Emirates surges to record first half

With traffic on the rebound, Emirates has posted a massive 352 percent surge in first-half profit. At the same time, the carrier has committed itself to a dramatic expansion of its fleet.

13th Dec 2010


With global air traffic demand showing an increasingly convincing recovery, Dubai-based Emirates Airline announced record half-year results at the beginning of November.


For the six months ended 30 September, the carrier reported net profit of 3.4 billion dirham (US$925 million), an increase of as much as 352.1 percent from the 752 million dirhams posted in the same period a year earlier. Revenue in the period rose 35.5 percent to 26.4 billion dirhams, up from 19.5 billion dirhams a year earlier.


“The results for the first half of the 2010-2011 financial year are incredibly robust, and reflect Emirates’ success in growing customer demand, supported by investment in new aircraft, products and customer service,” said Sheikh Ahmed bin Saeed Al Maktoum, chairman and chief executive of Emirates Airline and its parent group.


With the global economic recovery underway, the carrier said it has seen “a marked increase” in passenger traffic, carrying 15.5 million travellers during the six-month period with an average load factor of 81.2 percent – a record for the carrier’s first-half results. Load factors in pricier and higher-yield premium cabins also rose, gaining 2.6 percentage points, which the airline said reflects “an encouraging change in the global economic outlook”.


The carrier’s passenger capacity (measured in available seat kilometres), increased 13.9 percent in the first half, while traffic (measured in revenue passenger kilometres) rose 19.4 percent. This means Emirates was making more efficient use of its aircraft as it filled more seats.

Cargo revenue


On the freight side of the business, Emirates SkyCargo increased first-half revenue by 48.4 percent to 4.4 billion dirhams as cargo volumes increased to 897,000 tonnes. That was a 23.7 percent gain on the year-earlier figure of 725,000 tonnes.
“SkyCargo continues to post steady revenue growth, contributing around 17.8 percent of the airline’s transport revenue,” Emirates said.


The airline’s cash balances expanded to 12.5 billion dirhams at the end of September, up by 1.9 billion dirhams, or 18.5 percent, compared with 31 March 2010. Emirates achieved this gain “after settling capital outflows of 2.4 billion dirhams, primarily towards aircraft pre-delivery payment and other aircraft assets”. The company also successfully raised financing of 4.6 billion dirhams during the fiscal first half.


Operating costs for the airline increased 22.6 percent in the six-month period, to 23 billion dirhams. Emirates said its most significant expenditure in the period continued to be on fuel.


The airline added that adapting quickly to the needs of regional markets has helped it achieve its record results.


“Investing in the future and adapting our operations when required is an integral part of our corporate strategy,” Al Maktoum said. “This flexibility affords us the option of increasing passenger and cargo services on high-demand sectors. By following these positive spikes in regional economies, we have been able to maximise the use of our fleet to further stimulate revenue.”


Emirates has added six new destinations to its network since April. It has begun passenger operations to Amsterdam, Prague, Madrid and Dakar, as well as freighter services to Almaty and Bagram. “Existing markets have also been given a boost with increased frequencies and capacity – through larger aircraft,” the airline said.


The carrier has expanded the network covered by its fleet of Airbus A380 superjumbos, with the addition of services to Manchester and Beijing. The carrier’s A380s also fly to London-Heathrow, Toronto, Paris, Jeddah, Bangkok, Seoul, Sydney and Auckland.
 

Emirates’ flagship


“The A380 continues to be popular in all destinations that it serves and has become the airline’s flagship in terms of passenger comfort, innovation, operating and environmental efficiency and revenue operation,” Emirates said.


The airline has avoided the problems being experienced by Qantas and other A380 operators that use Rolls-Royce Trent 900 engines, since its fleet uses the alternative Engine Alliance GP7200 powerplant.


The company added that it “continues to invest heavily in its product”, citing the delivery of six new widebody jetliners in the first half – five Airbus A380s and one Boeing 777. The carrier also opened a new, dedicated lounge at Shanghai Pudong International Airport. “A further two new aircraft are scheduled to be delivered before the end of the financial year [on 31 March 2011,” Emirates said.


