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Emirates Airline’s 62% profit hike is a proxy for Dubai

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The performance of Emirates Airline is an excellent guide to the underlying performance of business in Dubai.

The airline is worth around $6 billion to the local economy. The announcement of record profits, up 62 per cent to $1.4 billion in the year to end of March, is a reflection both of the oil boom in the Gulf States and the dynamism of Dubai as a destination.

Emirates is also an extremely well managed airline, and now ranks among the top five most profitable in the world, giving the carrier an enviable ability to expand its fleet to become one of the world’s biggest long-haul carriers, perhaps one day the largest of them all.

Super jumbos

For Emirates has a total of 182 aircraft on order costing $58 billion, including 58 of the giant new super jumbo A380s from Airbus. The global financial crisis has apparently had ‘no impact’ on funding this acquisition program, Gary Chapman, President of Group Services and Dnata told me this morning.

Indeed, to use an unforgivable pun, there has been a flight to quality with financial institutions as keen as mustard to fund hard assets with a ‘solid’ airline.

‘Solid’ was the word Emirates Chairman and CEO Sheikh Ahmed bin Saeed Al Maktoum used to describe the financial condition of his airline. ‘Those on the edge will go down’ he said of the prospects for certain financially less well endowed competitors: business-class only Eos went yesterday. Emirates has $3.8 billion in cash and is paying its shareholder Dubai government $275 million as a dividend.

It is only too true that if the Emirates business model was failing then that would mean the whole aviation industry stood on the verge of annihilation. But with 80 per cent seat capacity it is often impossible to find a seat on many Asian routes, given that the spare capacity tends to only be for newer destinations.

‘No decision’ has been made about an initial public offering for Emirates Group, except that an indication that around 25-30 per cent of the company would be sold in an IPO if it happens, said His Highness.

He even brushed off a question about the possible impact of $200-a-barrel oil on Emirates: ‘It will affect some airlines – a solid airline can absorb high fuel prices.’

Aircraft orders

Emirates will launch eight new destinations this year, introduce the A380 and expand capacity on many routes. There will be 163 aircraft in the fleet by 2010.

‘I believe the threat of a global economic downturn will be offset for Emirates by the boom in the Middle East, especially in the thriving travel industry of tourism and commerce,’ noted High Highness. None of this must be very happy reading for his competitors but this is also a proxy for the strength of the Dubai economy.

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Written by Peter Cooper

April 30, 2008 at 1:45 pm

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