Well, when you are in and out of bankruptcy 3 or 4 times I guess you can afford to make a profit. And, you can't be serious that the US airlines are among the most profitable. Possibly you are speaking of Southwest and Jetblue, certainly not American, Delta, and United.

Latest results from AA and UA show net post-tax margins in the 4.5-6.9% range (ex-restructuring costs) so, compared to the IATA projection of 2.4% net margin, I think they are doing well! Obviously the profitable low cost carriers of the world do much better (FR/U2/WN/B6) but AA/UA margins are quite respectable, imho. DL had some fuel problems in the last quarter, so they have had some stumbling...

Oh boy, this thread is still on and even Uri is commenting on airline strategy...I must devote more time to FT.

As pointed out numerous times before; Emirates, Etihad and Qatar are highly highly subsidized as was any other national airline during its early years...including industry leaders like Lufthansa or BA.

There is no way etasblishing an airline (let alone an airline flying Widebodies) without heavy heavy losses during the first years. Virgin America is a good example and they started on well established routes going for a demographic that is much better off than the core target group of Emirates, backpackers watching every penny they spend.

The US3 are really going for it at the moment and EK is using its old and boring main argument, every route we fly is profitable and has been from Day 1. It seems that EK is rewriting aviation history these days and that SQ's old claim has mover over to the Gulf.

But let me add another dimension to this thread:

Do the people believe that Emirates is earning a profit from ops. also believe in other conspiracy stories?

What about the US making it to the moon?

Is there any correlation?

Are there any folks out there, who believe that the moon landing was a hoax, but EK is not one financially?

If so, please contact me. I might get you in touch with a publishing house, I do see a bright future for you as a novelist.

Sorry, but that comment by Eddington is nonsense and hedging is as much part of airline operations as is selling tickets or training pilots. The comment by Eddington is interesting, because it misses one of the major points of hedging.

It is not so much about saving money (one could give him the benefit of the doubt given the date he made this comment), it is about having knowledge and certainty about costs in the future.

Hence, industry leaders like Lufthansa, Ryanair or Southwest hedge for a period of up to 24 months and currently debate whether that time period should be extended.

If you want a more detailed overview about the amounts of money airlines like Lufthansa or Southwest saved by hedging fuel for decades, the information is available in their annual reports, and they publish complete annual reports containing all relevant informaion, another small difference to carriers from the Gulf. ;)

BTW, there has one constant over the last 10-15 years. The airlines that did not hedge often simply lacked the funds to do so...

Welcome back to the thread FD1971 - we seem to have taken a little detour via the current spat about the upcoming promised subsidy report which the OP resurrected the thread with!

I think what Eddington was trying to say really was that that in long term, the hedge isn't meant to save money, simply to specifically quantify costs in the future, as you say. He isn't saying that hedging is not integral to airline operations, as it clearly is (as you you say, everyone does it), only that people - customers or shareholders - shouldn't see it as a profit center or way to reduce costs. For all the times when airlines report "profits" due to fuel hedging, there is sometimes a DL which just posted 1.2 billion in losses last quarter due to hedge settlement! The cost of hedging (the fee, as opposed to profit or loss in the divergence from the strike price) is simply there to remove "unnecessary" fluctuations in results.

As to the points raised in 664 - my judgement is reserved as to whether EK makes profit from operations, but I think there are certain cases where it is plausible that they do, given certain conditions are met. I sense you feel that EKs yields are low because their target market apparently are cheap backpackers - I think in 2015 this is no longer the case and so you can make some calculations that some razor thin profits are certainly possible.

I'm not sure if EK has ever made the argument that every route they fly is profitable - if they have, that would be dubious, I accept - but the network as a whole, I think one could create plausible cenarios where that would be possible, as elaborated at length in the previous pages! After all, I think it's a rare network carrier that makes a profit on every single pax on an individual level on every single route - look at BA's ex-EU fares for instance - (presumably small loss offset by fat profits on other pax on the long haul sector/O&D pax subsidising costs to an extent), but on a network level it can be done, if the revenue managers are good enough.

eternaltransit,

thanks for welcoming me back to this thread. I did not expect it to prosper like this, but again, the US3, are taking it to the next level.

As pointed out so often, I do not expect any of the three Gulf carriers to earn a profit from operations, that would be foolish to believe and that is also not their role.

They have to fly as many people into their capital cities as possible to ease the transition from oil to tourist economies. This role is pretty much comparable to the role of European carries post WWII as Governments were willing to invest a huge chunk of GDP in order to connect their countries to world trade, so Dubai, Doha and Abu Dhabi are mearly copying strategies from European Governments until deregulation.

Despite the fact that certain parts of the market are deregulated, many parts are not, hence DNATA or Qatar are earning nice profits from monopolies or quasi-monopolies at airports, Duty Free or providing handling services are two examples, in the EU we have different competion laws and those monopolies would be illegal (not that the airports in the EU fought them until the last second :D)

Paying airlines for flying passengers into airports (aka cities, regions or countries) is also a well-established practice, so the subsidies are also paid at other airports and not only Dubai or Abu Dhabi. I do not see any reason for Atlanta not to pay Delta a bonus in case people stay in the ATL region for a day or two en route to Florida or the Caribbean. The same can be done by Munich, Frankfurt or any other region, obviously Dubai copied Singapore by simply offering the same interesting Stop Over incentives.

