Emirates, Turkish Enter Crisis Mode
11-25-2016, 07:21 PM
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Emirates, Turkish Enter Crisis Mode
Emirates, Turkish Enter Crisis Mode As Demand Falters
Emirates and Turkish Airlines feel the pinch in their profit margins
Nov 11, 2016 Jens Flottau and Cathy Buyck | Aviation Week & Space Technology
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Slowing Down
The big three Gulf carriers and Turkish Airlines have long been perceived as a dangerous threat to established legacy airlines in Asia, Europe and the Americas. But the latest trends at Emirates Airline and Turkish show that the fast-growing superconnectors are by no means insulated against external shocks.
In fact, their latest results are alarming. And if the trends continue, the four carriers could well have their steepest growth behind them for now. Turkish is even announcing a significant reduction in fleet size. The development is also remarkable in the context of the recent fierce dispute about alleged subsidies and market access—the pressure for competitors in Europe, the U.S. and Asia may now be somewhat reduced.
Emirates has no plans to defer aircraft deliveries, including for Airbus A380s, despite a massive drop in profits. Credit: Tony Osborne/AW&ST
Emirates, the biggest of the three Gulf carriers and the only one to publish audited financial reports, warns it does not see signs of market improvement after posting much-deteriorated results for the first six months of its financial year.
“The bleak global economic outlook appears to be the new norm, with no immediate resolution in sight,” Emirates Group Chairman and CEO Sheikh Ahmed bin Saeed Al Maktoum says. “Increased competition as well as the sustained economic and political uncertainty in many parts of the world have added downward pressure on prices as well as dampened travel demand.”
The carrier, one of the fastest-growing and financially healthiest airlines worldwide, suffered a 75% contraction in net profit (to $214 million) in the first six months of its fiscal year to Sept. 30. Its net profit margin of 1.9% is far below the profitability levels enjoyed by North American and even some European carriers. And it burnt through about $2 billion in net cash in six months mainly to fund aircraft acquisitions.
While Emirates did not disclose precise yield numbers, the trend has been very negative: The airline unit’s revenues dropped by 1% to $11.4 billion, despite a 9% increase in passenger numbers and an 8% increase in revenue passenger kilometers (RPK). Emirates also grew capacity by 12%, leading to a three-point drop in its load factor, which was a relatively low 75.3%.
The gap between capacity and demand could widen in the next six months: In the first half of the year, the carrier took eight more Airbus 380s and eight Boeing 777-300ERs, though it also retired 19 aircraft. The net result is a small reduction in aircraft to 248 units. However, in the second half it is due to receive 20 additional aircraft and so far plans to retire only eight.
“There are no plans to cut or slow down deliveries,” an Emirates spokesperson says. “We constantly review our capacity deployment to ensure the best utilization of our fleet in order to serve customer demand.” Developments at Emirates are closely watched by Airbus, as the airline is the current life insurance for the struggling A380 program.
Credit: Tony Osborne/AW&ST
The carrier identified three major factors for the deterioration of its results: the strength of the U.S. dollar, which affects its cost base, as the United Arab Emirates dirham is tied to it, while the shortage of hard currency in some African countries has forced the airline to consider withdrawing or reducing services; geopolitics; and the weak economic climate.
Turkish Airlines is now also deep in crisis mode and, judging by its fleet plans, it expects to remain there a long time. The carrier is making a sharp U-turn as far as expansion is concerned and is scaling down both its short-haul and, more significantly, its long-haul fleet in the coming years.
Revenue in the nine months fell 6.1% while total expenses increased 7%. Consequently, the carrier posted a $463 million net loss, compared to an $872 million net profit in the year-ago period. Following a first half deeply in the red, net profit in the third quarter took a 60.9% dive, to $184 million. Business and consumer uncertainty due to terrorist attacks in Turkey and Europe, the failed Turkish coup in July and subsequent political tension, and overcapacity in many markets are factors increasingly dampening the airline’s performance and outlook.
The carrier’s fleet will be reduced to 324 aircraft in 2017 and 320 in 2018, down from 333 at the end of this year. The number of narrowbody aircraft will be cut from 234 at the end of 2016 to 221 in 2017 and 217 in 2018. The number of widebody aircraft is still showing growth from 86 units now to 94 in 2017 and 2018. But Turkish will cut back its long-haul fleet in several steps by almost 30% to a mere 70 aircraft in 2023.
