Dubai’s Emirates Group reports 28% drop in full year profit

Dubai-based Emirates Group reported a Dhs1.7bn ($456m) net profit for the financial year ended March 31, 2020, down 28 per cent over last year.

It is the group’s 32nd consecutive year of profits.

The group recorded revenues of Dhs104bn ($28.3bn), down 5 per cent year-on-year.

It attributed the drop in revenue to reduced operations during the planned DXB runway closure in the first quarter, and the impact of flight and travel restrictions due to the Covid-19 pandemic in the last quarter.

The group’s cash balance was Dhs25.6bn ($7bn), up 15 per cent from last year, which it attributed to lower fuel costs compared to the previous year.

“Despite its robust group cash balance of $7bn, this will be ebbed away by refunds to passengers who cannot fly due to the pandemic causing flight cancellations,” said Saj Ahmad, chief analyst at StrategicAero Research.

Read: Dubai carrier Emirates expedites processing of refund requests

The group said that it had not declared a dividend for this financial year “due to the unprecedented business environment from the ongoing pandemic, and to protect the group’s liquidity position.”

Last year it had declared a dividend of Dhs500m ($136m) to the Investment Corporation of Dubai.

On March 31, Dubai Crown Prince Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum said that the Government of Dubai would inject equity into national carrier Emirates.

Read: Dubai to inject equity into Emirates airline, says Sheikh Hamdan

UAE authorities suspended regular commercial passenger operations from the country in March as part of the Covid-19 precautionary measures.

On May 9, Emirates said that it would begin operating limited inbound passenger flights to carry travellers from select destinations into the UAE.

Read: Emirates begins limited inbound passenger flights to Dubai

“Even without a pandemic, our industry has always been vulnerable to a multitude of external factors. In 2019-20, the further strengthening of the US dollar against major currencies eroded our profits to the tune of Dhs1bn, global airfreight demand remained soft for most of the year, and competition intensified in our key markets,” said Sheikh Ahmed bin Saeed Al Maktoum, chairman and chief executive, Emirates Airline and Group.

He cautioned that there will be challenging times ahead for the group. “The Covid-19 pandemic will have a huge impact on our 2020-21 performance, with Emirates’ passenger operations temporarily suspended since March 25, and dnata’s businesses similarly affected by the drying up of flight traffic and travel demand all around the world,” added Sheikh Ahmed.

“We expect it will take 18 months at least, before travel demand returns to a semblance of normality. We continue to take aggressive cost management measures, and other necessary steps to safeguard our business, while planning for business resumption. As the pandemic hit, we’ve taken all possible measures to protect our skilled workforce, and ensure the health and safety of our people and our customers. This will remain our top priority as we navigate a gradual return to operations in the coming months.”

In 2019-20, the group invested Dhs11.7bn ($3.2bn) in new aircraft and equipment, the acquisition of companies, modern facilities, technologies and employee initiatives, a nearly 20 per cent decrease from Dhs14.6bn ($3.9bn) spent the previous year.

At the 2019 Dubai Air Show in November, Emirates placed a $16bn order for 50 A350 XWBs, and a $8.8bn order for 30 Boeing 787 Dreamliner aircraft, with deliveries expected to begin in 2023.

The group’s total workforce remained nearly unchanged at 105,730 employees.

Emirates Airline
Emirates reported a profit of Dhs1.1bn ($288m), up 21 per cent over last year, and a profit margin of 1.1 per cent.

Emirates closed the financial year with Dhs20.2bn ($5.5bn) of cash assets.

The airline added that the profit would have been higher without a loss of Dhs1.1bn ($299m) due to fuel hedge ineffectiveness at the year end.

It recorded a total revenue of Dhs92bn ($25.1bn) for the financial year, down 6 per cent.

Emirates also provided a breakdown of the regions that generated most of its revenue. It said that no region contributed more than 30 per cent of its overall revenue.

Europe was the highest revenue contributor with Dhs26.1bn ($ 7.1bn), down 8 per cent from the previous year; East Asia and Australasia was next with Dhs24.1bn ($ 6.6bn), down 9 per cent; the Americas recorded revenues of Dhs14.6bn ($4bn), up 1 per cent; West Asia and Indian Ocean revenues were at 4 per cent to Dhs9.8bn ($2.7bn); Africa revenue declined 4 per cent to Dhs8.7bn ($2.4bn); Gulf and Middle East revenue decreased by 8 per cent to Dhs7.7bn ($2.1bn).

Emirates’ total passenger and cargo capacity declined by 8 per cent to 58.6 billion ATKMs at the end of 2019-20.

Emirates received six new A380s aircraft while it phased out six older aircraft comprising of four Boeing 777-300ERs, 777-300 and one Boeing 777 freighter.

The airline launched three new passenger routes: Porto (Portugal), Mexico City (Mexico) and Bangkok-Phnom Penh.

It also inked a new codeshare agreement with Spicejet to enhance connectivity options in India.

It entered into interline agreements with Vueling, adding connections to over 100 destinations around Europe via Barcelona, Madrid, Rome and Milan; Turkish low-cost airline Pegasus Airline; and with Interjet Airlines for new routes for passengers travelling between Mexico and the Middle East.

The airline said that the relative strengthening of the US dollar against currencies in many of Emirates’ key markets had an Dhs963m ($262m) negative impact to the airline’s bottom line, a substantial increase compared to the previous year’s negative currency impact of Dhs572m ($156m).

The airline’s total operating costs decreased 10 per cent year-on-year, with fuel accounting for the biggest component of these costs.

Including a 6 per cent lower uplift in line with capacity reduction, the airline’s fuel bill declined substantially by 15 per cent over last year to Dhs26.3bn ($ 7.2bn) and accounted for 31 per cent of operating costs.

