Virgin Atlantic says goodbye to Dubai as competition gets too fierce

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Dubai is likely to have been an unprofitable route for Virgin for some time, according to aviation expert Jason Rabinowitz. (Shutterstock)
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Analysts said Virgin was too small a player in the market to compete. (Shutterstock)
Updated 28 June 2018
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Virgin Atlantic says goodbye to Dubai as competition gets too fierce

  • Having operated flights from Heathrow to Dubai for more than a decade, Virgin Atlantic said it was “no longer economically viable” to operate the route.
  • With Dubai’s flagship airline Emirates operating numerous daily flights to London’s Heathrow as well as serving six other UK airports, Virgin Atlantic was poorly positioned to compete, experts said.

LONDON: Increasingly tough competition on London-Dubai flights pushed Virgin Atlantic out of the market, underscoring the dominance of Emirates on the prized route.
Having operated flights from Heathrow to Dubai for more than a decade, Virgin Atlantic said it was “no longer economically viable” to operate the route.
With Dubai’s flagship airline Emirates operating numerous daily flights to London’s Heathrow as well as serving six other UK airports, Virgin Atlantic was poorly positioned to compete, experts said.
“London to Dubai is served not only by Emirates, but also by British Airways. Both offering several flights per day, thus, there is obviously sufficient offer,” said Tobias Ruckerl, CEO and consultant at Advanced Aviation Consulting. BA operates regular flights from its London Heathrow hub.
“Virgin is a smaller player in this market and obviously they cannot stand the competition any more,” he said.
“Dubai probably has not been a profitable route for Virgin Atlantic in some time,” added US-based aviation expert Jason Rabinowitz.
“Emirates now has up to 10 daily flights to the London area, with nearly 5,000 seats offered each day each way. Virgin, on the other hand, offered a single flight.
“Even if Virgin could compete on price, and it probably cannot, there is simply too much competition on the London-Dubai route to keep it up,” he said.
Virgin Atlantic cited “external factors” behind its decision to cancel the route, in a statement issued late Wednesday.
“It’s never an easy decision to withdraw a route, and we’d like to thank our customers and dedicated team in Dubai for their loyalty over the last 12 years,” said Shai Weiss, chief commercial officer for Virgin Atlantic. The airline will continue to fly to Dubai until March 31 next year.
It is the second airline this year to ditch flights between the emirate and the UK capital, with Royal Brunei Airlines announcing last month that it would no longer fly from Brunei to London via Dubai.
Direct non-stop Brunei-London flights are to launch later this year.
Last year, Australia’s airline Qantas announced plans to return its transit hub from Dubai to Singapore.
While such developments have raised concerns that transit traffic and tourist numbers traveling via the Gulf airport could be negatively affected, most analysts have said that the strength of Emirates airline will maintain Dubai’s global predominance.
“As long as Emirates remains the powerful airline it is, I don’t see Dubai being in any sort of risk of losing its status as a major transit hub,” said Rabinowitz.
“While some airlines have opted to start ultra long-haul flights, offering non-stop routes where previously they stopped in Dubai, that is still a very small niche for airlines. The few other airlines that do stop at Dubai are insignificant when compared to the massive Emirates operation,” he said.
Andrew Charlton, managing director at Switzerland-based Aviation Advocacy was similarly upbeat. “No destination likes to see airlines leave, but in the scheme of things it is part of the parry and thrust of commercial aviation and should be seen in that context, not as a major statement on the health of Dubai or of aviation in the market.”
Emirates has further strengthened its presence in the UK this year, with the launch of its new daily service between Dubai and Stansted airport — located on the outskirts of the capital — this month.
The Middle Eastern airline is also set to launch a new service to Edinburgh later this year. It already flies to Glasgow, Newcastle, Manchester, Birmingham and London Gatwick and Heathrow.
Passenger traffic at Dubai International reached 7.6 million in April, relatively flat compared to the same month the previous year.
Year-to-date, traffic reached 30.35 million passengers, up 0.8 percent on the same time period last year, according to Dubai Airports data.
Dubai remained the third busiest airport in 2017, with passenger traffic rising by 5.5 percent last year, according to the Airports Council International. It is the world’s busiest airport in terms of international passengers.


