Emirates Profits Plunge 86% — What Caused It, And What It Says About The Future

Emirates has just revealed their half-year results for 2018-2019, and there are some interesting notes in there.

While the financial results differ for the overall Emirates Group, what I’m most interested in are the results of Emirates Airline directly:

  • Revenue is up 10%, to 13.3 billion USD
  • Profit declined 86%, to 62 million USD
  • 30.1 million passengers carried, which is up 3%, but capacity has also increased by 3%
  • The airline carried 9% more passengers through their Dubai hub

On one hand those results are pretty bad, both in terms of the profit decrease, and also in terms of just how small their margins are. Their profit margin is equal to ~0.5% of their revenue.

On the other hand, the airline (and in particular the region) have had a very rough year, so the fact that they’re making money at all is impressive. Emirates attributes the worse performance to higher fuel costs as well as currency devaluations in markets like India, Brazil, Angola, and Iran. Combined they say that these factors wiped around 1.25 billion USD from their profits. Ouch.

On the plus side, they’re still doing better than Qatar Airways. The airline recently announced a loss of 69 million USD, and in reality that doesn’t nearly reflect the extent of their losses (since so many aspects of aviation in Qatar are owned by the government, the airline isn’t paying “fair” market prices for many things).

Here’s what Emirates’s Chairman and CEO, Sheikh Ahmed bin Saeed Al Maktoum, had to say about the results:

“We are proactively managing the myriad challenges faced by the airline and travel industry, including the relentless downward pressure on yields, and uncertain economic and political realities in our region and in other parts of the world. We are keeping a tight rein on controllable costs and will continue to drive efficiency improvement through the implementation of new technology and business processes.”

While it’s pretty obvious, I do find the acknowledgement of “relentless downward pressure on yields” to be interesting. That’s not surprising at all, but the natural response to that for an airline would be to try and cut capacity.

At the moment Emirates has 253 A380s and 777s in their fleet, and they have a further 214 A380s and 777s on order. Given the situation, it sure seems to me like those planes will simply be increasingly used to replace existing planes, rather than to expand the fleet to 300+ (or even 400+). Or I do wonder if they’ll end up deferring some planes, in light of this.

Also, when it comes to “keeping a reign on controllable costs,” it’s specifically mentioned that this will be done through “new technology and business processes.” However, I can’t help but wonder if they’ll eventually significantly cut into the passenger experience. They’re one of the few airlines that hasn’t been making the passenger experience worse, and in the airline world it seems like that’s usually the first thing to go.

Bottom line

Emirates’ worsening results aren’t surprising, given the increase in oil prices and the challenges they face with currency fluctuation in many of their major markets.

It’s going to be very interesting to see how the “ME3” unfold over the coming months and years. Qatar Airways continues to face challenges with the blockade and is threatening to leave oneworld, Etihad is a basket case that seems like it will eventually be taken over by Emirates, and Emirates is being mostly reasonable, but still faces all the challenges you’d expect from an airline that is heavily reliant on what’s going on in every corner of the globe.

Comments

  1. It’s because they doubled their redemption rates with Alaska miles.

    Go back to the old rates and I guarantee their profits will rise.

  2. I still struggle to understand what people see in Emirates’ premium product! I have always found it underwhelming, with a business class seat on half their fleet being at best, basic. A new First class that will just about make it on a small fraction of the fleet long term… I would say they make a profit where Qatar is making losses because Qatar is actually investing a lot more in their premium hard product!

  3. @Jon:

    Ha! I thought the same thing, though only jokingly. Though I’ll admit I’m slightly ignorant on how the cash flows on that specific form of revenue for the airline, it would be interesting to see a financial analysis that focused on that area of revenue generation. I’d be interested to know how much of an impact it truly did have, if any.

  4. Any multinational company faces currency risk – however, for Emirates, since the AED has been pegged to the USD since I don’t know – like forever, at least since 1980 when I first went there – they will report lower results when the USD is as strong as it has been (and will probably continue to do so for the near future).

  5. Greetings from economy. Some small cuts have been made last year – no free food for passengers staying more than 4 hrs in DXB, no icecream snack on the flights from Europe, baguette snack instead of the second meal on the flights to Europe.

