Etihad in $1.87 billion loss after partner airlines weigh on earnings
Abu Dhabi’s Etihad Airways has reported a net loss of $1.87 billion for 2016 as equity investments in Alitalia and airberlin and one-off impairment on aircraft outweighed the passenger and cargo revenues.
The state-owned airline posted a total of $8.36bn in revenues for the past year, dropping marginally from to $9bn recorded in 2015. However, it carried a record 18.5 million passengers during the year.
The news comes barely three months after Dubai’s Emirates Airline reported more than 80 per cent drop in its annual profits last year.
Etihad said the total impairments of $1.9 billion included a $1.06 billion charge on aircraft, reflecting lower market values and the early phase out of certain aircraft types.
“There was also a $808 million charge on certain assets and financial exposures to equity partners, mainly related to Alitalia and airberlin,” it said in a statement sent out to the media.
“A culmination of factors contributed to the disappointing results for 2016. The Board and executive team have been working since last year to address the issues and challenges through a comprehensive strategic review aimed at driving improved performance across the group, which includes a full review of our airline equity partnership strategy,” said Mohamed Mubarak Fadhel Al Mazrouei, Chairman of the Board of the airline’s parent company Etihad Aviation Group.
Fuel hedging losses also weighed on the airline’s core performance.
“Our fuel hedging positions, which helped manage fuel spend during the oil price boom, yet significantly impacted our cost base last year, will taper during 2017,” said Peter Baumgartner, Chief Executive Officer of Etihad Airways.
The airline’s officials also blamed market capacity pressures and the tough global economic climate for the poor results.
“Operationally, we performed well in 2016. We maintained load factor levels even as we increased capacity. Yields were under pressure in all cabins, with Business Class impacted particularly as corporate travel policies continued to encourage flyers to downgrade to economy,” Baumgartner said.
“We are in an industry characterised by overcapacity, declining market sizes on key routes, and changing customer behaviour as a weak global economy affects spending appetite,” he added.
A slowdown in the cargo market put increased pressure on cargo revenues and yields, and the airline saw a slight improvement in freight carried at 595,519 tonnes for the 12-month period.
“We are also seeing promising improvements in the contribution made by our ancillary revenue strategies, and we expect those to offset some of the yield declines,” the airline’s top executive said.
Ray Gammell, Interim Group Chief Executive Officer, said despite the difficult market headwinds the airline will continue to focus on maintaining the solid performance of the core airline business.
“At the same time, we continue to implement changes across the group as part of the comprehensive strategic review, with a focus on improving revenues and reducing costs,” he said.
“During 2016, the airline commenced a Right Size & Shape programme that generated total overhead savings of 4 per cent through headcount reductions and other measures by the end of the year, even as capacity and total passenger number increased,” Gammell further said.
On projections for the current year, he said it is “just as challenging for the global aviation industry and the ever-evolving competitive environment is likely to impact overall performance in 2017.”
“However, our airline business remains strong and class-leading, and as an aviation group, we are in a stronger position.”