Carrier facing “double whammy” of rising oil prices and strengthening dollar as it plans premium economy class in 2020
Emirates grounds 20 jets during sluggish travel period
Emirates, the biggest operator of Airbus A380 and Boeing 777s, has grounded 20 jets as sluggish demand from business and regional travellers during Ramadan coincides with the typically low-season for international travel in May.
The grounded jets, a mix of A380s and 777s, are expected to return to service after Eid, which will take place around mid-June, with the fleet returning to its maximum capacity by September or October, Emirates president Tim Clark said on Monday. The aircraft are currently parked in Dubai’s second hub at Al Maktoum International Airport and Emirates’ home base Dubai International Airport. He was speaking to reporters on the sidelines of the International Air Transport Association annual meeting in Sydney.
“On top of Ramadan we have May, so demand for travel is down significantly in the Muslim world," Mr Clark said. "It’s not easy” doing business at that time, when traffic falls 50 per cent on the month before.
Emirates, the world’s biggest airline by international travellers, earlier said that a shortage in pilots is one factor in trimming flight frequencies this summer. Mr Clark clarified on Monday that the lack of cockpit crew is not related to the grounding of the 20 jets. Middle East carriers are expected to earn $1.3 billion in net profit this year, up 30 per cent from $1bn in 2017, but are still “lagging” behind their global peers, IATA said in a briefing in Sydney on Monday.
Emirates is facing a “double whammy” of the strengthening dollar, to which the UAE dirham is pegged, and rising fuel prices at the same time, he said.
“Naturally that is going to take a mathematical hit on the yields that we get out of the markets that are non-dollar denominated, at the same time that we have fuel rising,” he said. “We’re quite good at dealing with that now, but it's not easy.”
IATA said average oil prices are expected to reach $70 a barrel this year, up from $54.9 a barrel in 2017, with fuel costs making up 24 per cent of global airlines’ operating costs.
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Emirates will introduce premium economy class on its aircraft in 2020, making it the first carrier in the Arabian Gulf to do so, in a bid to stem the “leakage” of some of its passengers to other rival carriers who offer the product, Mr Clark said.
The new class will be available on the latest batch of A380s ordered earlier this year, with some of the double-deckers already in service be retro-fitted, and on new 777s. It will make up six to eights percent of Emirates’ total fleet capacity.
“Premium economy is something that’s here to stay,” he said. “We’ve also had any number of passengers asking for it saying we’d like to pay for the better seat, more leg room, better food, more exclusivity and all the other bits and pieces that we talk about bundling into it.”
The new class will not cannibalise Emirates’ business class bookings if the math is right.
“It has to produce a price point which doesn’t draw traffic down from Business,” he said.
“The idea is that it takes business from Economy and recognises the people who are already paying a high fare in Economy because they want flexible fares, flexible bookings, refundability etc. and these are the people saying for this and a bit more we’ll pay you.”
Emirates had considered the option of adding premium economy since 2016 when low oil prices clipped demand for travel in the region and the offering was expected to lure price-sensitive travellers.
“We’re going to make sure that the price point is such that it won’t draw people from a flat bed,” he said. “So if you look at the A380 and the upper deck what we have there with business class, flat beds, minibar, essentially exclusive little suites and the bar at the back you don’t want to bring them down.”
The new class may give Emirates a competitive edge over regional rivals.