By Sarah Townsend
President Tim Clark also adds falling oil prices are 'double-edged sword' while regional conflicts threaten to disrupt operations
The strong US dollar is “continuing to erode” Emirates Airline’s profits while regional conflicts threaten to “disrupt” operations, the group’s president has lamented.
Writing exclusively in Arabian Business, Sir Tim Clark gave his predictions for the year ahead.
He said 2015 was a year of considerable growth for the airline and it “would not be slowing down in 2016”.
However, the group continues to grapple with global currency fluctuations, the fall in oil price and political insecurity in the Middle East.
Clark said: “The strength of the US dollar against major global currencies continues to erode our profits, reflecting the sluggish global economic environment, air cargo traffic continues to flatline.”
The stronger US dollar has served to limit the competitiveness of Gulf products and services in the world markets.
In its half-year update in November, Emirates announced revenue was down 2.3 percent to AED 46.1 billion (US$ 12.6 billion) for the first six months of the 2015-16 financial year, from AED47.2 billion (US$ 12.9 billion) during the same period the previous year.
Emirates said at the time that revenues were “negatively impacted by the strong US dollar against major currencies”.
However, profit was up 65 percent to AED 3.7 billion (US$ 1.0 billion) - one of the group’s best half-year profit performances ever, with net profit rising to AED 3.7 billion (US$ 1.0 billion).
Writing in Arabian Business this month, Clark added that the plunge in fuel prices has been a “double-edged sword” – “on the one hand lowering operating costs, but on the other impacting global business confidence and market volatility.
“For many businesses, it is tempting to enjoy the benefits of cheaper fuel and take the foot off efficiency initiatives.
“At Emirates, we continue to invest in new fuel-efficient aircraft and technologies, because we know that is key to long-term sustainable growth.”
He added: “Regional conflicts continue to disrupt our operations.
“We are keeping a close watch on developments, pressing for greater accountability across the industry to share knowledge and intelligence – which underpins our relentless focus on safety.”
Quick question, why don't airline fares lower when the price of oil lowers?
In a perfect world you can have everything. The key is low fuel prices. In 2009 Emirates wrote down dhs 1.9 bil on losses for hedging fuel. No hedging last year (2015) so a windfall right? Better consider hedging at these levels or in 2017 we'll read in Arabian Business how surging fuel prices hurt earnings. Also there is hedging available in the currency market if this is an issue.
Oil is down by more than 60%
"However, the group continues to grapple with global currency fluctuations, the fall in oil price and political insecurity in the Middle East."
I struggle to understand why the historically low oil price is nothing but good news for a business that surely spend a whole lot of money on fuel!!
Because the spot price is not necessarily the price paid by the airline
Given the volatility of oil they may have entered into some long term purchase agreements (a futures contract) to hedge the cost, and they may find themselves paying more than their competitors who did not hedge
Of course had the price of oil moved on the opposite direction that would have been different and the hedging airline would have a choice of increasing profits or grabbing market share
And yes, airlines can and do actually fight on price, that is why so many people in the world can afford to fly now as opposed to 50 years ago.