Most Profitable Route for Emirates Airline? Greece
An escalation in the euro zone debt crisis, and particularly economic conditions in Greece, would have major consequences for revenues and profitability, Emirates Airline President Tim Clark told CNBC’s “Access: Middle East.”
“So far, so good, paradoxically, Greece is our most profitable route in Europe today. It has the highest seat factor, the highest yield and the highest profit,” Clark said.
The industry veteran admitted that a significant amount of the company’s business is in euros, and that a “halo effect” on Spain and Italy is equally worrying. And a return to drachmas in Greece was one of the scenarios the airline was preparing for.
“I need to be absolutely sure that we have a contingency for the airline if things go a little bit wonky in Europe.”
The International Air Transport Association (IATA) emphasized in its latest note that downside risks for the industry were simply shifting.
“The airline industry is fragile. Relief in oil prices provides some good news. Unfortunately, the softness in oil markets comes on the back of fears of deterioration in the European economy,” Tony Tyler, Director General and CEO of IATA, said earlier this month.
In fiscal year 2011-2012, Emirates saw its net profit plunge by 72.1 percent due to sustained higher oil prices. Emirates is the region’s biggest carrier, and also the world’s largest operator of both the Airbus A380 and the Boeing 777. The airline’s fuel bill jumped by 44.4 percent to $6.6 billion, compared with a year earlier.
Global oil prices should be at $80 a barrel, Clark insisted. At that level, prices are a fair trade-off for both producers and consumers, while providing a potent stimulus for the global economy, he said.
“A 100 per barrel is basically a tipping point. It's the fulcrum around which a lot of carriers will start moving ahead if it goes below 100," he continued.
Clark, who has been with Emirates since it was founded in 1985, shrugged off concerns about a weakening global economic outlook and the ability to fill the seats of additional aircraft deliveries in the coming years. The airline still has more than 200 aircraft on order, worth almost $84 billion at list prices.
“That was a question I think we were asked in 1988 and we've been asked it every year since then…So what does that tell you? That consistently irrespective of what is going on in the global and regional economies the airline is able to continue its growth trajectory on the basis of the plan we put in place some time ago,” he explained.
Currently, Emirates operates more than 2,500 flights a week and flies to 123 destinations worldwide. In the coming 10 to 15 years, Clark expects China will be the powerhouse driving much of the global growth. But expansion on the mainland fell to 7.6 percent in the second quarter, the slowest in some three years. For Emirates, building up its presence in China has been far from easy.
“It's not doing what we'd like it to do. There are many cities in China that have populations around 20 million. So we need to persuade the Chinese that we are an entity that adds value to their economy. We've haven't quite got there yet,” he said.
As Emirates looks to the future, what’s next for Clark after 27 years with the airline, and counting?
“Oh, I think I should probably ride off into the sunset as they do,” he said laughingly. “Obviously, you get to my age you can't go on forever. I think businesses like this are a younger man's game, I know this because I came through it.”
Find out what Clark thinks about competition, buying up other airlines, talk of getting help from the government, and more, on this week’s “Access: Middle East.”
Yousef Gamal El-Din is CNBC's Middle East Correspondent and contributes to the channel’s flagship shows, as well as analysis for CNBC.com.
Stay in touch with him on Twitter at http://www.twitter.com/youseftv @youseftv