COVID-19 causes Emirates Group US$6 billion loss in 2020-21

COVID-19 hit the Emirates Group, which includes world’s largest international airline Emirates and its ticketing and ground handling arm Dnata, with a US$6.0 billion (Dh22.1 billion) net loss in 2020-2021 financial year ending March 2021, compared with an Dh1.7 billion (US$456 million) profit for reported for 2019-2020 financial year.

This is the airline’s first loss in more than three decades and the second annual loss reported in the airline’s 35-year history.

Emirates Group revenue of US$9.7 billion (Dh35.6 billion) was impacted by worldwide travel restrictions and border closures during the entire financial year.

The Group’s revenue declined 66 percent to US$9.7 billion (Dh35.6 billion) over the previous year’s results. The Group’s cash balance was down 23 percent to US$5.4 billion (Dh19.8 billion), from the previous year mainly due to weak demand caused by the various pandemic related business and travel restrictions across all of the Group’s core business divisions and markets.

Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Chief Executive, Emirates Airline and Group, said: “The COVID-19 pandemic continues to take a tremendous toll on human lives, communities, economies, and on the aviation and travel industry. In 2020-21, Emirates and Dnata were hit hard by the drop in demand for international air travel as countries closed their borders and imposed stringent travel restrictions.

“Our top priorities throughout the year were: the health and wellbeing of our people and customers, preserving cash and controlling costs, and restoring our operations safely and sustainably. Emirates received a capital injection of US$3.1 billion (Dh11.3 billion) from our ultimate shareholder, the Government of Dubai, and Dnata tapped on various industry support programmes and availed a total relief of nearly Dh800 million in 2020-21. These helped us sustain operations and retain the vast majority of our talent pool. Unfortunately, we still had to make the difficult decision to resize our workforce in line with reduced operational requirements.”

Emirates Group last year fired 31 percent of its total workforce to 75,145 employees, in order to reduce the loss.

“Laying professionals is a very painful decision, which was crucial for the airline to be able to reduce the operating losses. This will help the airline to rebound and be more agile this year to return to the breakeven point,” said an aviation analyst, requesting anonymity.

“Emirates did a good job in reducing the net losses to a manageable level. This will help it to bounce back in the next 1-2 years.”

In 2020-21, the Group collectively invested US$1.3 billion (Dh4.7 billion) in new aircraft and facilities, the acquisition of companies, and the latest technologies to position the business for recovery and future growth. It also continued to invest resources towards environmental initiatives, as well as supporting communities and incubator programmes that nurture talent and innovation to drive future industry growth.

The news of Emirates first net loss in more than 30 years comes as the global airline industry grapples with $126.4 billion loss, according to International Air Transport Association (IATA) which expects net airline industry losses of $47.7 billion in 2021.

“This crisis is longer and deeper than anyone could have expected. Losses will be reduced from 2020, but the pain of the crisis increases. There is optimism in domestic markets where aviation’s hallmark resilience is demonstrated by rebounds in markets without internal travel restrictions. Government imposed travel restrictions, however, continue to dampen the strong underlying demand for international travel. Despite an estimated 2.4 billion people travelling by air in 2021, airlines will burn through a further $81 billion of cash,” said Willie Walsh, IATA’s Director General.

Emirates Airline

Due to ongoing pandemic-related flight and travel restrictions, Emirates Airline reported a loss of US$5.5 billion (Dh20.3 billion) compared to the previous year’s US$288 million (Dh1.1 billion) profit, and a negative profit margin of 65.6 percent.

This includes a one-time impairment charge of Dh710 million (US$193 million) mainly relating to certain aircraft which are currently grounded and are not expected to return to service before their scheduled retirement within the next financial year.

Emirates Airline’s total passenger and cargo capacity declined by 58 percent to 24.8 billion ATKMs at the end of 2020-21, due to pandemic related flight and travel restrictions including a complete suspension of commercial passenger services for nearly eight weeks as directed by the UAE government from 25 March 2020.

Emirates carried 6.6 million passengers (down 88%) in 2020-21, with seat capacity down by 83 percent. The airline reports a Passenger Seat Factor of 44.3 percent, compared with the previous year’s passenger seat factor of 78.5 percent; and a 48 percent increase in passenger yield to 38.9 fils (10.6 US cents) per Revenue Passenger Kilometre (RPKM), due largely to a favourable route mix, fares and continued healthy demand for premium seats.

Emirates received three new A380 aircraft during the financial year and phased out 14 older aircraft comprising of 9 Boeing 777-300ERs and 5 A380s, leaving its total fleet count at 259 at the end of March. Emirates’ average fleet age remains at a youthful 7.3 years. Emirates’ order book for 200 aircraft remains unchanged at this time.

With significantly reduced and constrained capacity deployment across most markets, Emirates’ total revenue for the financial year declined 66 percent to US$8.4 billion (Dh30.9 billion).

Total operating costs decreased by 46 percent from last financial year. Cost of ownership (depreciation and amortisation) and employee cost were the two biggest cost components for the airline in 2020-21, followed by fuel, which accounted for 14 percent of operating costs compared to 31 percent in 2019-20.

The airline’s fuel bill declined by 76 percent to US$1.7 billion (Dh6.4 billion) compared to the previous year, driven primarily by 69 percent lower uplift in line with capacity reduction.

Dnata

Dnata recorded a loss of US$496 million (Dh1.8 billion) for the first time. This includes impairment charges of US$209 million (Dh766 million) on goodwill and other intangible assets across all its divisions.

With reduced flight and travel activity across the world, Dnata’s total revenue decreased by 62 percent to US$1.5 billion (Dh5.5 billion). Dnata’s international business accounts for 62 percent of its revenue.

Dnata continued to lay the foundations for future growth with investments in 2020-21 amounting to Dh328 million (US$89 million). Its operating costs decreased by 48 percent to US$2.0 billion (Dh7.4 billion), in line with reduced operations in its Airport Operations, Catering and Travel divisions across the world.

Dnata’s cash balance was US$1.3 billion (Dh4.7 billion), a decline by 12 percent. Cash used in financing activities, primarily payments for loans and leases, amounted to US$149 million (Dh548 million), while the business utilised net cash of Dh149 million (US$41 million) in essential investing activities.

The number of aircraft turns handled by Dnata in the UAE declined by 59 percent to 78,000. This reflects the impact of the suspension of scheduled passenger flights at both Dubai airports (DXB and DWC) in March 2020 as part of the UAE’s pandemic containment measures. dnata’s cargo handling declined by 18 percent to 575,000 tonnes, reflecting the reduced available flight capacity in the overall air cargo market over the year.

Sheikh Ahmed said: “No one knows when the pandemic will be over, but we know recovery will be patchy. Economies and companies that entered pandemic times in a strong position, will be better placed to bounce back. Until 2020-21, Emirates and Dnata have had a track record of growth and profitability, based on solid business models, steady investments in capability and infrastructure, a strong drive for innovation, and a deep talent pool led by a stable leadership team. These fundamental ingredients of our success remain unchanged. Together with Dubai’s undiminished ambitions to grow economic activity and build a city for the future, I am confident that Emirates and dnata will recover and be stronger than before.”

He concluded: “In the year ahead, we will continue to adopt an agile approach in responding to the dynamic marketplace. We aim to recover to our full operating capacity as quickly as possible to serve our customers, and to continue contributing to the rebuilding of economies and communities impacted by the pandemic.”

Saifur Rahman is Executive Editor of Arabian Post