Delta might well have a new CEO, but cryptic hints of what the future holds are flowing every time there is a press conference. This time a hint of investment in a Canadian airline has seen WestJet placed firmly in the frame as being a future partner of the mighty Delta. At the same time Delta has once again increased capacity at Seattle as it intensifies its capacity battle with Alaska Airlines.
But today no one can ignore the figures coming out of Dubai:
Shares in Sharjah-based budget carrier Air Arabia were up 3.23% to Dh1.28 after the airline reported a 34% increase in first quarter profit. Air Arabia made Dh114 million in Q1 2016 from Dh85 million for Q1 2015. Revenue was up 7% to Dh946 million for the period on the back of a 17% increase in passenger numbers to 2.1 million passengers. Load factor for the period was up at 81%, so Air Arabia can handle quite a bit of passenger growth without expanding its fleet in the short term.
“Air Arabia has made an excellent start to 2016, maintaining the momentum we established last year and attracting new customers to our brand,” Air Arabia chairman Shaikh Abdullah Bin Mohammad Al Thani said in the statement. “Our operational efficiency allied to the success of our route expansion strategy and the popularity of our value-add service proposition, leaves Air Arabia well placed to navigate the current macroeconomic challenges and benefit from the many opportunities in the region’s aviation sector,” he said.
In March, Air Arabia started flights from Sharjah to Sarajevo, the capital of Bosnia and Herzegovina, and has announced it will launch seasonal services to Batumi in Georgia between July and September. Its Moroccan and Jordanian joint ventures also launched new routes including Air Arabia Jordan starting flights from Amman to Riyadh. Air Arabia also runs fully-owned operations in Ras Al Khaimah, the most northern emirate in the UAE, and a joint venture in Egypt.
The global brand that is fast becoming as instantly recognizable as Coca Cola - Emirates Airline – today reaffirmed its position as it announced 2015-2016 profits leapt 56% to reach Dh7.1bn ($1.9bn,) a new annual record. This was on the back of a 31% fall in fuel costs, which reduced overall operating costs by 8% - fuel accounted for 25% of overall costs from 35% in the previous year. Were it not for that dramatic fall in fuel prices, the figures would have taken a serious hit after revenues fell-back 4% to Dh85bn in the year following a Dh6bn foreign exchange impact because of the strong US dollar.
Even so, Emirates saw an increase in passenger numbers of 8% for the year to 51.9m but this did not keep pace with fleet growth with load factor down 3.1% at 76.5%. The group invested Dh17.3bn in new aircraft during the reporting period as the airline’s fleet expanded to 251 at the end of March 2016. Emirates Group, which includes ground handling services, reported record profits of Dh8.2bn, up 50% year on year with revenues down 3% year on year to Dh93bn.
So as fleet growth continues at Emirates and passenger demand slows (ever so slightly), one wonders what the future holds for Emirates? Well, from 2023, the new airport Al Maktoum/Dubai South will allow Emirates to continue its current rate of growth for at least another 20 years without a problem. Economic expansion in Dubai is set to moderate at 3.3% this year, while it is expected that domestic investments boosted by preparations for hosting the Expo 2020 international trade fair will drive economic expansion to 5% per annum over 2017-2020.
The outlook for Dubai’s oil-reliant neighbors, is somewhat different. Abu Dhabi has cut government spending so very fast of late that the IMF expects its economic growth to slow to 1.5% this year from 4.3% in 2015, which could affect regional carriers. So it is that Dubai, the Emirate bailed out following the financial turbulence of 2008, is now set to see the fastest growth in the region with some calling Dubai’s “diversified economy” a safe haven from the negative impact of lower oil and conflict. This glowing IMF comment does fail to address concern over Dubai’s property market, with prices expected to fall by 10% this year as the oil market contracts causing a slowdown in the hiring and expansion of companies. This may be a long-term blessing though as new buyers outside of the shadow of oil reliance start to move into the Dubai market, further diversifying the country away from oil reliance and more towards financial services which of late have been attracted by very low rates of taxation in a centrally located time zone with good connections. All of this should be positive for Emirates, increasing direct premium traffic to and from its main hub.
Of course as we consider the economy of Dubai we have to remember that Emirates is not bound to the fortunes of Dubai in any way shape or form save for required investment in airport infrastructure and development since Emirates is shifting the world from A to Z via Dubai. For that reason any solidification and growth of the Dubai economy is a bonus, but the news is very significant for Air Arabia that does rely on a growing local economy with all the things mentioned herein being a positive for this low-cost airline.
The Middle East, like Africa, can be a goldmine if governments and economies can remain strong, open and stable.
Make sure you register for the Inaugural Annual Airline Economics Africa & Middle East (Dubai) conference taking place at the Ritz Carlton Dubai Beach from 3rd October to 5th October 2016. With the Aviation 100 Africa & Middle East Awards taking place on the beachfront at 19:00 on the 4th. www.airlineeconommicsdubai.com