The company disclosed to the Istanbul stock market on Oct. 7 that it had decided to reschedule the deliveries of 92 Airbus A321neos, 65 Boeing 737-8s and 10 737-9s that were planned to enter the fleet in 2018-22. Turkish so far has not confirmed reports that it is grounding up to 30 aircraft, of which 12 Airbus A330-200s are allegedly already parked at Antalya Airport.
In 2017, Turkish Airlines is scaling down its capacity growth to just 1% and will even decrease seat production by 1% in 2018. As recently as August, the airline had still planned for 5% seat growth in 2018.
Over the first nine months of the year, Turkish recorded a systemwide 17.2% revenue-per-available-seat-kilometer (RASK) contraction (a drop of 15% excluding currency effects) and a 14.1% year-on-year decline in yield, or an 11.7% fall excluding currency effects. The airline increased capacity by 14.3% in the first nine months of the year, but traffic did not follow the same pace. RPKs grew only 8.2% year-on-year and passengers carried 3.9%, load factor suffered a decline of 4.2 percentage points to 74.5% systemwide. Last year, Turkish Airlines recorded a 12% increase in passengers carried.
Emirates and Turkish Airlines feel the pinch in their profit margins
Nov 11, 2016 Jens Flottau and Cathy Buyck | Aviation Week & Space Technology
INSHARE
Slowing Down
The big three Gulf carriers and Turkish Airlines have long been perceived as a dangerous threat to established legacy airlines in Asia, Europe and the Americas. But the latest trends at Emirates Airline and Turkish show that the fast-growing superconnectors are by no means insulated against external shocks.
In fact, their latest results are alarming. And if the trends continue, the four carriers could well have their steepest growth behind them for now. Turkish is even announcing a significant reduction in fleet size. The development is also remarkable in the context of the recent fierce dispute about alleged subsidies and market access—the pressure for competitors in Europe, the U.S. and Asia may now be somewhat reduced.
Emirates has no plans to defer aircraft deliveries, including for Airbus A380s, despite a massive drop in profits. Credit: Tony Osborne/AW&ST
Emirates, the biggest of the three Gulf carriers and the only one to publish audited financial reports, warns it does not see signs of market improvement after posting much-deteriorated results for the first six months of its financial year.
“The bleak global economic outlook appears to be the new norm, with no immediate resolution in sight,” Emirates Group Chairman and CEO Sheikh Ahmed bin Saeed Al Maktoum says. “Increased competition as well as the sustained economic and political uncertainty in many parts of the world have added downward pressure on prices as well as dampened travel demand.”
The carrier, one of the fastest-growing and financially healthiest airlines worldwide, suffered a 75% contraction in net profit (to $214 million) in the first six months of its fiscal year to Sept. 30. Its net profit margin of 1.9% is far below the profitability levels enjoyed by North American and even some European carriers. And it burnt through about $2 billion in net cash in six months mainly to fund aircraft acquisitions.
While Emirates did not disclose precise yield numbers, the trend has been very negative: The airline unit’s revenues dropped by 1% to $11.4 billion, despite a 9% increase in passenger numbers and an 8% increase in revenue passenger kilometers (RPK). Emirates also grew capacity by 12%, leading to a three-point drop in its load factor, which was a relatively low 75.3%.
The gap between capacity and demand could widen in the next six months: In the first half of the year, the carrier took eight more Airbus 380s and eight Boeing 777-300ERs, though it also retired 19 aircraft. The net result is a small reduction in aircraft to 248 units. However, in the second half it is due to receive 20 additional aircraft and so far plans to retire only eight.
“There are no plans to cut or slow down deliveries,” an Emirates spokesperson says. “We constantly review our capacity deployment to ensure the best utilization of our fleet in order to serve customer demand.” Developments at Emirates are closely watched by Airbus, as the airline is the current life insurance for the struggling A380 program.
Credit: Tony Osborne/AW&ST
The carrier identified three major factors for the deterioration of its results: the strength of the U.S. dollar, which affects its cost base, as the United Arab Emirates dirham is tied to it, while the shortage of hard currency in some African countries has forced the airline to consider withdrawing or reducing services; geopolitics; and the weak economic climate.
Turkish Airlines is now also deep in crisis mode and, judging by its fleet plans, it expects to remain there a long time. The carrier is making a sharp U-turn as far as expansion is concerned and is scaling down both its short-haul and, more significantly, its long-haul fleet in the coming years.
