Will Emirates become the Coca-Cola of the skies?

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By TESTCustomwebLP TESTCustomwebLP March 12, 2014 10:52

Will Emirates become the Coca-Cola of the skies?

Emirates President Tim Clark revealed yesterday that the carrier has had an “unexpectedly better year” for 2013/14 compared to financial year 2012/13 when the airline posted a profit of Dh2.3bn. Clark also confirmed that Emirates was looking into a Sukuk issue (among other options) to raise funds to finance future aircraft deliveries and he has confirmed that sale and leasebacks will be a part of the aircraft delivery finance options. But aside from this, 2014 remains all about US expansion for Emirates and the airline is actively looking at connecting to more cities at speed with Miami, Philadelphia, Detroit and Denver mooted once again.

In 2014 Emirates has to contend with runway closures at Dubai in late May which will see at least 20 aircraft grounded throughout the 80 day runway closure. This will no doubt impact that quarter significantly. FlyDubai will be hit equally as hard during late May/June 2014.

The reality is that Emirates is already becoming a globally recognised brand, and with the massive number of aircraft still to be delivered, it can be argued that it will grow to become a brand as recognisable across the globe as Coca-Cola. As this happens, one wonders if Emirates will be able to resist the calls for an IPO that will in the event no doubt be the largest airline IPO in history. Also it is interesting to point out that Emirates will have to think more and more about broad terms population statistics in its planning as its size reaches monolithic proportions.

The fact is this: If you order an aircraft now then you expect to be flying it still, or for that asset to have a market remaining, in say 2030. So given this fact it is important once again to consider that current UN figures continue to estimate that by 2030 Europe will have lost the equivalent of the entire population of Poland; Russia will have lost the equivalent of the entire population of St Petersburg; and Japan would have lost an estimated 6m people increasing to 20m by 2050, or the entire population of Osaka. It is estimated that the bulk of population decreases in these areas will come from the older generation of cash and asset rich post war baby boomers, or as we would term them – potential airline customers.

In all other areas of the globe population explosions are due to occur in major zones of poverty. The shinning exception to all of this potential doom and gloom is North America where the population is set to rise by 97m between now and 2030, that is the population of Germany. Thus, it is wise to invest in any aircraft being delivered in the near future to secure major airlines serving the North American market, and indeed the future demand for the likes of Spirit and Southwest, JetBlue etc looks secure at worst. The Emirates focus, like so much of what the airline does, is spot on.

It would rude not to also mention the Cathay Pacific figures released this morning: Passenger demand, the weak Yen and quality fuel hedging arrangements helped the Hong Kong carrier secure a 204% increase in profits to HK$2.62bn ($337m), even so this was some way off of what analysts had expected All this came on the back of Cathay Pacific and Dragonair showing a collective 2.4% increase in passenger numbers while cargo revenue fell 3.6% to HK$23.7bn for the past year, with cargo yield falling by 4.1%. Now given the small increase in passenger demand and the continued fall in cargo yield it is clear that FX gains and fuel hedging gains played a very large part in securing the profit figures and as such investors showed caution sending Cathay Pacific shares 2% lower at the close today HK$15.46.

The main problem for Cathay Pacific, that investors see clear as daylight is that most of the passenger gains over the past year have come by way of increased leisure and business travel to the Pearl River Delta in southern China, this is a market that JetStar and other Chinese low cost airlines will hope to tap in the near future and that will force passenger yield down.

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By TESTCustomwebLP TESTCustomwebLP March 12, 2014 10:52
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