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 mixed on tighter US outlook

Updated 21 August 2018
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Oil mixed on tighter US outlook

  • Traders said US markets were lifted by a tightening outlook for fuel markets in the coming months
  • The Iran supply cut may also be more than compensated for by production increases outside OPEC

SINGAPORE: Oil prices were mixed on Tuesday, with US fuel markets seen to be tightening while the Sino-US trade dispute dragged on international crude contracts.
US West Texas Intermediate (WTI) crude futures for September delivery were up 27 cents, or 0.4 percent, at 0306 GMT, at $66.70 per barrel. The contract expires on Tuesday.
The more active October futures were up 7 cents, or 0.1 percent, to $65.49 a barrel.
Traders said US markets were lifted by a tightening outlook for fuel markets in the coming months.
Inventories in the United States for refined products such as diesel and heating oil for this time of year are at their lowest in four years.
This is occurring just ahead of the peak demand period for these fuels, with diesel needed for tractors to harvest crops and the arrival of colder weather during the Northern Hemisphere autumn raising consumption of heating oil.
Outside the United States, Brent crude oil futures were somewhat weaker, trading at $72.18 per barrel, down 3 cents from their last close.
This followed the United States offering on Monday 11 million barrels of crude from its Strategic Petroleum Reserve (SPR) for delivery from Oct. 1 to Nov. 30.
The released oil could offset expected supply shortfalls from US sanctions against Iran, which will target its oil industry from November.
Because of the sanctions, French bank BNP Paribas said it expected oil production from the Organization of the Petroleum Exporting Countries (OPEC), of which Iran is a member, to fall from an average of 32.1 million barrels per day (bpd) in 2018 to 31.7 million bpd in 2019.
Still, traders said overall market sentiment was cautious because of concerns over the demand outlook amid the trade dispute between the United States and China.
A Chinese trade delegation is due in Washington this week to resolve the dispute, but US President Donald Trump told Reuters in an interview on Monday he does not expect much progress, and that resolving the trade dispute with China will “take time.”
The impact of the Iran sanctions is not yet clear.
China has indicated that it will continue to buy Iranian oil despite the US sanctions.
The Iran supply cut may also be more than compensated for by production increases outside OPEC.
BNP Paribas said non-OPEC output would likely grow by 2 million bpd in 2018 and by 1.9 million bpd next year.
“Depending on when pipeline infrastructure constraints are lifted in the US, non-OPEC supply growth by the end of 2019 may prove higher than currently assumed,” the bank said.
The search for new oil has increased globally in the last two years, with the worldwide rig count rising from 1,013 at the end of July 2016 to 1,664 in August 2018, according to energy services firm Baker Hughes.
The biggest increase was in North America, where the rig count shot up from 491 to 1,057 in the last two years.
How prices develop will also depend on demand.
“We see global oil demand growing by 1.4 million barrels per day in both 2018 and 2019,” BNP Paribas said, implying that global markets are likely to remain sufficiently supplied.