What's Up: Emirates Airline's bonds are soaring as the outlook improves for regional air travel.
Oil fuels Emirates Airline's good fortune
Emirates Airline is flying high as the price of oil sinks, with the carrier's bonds in great demand.
Yields on the bonds, which move in the opposite direction to price, have fallen during the past five consecutive trading sessions.
The demand has left Emirates' five-year bonds, which pay a coupon of 5.125 per cent, currently yielding 4.1579 per cent.
The price of oil fell sharply last week amid weak economic data from the United States and Europe, giving the airline a reprieve from what is typically its biggest expense. Brent crude futures fell US$2.83 on Friday to $113.61 per barrel. Nymex crude lost $4.05 to $98.49 per barrel, marking the first time the US benchmark closed beneath $100 per barrel since February.
"Oil has had a big negative impact on airlines and represents more than 40 per cent of costs for any airline," said Samir Murad, an analyst at NBK Capital. "That by itself has been a major impact on profitability. If we see a drop in oil prices this could be a positive for airlines but we need to see a significant drop, not just the day-to-day movement."
Passenger numbers are picking up, too. The International Air Transport Association reported last week that the Middle East was the world's fastest-growing air travel market, although the figures were inflated by the region's rebound from the Arab Spring.
Emirates Airline's bonds have also fallen in line with positive market sentiment towards Dubai, which has improved as debt troubles fade from its government-related holding companies.
But the airline still faces challenges from the remaining two of the triumvirate of leading Gulf airlines.
Speculation has grown that Etihad Airways or Qatar Airways could imminently be invited to join an airline alliance. Both oneworld, which includes British Airways and Qantas, and AirFrance-KLM's SkyTeam alliance, are said to be seeking a tie-up.
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