Emirates profits to tumble

Tim Clark, the president of Emirates airline, says he will settle for profits below the $1.5bn forecast at the start of the year.

Business class seats are seen inside the Emirates Airbus A380 after the jet arrived on its maiden flight at John F. Kennedy International Airport in New York August 1, 2008. Airbus's A380 superjumbo touched down in New York on Friday, marking the first commercial arrival of the giant, double-decker passenger plane on U.S. soil.  REUTERS/Chip East  (UNITED STATES) *** Local Caption ***  NYK722D_AIRBUS-A380_0801_11.JPG
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NEW YORK // Tim Clark, the president of Emirates airline, says he will settle for profits below US$1.5 billion (Dh5.5bn) forecast at the start of the year as the carrier weathers the storm of record oil prices. Mr Clark said yesterday rapidly rising fuel costs had hit Emirates just as hard as every other airline, and now accounted for almost half of the carrier's total costs.

"It's knocked us for six just as much as it has everyone else. We had a $1.5bn profit forecast for this year, but the way things have gone a few hundred million dollars would be fine," he said. Mr Clark pointed to a healthy balance sheet showing more than $4bn in cash reserves as one of the airline's saving graces during what he described as "probably the biggest crisis the industry has faced in the post-war era".

He admitted that he and other senior Emirates officials were astonished when the price of a barrel of crude oil rose above $95 earlier this year. "We never believed it would go beyond $95, and when it got to $145 we found ourselves totally exposed. We had to put the fares up - there's just no avoiding that unfortunately - and we did a certain amount of redistribution of resources, putting more flights on the more profitable routes," he said.

"Fuel used to account for 12 per cent of our costs, and now it's 45 per cent. We're determined to weather this, even if it means compromising gross profits this year. We've got over $4bn on the balance sheet, so we've got enough cash. "Airlines with less cash reserves have faced worse problems, and the recourse to debt they enjoyed before is no longer there, which is why so many have found it difficult."

This year's record oil prices have led to inflated fuel bills, spurring a wave of bankruptcies and cost-saving restructurings among airlines in Europe, the US and Asia. Mr Clark said he was confident oil prices would extend their current downwards trend, having recently peaked at $147, bringing much needed relief to the industry. If they had gone any higher, he believed it could have spelt disaster for a quarter of the world's carriers.

"If oil had crept up to $170 a barrel, I think 25 per cent of the world's fleet would have busted by the end of next year. My prediction is that this time next year, it will be between $85 and $105, and at that level airlines can make things work." Mr Clark made his comments on board the inaugural flight to New York of Emirates's new A380 "superjumbo" on Friday. Equipped with two onboard shower spas and a lounge/bar for premium passengers, flight EK 3801 - the first ever A380 commercial flight into the Americas - set off on its 13-hour journey from Dubai carrying 489 passengers. The addition of the fuel-efficient Airbus plane to the fleet has been described as a "game-changing event", as it could allow Emirates to mount a serious challenge to European carriers on popular long-haul routes between Europe and the Pacific Rim. Emirates has ordered 58 of the twin-deck Airbus A380s, the world's largest commercial aeroplane.

Mr Clark acknowledged that the timing of the A380 launch appeared "cocky", when many airlines are announcing losses on the back of high fuel costs and the ailing global economy. The A380 handover ceremony in Hamburg last week came on the same day that Ryanair, the budget European airline, posted an 85 per cent drop in profits, representing what observers say is a slow and gradual redistribution of capacity to the Middle East, as European carriers struggle to cope with slowing economic growth.

"This is probably the biggest crisis the aviation industry has faced since the [Second World] War, so it's a bit cocky to wheel this new aircraft out now, but then we didn't really do it through choice," said Mr Clark. "After all, we were supposed to take delivery in October 2006." "The A380 makes sound business sense because it's effectively two planes - one on top of the other, with space for up to 517 passengers. Compare it to the A340-500, which has a capacity of 258 passengers, the A380 has four engines burning between 35 and 50 per cent more fuel, but carries twice the number of passengers."

"So in terms of its fuel efficiency and carbon footprint it's difficult to beat, and the perfect choice if you want to meet the demands of the new world and meet the profitability requirements of the owners." Emirates, the region's largest airline, is Airbus's biggest customer with 57 superjumbos on order. @Email:arichardson@thenational.ae