Etihad books USD 1.87 billion loss in 2016

Etihad has been one of my favourite airlines for the longest time, at least for the premium cabin experience they offer. They are also a smaller carrier as compared to Emirates, and a late starter in the aviation business. The effect of a worldwide reduction in travel has been felt the most by almost all the premium carriers around the world. Singapore Airlines, Emirates and Cathay Pacific have been some of those who got burnt with reduced air travel demand last year.

However, Etihad is supposed to have the support of the Abu Dhabi government, and hence, they are supposed to be shielded from these effects, at least as how the American carriers who are waging a war against these carriers would make you believe. But the reality is far different.

Etihad First Apartments on A380

Etihad First Apartments on A380

Etihad has just released their 2016 financial statements, and there is a huge loss on the books. Not because they were subsidising travel, but a purely different reason. As per Etihad’s statement,

Total impairments of US$ 1.9 billion included a US$ 1.06 billion charge on aircraft, reflecting lower market values and the early phase out of certain aircraft types. There was also a US$ 808 million charge on certain assets and financial exposures to equity partners, mainly related to Alitalia and airberlin. 

All of this, trying to take the edge off this statement right below,

Legacy fuel hedging contracts also had a negative bearing on performance in 2016, though this exposure is expected to have less of a financial impact during 2017. 

No one till so far would have imagined that Etihad, sitting on the fountainhead of oil, would have been impacted by fuel hedging contracts. And this is new information, since we have never heard of this before. The carrier does not release financial information on an ongoing basis. So clearly there was more to the departure of James Hogan from Etihad than just his equity partnership losses.

Of course, this situation would have only worsened in 2017, with the travel ban being put in place for a few months for the USA, and now repealed. When you look at some revenue numbers, the passenger revenue has stayed stabled at USD 4.9 billion as of 2015 as well as 2016. However, yields went down 8%.

Etihad admits the climate has further worsened:

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.

No wonder there are cutbacks to products ongoing in Etihad. But having said that, the real problem perhaps lies elsewhere, given that Emirates also reported a 75% decline in profits for the first time in five years this year.

Bottomline

I expect Etihad to continue to maintain a high standard of service in the air, however more monetisation expected to happen on the ground, with lounge access, selling vacant seats and eliminating limousines and so on.

Comments

  1. My concern is more about Jet Airways – as Naresh Goyal always thought that Etihad could be his bank. Now the bank is becoming cashless and his funding plans will go haywire, further the 3 and now soon 4 daily Jet Airways London slots charges at Heathrow are paid for by Etihad – wonder what will happen when Jet needs to make those payments going forward to Heathrow owners on an annual basis. The only silver lining I see is that the yield of Jet’s international sectors and especially India – LHR is quite ++. He must be a worried man.

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