Emirates Group profit up 23.5% to hit record Dhs 3.5 billion

Last week the Emirates Group reported its 19th consecutive year of profit with a new record performance backed by continued double-digit growth.

Group net profits increased 23.5% to a new high of UAE Dirhams 3.5 billion (US $942 million) for the financial year ended 31st March 2007, while Group revenue increased by an impressive 28.4% to Dhs 31.1 billion ($8.5 billion), compared to Dhs 24.2 billion ($6.6 billion) last year. The Group also maintained a robust cash balance of Dhs 12.9 billion ($3.5 billion) at the end of March, an improvement of 17.8% against a year earlier.

Emirates will pay a dividend of Dhs 400 million ($109 million) to its owner, the Government of Dubai. In total, the ownership will have received Dhs 1.8 billion ($505 million) from Emirates since the financial year 2000-01. In 2006-07, the Emirates Group estimates a direct contribution of Dhs 14.5 billion ($4 billion), and another Dhs 21.7 billion ($5.9 billion) in indirect contribution to the Dubai economy.

The 2006-07 Annual Report of the Emirates Group - comprising Emirates Airline, Dnata and subsidiary companies - was released in Dubai last week at a news conference hosted by His Highness Sheikh Ahmed bin Saeed Al-Maktoum, Chairman and Chief Executive, Emirates Airline and Group.

The Group’s latest record performance, backed by double-digit profit and revenue growth, reflects its success in growing demand for its services, and its ability to attract more premium customers through its multi-million dollar investments in product innovations and service enhancements. This is illustrated by the three million more passengers who flew Emirates in the latest financial year, for a new record total of 17.5 million.

Sheikh Ahmed said, “It has been another outstanding year of continued profitability and rapid growth. These results, against a backdrop of rising costs and significant aircraft delivery delays which have impacted our capacity growth, demonstrate Emirates’ ability to adapt and knuckle down to the challenge.”

He continued, “For the third year running, pressure from fuel costs has softened our profits, while the delay on our A380 aircraft deliveries has meant that we have had to revisit our expansion plans. In spite of these factors, the Group has continued to forge ahead, posting double-digit profit and revenue growth by expanding our operations into new markets and adding capacity to existing markets offering the highest returns; innovating to attract and retain premium customers; and keeping a close watch on unit costs.”

Sheikh Ahmed added, “The Emirates Group is exposed to fuel price fluctuations, rising interest rates, and the volatility of the US dollar against major currencies – all of which we have very little control over. In all other areas of our business, we have better control and in these we strive to improve efficiency and effectiveness, enhance productivity and constantly challenge the existing ways of doing business for continuous improvement. This is essential as we confidently stride ahead with our expansion plans and continue to invest in various new initiatives to manage the company’s growth.”

Across the Group, initiatives to improve efficiency and keep a tight rein on costs have also contributed to the positive results, as the Group maintained a strong net profit margin of 11.4%.

Fuel costs remained the top expenditure accounting for 29.1% of total operating costs, up from 27.2% the previous year and 21.4% the year before. Like other airlines, Emirates was forced to retain its fuel surcharges, which only covered about 50% of incremental costs.

In a year where WTI crude oil prices have fluctuated from US$50 to $78 per barrel, Emirates’ challenge was to manage its fuel risk programme within a price range that ensured its net fuel cost remained below market levels. The airline’s jet fuel risk management programme continued to help mitigate fuel costs, saving the company Dhs 724 million ($197 million) in 2006-07.

In his opening review in the 2006-07 Annual Report, Sheikh Ahmed highlighted the mutually-supportive relationship between Dubai’s rapid development and the growth of Emirates and Dnata which have directly and indirectly contributed to the city’s growing infrastructure and reputation as an international centre for commerce and tourism.

He also remarked on how Emirates Airline has grown from a small operator of eight aircraft in 1990 to become the eighth largest international carrier in the world today with 102 aircraft and over 80 international destinations.

“I often get asked how it is possible Emirates can be so successful without subsidies or preferential treatment from the government,” he said. “There is no secret formula. We simply work hard, work smart, and have built our success on a sound and simple business model that focuses on growth, keeping unit costs low, and investing in innovations to keep ahead of the competition.”

Sheikh Ahmed concluded, “The Group’s strong performance this year is very gratifying. As with previous years, we intend to plough the retained profits back into our business – ensuring we have the right infrastructure, people and resources to support the company’s future growth, while providing our customers with the high quality services they have come to expect from us.”

Emirates Airline’s revenues totalled Dhs 29.8 billion ($8.1 billion) for the year, Dhs 6.8 billion ($1.8 billion) or 29.5% higher than income of Dhs 23.1 billion ($6.3 billion) in 2005-06. Airline profits of Dhs 3.1 billion ($844 million) also surpassed the previous year’s record profits of Dhs 2.5 billion ($674 million).

With the addition of 12 new Boeing 777-300ER aircraft during the financial year, Emirates’ fleet reached 102 at the end of March, including nine  freighters. The current fleet of all wide-bodied aircraft has an average age of 63 months – one of the youngest commercial fleet in the skies.

