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Emirates reports 44% drop in profit

/Arabian Post Staff/ Emirates Group, which operates Emirates Airline – the world’s largest international carrier – reported a 44 percent decline in profits to US$631 million (Dh2.3 billion) in 2018-19 financial year ending March 31, 2019, despite achieving a 7 percent growth in revenue to reach US$29.8 billion (Dh109.3 billion).

In line with the overall profit, the Group declared a dividend of Dh500 million (US$136 million) to its shareholder, the Investment Corporation of Dubai, for 2018-19.

Emirate Airline itself posted a 69 percent decline in net profits to US$237 million (Dh871 million), despite achieving a 6 percent revenue growth to US$26.7 billion (Dh97.9 billion), compared to the previous year’s results.

“Against a backdrop of high fuel prices, strong competitive pressure, and unfavourable currency impact, the airline reported a profit of US$237 million (Dh871 million), a decline of 69 percent over last year’s results, and a profit margin of 0.9 percent,” the airline said in a statement.

This is the airline’s 31st consecutive year of profit and steady business expansion, since its launch 33 years ago in October 1985.

Emirates Group’s ticketing and ground handling arm, Dnata recorded its most profitable year with Dh1.4 billion (US$ 394 million) profit. This includes gains from a one-time transaction where Dnata divested its 22 percent stake in the travel management company Hogg Robinson Group (HRG), during HRG’s acquisition by Amex Travel Business Group. Without this one-time transaction, Dnata profits will be down 15 percent compared to the same period last year.

Dnata’s total revenue grew 10 percent to US$3.9 billion (Dh14.4 billion). Dnata’s international business now accounts for 70 percent of its revenue. “This reflects its continued business growth across its four business divisions – both organic through customer retention and new contract wins; as well as via its new acquisitions,” the airline said..

Emirates Group

The Group’s cash balance declined 13 percent to US$6.0 billion (Dh22.2 billion) from last year, mainly due to large investments into the business, including significant acquisitions and payment of last year’s Dh2 billion (US$545 million) dividend.

In 2018-19, the group collectively invested US$3.9 billion (Dh14.6 billion) in new aircraft and equipment, the acquisition of companies, modern facilities, the latest technologies, and staff initiatives, a significant increase over last year’s investment spend of US$2.5 billion (Dh9.0 billion ).

In February, Emirates announced a commitment for 40 A330-900s and 30 A350-900s worth US$21.4 billion at list prices in an agreement signed with Airbus, to be delivered from 2021 and 2024 respectively. The airline will also receive 14 more A380 deliveries from 2019 until the end of 2021, taking its total A380 order book to 123 units.

Dnata’s key investments during the year included: the acquisitions of Q Catering and Snap Fresh in Australia, and 121 Inflight Catering in the US; the buy-out of shares to become the owner of Dubai Express, Freightworks LLC; and a 51 percent majority stakeholder of Bolloré Logistics LLC, UAE; the build of new cargo and pharma handling facilities in Belgium, the US, the UK, the Netherlands, Australia, Singapore and Pakistan; the acquisition of German tour operator Tropo, and a majority stake in BD4travel, a company providing artificial intelligence driven IT solutions in the travel sector.

Despite stiff competition across its key markets, Emirates increased its revenue by 6 percent to US$26.7 billion (Dh97.9 billion).

“The relative strengthening of the US dollar against currencies in many of Emirates’ key markets had an US$156 million (Dh572 million) negative impact to the airline’s bottom line, a stark contrast to the previous year’s positive currency impact of US$180 million (Dh661 million),” Emirates said.

Total operating costs increased by 8 percent over the 2017-18 financial year. The average price of jet fuel climbed by a further 22 percent during the financial year after last year’s 15 percent increase. Including a 3 percent higher uplift in line with capacity increase, the airline’s fuel bill increased substantially by 25 percent over last year to US$8.4 billion (Dh30.8 billion). This is the biggest-ever fuel bill for the airline, accounting for 32 percent of operating costs, compared to 28 percent in 2017-18. Fuel remained the biggest cost component for the airline.

Emirates’ total passenger and cargo capacity crossed the 63 billion mark, to 63.3 billion ATKMs at the end of 2018-19, cementing its position as the world’s largest international carrier. The airline moderately increased capacity during the year over 2017-18 by 3 percent, with a focus on yield improvement.

Emirates received 13 new aircraft during the financial year, comprising of seven A380s and six Boeing 777-300ERs, including the last 777-300ER on its order book. The next 777 delivery is planned for 2020, when Emirates receives its first 777X aircraft.

During 2018-19, Emirates phased out 11 older aircraft, bringing its total fleet count to 270 at the end of March. This fleet roll-over involving 24 aircraft was again one of the largest managed in a year, keeping Emirates’ average fleet age at a youthful 6.1 years.

Supplementing its organic network growth, Emirates expanded its global connectivity and customer proposition through new codeshare agreements signed with Jetstar Pacific and China Southern Airlines. It also enhanced its commercial strategic partnership with South African Airways.

