Etihad Airways recorded a $1.87 billion annual loss, revealing the full extent of the pressures facing Persian Gulf carriers as they grapple with the impact of terrorism on global traffic flows and a low oil price that’s crimped local travel.
The 2016 loss came after Abu Dhabi-based Etihad booked a $1.06 billion charge from writing down the value of aircraft and a further $808 million hit from the reduced value of stakes in so called equity partners including struggling Air Berlin and Italy’s Alitalia SpA, which filed for bankruptcy in May.
The earnings reversal, revealed Thursday, comes after Dubai-based Emirates, the biggest Gulf carrier and the world’s largest long-haul airline, in May reported its first annual profit decline for five years. Mideast operators are facing the first serious challenge to years of breakneck expansion that have seen them exploit their position at a natural crossroads to win a major share of the lucrative inter-continental travel market.
“This year is just as challenging for the global aviation industry and the ever-evolving competitive environment is likely to impact overall performance in 2017,” Ray Gammell, interim chief executive officer of Etihad Aviation Group, said in a statement.
The loss was equivalent to almost 40 percent of Etihad Air’s passenger revenue and more than 20 percent of its overall revenue of $8.36 billion. The company, which had a profit of $103 million a year earlier, didn’t publish full group numbers, and the hit from partners includes only the impact of commercial ties rather than losses there.
US Curbs
Pressure on Gulf carriers has mounted further this year after President Donald Trump’s administration sought to restrict travel to America by people from a number of Muslim-majority nations and later imposed restrictions on using electronic devices in the cabins of US-bound planes departing Mideast hub.
While the curbs watered down after being blocked in court and the laptops ban removed, Etihad, the third-biggest Gulf carrier, said last month it will scrap flights to San Francisco in October citing lower-than-anticipated fares. Emirates had earlier moved to eliminate 25 weekly flights to the U.S.
Delta Air Lines, American Airlines Group and United Continental Holdings have accused their Gulf rivals of competing unfairly by taking subsidies from their state-owners, allowing them to serve some routes unprofitably - a claim the Mideast operators reject. The US carriers have also lobbied Trump to limit access to the US.
Emirates said in its earnings release that the last year had been punctuated by a run of "destabilising events" including terror attacks in Europe and the Mediterranean, Britain’s vote to leave the European Union and an immigration crisis linked to conflicts in the Middle East, as well U.S. travel policies.
Qatar Blockade
While Qatar Airways, the Gulf No. 2, reported a 22 percent gain in earnings for the year through March, the Doha-based carrier has been left battling a slump in travel after four Arab countries imposed a blockade on its government-owner last month. The airline has scrapped 125 daily flights with others taking long and costly detours to avoid closed airspace.
Etihad is continuing to implement group-wide changes as part of a strategic review, Gammell said, as well as assessing its minority holdings following an exit from Switzerland’s Darwin Airline last week. The group is also continuing its search for a permanent CEO following the exit of Australian James Hogan, who hatched the investment strategy to catch up with Emirates and Qatar Air.
Yields, a measure of fares, fell 8 percent in the year, Etihad said. Prices dropped across all cabins, with business class worst hit as some premium travelers downgraded to coach with crude still in the doldrums. Fuel hedging also hurt its performance but should have less of an impact this year, it said.
Overhead costs were cut by 4 percent through job cuts and other measures, and the airline has introduced a new fees to boost ancillary revenues from perks such a neighbour-free seating for economy-class passengers.
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