It posted record results in 2015, but Emirates Airline saw a sharp drop in 2016 and has a disappointing financial outlook. Could one of the world’s fastest growing and boldest airlines be in a downward spiral, or is the current state able to be recovered?

Rise and Fall

How the mighty have fallen: Emirates Airline, which is a large part of the Dubai-based Emirates Group, owned by the United Arab Emirates government, saw a 75% profit drop between March-September 2016 and the same period in 2015. During that same time frame, profits for the entire Emirates Group fell 64%, with revenue up just 1%.

It’s a long way from the record results the airline posted in 2015. Emirates is known as being one of the most upscale airlines in the world, with the largest planes and the plushest accommodations. It also runs the longest non-strop route in the world, nearly 9,000 miles between Dubai and Auckland.

Travelers wait at an Emirates Airlines ticket desk at JFK International Airport in New York
Travelers wait at an Emirates Airlines ticket desk at JFK International Airport in New York, U.S., March 21, 2017. REUTERS/Lucas Jackson

The airline has seen tremendous growth since its humble beginnings in 1985 and has even bigger plans for the future as it continues to push the boundaries on size and luxury. Nearly everyone in the global aviation industry agrees: no one is quite as big or as bold as Emirates. But that sentiment makes the recent financial struggles even more difficult to swallow.

Reason for the Slump

Such a steep and quick decline is unusual, but not unheard of. Management blames the slump on the strong dollar and a challenging operating environment. Although Emirates’ hometown of Dubai is relatively secure, the UAE is surrounded by war-torn and unstable countries like Yemen, Iraq, and Syria, and the uncertainty of the region, especially relating to travel, can creep in on Emirates.

Emirates Airline is also seeing increased competition from Qatar Airways and Etihad, which have both expanded their aircraft fleets and destination offerings. This comes amid a tough economic environment in many parts of the world, which has hurt travel demand and prices.

“Emirates is not immune from the challenges,” said aviation industry expert John Strickland. “It has been particularly affected by lower demand in key oil markets, historically a source of strong premium traffic.”

However, if the environment was entirely to blame, it is reasonable to think that the slump would be felt across the entire regional airline space, but that isn’t the case. Both Etihad and Qatar Airways have seen respectable growth recently, with a 41% and 334% increase in profits, respectively. Emirates is clearly facing some issues unique to its airline.

Emirates Issues

Part of the reason for Emirates’ unique decline is the amount of money it has poured into growth and development lately. It recently repaid more than $1 billion of debt and purchased 16 new wide-body aircraft.

An additional 20 new aircraft will be delivered in March as 27 older models in the current fleet are retired and replaced. Emirates’ strong growth has also put a target on its back: as it looks to expand its destinations in the U.S., it is facing increasing hostility and pressure from the three main U.S. airlines to eliminate its “unfair subsidies.”

Emirates also stands out from its regional competitors because it has a lot riding on developing parts of the world. The airline took a gamble when it chose to focus on developing markets throughout the Middle East, Africa, Southeast Asia, and Latin America. If those regions face economic difficulties or slowdowns, as some have recently, Emirates is sure to feel the effects.

United Arab Emirates Vice President Prime Minister and Dubai Ruler Sheikh Mohammed bin Rashid al-Maktoum during their tour of the Airbus
United Arab Emirates Vice President, Prime Minister and Dubai Ruler, Sheikh Mohammed bin Rashid al-Maktoum (R) talks with Sheikh Ahmed bin Saeed Al Maktoum, chairman of Emirates airline during their tour of the Airbus A380 at the Dubai Airshow November 8, 2015. REUTERS/Ahmed Jadallah

The airline also faces the uncertainty of a Trump presidency in the U.S., as his feelings against immigrants, particularly Muslims, could have an unknown impact on global travel, especially to and through the Middle East.

The decline has caused major concern within Emirates and is on the top of the team’s mind. Airline chairman Sheikh Ahmed bin Said Al Maktoum said, “The bleak global economic outlook appears to be the new norm, with no immediate resolution in sight… We know we have to work even harder for every customer, and make every dollar spent go even further.”

Plans to Right the Ship

For now, Emirates plans to continue its replacement of the current fleet, even amid financial troubles. The company will also look to expand its digital space and could look for new ways to add revenue to the company, including introducing a premium economy class, which airlines from the region have avoided doing for decades.

Emirates Airline’s financial struggles are difficult but not insurmountable. As the entire industry continues to be disrupted and the global region suffers through wars and trials, Emirates will continue to push, save, and work to improve its financial reports and prove it can still be the biggest and most luxurious airline.

contact us btn icon

Take The Next Step with Alvexo Leave your details and we’ll reach out shortly.

Nice to meet you! Must be at least 3 characters long
Got it! That doesn't look right, please try again
x

We've actually met before! Please login or recover your password

Are you sure that's correct? Please try again
+ -
Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.