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High fuel costs and weak currencies in some key markets flattened first-half profit growth at Dubai’s flagship airline Emirates, signaling Gulf carriers are not immune to the pressures on the industry despite rising passenger numbers.
Emirates and its home base Dubai are expanding at a break-neck speed on expectations that its location – a third of the world’s population is within a 4-hour flight radius – will continue to attract passenger traffic away from other global hubs such as London, New York and Singapore.
Emirates profits have surged in the last couple of years on the back of new routes and more passengers but the latest results show the airline is getting weighed down by the fuel and currency issues which have hurt other large global players.
“The challenge is increasingly hard – Emirates is now the world’s third largest airline – but as yet the wheels show no sign of coming off,” said Sudeep Ghai, managing partner at London-based consultancy Athena Aviation.
The Dubai government-owned airline, which launched in 1985, currently flies to 137 destinations in 77 countries. It has posted a profit in every year of operation and full-year growth has slowed only twice – in 2009 and 2011.
It reported on Tuesday a near-flat net profit of 1.75 billion dirhams ($475 million) for the six months ended Sept. 30 compared with 1.7 billion dirhams in the prior-year period, despite a 15 percent rise in passengers to 21.5 million.
“High fuel prices, accounting for 39 percent of our expenditures, and the unfavourable currency exchange environment continue to eat into our profits,” chairman and chief executive Sheikh Ahmed bin Saeed Al Maktoum said in an emailed statement.
The airline did not give details. But as an example, the west Asian and Indian Ocean region, dominated by India, accounted for 10.6 percent of its revenue last fiscal year, and the Indian rupee is down about 15 percent against the U.S. dollar this year.
GULF HUBS EXPAND
Emirates, along with other state-backed Gulf carriers like Qatar Airways and Etihad Airways, have pumped billion of dollars into expanding its fleet and routes, while recession-hit European airlines cut costs and shelve growth plans.
Last month, German flag carrier Lufthansa warned that weakness in Asian currencies would weigh on revenue growth at its passenger airline business this year while a grindingly slow market recovery was set to dent profit at its cargo unit.
Other European airlines such as Ryanair and Finnair have trimmed profit expectations, citing lower demand and the impact of volatile exchange rates, while Air France-KLM said the sharp rise in the euro against the dollar had weighed on quarterly revenue.
Emirates, meanwhile, is expanding. It is the world’s largest customer of Airbus’s A380 superjumbo and is set to increase its fleet further with a big order for Boeing’s revamped 777X jet at the Dubai Air Show next week.
Other Gulf carriers are also slated for big plane orders at the largest regional aviation event, as they flex their muscles in the global aviation industry.
Middle Eastern airlines are expected to contribute nearly 13 percent in 2014 to the forecasted global industry net profit of $16.4 billion, the highest ever for the region, aviation group IATA said in its latest report.
“Over the long term there is no question that the pull of Emirates is a game changer for the industry and it’s becoming ever clearer that in a liberalised world, the Middle East hubs and their airlines are in the ascendancy,” said Ghai.
Emirates said its first-half revenue was 39.8 billion dirhams, up 12 percent from the prior-year period.
Net profits for the Emirates Group, which includes airline services arm Dnata, rose 4 percent to 2.2 billion dirhams.