Emirates is considered to be one of the pioneer countries in the middle east in the aviation field, which would increase clearly its financial performance. In 2018-19 Emirates profits have tumbled 69% in comparison with the year before, to AED 871m ($237m). The airline has blamed this on high oil prices and cut-throat competition.
Higher traffic and revenue but falling profits
Emirates carried 58.6 million passengers over the financial year, a moderate (0.2%) increase. The airline has an interesting strategy of revenue diversification based on different geographical regions. Emirates targets to maintain the revenue base from each region below 30% of the total revenue. Such a strategy helps the airline to mitigate FX volatility risk or other regional instabilities. Revenues across all regions except the Gulf and the Middle East have risen by single digit numbers. Currently, the revenues from Europe make 28.3% of the total revenue, close to the ‘maximum’ of 30%.
Despite a rise in revenue to AED 97,907m, up 6% year on year, profits have tumbled. The most likely reason that causes profits to fall despite increases in revenue is rising costs.
Reasons behind higher costs
Looking at the data from Emirates’ financial statement, the total costs in the 2018-19 financial year have risen sharply by 8%, to AED 95,260m. HH Sheikh Ahmed bin Saeed Al Maktoum, Chairman, and Chief Executive Emirates Airline and Group blame the rise in costs on high oil prices and currency headwinds:
“Jet fuel prices soared by 22% over our financial year. There were significant currency fluctuations in India, Iran and Brazil, and volatility and devaluations in Africa and South America.”
Seeing the oil prices rise, Emirates implemented cost-cutting measures by reducing salaries, sales expenses and crew layover costs by 3.5, 4.2 and 2.8 percent respectively. In fact, the airline also reduced its staff headcount, with the average number of employees decreasing by 1,932 or 3.9% to 47,808. However, thanks to “new and innovative ways of working” productivity have improved.
Interestingly the airline managed to reduce overflying costs by 4.5%, attributing the difference to better route planning. Overflying costs are fees applied for flying through a given country’s airspace.
The aforementioned unpacking of the business class is another cost-cutting measure, aimed at bringing the profitability back to its higher levels.