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Abu Dhabi, UAESunday 16 December 2018

Higher fuel bill to hurt Emirates half year profits, a "tough" year for flydubai 

Stronger US dollar and regional instability weigh in on bottom line

Emirates has warned that first-half 2018 earnings will be hurt by the strong US currency and increased cost of fuel. EPA
Emirates has warned that first-half 2018 earnings will be hurt by the strong US currency and increased cost of fuel. EPA

A rebound in oil prices from a three-year low will squeeze Emirates’ half-year profits and present a “tough” year for sister airline flydubai.

A rebound in oil prices has inflated Emirates’ fuel bill by 40 per cent in the first half of the financial year while a stronger dollar, geopolitical instability and uncertainty in the global economy added to the woes weighing down on profit margins, Thierry Antinori, Emirates’ chief commercial officer, said at an aviation conference on Tuesday.

“The profit will be badly hit by fuel,” Mr Antinori said. “It's difficult to manage."

Brent oil rose by more than 20 per cent in the first half of 2018. The US dollar has reached a 16-month high against most currencies on the back of uncertainty related to Brexit and a clash between Italy and Brussels over Rome's budget. Emirates' warning comes days before announcing its first-half earnings on Thursday.

"It has not been a walk in the park," Mr Antinori said.

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Despite the challenges, the airline carried more passengers and its cargo business was "excelling" in the first six months of the fiscal year to September 30, Mr Antinori said.

To mitigate the effect of a strong greenback and higher fuel costs, the airline will continue seeking opportunities to increase its ancillary revenues.

"We have a plan and we look at it with a glass half-full attitude," he said.

The rebound of oil prices and energy sector's recovery have presented commercial opportunities to the Gulf airline, prompting it to resume its Airbus A380 service to Houston, Texas from June 1 on rising demand and restore its double daily flights to Lagos, Nigeria.

"Like other airlines, Emirates has been battered by rising fuel prices, however it has remained flexible in modifying its capacity and deploying aircraft to new market opportunities," John Strickland, director of UK-based aviation advisory JLS Consultancy, said. "The airline is also investing in products improvements across cabins and in digital techology to improve customer experience and business efficiency."

Separately, flydubai, the budget carrier that has teamed up with Emirates, is also facing a “tough” year as higher oil prices increase its fuel bill, its chief executive Ghaith Al Ghaith said.

“It’s going to be a tough year this year with the fuel price,” Mr Ghaith said at the aviation conference.

With Britain set to leave the European Union by March 2019, and with just five months to reach a withdrawal deal, Emirates said it sees little impact on its business in the UK where the airline currently serves eight airports.

"We are just waiting for the outcome but for us, it's business as usual," he said. "We'll adjust, we'll always have UK customers."

Emirates "can and probably will do more" flights in Stansted airport, Europe's biggest discount hub, Mr Antinori said. “We’re not pessimistic, the glass is half full.”

Flydubai carried more than 10.4 million passengers in 2017 and flies to 90 destinations in 46 countries spanning from Bangladesh in the east, Finland in the west, Russia in the north and Zanzibar in the south. Bloomberg
FlyDubai will also feel the effects of oil rise and dollar strength. Bloomberg