Sale and Lease back is a common practice as well, not only in airline circles, but also in real estate and it is quite easy to turn a profit within a matter of minutes. But again, it should not be confused with profits from flying passengers and it ends some time like Ryanair had to realize.

So as pointed out so often, the mast majority of Aviation IQ at Emirates, Etihad or Qatar is actually recruited from the leading global airlines, hence it is not surprising that they are simply copying the strategies from Europe or Singapore in Dubai, Doha or Abu Dhabi.

Every person working in the industry knows that carriers like Qatar or Etihad are huge financial bucketcases and that Emirates is not that far apart, but again can you blame the Governments in the Gulf for doing the same as their European counterparts decades ago.

Of course, there is one major difference; in the 1950's it was common that airlines lost money, hence it was easier to state that openly. With the uneven playing field these days and given the opposition to state aid in countries like Canada or the US, you cannot come clean as openly as some decades ago, hence Clark will continue to entertain us with his stories. A colleague of mine once compared him with a fox who claimed that he did not go into the chicken house... :D

Regarding the profits; I have access to EK numbers from German airports, I also have access to yields on certain routes, so there is no doubt in my mind that they turn a profit for the winter season, especially on classic 3000-4000 mile routes using the most efficient aircraft like 777 or 330. But I also know the loads in summer, loads in the 40 and 50's, I know their costs for running 6 check in lines, a major lounge for 100 guests a day and the Sixt limo transfer, so the losses in summer easily erode any profit from winter not to mention insane 7000-8000 mile runs using the A380.

So quite frankly, they are burning cash and I do not really mind whether they burned 30 or 40 billion already. In today's money, the investments by Germany, the UK, Ireland or the Netherlands are not shabby either.

And once again, losing € 50 per pax on the plane while earning € 100 from DNATA on the ground does not really look like a stupid strategy...

Interesting comments, FD1971. Seems obvious that this will be a big story in aviation in the coming years, as I strongly suspect the rest of the world has "had enough" of the Middle East airline subsidies. Honestly, Emirates should have stopped while they were "ahead." But once you start flying all those illogical widebodies across the Atlantic, and account for half the Airbus and Boeing order book, the rest of the world is going to notice. And ask questions where the money is coming from. Which is kind of what this thread is about.

As long as they keep buying the 777 in Everett and the A380 in Finkenwerder&Toulouse....

Historically, airlines had less lobbying power in comparison to the manufactorers, so the status quo, at least in Germany and France, seems to be in balance.

They have their four gateways in Germany, Lufthansa once made a huge fuss when EK cut their fares in C some years ago (and corrected it once the German Government 'told' them to do so) and at the moment the Gulf airlines are the perfect reason for keeping the unions at bay.

Without any doubt, the Government owned banks play their role in Washington, Paris or Berlin as well, but at the moment, the Gulf airlines are not really creating anything extraordinary and are not really a major point on the agenda.

I am a little bit surprised that the US3 are losing it at the moment, however as you stated, the expansion on certain routes, including insane ones like Miami or Philly, was not unnoticed and it is pretty obvious that they burning cash like crazy on most of the routes. As pointed out before, ultra-long haul routes are not really known to create any significant profit.

You are quite right FD1971 in that there are multiple income streams that have nothing to do with flying cargo around that can keep a route, or even an airline profitable (CTU for BA comes to mind!).

Just going over the points you raised, especially with sale-and-leaseback deals and paper profits; FR as you say does this every so often, and I think might be of interest to other readers of the thread that their 737 fleet is down to about 2.4 billion EUR of equity. I think it is more interesting to note that their fleet was pretty much financed on US Ex-Im bank debt at <3%, then swapped into EUR at drawdown :D

Taking aside the points about external credits (similar to say, US electric vehicle credits or emissions credits in the EU), and all that group revenue such as from dnata and quasi-monopolies such as QR Duty Free which you mentioned, I think it's worth looking at profit from operations as I'm not sure it's an entirely open and shut case currently (historically may well be a different matter!).

I agree that flying an A380 on a long 7000-8000 mile route is incredibly risky proposition and likely to generate razor thin margins at best, and that any sane pure profit maximising business would likely invest capital somewhere else for better returns - and yes, I am acutely aware that EK and the other Gulf carriers have a dual mandate of connecting pax to the home city as well as profit (I think in that order of priority!) - but I am not sure if that it automatically follows that it is unsustainably burning cash, as long as there is a year-round breakeven load that is <100%. Obviously you can't take it on an average basis, because you can't overfill a plane to 150% to balance out 50% load seasons, but if indeed the pax data shows viability (even before cargo, if any) - that there are enough 95-100% days to support days of 75-80% loads - then I think you would have to concede that it is possible that these ostensibly silly routes could actually breakeven (if we base costs on public data, such as fuel and fuel capacity).

