Making the cut

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It began back in March when Hong Kong’s flag carrier, Cathay Pacific reported profit losses of over US$1 million in 2008, compared to a profit of almost the same amount in the previous year. The result was a record annual loss for the airline.

Just days later, bmi blamed higher fuel costs, the affects of the economic crisis and Heathrow’s T5 debacle for its $139 million loss in 2008. “bmi’s [profit] results have been hit by the extremely challenging market conditions and impacted by the ‘reputational’ problems of Heathrow,” said chief executive Nigel Turner. It was a huge blow to the airline which made a profit of almost $10 million in 2007, however it still remains the second biggest operator behind British Airways.

Both the airlines, amongst many others, have announced a number of measures that have been put in place to tackle the problems, including moving capacity to routes more likely to make money and downsizing original growth plans for 2009. So as sustained and significant pressure continues to bear down on airlines across the globe, how will Middle East business be affected?

Cathay Pacific’s services to the Middle East were expanded in October as a result of the fuel price-led redeployment of capacity. Dubai moved from a double daily service to triple daily and the airline said that demand remained strong. Fast forward to April and the airline announced major cost-cutting measures in an attempt to claw back some of its massive 2008/09 profit losses.

Passenger capacity cuts included downgrading to an Airbus A330 from a Boeing 747 on its Mumbai/Dubai route and the airline then followed in the footsteps of Emirates and offered its 17,000 employees unpaid leave. The carrier’s chairman Christopher Pratt said he expected the financial turmoil to further impact Cathay Pacific in 2009, while  losses on fuel hedging contracts would be incurred should the oil price remain at its present level of $62 a barrel.

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Likewise, fuel costs remained the top expenditure for Emirates Airline and it attributed last year’s record fuel prices to its sinking profits. The airline contributed $268 million to the group’s total profits of $406 million for the 2008-9 financial year and although the numbers were impressive this was an 80.4% decrease over 2007-8’s record profits of $1.37 billion.

Aside from the fuel price, aviation experts said that a number of additional problems faced global airlines. IBA Group commercial director Owen Geach said: “Firstly, the shortage in aircraft finance for new deliveries caused by the credit crunch and some banks withdrawing from the market are a huge problem.

Secondly the number of new deliveries will create issues later in the year and thirdly passenger flying habits are changing.

“All these factors will lead airlines to carefully consider costs, make cutbacks where possible and consider carefully whether aircraft deliveries can be delayed or deferred,” Geach added.

The news in December of a possible cash crisis at Emirates was a timely reminder that the biggest and best are not immune to financial difficulties Geach added, but he was quick to point out that local banks in the Middle East have also been quietly supporting airlines with aircraft PDP finance and debt finance. In fact, Etihad secured $210 million to finance its aircraft through Al-Hilal Bank.

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