Revenue in the nine months fell 6.1% while total expenses increased 7%. Consequently, the carrier posted a $463 million net loss, compared to an $872 million net profit in the year-ago period. Following a first half deeply in the red, net profit in the third quarter took a 60.9% dive, to $184 million. Business and consumer uncertainty due to terrorist attacks in Turkey and Europe, the failed Turkish coup in July and subsequent political tension, and overcapacity in many markets are factors increasingly dampening the airline’s performance and outlook.
The carrier’s fleet will be reduced to 324 aircraft in 2017 and 320 in 2018, down from 333 at the end of this year. The number of narrowbody aircraft will be cut from 234 at the end of 2016 to 221 in 2017 and 217 in 2018. The number of widebody aircraft is still showing growth from 86 units now to 94 in 2017 and 2018. But Turkish will cut back its long-haul fleet in several steps by almost 30% to a mere 70 aircraft in 2023.
The company disclosed to the Istanbul stock market on Oct. 7 that it had decided to reschedule the deliveries of 92 Airbus A321neos, 65 Boeing 737-8s and 10 737-9s that were planned to enter the fleet in 2018-22. Turkish so far has not confirmed reports that it is grounding up to 30 aircraft, of which 12 Airbus A330-200s are allegedly already parked at Antalya Airport.
In 2017, Turkish Airlines is scaling down its capacity growth to just 1% and will even decrease seat production by 1% in 2018. As recently as August, the airline had still planned for 5% seat growth in 2018.
Over the first nine months of the year, Turkish recorded a systemwide 17.2% revenue-per-available-seat-kilometer (RASK) contraction (a drop of 15% excluding currency effects) and a 14.1% year-on-year decline in yield, or an 11.7% fall excluding currency effects. The airline increased capacity by 14.3% in the first nine months of the year, but traffic did not follow the same pace. RPKs grew only 8.2% year-on-year and passengers carried 3.9%, load factor suffered a decline of 4.2 percentage points to 74.5% systemwide. Last year, Turkish Airlines recorded a 12% increase in passengers carried.
12-01-2016, 07:54 AM
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It needs to be added that the so called "audits" that Emirates has done on their results do not comply with any accepted international standards like EBITDA. They are completely made up by EK management so support their own narrative and have no actual meaning when comparing EK's results to those of properly audited (and stock market listed) companies like those in Europe, Asia or the US.
So nobody outside Emirates actually knows where they're losing money and why.
So nobody outside Emirates actually knows where they're losing money and why.
12-02-2016, 02:43 AM
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12-24-2016, 08:15 AM
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Originally Posted by sunnfun
It needs to be added that the so called "audits" that Emirates has done on their results do not comply with any accepted international standards like EBITDA. They are completely made up by EK management so support their own narrative and have no actual meaning when comparing EK's results to those of properly audited (and stock market listed) companies like those in Europe, Asia or the US.
So nobody outside Emirates actually knows where they're losing money and why.
So nobody outside Emirates actually knows where they're losing money and why.
Of course they're audited. It's an airline owned and ran by Arabs. They're all about saving face and not accepting the fact they are losing money left and right.
Why are they losing money? Fuel profit margins have gone down.
They have lost a lot of pilots over the past 2 years. They're losing pilots at a hire rate that they can hire and train new ones.
The Middle East, especially places like Saudi and Kuwait will be back to the Stone Age in 40 years.
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12-24-2016, 02:43 PM
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Originally Posted by Captainbfv
Of course they're audited. It's an airline owned and ran by Arabs. They're all about saving face and not accepting the fact they are losing money left and right.
Why are they losing money? Fuel profit margins have gone down.
They have lost a lot of pilots over the past 2 years. They're losing pilots at a higher rate that they can hire and train new ones.
The Middle East, especially places like Saudi and Kuwait will be back to the Stone Age in 40 years.
Sent from my iPhone using Tapatalk
Why are they losing money? Fuel profit margins have gone down.
They have lost a lot of pilots over the past 2 years. They're losing pilots at a higher rate that they can hire and train new ones.
The Middle East, especially places like Saudi and Kuwait will be back to the Stone Age in 40 years.
Sent from my iPhone using Tapatalk
01-05-2017, 03:17 AM
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01-13-2017, 06:39 AM
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03-13-2017, 12:19 AM
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03-13-2017, 06:38 AM
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Originally Posted by CaptYoda
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