Emirates’ profit plunges: Are the good days over?

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Emirates Airlines posted its weakest earnings in a decade – its profit at Dh871m (US$237m) plunged 69 per cent for the year ending March 31.

The airline’s chairman Sheikh Ahmed bin Saeed Al Maktoum attributed the lacklustre performance to higher oil prices, competition, weakening of travel demand particularly in the Gulf region, and strengthening of the US dollar.

Was 2018/19 merely an exceptionally tough year, or is it a sign that the good days are coming to an end?

Emirates has been very successful in operating inter-continental flights, hubbing at Dubai International Airport. However, with more airlines mounting direct flights, Emirates may face the challenge to fill up its fleet of A380 superjumbo. Its reliance on Asia-Pacific traffic to connect through Dubai to Europe has also been affected by the spread of terrorist attacks that are turning travellers away.

Going forward, Sheik Ahmed bin Saeed Al Maktoum said: “We expect the year ahead to remain challenging with hyper competition squeezing airline yields, and volatility in many markets impacting travel flows and demand.”

Interestingly, Emirates will be introducing a premium-economy class next year to help broaden its appeal. Known to have modelled itself after Singapore Airlines (SIA) in its early years of formation, Emirates is going through the same kind of pain that SIA experienced. And a little lately. SIA had for some time fought shy of going the premium-economy way, and is now competing aggressively to lead the pack.

The danger with success is how one thinks the good days will never come to an end so long as one continues to do what one has been doing. We forget that things are constantly changing around us.

Emirates’ profit plunge may signal something wider in the Gulf region. Last year Qatar Airways reported a loss of 252m riyals (US$67m), attributing it largely to a political dispute that resulted in a ban on the airline by Saudi Arabia, the UAE, Egypt and Bahrain. It expects to make a loss again this year.

Etihad Airways too has been incurring losses since 2016. Last year it posted a loss of US$1.28b. The Abu Dhabi-based airline has since shifted its focus on acquiring stakes in other airlines to build up its intercontinental network to focusing on operating point-to-point flights. There is rumour that it may eventually be assimilated by rival Emirates.

So true it is that one’s fortune may change depending on how and where the wind blows. You can’t ever rest on your laurels.

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News Update: Emirates’ cancellation spells end for A380 production

https://www.bbc.com/news/business-47231504#

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Qantas-Emirates tie-up is no surprise

THERE are several reasons why a Qantas-Emirates tie-up should not come as a surprise.

 

Foremost is the Australian flag carrier’s desperation to revive its loss-making international operations, which, it is expecting will plunge its full-year profit by as much as 90 per cent from US$552 million the previous year. So the airline is looking for opportunities to boost its earnings as it rationalizes its network operations and connections. Qantas has said that alliance deals have always been on the agenda, particularly when such arrangements not only open up new traffic channels but also reduce operating costs.

The Dubai-based Emirates Airlines, its home situated roughly midway on the kangaroo route, makes a veritable partner. Significantly, the airline is profitable and expanding. Besides, Emirates is a keen competitor for the same market. A tie-up would mean a more amicable intra rather than inter-airline competition.

It has also been speculated that Qantas as a consequence would reduce its operations to Europe – retaining only London as a destination and giving up Frankfurt – while it then feeds traffic to other European ports through Emirates. Qantas hopes to also gain access to a wider Middle-East market as well as making inroads into Africa through Emirates.

Not to be ignored is the fact that other Middle-East airlines such as Qatar Airways and Etihad Airways (also an airline of the UAE but based in Abu Dhabi) have also intensified the competition. Etihad has acquired a 10-per-cent stake in Virgin Australia.

But what is likely to unsettle Qantas more is the alliance between key rivals Singapore Airlines (SIA) and Virgin Australia. In the end, a Qantas-Emirates tie-up would look like a counter-move when adversaries join hands to take on a common enemy. There is not much of a choice left really, so to speak, for the self-professed “alliance specialist”.

Analysts who were quick to deduce that Qantas would also shift its operations from Singapore to Dubai have been mistaken. For many years now, Singapore has been Qantas’ major hub outside Australia, and from where it is able to feed transfer traffic to other Asian ports.

While it is convinced that its fortunes lie in the lucrative Asian market, it does not make sense for the flying kangaroo to skip Singapore or make a sizeable reduction in its operations there. After all, Singapore (Changi Airport) is the darling of transit passengers worldwide. An exit would shut Qantas out of growth opportunities – not just in Singapore but in the region – even as Qantas raises the profile of its low-cost Jetstar subsidiary and continues to pursue the dream of staging a separate Asia-based premium carrier.

Qantas chief Alan Joyce has said that Qantas would continue to develop large hub airports or en-route gateways in its network since these hubs, pulling in travellers from all over the world and sending them on to their final destinations, mean “extending our reach while restraining our costs.” However, he admitted: “We have a gap (in Asia), because our current schedule is predicated mainly on travellers transitting through Asia en route to Europe.”

While that might see some shift of such pure transit traffic from Singapore to Dubai, the former remains a premium hub for its infrastructure and connectivity – unless Mr Joyce becomes convinced that its family of hubs in partnerships with Japan Airlines (Narita), China Eastern Airlines and Cathay Pacific Airways (Hong Kong) and possibly Malaysia Airlines in 2013 (Kuala Lumpur) are adequately positioned even with the exclusion of Singapore.

It looks like with the impending incorporation of the Malaysian flag carrier as a new member of the OneWorld alliance, the two airlines may yet again revisit the proposal of a joint-venture regional carrier to be based most likely in Kuala Lumpur. Even then, it would be difficult imagining Qantas skipping Singapore altogether.

However, there have been mixed signals from both Qantas and Emirates on the rumoured alliance.

While admitting that his airline has met with Emirates, Mr Joyce clarified: “We only enter partnerships when we have the right arrangement for the long term. In the current economic environment, taking our time with this part of our agenda will clearly not undermine our broader transformation plan.”

On the other hand, Emirates chairman Sheikh Ahmed bin Saeed al-Maktoum revealed that a code-sharing agreement would likely happen within six months but would not include any revenue-sharing arrangement.

Is that any indication of who is more likely to benefit from the tie-up? You can confidently make your wager, can’t you?