Emirates posts static revenues despite huge fleet expansion

Emirates Group, owner of the biggest Arabian airline Emirates, massively expanded its fleet to fly 21 per cent more passengers last year but group revenues remained flat at $12.4 billion.

Admittedly the group’s efforts to reduce costs, aided by a fall in fuel prices, boosted the bottom line profit from $187 million to $964 million in the year to the end of March. But as with many large businesses around the world right now, profits are only coming from falling costs while revenues are under pressure.

145 aircraft

With a growing fleet of aircraft – 145 planes serving 102 destinations in 62 countries – Emirates ought to be posting a rise in group revenue to match the 21 per cent increase in passenger volume. Lower ticket prices kept revenues from rising. It could be worse, of course. If Emirates was not making a massive investment in new aircraft and routes then revenues would be falling.

That is the picture for many US airlines this year, for example. Higher profits for them have come at the cost of cutting staff and salaries, while revenues are falling. Emirates at least does not have that problem.

But what happens next? Emirates Airline is fortunate in its geographic position that allows it to cash in on the booming Asian markets while most developed economies are still depressed. The airline will also continue its expansion – employing 5,000 more staff over the next year and adding seven more A380 super jumbos.

Double dip recession

Yet the question remains, if the world enters a double dip recession how will Emirates react? It cannot have many more internal cost savings to make, although the price of fuel would drop again. Ticket prices would fall, passenger numbers would go down, profits would be squeezed and revenues struggle to stay static despite the fleet and network expansion.

However, the airline business is a highly competitive global industry. If these are the problems being experienced by the leanest and fittest carrier then imagine the fate that will befall the legacy carriers with expensive unionized labour, old aircraft and shrinking customer bases.

For while the management of Emirates may have challenges going forward there is not the same whiff of a suicidal death spiral that surrounds some US and European carriers. When airlines discuss replacement they are usually referring to their fleets but increasingly we are going to see the replacement of entire airlines.

Emirates is still in pole position but will need to watch its back and not become complacent.