The international aviation market is facing strong headwinds currently, with the high fuel cost as well as currency devaluations affecting airline financials. In the Gulf, Dubai-based Emirates has witnessed a drastic fall in its half-year profits for the first six months of 2018, as the UAE carrier battles ‘various aviation challenges’ which have led to a significant weakening in its financials.
Emirates, who is the largest airline in the United Arab Emirates, on Tuesday posted a sharp 86% drop in half-year profits. The carrier recorded a profit of just $62mn in the first half of the 2018-2019 fiscal year compared with $452mn in the same period last year.
Sheikh Ahmed, the CEO of Emirates Group, has blamed “uncertain economic and political realities in our region and in other parts of the world”, as well as a high oil price, and currency devaluations in nations across the globe, including India, Brazil, and Iran. Sheikh Ahmed has already warned “The next six months will be tough” — suggesting that the financials at Emirates may soon proceed from bad, to worse.
Profit for the Emirates Group, which also includes Dnata, an air services provider (including ground handling), was also down by 53%.
Emirates’ mammoth 86% drop in airline profits comes at a time whereby the Dubai-based carrier has faced difficulties both at home and internationally. Earlier this year, the airline started quietly sending new planes to be stored in the desert, at the relatively empty Al Maktoum airport, amid lower demand and a pilot shortage — caused by a wave of resignations from the flight crew, who cited poor working conditions at the airline.
In terms of regional instability, Emirates is unable to fly to Doha, Qatar, due to an unjust blockade led by Saudi Arabia and the UAE. While the effects of the blockade are felt across the Gulf, it’s also impacted Emirates. Emirates has lost a significant amount of local passenger traffic, and it has also felt the reduction of passengers that would originate in Doha, but fly Emirates — for example, between Doha-Dubai-Bangkok. Qatar Airways, who lost its two biggest local markets, triggered a vast global expansion and compensated for the lost destinations.
In Dubai, Emirates airline is not alone with its decline in financials. Just recently, the government confirmed that the expansion of Dubai’s Al Maktoum International Airport has been suspended. Furthermore, residential property prices have dropped by more than 15% since late 2014 and are still falling. Dubai’s stock market is also down 20% this year — the worst performance in the region.
To make matters worse, this year, major airlines have announced their exit from Dubai, citing economic reasoning. Australia’s flag carrier, Qantas have axed Dubai, replacing the UAE stopover with Singapore. Qantas said Singapore is a ‘more preferred passenger option’.
In the UK, British airline Virgin Atlantic announced the axe of its London Heathrow-Dubai route. Virgin Atlantic said “due to external factors, Dubai is no longer economically viable” — and the airline will withdraw from the UAE in March 2019.
In addition, Royal Brunei has formally axed its Dubai stopover as part of its London Heathrow-Dubai-Brunei route, with the airline saying they’re killing the Dubai stopover due to ‘a change in demand’.
Even with airline cargo operations performing solidly worldwide, cargo volumes for Emirates have declined this year — unlike nearly all other major airline carriers, which have seen promising growth in their cargo divisions throughout 2018.
Several major airlines have exited the Dubai market in response to a weakening economic outlook, and a fall in passenger demand. With Emirates storing A380s and 777s in the desert this year, a fall in profits was expected — but 86% is an unexpectedly sharp drop, and the UAE carrier has already warned that the next six months will be financially difficult for the airline.
n The author is an aviation analyst. Twitter handle: @AlexInAir
