Emirates’ annual report for the 2016-17 financial year is marked by the theme of resilience. Its resilience, to be precise, in the face of mounting challenges for the global aviation industry thanks to the effects on travel demand of European terror attacks, lower oil prices, the UK vote on Brexit and the actions of the Donald Trump administration.
The thorny problem with the timing of this combination of body blows is that there is currently a clear overcapacity in the airline market. Available passenger seat kilometres at Emirates grew 10.3 per cent in 2016-17, and while premium seat demand pushed almost 2 percentage points higher, the economy seat factor fell to 77.3 per cent from 79.2 per cent a year earlier, resulting in overall passenger seat factor dipping to 75.1 per cent from 76.5 per cent.
The carrier’s reduction of airfares to maintain passenger volumes and revenue has been largely successful. However, overall operating costs increased by 7.7 per cent year on year, thinning margins. In particular, Emirates spent 6 per cent more on jet fuel, which accounted for 25 per cent of operating costs in 2016-2017, and 30 per cent more on aircraft operating leases, accounting for 12.7 per cent of costs.
This was because of increased capacity – more planes to fly and fuel. Which brings us back to the problem of overcapacity. It is a tricky balance to get right – continuing to build up capabilities to stay ahead of the competition without it undermining profitability in a sluggish market.
The Emirates Group chairman, Sheikh Ahmed bin Saeed, said in the earnings release on Thursday that its resilience this year is thanks to the investment made in previous years, and that this would also allow the company to adapt to the volatile business climate. He made clear that investment would continue, however the focus would be on how technology can make the group more efficient rather than simply bigger.
malrawi@thenational.ae
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