Amongst the highlights of the year was Emirates’ order for 10 Boeing 747-8 freighters worth Dhs 12.1 billion ($3.3 billion) at the 2006 Farnborough  Air Show. The airline also ordered five additional Boeing 777-300ERs from GECAS on operating leases to meet its capacity requirements due to the delayed delivery of the A380s.

This will bring its 777-300ER fleet size to 59 which, coupled with its existing 777 fleet and freighters, will place Emirates as the largest operator of the 777 by 2010. Emirates’ current order book for 107 new aircraft is worth approximately Dhs 111 billion ($30 billion) in list prices. Over the next eight years, the airline will continue to receive delivery of one new aircraft per month on average.

During 2006-07, Emirates launched passenger services to four new cities - Bangalore, Beijing, Nagoya, and Tunis - bringing the network total to 89 destinations. In addition, it increased the frequency of passenger services to existing destinations, notably a second daily service to Zurich and Dusseldorf, along with a third daily flight to New York via Hamburg.

Passenger seat factor increased to 76.2% from 75.9% the previous year. Traffic increased by 21.6% to 12,643 million tonne-kilometres, and keeping pace with a capacity increase of 22.9% to 19,414 million tonne-kilometres. Breakeven load factor remained relatively low and improved marginally to 59.9% from 60.2% last year, while yield improved for the fifth consecutive year, to 216 fils (59 US cents) per RTKM (Revenue Tonne Kilometre), up from 203 fils (55 US cents) in 2005-06.

Over the past 12 months, nine new Emirates Lounges were opened at airports in key points across the airline’s network during the year, bringing to 18 the total number of world-class lounges dedicated to Emirates’ First and Business class customers and eligible frequent fliers. To date, the airline has invested Dhs 134 million ($37 million) in its lounge product, with another Dhs 49 million ($13 million) earmarked for 10 more Emirates Lounges in the financial year 2007-08. 

Emirates also enhanced its product for young travellers, introducing a complimentary baby stroller service at Dubai airport and new onboard activity packs to keep its young customers happily entertained while flying.

The airline also progressed with its multi-million dollar programme to retrofit its existing 777 fleet with new SkyCruiser seats in First class, flat-bed seats in Business class, and its award-winning ‘ice’ inflight entertainment systems across all classes.

Emirates SkyCargo recorded strong growth across its network to carry 1.2 million tonnes of cargo, surpassing its record of one million tonnes of cargo carried last year by 13.5%. The division’s revenue of Dhs 5.4 billion ($1.5 billion) was Dhs 874 million ($238 million) or 19% higher than the year before, and contributed 20% to the airline’s transport revenue, one of the highest contributions of any airline in the world with a similar fleet make-up.

In addition to the 10 Boeing 747-8 freighters ordered at the Farnborough Air Show, the division has signed a wet-lease agreement with TNT Airways S.A for a Boeing 747-400ERF commencing operations in May 2007, and another two aircraft of the same type from Guggenheim Aviation on dry-lease. The latter two aircraft will enter service in August 2007 and May 2008. Scheduled freighters now operate to 29 destinations. In all, Emirates SkyCargo carries freight in 102 aircraft, including nine freighters, to 89 cities.

The Destination and Leisure Management division of Emirates Airline saw another strong year of growth, with sales crossing the Dhs 1 billion ($314 million) mark. This represents an improvement of 22% over the previous year, with yield up eight% despite the increasing competitive market conditions. During the year, Emirates Holidays and Arabian Adventures served a record number of 369,000 customers. 

The division’s new Emirates Hotels & Resorts arm also continued to develop, and this financial year will see the launch of two new properties – Emirates Marina Hotel & Residence, due to open in September 2007, and Emirates Green Lakes Serviced Apartments, scheduled to open in January 2008.

Dnata recorded a solid performance with revenue growth of 16.5% to Dhs 2.1 billion ($565 million) compared with Dhs 1.8 billion ($485 million). Dnata’s profits of Dhs 360 million ($98 million) represent an increase of 11% compared to last year’s Dhs 324 million ($88 million) – this despite the mammoth challenge to keep operations at the Dubai airport and cargo terminals running smoothly around one of the biggest airport construction and expansion projects currently in progress.

In its 48th year of operation, Dnata remains at the heart of the rapid traffic growth at Dubai International Airport, handling a record 30 million passengers (up 17.2%), 110,000 aircraft (up eight%) and 535,132 tonnes of cargo (up six%) during the 2006-07 fiscal year. Its corporate and retail travel arm, Dnata Agencies, also reported a 37% increase in turnover, repositioned its retail brand Dnata Holidays to  focus on luxury travellers, and celebrated its 40th year as GSA for seven airlines while welcoming three new airline customers.

As of 31st March 2007, the Group employed 30,344 people, up 13% from a year before. In the past 12 months, Emirates has been receiving 60 new cabin crew recruits each week on average, and now has over 8,000 cabin crew representing more than 100 nationalities. Its 1,667 captains and first officers represent over 75 nationalities.

The Group’s Facilities Management Department currently has Dhs 580 million ($158 million) worth of new projects in Dubai under various stages of design and construction including: 700 apartments for cabin crew accommodation in Media City, a new call centre in Dubai Outsource Zone, new offices for D&LM on Sheikh Zayed Road and a new operations centre at Dubai Investment Park, and storage warehousing in Ghusais.

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