Second straight loss clips Etihad’s wings

Etihad has been overhauling its strategy since 2016 with changes to top management, dropping unprofitable routes, and retiring operationally costly aircraft. (Courtesy Etihad)
Updated 14 June 2018
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Second straight loss clips Etihad’s wings

  • Abu Dhabi carrier reduced core losses by 22 percent to $1.52 billion
  • Passenger numbers for the year were flat at 18.6 million

LONDON: Etihad Airways reported its second consecutive annual loss on Thursday, with losses forecast to continue as the Abu Dhabi-based carrier maintains its ambitious turnaround strategy following years of high spending.

Higher fuel prices, costs associated with the turnaround, and the insolvency of its European subsidiaries Alitalia and Air Berlin contributed to the losses, which were slightly lower than those recorded the previous year.

The UAE’s national carrier reduced core losses by 22 percent to $1.52 billion for 2017, thanks to a 7.3 percent cut in costs, while annual revenues rose by 1.9 percent to $6.1 billion.

But Etihad’s passenger numbers for the year were flat at 18.6 million. The airline filled an average of 78.5 percent of its seats during the year, a figure little changed from 2016.

“We made good progress in improving the quality of our revenues, streamlining our cost base, improving our cash flow and strengthening our balance sheet,” Tony Douglas, Etihad’s group CEO, said.

“These are solid first steps in a journey to transform this business into one that is positioned for financially sustainable growth over the long term. It is crucial that we maintain this momentum.”

Despite the trimmed losses, Etihad remains in the early stages of its turnaround, with a lot more work to be done, according to John Strickland, an analyst with UK-based JLS Consulting.

“It also faces more challenging market conditions with over-capacity and rising fuel prices, and this is reflected in it making significant cuts to its own output,” Strickland told Arab News.

“I expect more pain to come before it is able to reach a position of stability.”

The recovery of oil prices in the second half of 2017 increased fuel costs for the airline industry.

Etihad said that higher fuel prices cost the airline $337 million during the year.

The carrier’s turnaround strategy follows several years of aggressive expansion under former CEO James Hogan, which saw it acquire stakes in several international airlines in a bid to catch up with rivals such as Dubai-based Emirates.

The expansion hit the buffers last year, with the insolvency of Alitalia and Air Berlin, two of its largest interests. Etihad subsequently sold its stake in European regional carrier Darwin Airline, with rumors earlier this year that it may also look to offload its stake in Virgin Australia, after the latter canceled its last route to Abu Dhabi earlier last year.

According to Saj Ahmad, chief analyst at Strategic Aero Research, it may be three or four years before the airline is profitable again because of flat revenues and passenger numbers.

“This is irrespective of whether it curtails its capital expenditure on new airplanes or axing less profitable routes,” he said.

Earlier this week Reuters reported that Etihad was in talks to cancel or defer some of its orders of Boeing 777X aircraft.

Ahmad suggested that Etihad may look to new alliances with other large international carriers, particularly US-based airlines, in a bid to increase traffic through its Abu Dhabi hub.

The settlement last month of a bitter dispute between UAE carriers and some of their US counterparts, which had accused Etihad and Emirates of abusing Open Skies agreements, makes this more likely.

Under the terms of the deal, Emirates and Etihad agreed to publish annual financial statements “consistent with internationally recognized accounting standards,” with the carriers saying they had no plans to introduce additional “fifth freedom flights” — journeys to the US from other countries undertaken without passengers setting foot in the UAE.

“Etihad would derive far better income generation through partnering any one of the big US three airlines — not least because they won’t collapse like Air Berlin or Alitalia,” said Ahmad.

“Looking at joining Skyteam or the Star Alliances may also be food for thought, too.”


Oil rises on million barrels OPEC pledge

Updated 6 min 24 sec ago
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Oil rises on million barrels OPEC pledge

  • Oil prices rose almost 3 percent on Friday as OPEC agreed a modest increase in output to compensate for losses in production at a time of rising global demand.
  • The Organization of the Petroleum Exporting Countries agreed on Friday to boost output from July.

LONDON: Oil prices jumped yesterday afternoon as OPEC announced a more modest production increase than forecast.

The group said yesterday that it and its allies would from next month bring production back in line with levels originally agreed in late 2016, equivalent to an increase of around 1 million barrels.

But analysts have warned that the reaffirmed commitment — an effective production increase given that a number of producers have cut output more than agreed— would not be enough to lower prices, given further supply disruptions on the horizon.

OPEC Conference President and UAE Energy Minister Suhail Al-Mazrouei told reporters in Vienna that the target was a group-level commitment, and that individual production quotas for member states had not been set.

Adherence to the decision would be “challenging for those countries that are struggling with keeping their level of production,” he said, but he noted that other countries could pick up any shortfall.

“We will deal with it collectively,” he said, insisting that the group would not not exceed production agreements.

“It is difficult already to achieve that 100 percent,” he added. “No one intends to do anything beyond that.”

But Thomas Pugh, a commodities analyst with Capital Economics, said while OPEC currently had little spare capacity, production rebounds by key states might tempt members to over-produce.

“OPEC has found it difficult to police group quotas in the past so today’s decision runs the risk of production rising above its target,” he said.

“If production starts to rebound in Venezuela or Angola then the group may quickly exceed its quota.”

The lack of detail over individual commitments followed disagreements between Iran and Saudi Arabia about the level of increases ahead of the meeting, according to energy expert Cornelia Meyer.

“The ‘collective agreement’ to return to 100 percent compliance was in the end sufficiently fuzzy for them to get an agreement,” she told Arab News.

“But going forward the market is going to want to see more detail as to how it will be implemented — and by whom — before it impacts prices.”

Brent crude futures rose around 3 percent on the news, briefly exceeding $75 per barrel in early afternoon trading, with prices forecast to rise further in the short-term.

“The effective increase in output can easily be absorbed by the market and is not going to tip the oil balance into negative territory,” Harry Tchilinguirian, head of commodities strategy at BNP Paribas, told Reuters.

“I suspect the market will continue to grind higher, notably in view of oil inventories in the OECD being below the famous five-year average target and the ever present risk of supply outages in Venezuela and Libya.

The agreement is likely to do little to mollify those looking for higher output increases to ease pressure on prices, not least US President Donald Trump.

“Hope OPEC will increase output substantially. Need to keep prices down!” Trump tweeted yesterday, following the announcement of the agreement.

But Meyer noted that shifting macroeconomic trends — notably the prospect of growing trade wars between the US and trading partners like China and the EU — may see rising demand for oil slow or go into reverse.

“We’re out of the goldilocks scenario now,” she said.

“Both Saudi Arabia and Russia have talked up how much the market is short. From now on they may well have to talk it down in terms of that gap between supply and demand.”