Emirates considers Houston downgrade as oil slump hits business

Emirates airline said corporate demand had begun to be affected by low oil prices, and it might respond by reducing capacity on some routes, starting with its flights to America’s energy industry hub Houston.

Speaking at a trade fair in Berlin, the airline’s president Tim Clark said that it was considering reducing the number of A380 aircraft operated to Houston because of the downturn in the oil industry – “its biggest corporate customer”.

About US$380 billion of oil and gas investment has been shelved and tens of thousands of jobs cut around the world, including in the US, as Brent Crude fell 64 per cent from its 2014 high of $115 a barrel.

Emirates, the world’s biggest operator of the A380, this month delayed the launch of what would have been the longest flight in the world, from Dubai to Panama City, citing softening commercial demand.

“On the one hand you save on the operating costs [by downgrading from the A380], but your yield starts to fall because your corporate business is disappearing, so it’s a double-edged sword,” Mr Clark told Reuters yesterday. “On balance, the airline community is doing better as a result of the lower oil price.”

He said the carrier expected to report “significantly higher” profit this fiscal year.

The latest data shows that, while the weak oil price might be causing problems for regional economies, it has helped the aviation sector as cheaper fuel bills allow carriers to cut fares.

Middle East carriers had the world’s strongest year-on-year growth in demand in January, rising by almost 11 per cent, the International Air Traffic Association (Iata) said.​

Saj Ahmad, the chief analyst at StrategicAero Research, said that Emirates was unlikely to suffer any losses from the reduction of capacity on its Houston route. “One A380 flight reduction doesn’t automatically suggest that Emirates will reduce them elsewhere,” said Mr Ahmad. “In fact, it’s possible this A380 will be redeployed on Emirates’ sixth daily flight to Heathrow in the summer.”

Lower fuel prices and higher passenger demand helped Emirates’ profit rise 65 per cent in the first half of its fiscal year – it runs from April to March – to Dh3.1bn from Dh1.9bn a year earlier. Emirates said first-half revenue was down 4.2 per cent to Dh42.3bn, compared to Dh44.2bn a year earlier.

Mr Ahmad said any revenue loss from switching from the A380 could be offset by the advantages of smaller aircraft which can carry more cargo and are cheaper to operate.

In Berlin, Emirates unveiled a new business class seat for its Boeing 777-300ER plane, due for delivery from November.

* with Reuters


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