  6. revenue up 10% on passengers up 3% suggests their yields are actually doing fine?

    given their ratio of economy seats:premium seats hasn’t changed in any substantial way that must mean either yields are fine, or more people are buying premium seats, both of which are good for the business?

  7. “Relentless downward pressure on yields” says the one that is driving this in many instances. Give me a break!

  8. I can tell you as someone who works for the company:

    In economy:
    -refreshing towels (wet wipes) are no longer offered when after boarding
    -hot towels removed completely in economy “due to product shortage”
    -chocolates removed from meal trays
    – coke and diet Coke products removed

  9. They still made $62 million in profit – why is everyone always so greedy? Profits can’t rise exponentially.

  10. From a passenger preference standpoint, I really don’t want to fly on an A380 with 600 other people, even in Business Class, no matter how wonderful the service is. I think of long immigration lines, the masses at baggage claim, boarding and deplaning, etc.

    I think they may have overplayed their hand by purchasing so many of these enormous planes and now they’re having problems filling them.

  11. Don’t forget to book your Emirates awards before the Japan Airlines Mileage Plan award chart devaluation happens on November 19. Yikes!

    Have a Happy Thanksgiving everybody!

  12. @Donna, if the airport can handle it (and DXB can), then the A380 is a very comfortable airliner from a passenger perspective. More roomy and less noisy, plus there are plenty of “zones” to get up and chill out in during long flights. I’ve done multiple ULH flights of 12+ hours in both Emirates A380 and 777, and the A380 won hands down. Same went for Qatar. But your point does make a lot of sense when they arrive at an airport that is ill-equipped (although having said that, I have also flown EK through JFK – normally terrible for immigration – with no issues whatsoever.

  13. Granted that a profitable airline is in the long term interests of loyal passengers, but EK’s cost cuts over the last 12-18 months should be obvious to frequent customers. (TBH Ben I’m surprised that you didn’t mention any in this article).

    In addition to the small touches on board which have disappeared that Matt has mentioned, EK are increasingly seeking additional revenue streams and in the process relinquishing some of the features that differentiated them from the rest. Paying for seat selection was probably inevitable, but if you happen to purchase a saver fare (or are not Skywards silver or above), then the rates they charge are at the upper end versus other airlines.

    The kicker is their noticeably worse customer support whereby if you need to call EK for any reason from within the UAE, you end up paying for a premium call (which they probably take a cut from) versus what used to be a toll free call, and that’s even if you’re Skywards gold. We now have the privelage of paying to call EK (the majority of time on hold of course) to resolve their error or carry out a reasonable request (or otherwise deal with a useless chat bot).

  14. and YET they continue to buy more 388s. How are their economics now with the rise in oil prices. Wouldn’t be at all surprised if their cost / asm is same as 77W with latter having 40% lower trip costs. The 78Js cant arrive fast enough.

  15. @Lucky

    In the antepenultimate paragraph you have “keeping a reign on controllable costs”. I suspect you meant “rein” as in the original quote above.

  16. In the near future, cyclical as always, you will see all airlines cut soft and hard product in order to make as much profit as possible.

    Slim pickings are coming again.

  17. Why do I think their agreement with the USA requires them to use different accounting standards than they did in the past? Maybe this reflects that?

  18. “Emirates attributes the worse performance to higher fuel costs as well as currency devaluations”

    Fuel costs are pretty low, but I for one won’t take a chance on even transiting Dubai where I can have my passport confiscated and myself thrown in jail on some ridiculous pretext.

    Likely? Of course not. But worth the risk? Why bother?

  19. One item I strongly believe they can change their approach to help reduce a significant chunk of their capital costs long term. EK has this silly notion where they don’t want to keep planes that are older than 12 years.

    This is why we are seeing some of the 777s being replaced already. Planes are built to last 30-40 years.

    Swapping out planes every 24 years while doing a top down refresh at 12-15 years make a lot more sense from a financial perspective.

    I know the bulk of EK’s fleet is leased and 12 year terms are the norm for new planes, but that still drives up capital costs that can be easily reduced with almost no material impact to anyone except the airframe manufacturers and lessors.

  20. As a feminist I fully boycott middle easyJet carriers. They also criticise more mature flight attendants while employing young trolley dollies from elsewhere. Denigrating what was once considered a glamorous and serious career.

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