Emirates carried 56.2 million passengers down 4 per cent year-on-year.

During the year, Emirates raised a total of Dhs9.3bn ($2.5bn) in aircraft financing, funded through term loans.

Emirates secured Bpifrance (French Sovereign Export Credit Agency) Assurance Export backed financing that also combined a commercial loan tranche sourced from Korean investors for all six aircraft delivered in 2019-20.

As part of an initiative to reduce costs and benefit from the prevailing global rates environment, Emirates refinanced and repriced more than Dhs5.5bn ($1.5bn) in 2019-20, resulting in estimated overall future cost savings in excess of Dhs110m ($30m).

The airline reported that it has partially drawn existing credit lines before March 31, and are in the process of securing additional lines to further improve the liquidity buffer.

In the last quarter of 2019-20, Emirates successfully raised additional liquidity through term loans, revolving credit and short-term trade facilities to the tune of Dhs4.4bn ($1.2bn).

It said that it would continue to tap the bank market for further liquidity in the first quarter of 2020-21 to provide a cushion against the Covid-19 impact on cash flows.

Emirates SkyCargo
Emirates SkyCargo contributed 13 per cent to the airline’s total transport revenue.

The cargo division reported a revenue of Dhs11.2bn ($3.1bn), down 14 per cent over last year.

Freight yield per Freight Tonne Kilometre (FTKM), after two consecutive years of growth, declined by 2 per cent, impacted mainly due to the reduction in fuel prices and a strong US dollar, said the airline.

Tonnage carried decreased by 10 per cent to reach 2.4 million tonnes, due to the capacity reduction with the retirement of one Boeing 777 freighter and reduced available bellyhold capacity in the first and last quarters of the year.

At the end of 2019-20, Emirates’ SkyCargo’s total freighter fleet stood at 11 Boeing 777Fs.

Emirates hotels
Emirates’ hotels portfolio recorded revenue of Dhs584m ($159m), a decline of 13 per cent over last year with increasing competition in the UAE market impacting average room rates and occupancy levels.

dnata
For 2019-20, dnata recorded a substantial profit decline of 57 per cent year-on-year to Dhs618m ($168m).

Profit were mainly impacted by: goodwill impairments (primarily in Travel) of Dhs164 million ($45m), write-offs due to Thomas Cook failure (Travel & Catering) of Dhs96m ($26m), and impact of Covid-19 (across all business divisions) Dhs274m ($75m).

These profit figures also include a one-time gain from a transaction where dnata divested its minority stake in Accelya, an IT company that was acquired by Vista Equity Partners. Without this transaction, dnata said its profit would have been down 72 per cent year-on-year.

It also factored in a one-time gain from the sale of dnata’s stake in travel company HRG.

Comparing profit performance without both disinvestment gains from Accelya and HRG, dnata’s profit for 2019-20 would have been 64 per cent lower compared to previous year.

dnata’s total revenue grew to Dhs14.8bn ($4bn), up 2 per cent. This was attributed to the growth in its catering division, customer retention and new contract wins across its four divisions.

Its international business now accounts for 72 per cent of its revenue.

dnata invested more than Dhs800m ($218m) in acquisitions, new facilities and equipment, technologies and people development over the year.

Its operating costs increased by 8 per cent to Dhs14.3bn ($3.9bn), in line with organic growth across its business divisions, coupled with integrating the newly acquired companies across its catering division and international airport operations.

dnata’s cash balance was Dhs5.3bn ($1.4bn), up 4 per cent. The business delivered an Dhs1.4bn ($380m) cash flow from operating activities in 2019-20.

Revenue from dnata’s UAE Airport Operations, including ground and cargo handling was reported at Dhs3.2bn ($864m).

The number of aircraft movements handled by dnata in the UAE dipped 11 per cent to 188,000.

dnata’s cargo handling declined by 4 per cent to 698,000 tonnes.

Its International Airport Operations division revenue decreased 1 per cent to Dhs3.9bn ($1.1bn).

The number of aircraft handled by the division rose 1 per cent to 493,000, on account of increasing business volumes pre-pandemic, as well as the opening of new locations and winning new contracts.

There was also a 6 per cent decline in cargo handled to 2.2 million tonnes as air freight demand across many markets remained soft for most of the year, said dnata.

It also expanded passenger and ground handling operations in Austin, New York JFK, and Washington DC and inaugurated new cargo capabilities with a second warehouse in Brussels dedicated to handling imports, as well as a new bespoke export facility at London Heathrow, dnata City East.

dnata’s Catering accounted for Dhs3.3bn ($903m) of dnata’s revenue, up 26 per cent.

The inflight catering business uplifted more than 93 million meals to airline customers, an increase of 32 per cent mainly due to the full year impact of Qantas’ catering business in Australia which dnata had acquired in the previous year.

In 2019-20, dnata launched its first catering operations in Canada in Vancouver. It also opened new catering operations in Houston, Boston, Los Angeles, and San Francisco. dnata also announced plans for a new catering facility in Manchester, UK, and a significant partnership to manage Aer Lingus’ catering operations and to serve all its flights out of Dublin, Ireland.

Read: UAE’s Etihad Cargo, dnata extend cargo handling partnership to 15 locations

In March, dnata became sole shareholder of the UK’s biggest inflight catering, on-board retail, and logistics company, and brought Alpha LSG into its portfolio.

Revenue from dnata’s Travel Services division has declined by 4 per cent to Dhs3.5bn ($964m).

The underlying total transaction value (TTV) of travel services sold declined by 6 per cent to Dhs10.8bn ($3bn).

dnata’s Travel division reported an impairment charge of Dhs132m against goodwill in its UK travel B2C brands. The review will be completed in the first quarter of 2020-21.