The Emirates-Flydubai partnership continued to develop, with Emirates customers now able to access 67 more destinations served by Flydubai, and enjoy greater connectivity with 11 Flydubai flights operating from Emirates Terminal 3. The partnership alignment also saw Emirates Skywards become the loyalty programme for both Emirates and Flydubai.

Overall passenger traffic remained steady, as Emirates carried 58.6 million passengers (up 0.2 percent). With seat capacity increasing by 4 percent, the airline achieved a Passenger Seat Factor of 76.8 percent. The slight decline in passenger seat factor compared to last year’s 77.5 percent, reflects the impact of slowing regional economies on travel demand, and strong competition in many markets.

An increase in market fares and a favourable class mix helped support a passenger yield increase of more than 3 percent to 26.2 fils (7.1 US cents) per Revenue Passenger Kilometre (RPKM), although the full impact was partly offset by the strengthening of the US dollar against most currencies.

During the year, Emirates raised US$3.9 billion (Dh14.2 billion) to fund its fleet growth, using a combination of term loans, finance and operating leases.

“Testament to the increasing depth of the Japanese structured financing market for Emirates, all six 777-300ER aircraft delivered were financed via a Japanese Operating Lease with a Call Option (JOLCO) raising funding of more than US$1 billion. Emirates has now raised over US$7.6 billion (Dh28 billion) from the Japanese structured financing market since 2014,” it said.

A US$600 million corporate Sukuk issued in March 2018 financed 2 A380 deliveries; and the remaining 5 A380 aircraft were taken on a mix of operating lease, Export Credit Agency (ECA) backed finance leases, and finance leases arranged from institutional investors and bank base from Korea, Germany, UK and Middle East.

“These deals demonstrate Emirates’ ability to unlock diverse financing sources through access to global liquidity, underscoring its sound financials and the strong investor confidence in the airline’s business model.

Emirates closed the financial year with a healthy level of US$ 4.6 billion (Dh17.0 billion) of cash assets,” Emirates said.

Revenue generated from across Emirates’ six regions continues to be well balanced, with no region contributing more than 30 percent of overall revenues. Europe was the highest revenue contributing region with US$ 7.7 billion (Dh28.3 billion), up 6 percent from 2017-18. East Asia and Australasia follows closely with US$7.2 billion (Dh26.6 billion), up 5 percent. The Americas region recorded revenue growth at US$3.9 billion (Dh14.5 billion), up 8 percent. Africa revenue increased by 9 percent to US$2.8 billion (Dh10.2 billion), whereas Gulf and Middle East revenue decreased by 3 percent to US$2.3 billion (Dh8.3 billion). West Asia and Indian Ocean revenue increased by 6 percent to US$2.2 billion (Dh8.1 billion).

Online, Emirates became the first airline to launch 3D seat models using web-based virtual reality technology, allowing customers to preview its onboard product and select seats. It also launched a new feature on its mobile app, so customers can browse the thousands of movies, music and shows on offer, create personal playlists before they fly, and then sync from their devices to their personal seatback screens when they board.

Emirates SkyCargo continued to deliver a strong performance in a highly competitive market with dampening demand, contributing to 14% of the airline’s total transport revenue.

In an airfreight market facing unrelenting downward pressure on yields and slowing demand, Emirates’ cargo division reported a revenue of Dh13.1 billion (US$3.6 billion), an increase of 5 percent over last year, while tonnage carried slightly increased by 1% to reach 2.7 million tonnes.

Freight yield per Freight Tonne Kilometre (FTKM) for the 2nd consecutive year increased by a further 3%, demonstrating Emirates SkyCargo’s ability to retain and win customers on value despite fuel price increases, and a weakened demand in many markets.

Emirates’ SkyCargo’s total freighter fleet stood at 12 Boeing 777Fs. In addition to belly-hold capacity to Emirates’ new passenger destinations, Emirates SkyCargo launched a new freighter service to Bogota (Columbia), and resumed freighter services to Erbil (Iraq).

Emirates SkyCargo continued to develop innovative, bespoke products tailored to key industry sectors. In April, it launched Emirates AOG, a new airfreight product designed to transport aircraft parts quickly across the globe. This was followed in August by the launch of Emirates Pets and Emirates Pets Plus, which are new and enhanced air transportation products to ensure the safety and comfort of pets with services such as veterinary checks, document clearances, door-to-door transport, and the booking of return flights for pets.

Emirates’ hotels recorded revenue of Dh669 million (US$ 182 million), a decline of 10 percent over last year with competition further on the rise in the UAE market impacting average room rates and occupancy levels.

Dnata

Dnata invested close to US$314 million (Dh1.1 billion) in acquisitions, new facilities and equipment, leading-edge technologies and people development during the year.

In 2018-19, Dnata’s operating costs increased by 11 percent to US$3.6 billion (Dh13.1 billion), in line with organic growth across its business divisions, coupled with integrating the newly acquired companies mainly across its catering division and international airport operations.