UAE banks benefit from US Fed rate rises

Updated 18 November 2018
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UAE banks benefit from US Fed rate rises

  • With the dirham pegged to the US dollar, the actions of the US central bank have a direct impact on interest rates charged by UAE banks
  • With another Fed rate hike potentially on the horizon in December, analysts said the Gulf country’s banks could find it harder to keep ramping up the cost of borrowing

LONDON: Banks in the UAE are reaping the benefits of the US Federal Reserve’s three rate rises so far this year, with healthy increases in net interest incomes helping bolster profits.
With the dirham pegged to the US dollar, the actions of the US central bank have a direct impact on interest rates charged by UAE banks.
The UAE Central Bank last increased its repo rate by 25 basis points and raised interest rates on certificates of deposit on Sept. 26 to bring it in line with the Fed’s earlier move.
With another Fed rate hike potentially on the horizon in December, analysts said the Gulf country’s banks could find it harder to keep ramping up the cost of borrowing for their corporates or individual clients.
“Due to ample liquidity in the system, supported by high crude prices, banks are struggling to pass the rate hikes to customers,” said Chiradeep Ghosh, research analyst at Sico Bank in Bahrain.

 

 “We expect UAE banks to report only a modest (net interest margin) expansion, despite a likely three to four more Fed rate hikes by the end of 2019.”
In the last reported quarter, UAE banks revealed increases in net interest income of varying degrees.
Banks’ profitability is typically driven by net interest income, which accounted for 69 percent of the UAE sector’s total net revenue in 2017, according to a Oct. 3 Moody’s Investors Services report.
Dubai-headquartered Emirates NBD reported one of the largest increases in interest income this year.
The bank posted net profits of 7.7 billion dirhams ($2.1 billion) for first nine months of the year, 24 percent up year-on-year. This increase was supported by 9.5 billion dirhams in net interest income, a 19 percent increase on the previous year. In contrast, non-interest income dropped 2 percent for the same time period.
First Abu Dhabi Bank (FAB) reported smaller increases, with net interest income reaching 9.75 billion dirhams for the first nine months of the year, marginally up by 0.1 percent.
The increase was slightly more noticeable in the third quarter alone, jumping by 1.2 percent compared to Q3 last year, according to its Oct. 23 statement.
FAB said net interest income was “broadly stable” due to “strong business volumes and rate hike benefits,” according to a bank presentation.
Dubai-based Mashreq Bank said its net interest income, combined with Islamic financing income, climbed by 4.5 percent in the first nine months year-on-year to reach 2.8 billion dirhams, according to a Oct. 21 filing.
Analysts said the increase in the banks’ interest-related income has helped to counter some of the risk of rising funding costs looming over banks.
“We expect that rising interest rates will increase system-wide net interest margins as banks’ higher gross yields outweigh the increase in funding costs,” Moody’s said.
Continued rate hikes could, however, start to affect the financing costs for corporate and individual borrowers and be a drag on economic growth, analysts said.
“Rate hikes would definitely dent the borrowing appetite of UAE corporations and the banks would not be left with much option but to lower their spread over interbank rate which they charge corporates,” said Ghosh.
“The capacity of UAE companies to bear higher debt burden would eventually depend on the economic activities in the UAE. A weak economic environment, along with a surge in higher funding cost may lead to pick up in delinquencies,” he said.
Ehsan Khoman, head of regional research and strategy at MUFG, based in Dubai, said the country should be able to absorb the impact of higher interest rates for now.
“Rising interest rates are unlikely to derail the UAE’s benign economic growth outlook in the near-term. The impact of higher rates should be more than offset by government stimulus. Having said that, it’s an additional factor to consider that GDP growth will remain weak by historical standards,” he said.
Some UAE companies have already reported higher financing costs in their latest Q3 results.
The UAE-based United Food Company (UFC) said on Nov. 5 that finance costs paid in the first nine months of the year reached 535,742 dirhams, compared to the lower amount of 364,568 dirhams recorded in the same period in 2017.
Dubai Investments said on Nov. 5 that finance expenses for the first nine months of the year reached 133.6 million dirhams compared to 69.4 million dirhams.

FACTOID

BACKGROUND

The US Federal Reserve has hiked interest rates three times this year. It left rates unchanged in November but is likely to make another hike next month.