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Emirates 2016/2017 Financial Results

Emirates 2016/2017 Financial Results

Old May 13, 2017, 5:13 am
  #16  
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Originally Posted by Metanoia
Is there a way for EK to restructure upcoming deliveries to potentially take delivery slots for smaller aircraft? I don't follow Boeing/Airbus order books, so not sure if anything is available in the shorter term.
The issue with smaller aircraft is that DXB is already full. If they want smaller planes with increased frequency, then that's going to lead to even more delays and remote parking.

Maybe they could shift some of the point-to-point heavy routes to DWC?
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Old May 13, 2017, 9:08 am
  #17  
 
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Originally Posted by DYKWIA
The issue with smaller aircraft is that DXB is already full. If they want smaller planes with increased frequency, then that's going to lead to even more delays and remote parking.

Maybe they could shift some of the point-to-point heavy routes to DWC?
You'd still need logistics to transfer onwards via DXB though - you'd have to set up a subsidiary that accept any interlining to be sure to avoid any issues.

I don't think there is much EK can do in the short term because the current results are just a consequence of decisions made a few years ago in terms of fleet planning for projected pax numbers / market development. Clearly those projections did not work out.

If EK want to carry on with their underlying economic view, then I think the best they can do is just tread water for the next couple of years and wait for demographics to catch up.

Another option would be to double down on the high-yield/low-density model (instead of the current high density premium model) in order to try and take the declining pool of less price sensitive premium pax from other carriers.

That would take a significant capital investment in cabin redesign and potentially retrofitting - extremely risky for such a highly indebted company, which means I think that will be down a decision by Sheikh Ahmed and the ICD board, depending on the owners' plans for whether they need dividend payments from EK (given there are no - well, 2 old 777s - planes to sell for dividends like last year).

It would be good for pax though!
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Old May 13, 2017, 9:56 pm
  #18  
 
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Originally Posted by eternaltransit
Another option would be to double down on the high-yield/low-density model (instead of the current high density premium model) in order to try and take the declining pool of less price sensitive premium pax from other carriers.

That would take a significant capital investment in cabin redesign and potentially retrofitting - extremely risky for such a highly indebted company, which means I think that will be down a decision by Sheikh Ahmed and the ICD board, depending on the owners' plans for whether they need dividend payments from EK (given there are no - well, 2 old 777s - planes to sell for dividends like last year).

It would be good for pax though!
If you look at Dubai's history it has a tendency to make bold decisions around future demand (see Jebel Ali port and the new Maktoum International Airport for example). They look 20-30 years ahead and are often prepared to take short term hits as a result. So I wouldn't be surprised if they maintained their high growth approach.

On the other hand they have been devasted by the collapse of the oil and gas industry in the Middle East and the stalling regional economy as a whole. So much of their premium traffic comes from regular business travellers and well off local nationals that the cost savings companies and individuals are now implementing has really affected them in a bad way, especially given the high margins regional travel has.
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Old May 14, 2017, 9:43 am
  #19  
 
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Originally Posted by Mr_Ed
If you look at Dubai's history it has a tendency to make bold decisions around future demand (see Jebel Ali port and the new Maktoum International Airport for example). They look 20-30 years ahead and are often prepared to take short term hits as a result. So I wouldn't be surprised if they maintained their high growth approach.

On the other hand they have been devasted by the collapse of the oil and gas industry in the Middle East and the stalling regional economy as a whole. So much of their premium traffic comes from regular business travellers and well off local nationals that the cost savings companies and individuals are now implementing has really affected them in a bad way, especially given the high margins regional travel has.
I definitely agree that Dubai has a history of longer term projects, but I don't think EK and Jebel Ali are comparable.

Jebel Ali was built in response to Port Rashid's success and to try and relieve pressure from it. It was not really a success story until the 90s when the government had to incentivize shipping lines to use Jebel Ali over Port Rashid, and the firing of the management contracts at both ports (and the creation of Dubai Ports Authority).

In fact, imho, the success of Jebel Ali is more about the success of the Jebel Ali Free Zone (freedom from municipal laws, ownership rights etc.) attracting companies to set up business there which the government could charge fees/rent to, rather than the port itself.

The problem for EK is that its "infrastructure" - the hard product, the connecting experience, etc., - does not seem to be attracting customers as well as it was before, and that EK cannot really afford short term hits because it is highly leveraged, with future commitments in the next couple of years (i.e. aircraft deliveries).

I think that means a decision has to be made at the ICD level whether they are going to ride it out and try to mitigate losses, or change strategy (with the capital investment that would require - i.e. more debt).
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Old May 14, 2017, 1:16 pm
  #20  
 
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I think they have to go back to basics, have consistent premium hard product across the fleet, separate rev premium passengers from free loaders and offer Dubai premium O&D reasonable fares.

Right now the disparity(perceived or real) between A380 and B77W too high. Premium cabins are filled with bloggers and op-ups and real full fare revenue passengers may not be getting good service. Qatar is picking up O&D premium traffic with cheaper fares.
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Old May 14, 2017, 5:10 pm
  #21  
 
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Originally Posted by eternaltransit
I definitely agree that Dubai has a history of longer term projects, but I don't think EK and Jebel Ali are comparable.

