Emirates 2016/2017 Financial Results
 

Posted originally by noir in the other thread, this probably warrants a thread of its own. So, the brainy people can dismember it.

https://www.emirates.com/media-centr...016-17-results

The 2016/2017 financial results directly from EK's website.

That rules me out then. I'll stick to the popcorn. :eek:

Let me guess, not many SLB flips to pay dividend to owners.

If I'm reading this right, net revenue down, but operating costs significantly reduced.

Crazy to think revenue increased and passenger numbers increased but profit still down by such a huge percentage.
Emirates Can't blame electronics ban for those figures as it was only implemented in march. My small brain can't get around how it got so bad in a year.

Currency fluctuations? Emirates is attributing a cost of $572 million to the rising USD on revenue, and a 6 cent drop in passenger yield per revenue passenger kilometer.

Do you think it is likely that EK will reduce amenities/service levels on-board due to the results? I'm especially wondering how this will impact, F and J, if at all.

Last flight I was in J and asked for the Y single-malt (12 YO Glenfiddich) and they said they stopped carrying it in Y. Not sure if this is widespread yet but seems like a place to cut...

Their operating costs have risen, mainly fuel, leases and admin. So if they want to return to higher profit rates then they need to cut costs unless they car increase margins which is unlikely.

I hear they are already looking at soft targets such as crew accommodation to start with.

In the grand scheme of things, the AED8bn made in 2016 is not much profit when compared to the size of the Dubai economy. I think EK is seen much more in a strategic aspect by the Dubai government, a cog in their tourist/leisure plan rather than purely a profit earning enterprise. I am not saying profits aren't important, just maybe not as important as a publicly listed, quarterly earnings driven enterprise. So maybe there is hope that they don't cut back on their service offering.

I keep having nightmares that they will eventually can the chauffeur drive. Hope it never happens

From my cursory investigation into the report, the main things that pop up are:

- dnata saved The Emirates Group: EK made 1.3bn AED on 83.7bn (350m USD on 22.79bn USD) AED revenue, and dnata made 1.2bn AED on 12.2bn AED revenue (330m/3.27bn USD)
- a significant collapse in net margin for EK from 8.4% to 1.5% - that does not compare favorably with network carriers getting margins in the 10s, after tax
- passenger growth up, but yield down from 26.7 fils/km to 24.7 - 7.5% drop
- revenue on the face of it flat, but pax revenue flat, drop in cargo revenue and excess baggage revenue shows weakening EK revenue generation in transport operations
- revenue flat across most geographic sectors: Europe down 0.4% is explainable (can be attributed to GBP weakness given that's their primary market), but Africa down 4.4% looks like an issue that needs to be addressed; Americas up 3.3% but that remains to be seen if it is sustainable in the face of political events
- passengers up 8.1% but operating costs up only 7.7%: however, imho, all of the cost cutting can't mask the real issue, which is that operating lease costs are up 30% - from 8bn AED to 10.5bn AED (2.18bn USD to 2.86bn USD)

Basically all of their issues are stemming from the gamble on increased passenger growth going against them.

Employee costs were only up 3.3% but headcount increased by 5.8%, but all the cost cutting in the world won't stop lease liabilities piling up.

FX was expensive this year, but that is simply a hangover from GBP devaluation, imho.

And yes, no sale and leasebacks this year to make a dividend - I don't think they have any frames worth selling anymore.

Glad to see your take on things, ET.

Any idea why lease cost jumped up by 30%. Is it because old 332/340/773 leases were cheaper than 77W/380 leases or lessors are demanding more, ie., increase in LRF.

There are probably multiple factors, but some would be:
- Leases are more expensive on larger planes
- Fleet size is up compared to last year (in 2016 itself, up by 6 compared to 2015)
- Interest rates have started inching up, so possibly an impact

GenevaFlyer

Based on what's been said on here, premium fares seem to be going up. So, is EK gambling that the same number of people will purchase the increased fares, and thus drive up the yield?

A bit risky if you ask me... especially when you've got the noisy neighbours at QR giving away J seats for the price that EK charges for Y in some cases.

EK has always been a highly leveraged business - I think there has been a trend for them to opt for operating leases, i.e. rental agreements where the entire payment is a revenue expense, rather than finance leases where they have to account for the asset on the balance sheet eventually. In the report 55% of fleet is on operating lease, 20% on finance lease.

As a consequence of lessors taking on the residual value risk, I think the cost increase is a simple result of:

- more deliveries (obviously)
- residual value of A380s being expected to be lower than when initial contracts were signed

Absent any unknown operator suddenly deciding the A380 is going to be a core part of fleet, that leaves EK the only real purchaser - since secondary market is the main driver of residual value, then I think any lessor is going to be demanding either more interest or larger rental instalments to cover the lower residual value in the more recent deliveries compared to the first batch of A380s, hence LRF increase.

Debt service is going to weigh on EK for a while until pax numbers improve, imho. Their cash cover is down to 12 months of repayments, debt to EBITAR ratio has gone from 300% in 2012-13, last year was 280%, and now this year 392% on the back of increased debt and lower revenue generation.

Debt to equity has gone from 180%-237% in the same period, but I don't think equity is the best measure for EK as they basically don't have any assets that can be sold easily (over half are in aircraft, parts and engines).

Effective interest rate is still broadly flat at 3%, but that has come at a cost - they have paid down outstanding bonds. Finance lease rates have gone up from 2.6% to 2.8% effective in the year, but bonds are still 4.5%. I'd expect operating lease effective interest rates to be between 3-4%.

As to whether EK can hand back the older planes (read: A380s) and not replace as a way of reducing fleet size without too much loss of face, that would have to be weighed against how much it might impact future lease terms, if lessors think EK is going to stick them with bigger than expected losses on residual A380 values.

Quite risky yes - but they also have the quandary of: do we compete on price with, e.g. QR and compress yields even further, or do we let price conscious pax go and rely on captive traffic? If you reduce prices to compete, then your captive pax are also going to be paying cheaper fares and you might not end up in a better position. I do think EK's revenue managers are very good though, so they have the data, and may well have decided to not try and grab no-loyalty price-determined pax if they are going to end up with a neutral/loss anyway.

Will they gamble on deploying their cash to reinvest in the product to see if they can get discretionary pax back at higher fares? imho, EK needs to have a leading, expensive product, to compete with non-stops. They did that with the bar and the IFE, but other airlines have caught up.

Perhaps the idea that they can't sacrifice density needs to change, seeing as they can't get loads up.

That said, they also have to decide whether this is a cyclical issue or a fundamental shift in the market. They may think this is temporary and their long-term gamble will pay off - increase the market of people travelling and then eventually price conscious pax are going to be forced to pay your prices because there's no seats otherwise - and this is just hard times.

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.

I'm guessing as the primary purchaser/lessee of the A380 these days it's hard for EK to get out of A380 slots and exchange them for A350's or A330neos. Getting out of 77W or 777-8/9's are probably a different consideration because of the higher demand for those aircraft.