Dnata’s cash balance was US$1.4 billion (Dh5.1 billion), an increase of 4 percent. The business delivered an US$386 million (Dh1.4 billion) cash flow from operating activities in 2018-19, which is in line with its enhanced cash balance and puts the business in a solid position to finance its investments.

Revenue from Dnata’s UAE Airport Operations, including ground and cargo handling increased by 2 percent to reach US$878 million (Dh3.2 billion).

The number of aircraft movements handled by Dnata in the UAE remained flat at 211,000. This reflects the impact of the region’s challenging aviation environment on many of Dnata’s airline customers. Dnata’s Cargo handling slightly declined by 1 percent to 727,000 tonnes, impacted by lower demand in the overall air cargo market.

In 2018-19, Dnata strengthened its position in the freight forwarding industry with the acquisition of more shares to become the sole owner of Dubai Express and Freightworks LLC; and a 51 percent majority stakeholder of Bolloré Logistics, UAE that operates in 106 countries.

Dnata also acquired a majority stake in DUBZ, a company that emerged from Dubai’s incubator programme Intelak, providing baggage delivery services to passengers arriving in Dubai, and for passengers departing Dubai to check-in their baggage and get boarding passes from anywhere in the city.

Dnata’s International Airport Operations division grew revenue by 5 percent to US$1.1 billion (Dh4.0 billion), on account of increasing business volumes, opening of new locations and winning new contracts. International airport operations continue to represent the largest business segment in Dnata by revenue contribution. The number of aircraft handled by the division further increased substantially by 9 percent to 488,000, and Cargo noted a growth of 1 percent to 2.4 million tonnes of handled goods.

During the year, Dnata won over 100 new contracts in key markets, including the United States, Canada, the UK, Australia and Italy, and coupled it with solid customer retention.

Dnata significantly enhanced its cargo capabilities in 2018-19. It debuted operations in Belgium with a new 14,000 m² cargo centre at Brussels Airport, built tailor-made cargo solutions across new facilities in Dallas, London Heathrow, Adelaide and Karachi, and refurbished existing facilities in Singapore and Amsterdam. In response to customer growth, Dnata invested to expand at Gatwick and Manchester, and opened new cargo facilities in Islamabad and Multan airports including Pakistan’s first automated storage and retrieval system.

Dnata also invested in its pharma facilities, offering more handling capability than any other company in the UK, the Netherlands, Australia and Singapore. Its ability to provide safe and reliable pharma handling services globally was recognised with IATA’s CIEV Pharma certification in Dubai and Toronto, and GDP certification in London and Zurich.

In Italy, Dnata increased its share in Airport Handling SpA, a Milan-based ground handler, to 70 percent.  At Zurich Airport, Dnata was re-awarded the ground and cargo handling licence till 2025, enabling it to serve customers without interruptions.  In North America, Dnata launched ground and cargo handling at Los Angeles and began passenger services at New York’s JFK.

Dnata’s Catering business accounted for US$717 (million Dh2.6 billion) of Dnata’s revenue, significantly up by 23 percent. The inflight catering business uplifted more than 70 million meals to airline customers, an increase of 27 percent.

This result includes the impact of two major acquisitions – Qantas’ catering businesses, Q Catering and Snap Fresh in Australia, and 121 Inflight Catering in the US – as well as new and expanded customer partnerships, particularly in the UAE, Romania, Czech Republic and Italy.

During the year, Dnata inaugurated a 2,000 m² state-of-the-art catering facility in Canberra with the capacity to produce more than 60,000 meals a month. In North America, Dnata launched operations in New York, Nashville and Orlando through the acquisition of 121 Inflight Catering, and will commence operations in purpose-built facilities in Boston, Houston and Vancouver in the first quarter of the new financial year, with further facilities in the build across the U.S.

Revenue from Dnata’s Travel Services division has increased by 9 percent to Dh3.7 billion (US$1.0 billion). The underlying total transaction value (TTV) of travel services sold grew by 2 percent to Dh11.5 billion (US$ 3.1 billion).

This performance reflects Dnata’s ability to tap into, and serve a broad and diverse array of travel segments, partially offsetting the slowing demand for corporate and consumer travel in the UK and in the UAE – its two biggest markets.

In 2018-19, Dnata entered the German market and expanded its travel network in Europe with its acquisition of Tropo, a tour operator selling through online travel agents and independent travel agencies. It also acquired a majority stake in BD4travel (Big Data for Travel), an award-winning tech company which provides artificial intelligence driven IT solutions in the travel sector.

Dnata also significantly grew its contact centre operations with the completion of its second facility in Clark, Philippines, and the purchase of a facility in Belgrade taking its operations to 14 locations in the UAE, Serbia, the Philippines, India and the UK. With added capability and capacity, Dnata successfully expanded its service contracts with key customers including a new five-year agreement with Etihad Airways to run its contact centre operations globally.


Also published on Medium.