In another formulation: is the seasonality that you see in German markets replicated across markets across the network, or do yields from across the parts of the network balance out the losses from sub-breakeven loads? Or are there some markets with year round load factors and total revenue that surpass the breakeven minimum - at least, is there a plausible case for that to be possible.

Emirates is a major player from Europe to Asia, including India and most of Asia is pretty seasonal from Europe, hence it is not surprising to see the loads and yields vary massively from (European) summer to winter (although EK decreased the gap in recent time)

Yields are certainly another major factor, but the same is true for other airlines as well. When was the last time that a legacy carrier from Europe made a decent profit in January or February? Q3 is what counts (Q2 for AF/KL)

So if we put the insane amounts of money for advertising, soccer clubs come to mind quickly, aside, I really cared about routes where they can actually make some money.

We all know that there are not a lot of markets, which can turn a profit per se, the North Atlantic from Europe comes to mind, US West Coast-certain parts of Asia, maybe Europe-India, if you fly with 500 seats in Y and that's about it. Not too many routes where EK can compete without artificially creating routes via Dubai. US-Gulf oil market passengers used to be pretty profitable, but only via Europe in combination with lots of additional passengers connecting in Europe.

So are there any 'natural' routes for Emirates at all aside from connecting passengers from Europe to Asia? Maybe, some African markets, but they are thin and you have to pay off half the country, if you want to do business there and getting money out of Africa is another issue..., so I really consider Europe-Asia (including some other markets with a higher regional demand like Netherlands-South Africa, Italy-NYC or UK-Australia) to be of utmost importance for Emirates. Not surprisingly they expanded into all those markets first.

Therefore, I am very confident that they can actually make a profit during some months of the year (of course, you have to exclude all the marketing costs somehow and I am confident they are paid out of another deep pocket...) but the off-season is another story and even bigger and bigger aircraft are another factor as well.

So there is absolutely no doubt that there is demand between the US and India, for example, I just doubt that EK has the hub, the planes, the route structure to transport those passengers at a profit.

But again, losing money flying passengers to make a profit with them on the ground in Dubai seems to a good alternative strategy.

But I fear that this is a tough sell for Clark the next he speaks at the Aviation Club in Washington...;):D

Quite - I totally agree with a previous poster in this thread that all the "easy" (all the ones you mentioned) routes for EK have been expanded into, now it is time to show whether they really are a well run airline, or have been coasting on demographic flows and convincing themselves they are exceptionally skilled whilst relying on that rising tide, as it were! With regards to the Indian market, I think the 2 class A380 order reinforces your point about that market.

I do think it's impossible for EK to sustain US to onward connections via DXB routes on Y fares (or indeed some of the cheaper J fares) ex-Asia (Indian subcontinent and beyond) looking at the public fares - you'd need load factors of around 95-105% but they only get 80% looking at DoT data. I suspect those routes are saved from unsustainable cash burn by ex-USA travellers paying the absurd premiums for USA originating premium fares (20kUSD compared with 8k in the opposite direction), especially the rare pax that terminates in DXB.

One could argue that by getting lots of visitors at a small loss into DXB makes DXB a more attractive place for high wage/skill people to become resident in (at least for a while) and so EK can then make that money back from DXB captives - but that strategy might have problems now that EY is down the road... :D

I don't think Clark needs to say anything in Washington to win the PR war, all he needs is Richard Anderson to keep talking :D

Boy, can't believe that this thread is still chugging along :confused:

I have to agree here, what a strange interview. I mean Quest has absolutely no idea what is talking about (it is even worse, when he takes over coverage after an accident) but Anderson should at least receive some basic training how to look into a modern camera. But of course, the US3 did not only consolidate the market, they also consolidated their lobbying power in Washington and they speak with one voice now instead of 6-9 voices like in previous decades, when some airlines entertained politicians right on K street. :D

He is very likely looking for an alternative solution, like I posted before, this could be a serious talk between the US Government and the Gulf airlines resulting in higher fares like we saw in Germany and the Netherlands in recent years. ;)

But without any doubt, Anderson knows how to run an airline, the good folks at KLM showed him how to do it properly.

Yeah.... and it's not due to the high quality of most posts.

This, plus cargo, is what it comes down to.


Btw, I'm sure there are more examples of routes that, even in Y, are somewhat profitable; it's no longer going to be limited to routes that have one end in the "western world", such as the ones FD1971 mentioned.

DXB itself is one (unique) example. Say about 1.5m expats living in Dubai and the Northern Emirates fly home once each year on EK, in Y. (Note that this is oftentimes paid for by employers, and employers there tend to have a preference for EK - so this number is plausible imo). If EK makes an AED 245 profit margin on each of them, that adds about $100MM USD to EK's annual profits.

Africa - China (or Africa - Asia in general) probably also has above-average profitability in Y.


It's mostly a rehash of earlier posts (plus some analysis of media news) at this point - and I do realize this post adds to that!