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.”


Pakistani central bank lifts interest rate as inflation bites

Updated 20 May 2019
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Pakistani central bank lifts interest rate as inflation bites

ISLAMABAD: Pakistan’s central bank raised its key interest rate to 12.25% on Monday, warning that already soaring inflation risked further rises on the back of higher oil prices and reforms required for a bailout from the International Monetary Fund.
The 150 basis points increase follows a preliminary agreement last week with the IMF for a $6 billion loan that is expected to come with tough conditions, including raising more tax revenues and putting up gas and power prices. It was the eighth time the central bank has increased its main policy rate since the start of last year.
With economic growth set to slow to 2.9% this year from 5.2% last year, according to IMF forecasts, the rate rise adds to pressure on Prime Minister Imran Khan, who came to power last year facing a balance of payments crisis that has now forced his government to turn to the IMF.
Higher prices for basic essentials including food and energy has already stirred public anger but the central bank suggested there was little prospect of any immediate improvement.
Noting average headline inflation rose to 7% in the July-April period from 3.8 percent a year earlier, the central bank said recent rises in domestic oil prices and the cost of food suggested that “inflationary pressures are likely to continue for some time.”

 

It said it expected headline inflation to average between 6.5% and 7.5% for the financial year to the end of June and was expected to be “considerably higher” in the coming year. Expected tax measures in next month’s budget as well as higher gas and power prices and volatility in international oil prices could push inflation up further, it said.
It said the fiscal deficit, which the IMF expects to reach 7.2% of gross domestic product (GDP) this year, was likely to have been “considerably higher” during the July-March period than in the same period a year earlier due to shortfalls in revenue collection, higher interest payments and security costs.
Despite some improvements, financing the current account deficit remained “challenging” and foreign exchange reserves of $8.8 billion were below standard adequacy levels at less than the equivalent of three months of imports.
The central bank said it was watching foreign exchange markets closely and was prepared to take action to curb “unwarranted” volatility, after the sharp fall in the rupee over recent days that saw the currency touch a record low of 150 against the US dollar.
Details of what Pakistan will be required to do under the IMF agreement, which must still be approved by the Fund’s board, have not been announced but already opposition parties are planning protests.
As well as higher energy prices that will hit households hard, there are also expectations of new taxes and spending cuts in next month’s budget to reach a primary budget deficit — excluding interest payments — of 0.6% of GDP.
With the IMF forecasting a primary deficit of 2.2% for the coming financial year, that implies squeezing roughly $5 billion in extra revenues from Pakistan’s $315 billion economy, which has long suffered from problems raising tax revenue.

FACTOID

Pakistan’s economic growth is set to slow to 2.9% this year.