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Not even the Middle East immune to airline troubles

Emirates President, Tim Clark
Emirates President, Tim Clark
  • This is the “worst trading environment the industry has ever faced” – British Airways CEO;
  • Asia Pacific carriers warn on profits, earnings down as fuel soars;
  • Emirates drops USD1.5 billion profit forecast this year;
  • “A few hundred million dollars [profit] would be fine” – Emirates President;
  • Emirates forecasts oil price of USD85-105 per barrel this time next year;
  • Air Arabia bucking the trend with 14% June quarter profit increase...

The headwinds that have buffeted North American airlines are quickly spreading to Europe and Asia, and it would appear even the high flying Middle East carriers are not immune. United Airlines CEO, Glenn Tilton, stated, “there’s going to be a recasting of the industry, and it’s now stretched offshore”. He added, “you’re going to see a recalibration of the industry, and it’s going to have an effect on [aircraft] order books”.

Revealing an 88% reduction in the first quarter net profit to Jun-08, British Airways CEO, Willie Walsh, stated, the carrier is experiencing the "worst trading environment the industry has ever faced", with a combination of "unprecedented oil prices, economic slowdown and weaker consumer confidence".

Cathay Pacific recently warned of "disappointing" earnings this year, while Singapore Airlines, Jet Airways, Thai Airways and Philippine Airlines have all reported quarterly earnings impacted by higher fuel prices to varying degrees.

Emirates President, Tim Clark, has said that soaring fuel costs had "knocked us for six", and the carrier has dropped its USD1.5 billion profit forecast this year. Mr Clark added, "the way things have gone, a few hundred million dollars [profit] would be fine". oneworld member, Royal Jordanian reported a deepening net loss for the six months ended 30-Jun-08 of USD4.4 million.

Emirates' Clark described the present conditions as "probably the biggest crisis the industry has faced in the post-war era". Fuel used to account for 12% of Emirates' costs, but has now reached 45 %. Mr Clark added, "we're determined to weather this, even if it means compromising gross profits this year. We've got over USD4 billion on the balance sheet, so we've got enough cash".

The Emirates President forecasts an easing in fuel costs as the year progresses, predicting the price of oil to range between USD85-105 per barrel this time next year. However, if oil had spiked to USD170 per barrel in its recent surge, Mr Clark estimates 25% of the world's fleet "would have busted by the end of next year".

But cross-town rival, Sharjah-based LCC, Air Arabia, is bucking the trend, revealing a 14% increase in net profit for the three months ended 30-Jun-08 to USD22.3 million, on a 34% lift in passenger numbers. With a net margin of 16.8%, Air Arabia would have to be the world's most profitable airline at the present. Its mix of low costs and access to rapidly expanding economies and travel markets makes it almost uniquely positioned in today's difficult environment.

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