Emirates: The billion dollar machine

The strong result is also another indication of just how far airlines have managed to leverage the improving environment to turn around their performance.

Most of Emirates peer carriers have been profitable over the same period; British Airways reported a net profit of GBP107 million for the six months to 30-Sep-2010, All Nippon Airways achieved a net profit of USD163.9 million.

Full service airlines have been reporting strong financial results this year, prompting IATA to raise its industry financial forecast for 2010 from a loss of USD2.6 billion to a profit of USD5.3 billion. The airlines industry lost a combined USD9.9 billion in 2009 and USD36 billion in 2008.

3Q2010 full-service airline financial results

Source: Centre for Asia Pacific Aviation and airline reports

The carrier's Chairman and CEO, Sheikh Ahmed bin Saeed Al-Maktoum, hailed the result as "incredibly robust", coming as it does less than 12 months after the 2009 Dubai financial meltdown. Emirates' revenue rose 35.5% year-on-year to USD7.3 billion.

Emirates achieved record average load factors of 81.2% over the six-month period. Load factors in premium cabins rose by 2.6 percentage points, "reflecting an encouraging change in the global economic outlook". Overall passenger traffic (RPKs) increased 19.4%, on a 13.4% increase in capacity (RPMs).

In Jun-2010, Emirates announced a record-breaking order for 32 A380s, as well as confirming an order for 16 B777s and adding another 14 B777 orders. Emirates took delivery of five A380s and one B777 since Apr-2010, with another two aircraft due to be delivered by Mar-2011. The carrier still has more than 200 widebody aircraft on order.

Dark spots on the horizon for Emirates are the cost of fuel - which hit a six-month high above USD83 per barrel this week - and the less-than-spectacular performance of the Dubai and UAE economies.

Emirates' operating costs were up 22.6% to USD6.3 billion in the first six-months of its financial year. Fuel continues to be the most significant expenditure for the airline.

The UAE's economy has slowly recovered from the global financial crisis and is projected to grow at 2.4% in 2010, as the economy benefits from a strong rebound in Asia and the restructuring of USD25 billion in debt over the Dubai World project. However, the pace of growth in the UAE economy is expected to be outstripped by all its GCC neighbours in 2011.

GCC nations GDP forecasts

Source: IMF Oct-2010 World Forecast

Protectionist allocation of traffic rights will also be an increasing concern, as the recent UAE-Canada diplomatic spat illustrates. Emirates plans to build its passenger destinations beyond 100 cities in 2011.

Even with the modest economic growth in the UAE, it is hard to see Emirates slowing its growth. Even during the height of the crisis, when the UAE GDP dipped 2.4%, the carrier was still able to maintain profitability and double-digit increases in passenger traffic and capacity. The return of economic growth is only going to spur the carrier onwards.

Emirates capacity & passenger traffic: 2003/04 to 2009/10

Source: Centre for Asia Pacific Aviation