Jebel Ali was built in response to Port Rashid's success and to try and relieve pressure from it. It was not really a success story until the 90s when the government had to incentivize shipping lines to use Jebel Ali over Port Rashid, and the firing of the management contracts at both ports (and the creation of Dubai Ports Authority).

In fact, imho, the success of Jebel Ali is more about the success of the Jebel Ali Free Zone (freedom from municipal laws, ownership rights etc.) attracting companies to set up business there which the government could charge fees/rent to, rather than the port itself.

The problem for EK is that its "infrastructure" - the hard product, the connecting experience, etc., - does not seem to be attracting customers as well as it was before, and that EK cannot really afford short term hits because it is highly leveraged, with future commitments in the next couple of years (i.e. aircraft deliveries).

I think that means a decision has to be made at the ICD level whether they are going to ride it out and try to mitigate losses, or change strategy (with the capital investment that would require - i.e. more debt).
Good points but there a couple of other things to put into the mix. Firstly, decisions around investment decisions in Dubai are often made directly by Sheikh Mohammed and his tendency has always been to push for growth even if it is counter to trends and/or commercial advice. Sometimes this works and sometimes it doesn't (think 2008/9 real estate crash for example). This is especially the case for EK IMO given that he set up the airline.

Second, Dubai is building by far the largest airport in the world, the first major tenders for which we can expect to see awarded in the next month. If Dubai wasn't intending to keep pushing Emirates to keep growing at an accelerated rate there would be little need to build such a massive aviation complex and associated Dubai South new city.

Moreover, there is huge pressure for Dubai to hit its own 20 million tourist target by 2020 (I think it's about 16 million now). We saw today yet another mega project announced in the form of the $2bn Marsa Al Arab aimed at tourists which joins a long list such as the Six Flags theme park, safari park, Jumeirah Central etc. These projects and many others are all predicated on continuing tourism growth. Add in the substantial pressure from existing tourist-based investments such as the Dubai Parks theme park, the retail sector, and the hotel industry which have all performed well below expectations in the last 18 months and there is a huge expectation on EK to deliver and deliver soon. This isn't necesarily compatible with a slowdown in its expansion plans.

As I see it EKs growth is an integral component of ensuring whether all these above objectives are met. Whether or not this will end up being the right decision or not is of course another issue entirely.

I completely agree on Jebel Ali port.
However the legend around its creation and the 'build it and they will come' mantra is becoming a grindstone around Dubai's neck which has in my experience in the past caused decisions to be made based on emotion rather than purely commercial terms. It will be interesting to see how much all of this will play out in the decision making around EK's future direction.
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Old May 14, 2017, 6:09 pm
  #22  
 
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Originally Posted by Mr_Ed
Good points but there a couple of other things to put into the mix. Firstly, decisions around investment decisions in Dubai are often made directly by Sheikh Mohammed and his tendency has always been to push for growth even if it is counter to trends and/or commercial advice. Sometimes this works and sometimes it doesn't (think 2008/9 real estate crash for example). This is especially the case for EK IMO given that he set up the airline.

Second, Dubai is building by far the largest airport in the world, the first major tenders for which we can expect to see awarded in the next month. If Dubai wasn't intending to keep pushing Emirates to keep growing at an accelerated rate there would be little need to build such a massive aviation complex and associated Dubai South new city.

Moreover, there is huge pressure for Dubai to hit its own 20 million tourist target by 2020 (I think it's about 16 million now). We saw today yet another mega project announced in the form of the $2bn Marsa Al Arab aimed at tourists which joins a long list such as the Six Flags theme park, safari park, Jumeirah Central etc. These projects and many others are all predicated on continuing tourism growth. Add in the substantial pressure from existing tourist-based investments such as the Dubai Parks theme park, the retail sector, and the hotel industry which have all performed well below expectations in the last 18 months and there is a huge expectation on EK to deliver and deliver soon. This isn't necesarily compatible with a slowdown in its expansion plans.

As I see it EKs growth is an integral component of ensuring whether all these above objectives are met. Whether or not this will end up being the right decision or not is of course another issue entirely.

I completely agree on Jebel Ali port.
However the legend around its creation and the 'build it and they will come' mantra is becoming a grindstone around Dubai's neck which has in my experience in the past caused decisions to be made based on emotion rather than purely commercial terms. It will be interesting to see how much all of this will play out in the decision making around EK's future direction.
Since Sheikh Mohammed is the Chairman of ICD and Sheikh Ahmed is a Director, I expect he will certainly be making the decision one way or another

There isn't an issue with EK having the capacity to deliver passengers to Dubai - arguably, the current short term issues are because expansion feasibility was underpinned on demographics on core markets (UK, Indian subcontinent, Americas) which have all shown weakness, either through political concerns (bilaterals in India, US politics) or economic (GBP devaluation from Brexit).

EK could reduce densities without constraining capacity on current load factors. I think their decisions will be based on whether they want to reduce cash outflow by slowing down deliveries/reinvestment into product, or double down on high capacity for when/if people come back.

As you say - build it and they will come is being tested quite thoroughly right now!
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