Middle Eastern players refuse to let record oil prices impede expansion or profits

Middle Eastern carriers remain upbeat about their prospects for 2008 despite soaring fuel prices and a looming recession in North America and Europe.

Emirates at the end of April reported a Dhs5.3 billion ($1.45 billion) net profit for the year ending 31 March, a 62% increase compared to the previous year, although fuel costs came in $516 million above budget. President Tim Clark says soaring fuel prices will prevent Emirates from again increasing its profits this year but he does not expect they will decrease as several measures are pursued to counter the spiralling cost of fuel.

Tim Clark Emirates 

The region's largest carrier, which had set a target of $100 million in cost savings last year, will have to "revisit that and better it by around 50% this year, which is difficult when you're in expansion mode", says Clark.

He adds Emirates is also being forced to re-evaluate its decision last year to drop all fuel surcharges. "We'll introduce surcharges where we have to. Some markets will take it and others won't."

Clark also expects to offset soaring fuel costs by further improving the carrier's load factor, which rose three points in 2007/08 to 79.2%. "We're targeting a rise of five points to 85%, which would equate to a 7-10% increase in revenue."

The region's three publicly traded carriers, Royal Jordanian, Air Arabia and Jazeera, are also upbeat about their prospects after reporting profits. Air Arabia, based just outside Dubai at Sharjah, tripled its profit in 2007 to Dhs 376 million and reported another Dhs 78 million profit for the quarter ending 31 March 2008, an 80% improvement over the previous year. "We look forward to continued positive returns and high profits in the time to come," says its chief executive, Adel Ali.

Emirates Group chief executive Sheikh Ahmed bin Saeed Al-Maktoum points out Emirates has "bucked the trend" of declining premium sales by boosting its load factor last year in the forward cabins, and more premium gains are expected this year. "I believe the threat of an economic downturn will be offset for Emirates by the boom in the Middle East, especially the thriving travel industry of tourism and commerce."

But any financial benefits Emirates was banking on from the long-awaited opening of Dubai airport's Terminal 3 will have to wait. The project, which under the previous schedule was to open in mid 2008, will now not be completed until the fourth quarter.

This would dovetail with the introduction of A380 services to New York and London Heathrow. The new terminal will feature a level dedicated for premium passengers with lounges and direct access to the A380's upper deck. Emirates is configuring its A380s with 489 seats, including 14 first class and 76 business class seats in the all-premium upper deck.

Emirates was initially planning to take its first of at least 58 A380s and open Terminal 3 in 2006, but both have been delayed. However, it has benefited financially from the A380 delays: its 2007/08 profit included a Dhs404 million gain from liquidated damages, which largely relate to compensation for A380 delays. Emirates will likely record further gains this year as Airbus in May announced a further two and a half to three month delay in deliveries for late 2008 and 2009.

For more on Dubai's Terminal 3 and other airport expansion projects in the UAE, go to flightglobal.com/uaeairports

Source: Airline Business