6.9 billion, up 7 per cent from the previous year, followed by Asia and Australasia, which grew 3 per cent to $6.7 billion.

Revenue from the Americas jumped 20 per cent to $3.0 billion.

Emirates President Tim Clarke said this week that the Dubai carrier will deliver a "sledgehammer" response to a report accusing major Gulf airlines of receiving unfair government subsidies.

"Having read the report, you could drive a bulldozer through just about everything... We will deal a sledgehammer to that report as far as Emirates and Dubai is concerned," Clark said at a conference in Dubai.

Clark did not say when any formal response would be delivered, but Sheikh Ahmed told reporters in Dubai it would be fair if it had two years to put together a reply since the US carriers took that long to produce their report.

Clark, who previously said he would resign if the report proved accurate, invited the heads of the three US carriers making the accusations to follow suit if they are disproved.

"If you are wrong, and we show you to be wrong... will you resign? What will do when this rebuttal comes back at you and shows the political entities that you've managed to orchestrate to come behind you that you are fundamentally wrong?" he said.

More than 250 members of Congress signed a letter urging the US departments of state and transportation to seek consultations with Qatar and the UAE over the allegations.

Clark said the argument of stealing market share was weak as many of the destinations in the Middle East, Africa and Asia were minimally served by US carriers.

"We have never been subsidised. We have never received from the government of Dubai any kind of... special treatment," Clark said, adding that the airline's growth had been achieved without state intervention or state funding but instead came from its own cash flow, debt issuance and earnings.

The airline has also played up its purchases from US and European manufacturers, such as last month's $9.2 billion engines order from Rolls-Royce.

Separately, Sheikh Ahmed said he is pressing ahead with a global expansion that could include more US routes.

Sheikh Ahmed said in an interview with the Associated Press that several American cities have asked Emirates to launch routes connecting them with its ever-expanding hub in Dubai.

He declined to name the potential destinations, citing competitive reasons and confidentiality agreements, but said the carrier is looking to accommodate the requests "in a very short period of time".

"We always learn we cannot stop and this is really the direction of the UAE government and the Dubai government. The minute you stop, somebody will pass you," he told The Associated Press. "In terms of expansion, we will continue."

The airline is looking to increase services "on every continent" — it operates multiple routes into all except Antarctica — by adding additional routes and increasing frequencies on more than 140 existing ones, he said.

The carrier recently announced plans for daily flights to Orlando, its 10th US passenger destination. That should begin September 1.

Emirates says it carried more than 2.3 million passengers to and from the US last year.

Jill Zuckman, a spokeswoman for a coalition known as the Partnership for Open and Fair Skies that includes the three big US airlines and a number of labour unions, responded to Sheikh Ahmed's comments by saying that Emirates and other Gulf carriers "aren't simply growing" by adding routes to the US.

"They are racing against the clock to dump more subsidised capacity into US markets and divert passengers away from the US airlines," she said in an statement.

Dubai Airports, which must keep pace with Emirates' breakneck growth, announced Tuesday that construction will begin later this year to expand Dubai's second airport, Al Maktoum International at Dubai World Central, so it can handle 26 million passengers a year, up from 6 million now.

Officials are eager to shift more airline traffic to that new facility even as they expand the older Dubai International Airport, now the world's busiest airport for international traffic.

Emirates needs the extra space. The carrier plans to take on 27 new aircraft this year alone and is recruiting thousands of staff to fill newly created positions and to replace those left vacant by departing employees.

It is also planning to roll out new offerings for the lucky few who fly in first-class, Sheikh Ahmed said.

"Whatever you do for today is not good for tomorrow, and this is why we have to keep on moving," he said.

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