Emirates bucks the market again

The contrast between Emirates and so much of the rest of the air cargo sector is remarkable. With most of its major competitors cutting-back capacity in order to remain in the black, Emirates has expanded its fleet and increased its profitability in the 12 months to March 31.

According to its full year results published last week, the Dubai based airline saw its ‘SkyCargo’ business increase its revenue by 8.9% year-on-year to AED11.3bn (US$3bn). Profits for the cargo business were not broken-out.

This was achieved despite a substantial expansion in aircraft and, consequently belly freight space. ‘Freight Tonne Kilometres’ increased by 10.2% but the tonnage carried was up only 7.9% obviously forcing down utilisation rates. However the use of larger and more fuel efficient aircraft resulted in a lower break-even point. Even the company’s freighters saw 12% greater flight-time, flown with two new 777-200 LRF added to the fleet.

Emirates stated that the markets which drove growth in cargo in terms of tonnage were in the Far-East and Africa, however it appears that all areas except the ‘West Asia & the Indian Ocean’ grew sales in double digit percentages. However the ‘SkyCargo’ business fell in terms of the proportion of the business as measured in terms of revenue, down from 15.2% in 2012-13 to 14.6% in 2013-14.

The performance of the Emirates Group overall was even healthier than that of the cargo business, with the passenger business seeing revenue up by 13.8% to AED65.4bn. Operating profit jumped by 50% to AED4.3bn (US$10bn). Profit margins for the entire business are not fantastic at 3.9%, although that margin represents a recovery from the low of 2.4% seen two years ago. Despite the big expansion in the fleet emirates has been able to fill its aircraft, with passenger load factors steady at 79%.

A further support to the profits across the whole business was the fall in fuel prices, which reduced by 3.7% per tonne kilometre.

Emirates Group’s cargo handling business expanded its revenues by 8.3%, driven in great part by growth in the UK.

It is surprising to see the degree to which Emirates continues to prosper when so many of its rivals suffer. Over the long term such a gain in market share appears to be explained only by its particular geographical positioning and low cost base.