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

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.”

Relief for UK buyers as consumer prices drop more than expected

Updated 7 min 6 sec ago

Relief for UK buyers as consumer prices drop more than expected

  • Consumer prices rose at an annual rate of 2.4 percent, more than reversing August’s jump to a six-month high of 2.7 percent
  • The figures are likely to reassure Bank of England officials

LONDON: British inflation fell more than expected in September to a three-month low, offering some relief to consumers who have been squeezed financially since the Brexit vote.
Consumer prices rose at an annual rate of 2.4 percent, more than reversing August’s jump to a six-month high of 2.7 percent, the Office for National Statistics said.
That was well below the consensus forecast of 2.6 percent in a Reuters poll of economists.
Sterling fell against the dollar and euro while British government bond prices rose.
The figures are likely to reassure Bank of England officials who forecast in August that inflation would average around 2.5 percent over the July-September quarter.
“Coupled with the gradual up-tick in wages, the slowing rise in prices will deliver a boost to consumers’ real take-home pay packets, which will also be welcome news for retailers,” said Tej Parikh, senior economist at the Institute of Directors.
“The Bank of England will be unruffled by this week’s data releases, and remains unlikely to budge on interest rates as it continues to monitor the impact of Brexit developments.” The BoE expects it will need to raise interest rates gradually in response to rising wages, assuming Britain manages to strike a deal with the European Union to smooth its exit from the bloc.
On Tuesday, the ONS said the basic wages of workers had risen at their fastest pace in nearly a decade over the summer months.
But wage growth of 3.1 percent remains meagre by historical standards when adjusted for inflation.
The BoE expects inflation to drift down but stay just above its 2 percent target in two years’ time as it gradually raises borrowing costs.
Consumer price inflation hit a five-year high of 3.1 percent in November, when the inflationary effect of the pound’s tumble after the Brexit vote in June 2016 reached its peak.
The ONS said food prices, particularly of meat and chocolate, represented the biggest drag on September’s inflation rate.
Ferry prices dropped from a “surprisingly high” summer peak.
Still, there could be more short-term pressure in the pipeline for consumer prices.
For manufacturers, the cost of raw materials — many of them imported — was 10.3 percent higher than in September 2017, up from a revised 9.4 percent in August.
That was a bigger jump than any economist had forecast in the Reuters poll, which anticipated a rise of 9.2 percent.
Manufacturers increased the prices they charged by 3.1 percent compared with 2.9 percent in August, again stronger than all forecasts in the poll, which had pointed to a 2.9 percent increase.
The ONS said house prices in August rose by an annual 3.2 percent across the UK as a whole, the smallest rise since August 2013 and compared with a 3.4 percent increase in July.
Prices in London alone slipped 0.2 percent.