(MENAFN - Khaleej Times) Emirate airline will continue to post reasonable profit growth in 2012-13 despite eurozone debt crisis, slowing growth in many Asian markets and higher oil prices, analysts say.
The world's largest carrier by international traffic is unlikely to be affected by 72.1 per cent profit decline in 2011-12. Analysts contacted by Khaleej Times said the Gulf carrier will sustain its fast pace of growth as its plans to open new routes and add more fuel-efficient aircraft remain on track due to availability of sufficient finances.
"Emirates Group, the parent company of the airline, is sitting atop of a huge, 4.8 billion cash pile. It has more liquidity than many banks, so financial commitments to fund the airline's expansion are not a concern," Saj Ahmad, chief analyst at London-based StrategicAero Research, said.
The airline, which has 232 aircraft on order worth over 84 billion, posted remarkable growth since its launch in 1985. It is the world's largest customers of A380 superjumbo with 90 aircraft and presently flies to 123 destinations in 73 countries.
According to aerospace and defence analyst at Frost & Sullivan, Emirates has moved fairly fast in terms of expanding its network and fleet, providing strong competition to its local and international rivals. However, despite this strong growth, the airline recorded a downfall in the first quarter of 2012 due to the rising fuel bills.
"This downfall can be addressed with the airline's no fuel-hedging decision and its engagement towards generating revenues from ancillary services," the analyst said.
"The airline has made massive new investments in the last few months that have resulted in increased spending. However, with its strong network, the airline may overcome its losses and generate revenues in the remaining three quarters the year." The analyst further said sudden profit hit may not necessary impact the airline's fleet and route expansion plans. However, the carrier may put its other expansion plans on hold for some time till it starts generating profits again.
Ernest S. Arvai, a partner at airline consulting firm AirInsight, commended the Emirate's results for 2011-12 and said airline will continue to perform this year.
"We project a reasonable year for Emirates in 2012, although it will face challenges of the eurozone crisis and slowing growth in many Asian markets," he said.
Arvai said Emirates Group has a strong cash position, and should be able to continue its route expansion, even at slightly lower profitability levels than last year. "We expect continued expansion for Emirates, particularly in North American markets where it lacks critical mass," he said.
To a question about the impact of oil-price impact on aviation industry, he said, "High oil prices need to be recovered in fares, and higher fares dampen traffic. As a result, growth slows, and expansion plans are deferred. We expect high fuel prices to spur demand for more fuel efficient new aircraft, and early retirement of less fuel-efficient aircraft that may still have physical life remaining but have become economically obsolete."
"Fortunately Emirates fleet is among the most modern, and the new additions can be used for growth rather than replacement, enabling the airline to expand into new markets with a competitive advantage from modern, fuel-efficient aircraft. Combined with Emirates high service levels and geographic advantage for intercontinental connections, it is well positioned to take advantage of the increase in fuel prices," Arvai told Khaleej Times.
Addison Schonland, partner at AirInsight, said Emirates outlook is driven by competition. "If competitors grow more aggressive then Emirates will have tough fights in many markets. That will reduce profitability, but where competitors go out of business, Emirates can exploit these gaps."
To a question, he said oil prices are so volatile and that is what drives airlines crazy. "It seems that prices have peaked again and are now starting to soften. If the Libyans get their production back on line and Iran does not provoke a war, we expect to see prices continue to slide," he said.
According to Frost & Sullivan analyst, the global aviation industry has hit hard this year owing to the sluggish economy, worsening eurozone crisis, slower rate of capacity expansion and rising fuel costs.
"As the global aviation industry facing challenges, many carriers are seeing financial instability and may look for other options to diversify in the near future. However, with the increase in passenger and cargo volumes this trend is expected to change as well."
Ahmad of StrategicAero Research said the GCC has the world's best airlines growing at a frenetic rate while the other leading airlines in US, Europe and Asia are battling fuel-cost escalation.
"The leading profitable carriers like Singapore Airlines are not immune to rising fuel prices as it announced a quarterly loss earlier this week," he concluded.