In June this year, Emirates placed a massive order for 32 additional Airbus A380s, valued at about US$11.5 billion at list prices, taking its total of firm orders for the world’s largest jetliner to 90. The agreement was signed during this year’s Berlin Air Show.
“The latest order ... affirms Emirates’ strategy to become a world leading carrier and to further establish Dubai as a central gateway to worldwide air travel,” Al Maktoum said at the time. “The A380 is our flagship in terms of passenger comfort, innovation, operating and environmental efficiency and revenue generation.”


The Emirates chief added: “Our latest commitment signals Emirates’ confidence in the growth to come in a thriving aviation sector as we build our fleet for tomorrow.”


The additional A380s are scheduled for delivery between April 2015 and November 2017. “We have the delivery slots we want, at the time that we want, to allow us to grow at the pace we want,” company President Tom Clark said at the time.


Additional destinations


As Emirates expands its routes and A380 fleet, the superjumbos will be assigned to serve additional long-haul destinations in Asia, Australasia, Europe and North America, replacing older, smaller aircraft and increasing route frequencies.


According to Clark, having such a massive A380 fleet is needed because of rising demand. To operate a daily flight from Dubai to the US, 2.5 A380s are required, with five needed for a twice-daily service. “You only [need] six double-daily points on 14.5-hour missions and those 32 aircraft are gone,” he said.


The massive follow-on order caused raised eyebrows among some industry analysts, coming as it did just a month after Airbus Chief Operating Officer (Customers) John Leahy raised the manufacturer’s A380 sales target for the year to 20 aircraft. Many opined that the airline must have been offered a substantial discount on the deal, possibly with the right to walk away from the order if necessary.


Teal Group analyst Richard Aboulafia – who is generally sceptical about the A380 programme’s viability – said the deal gives Emirates “a lot of heavily discounted capacity” to use as its market access increases. “But even then, it’s impossible to imagine an expansion plan that absorbed 90 A380s before 2026, especially given [Emirates’] other order positions,” he added.


Furthermore, Aboulafia argued, much of Emirates’ traffic has been siphoned away from European legacy carriers. Europe, he said, “appears willing to let Emirates poach this traffic to save the A380”. Allowing the Dubai-based airline “grow at European carriers’ expense might be the only way to generate demand for this airplane,” Aboulafia argued.


Vote of confidence


Airbus Chief Executive Officer Tom Enders speculated that Emirates’ bold vote of confidence in the A380 programme could stimulate some more sceptical competitors to rethink their position on the jetliner. “Some blue-chip airlines will have to think: ‘Are we getting it right and is Tim [Clark] getting it very wrong? What will the world look like when Emirates has 90 A380s?” Enders said.


In addition to the latest A380 order, the airline said in June that it already had outstanding orders for 48 A380s, 70 of Airbus’s planned A350 XWB widebody twins, 18 Boeing 777-300 twinjets and seven Boeing freighters. The carrier valued these 143 widebody aircraft at more than US$48 billion. The fleet-expansion plan will help Emirates become one of the world’s largest airlines.


Then in mid-July, the carrier announced another major aircraft order – for a follow-on batch of 30 Boeing 777-300ERs, valued at about US$9.1 billion, adding to the 71 previously ordered, of which 53 were already in service. The aircraft are to be operated in a three-class, 360-seat configuration .


In February 2011, Emirates plans to start retiring almost 70 older widebody aircraft: Airbus A330-200s, A340-300s and -500s; and Boeing 777-200s, which are to be replaced by new 777-300ERs and A350 XWBs.


At the beginning of October, the airline celebrated the first arrival of one of its A380s in Hong Kong, marking its debut on the daily Hong Kong-Dubai via Bangkok route. The aircraft arrived to be greeted by a water-cannon salute on Hong Kong’s National Day.


“Hong Kong is a thriving commercial hub and – along with Greater China – is integral to the future growth of the world economy,” said Richard Jewsbury, Emirates’ senior vice-president for the Far East and Australasia. “This economic strength makes it a key market for Emirates and we are delighted to be bolstering our commitment to the region by bringing our flagship aircraft to Hong Kong.”

 

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