Currency fluctuations, security and protectionism will be Emirates’ biggest challenges this year after the Dubai flag carrier posted a 40 per cent rise in annual net profit.
Emirates reported a net profit of Dh4.6 billion for the financial year ended March 31, helped by a drop in oil prices in the second half of the year.
Emirates said that the decline in oil prices provided savings of Dh2bn. While fuel still remains its biggest expense, the airline said it now constitutes about 35 per cent of its operating cost, down from 39 per cent a year earlier.
“Looking ahead, the ongoing uncertainty for many currencies and economic markets around the world will continue to pose a challenge, as well as the looming protectionism in some countries,” said Sheikh Ahmed bin Saeed Al Maktoum, the chairman and chief executive of Emirates.
Sheikh Ahmed’s remarks on protectionism come as American airlines and their unions try to limit the activities of Gulf airlines in the US, with tensions between the two having escalated in recent months.
In January, a US industry group including Delta, United and American Airlines released a 55-page document detailing allegations of unfair government subsidies to Arabian Gulf carriers and other financial incentives that they claim were in breach of the open skies agreement between the two countries.
The US coalition is asking the government of the president, Barack Obama, to start consultations with Gulf countries over fair competition in relation to the open skies treaty.
Emirates has categorically denied such claims and said it would respond to the allegations.
Last year Emirates lost Dh1.7bn in revenue because of the 80-day period of runway repairs at Dubai International Airport. However, the airline reported its second-best results in its history, after the 2010-11 financial year. The carrier’s revenue was up 7 per cent at Dh88.8bn.
Last year Emirates had to scale back its operation in conflict zones such as Iraq, Libya, Syria, and Yemen. The Ebola outbreak in Africa also took its toll on Emirates, leading it to suspend some of its operations in Africa.
“The shooting at a flydubai 737 in Baghdad prompted airlines to cancel flights immediately – it will be these sorts of short-term events and changes that will cause operational changes to have a financial impact, much in the way that the Ebola outbreak in West Africa impeded demand too,” said Saj Ahmad, the chief analyst at StrategicAero Research.
However, the airline managed to carry 49.3 million passengers during the year, up 11 per cent from a year earlier.
Emirates, the world’s biggest operator of the A380 superjumbo aircraft, said that it grew its fleet by 14 jets last year to 231 aircraft.
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Born: October 20, 1989, Sharjah
Education: Bachelor of Science and Football, Liverpool John Moores University
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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