Record year masks emerging concerns at Emirates

Emirates Airline has posted its best-ever annual profit of $2.3bn for 2015/16 – a 40 per cent improvement on the previous financial year, which was also a record.

Despite drops in revenue, yield and load factor, Emirates’ margin climbed from 5.1 to 8.3 per cent thanks to a 31 per cent reduction in fuel costs.

With few hedging contracts in place, the Dubai-based carrier could take full advantage of cheaper oil, an advantage that proved vital during a year in which a strong dollar – to which the Emirati Dhiram is pegged – shaved an estimated $1bn off its operating result.

Among other worrying signs was a fall in yields to levels last seen in 2009, which will intensify questions about whether there is room for three mega-carriers – Emirates, Qatar and Etihad – on a tiny speck of Gulf coastline.

Last year’s benevolent cost environment, however, masked what could be an emerging problem, as Emirates’ break-even load factor for passengers and cargo combine dropped from 65 to 60 per cent.

On the passenger side its actual load factor dropped several integers to 76.5 per cent, which could be partly explained by the airline adding 20 aircraft (net of retirements) and more than 10 per cent capacity to its fleet. Yet the last time Emirates underwent similar expansion, from 2013 to 2014, its load factor barely budged.

Of the 29 new aircraft received last year, 16 were A380s and the rest 777s, taking Emirates’ total fleet to 251 widebodies.

Of these 156 are on operating leases, while the remainder contribute to the $17bn of aircraft assets that the airline lists.

That’s the same total as last year, and while Emirates did factor in depreciation costs of around $2bn during 2015/16, Talking Point wonders whether this is enough.

Values for the 777-300ER – the backbone of Emirates’ fleet – have been under scrutiny in the past year and questions also surround the resale possibilities of the A380 in a market where no other operator has taken the aircraft in volume.


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