Is Emirates in trouble?


Jan. 12, 2017, © Leeham Co.: There are a growing number of articles around the Emirates airline that points to recent weaknesses in the airline’s operating model. Here are just two:

We decided it was time for a deeper look at this locomotive from the Arab Emirates. Is Emirates in trouble? How solid is it?

We studied the economics for the last decade and took a deep look at the fleet needs, including, has  Emirates committed to too many aircraft being delivered over the next several years?

They have just deferred Airbus A380’s for the first time. Used to be they could not get them fast enough?

  • Emirates has been profitable since start 1985.
  • Its unprecedented growth in revenue and passengers has slowed down.
  • The low fuel price has kept profits up for now, but yield and load factors are down.
  • With a flexible fleet structure and a strong balance sheet Emirates has a strong position to weather any storm going forward.

Emirates’ operations

Emirates started airline operations in October 1985 with a couple of wet-leased aircraft (one Boeing 737-300 and one Airbus A300B4-200) from Pakistan Airways. Since then, the growth of this all-widebody airline is one of the world’s outstanding success stories. Last year, the airline transported 50 million passengers between 150 cities in 80 countries.

Figure 1 shows the progress of the airline in recent years. It has doubled its passenger numbers and revenue since 2009.

Figure 1. Emirates history over the last 18 years. Source: Wikipedia.a

The growth rate in passengers and revenue has been 13% per year over this period, until fiscal year 2015 when revenue stopped growing.  Emirates has seen years of lowered profits (red arrows) but has not reported losses in its history.

Despite a decline in revenue, the net profit did not stop growing in the last reported fiscal year from April 2015 to March 2016. We will call this 2015/16 going forward.

The increase in profits was due to the lower fuel costs in the period. Figure 2 gives a more detailed picture about airline operations during the period since the GFC.

Figure 2. Emirates’ operations data for the last eight operations years. Source: Emirates annual reports.

Yield, which is Revenue per Tonne Kilometer, RTKM (here in fils per Tonne Km. There are 100 Fils to a Dirham, which is worth ~$0.27) has declined during 2015/16 and should have declined further since. At the same time, cost has been the lowest since 2008/9 (unit cost, fourth line from top).

More importantly, Emirates has stopped the cost increase excluding jet fuel (fifth line from top). Passenger load factor (here called Passenger seat factor) declined from 80% to 76.5% and could have declined a bit further during calendar 2016.

This is due to an expansion of Available seat kilometers by 13% last year at the same time as the passenger seat kilometers increased by 8% between 2014/15 and 2015/16. This decline in traffic growth is the background to Emirates now deferring delivery of six Airbus A380s from 2017 to 2018 and postponing delivery of another six A380s from 2018 to 2019.

Figure 3 gives a more detailed view of the breakdown of operating costs for Emirates.

Figure 3. Emirates’ operations data in more detail for 2014/15 and 2015/16. Source: Emirates annual reports.

Jet fuel is still the highest operational cost item but has declined sharply since 2014/15. Sales, Marketing and Corporate overhead have been cut since 2014/15.

Capital costs for aircraft are split between operating leases and amortization on money which has been used to acquire aircraft (finance leases and loans). If one sums these costs (where only 400m Dirhams are for non-airline depreciation/amortization), aircraft capital costs exceed employee costs and becomes the second most important cost factor after fuel.

If one compares the Emirates’ cost per transported tonne kilometer of passengers with that for a major competitor on the worldwide long-haul market, the Emirates cost would be $0.36 per TKM versus $0.70 for British Airways during the 2015/16 period.

The revenue has a good geographical spread with Europe and Asia as the strongest markets, Figure 4.

Figure 4. Emirates’ revenue per region for 2014/15 and 2015/16. Source: Emirates annual reports.

Emirates’ financials

Emirates has been profitable since start. In recent years, the return on capital exceeded 10%, with a record 24% for the year 2015/16, Figure 5.

Figure 5. Emirates’ financial data for 201415 and 2015/16. Source: Emirates annual reports.

The profitable operation has enabled a steady cash flow with cash asset of 20bn Dirhams end of 2015/16, Figure 6.

Figure 6. Emirates’ cash generation for the last five operating years. Source: Emirates annual reports.

The strong cash generation has given a healthy margin once all debt related costs have been paid, Figure 7.

Figure 7. Emirates’ payment of debt costs for the last five operating years. Source: Emirates annual reports.

The consistent generation of profits has left a strong balance sheet, Figure 8.

Figure 8. Emirates’ balance sheet for the last two operating years. Source: Emirates annual reports.

With cash and current assets of 31.4bn Dirhams out of total assets of 119.2bn Dirhams and a fleet asset, which is to a large extent on operating lease (Figure 9), the capability to weather tougher times is there without having to borrow from the Dubai state.

Figure 9. Emirates’ fleet with how it’s financed. Source: Emirates annual reports.

Fleet Analysis

An analysis of Emirates’ in-service fleet and the aircraft on order shows that the airline has great flexibility to retire or retain airplanes, to shrink (an unlikely event), maintain a steady level or grow its fleet.

More than half of the 777s are leased, either through traditional operating lessors or via special purpose companies.

Roughly half of the Airbus A380s are sourced from operating lessors or special purpose companies.

Emirates likes to “flip” its fleet between 12 and 15 years. LNC’s analysis of fleet age and delivery dates for the 777s shows a close relationship to 777s that become 12 years old and scheduled deliveries of new 777 Classics and 777Xs.

Boeing 777s

The chart represents the number of aircraft that become 12 years old in what year (in blue) and the number of new 777s to be delivered in any given year (in orange.)

There is a close correlation in most years. This, combined with the flexibility of returning leased aircraft or parking owned aircraft, gives Emirates plenty of options to manage fleet growth consistent with profits and market demands.

Figure 10. Emirates 777 fleet. Source: Ascend/Leeham Co. Click on image to enlarge


Figure 11. Emirates turnover of A380. Source: Ascend/Leeham Co.


The first A380 delivered to Emirates is a 2006 build. Because of industrial delays in the program, the initial delivery stream involved few aircraft. Accordingly, Emirates’ A380s when they become 12 years old are fewer than the 777 fleet. Likewise, there is an order-to-12-year-old imbalance.

The A380s are clearly growth airplanes, with less ability to manage retirement-to-deliveries based on age.

The mix of lessors-to-ownership is also smaller, as noted above. But this doesn’t preclude Emirates from simply parking and scrapping 12-year old A380s, as president Tim Clark once told LNC he was prepared to do, or deferring delivery of new aircraft.

The scrapping statement caused consternation with the A380 lessors, causing Clark to back off by the following June.

The current outstanding orders for the A380 clearly represent growth more than replacement aircraft.


Emirates is far from in trouble. What has happened it that the revenue growth has stopped and as we will see after March 2017, most probably also the profit increase. But the company can adjust its capacity through retirements of old fleet, parking owned aircraft or defer the entry of new planes into the fleet.

The balance sheet is strong, money is available for any actions needed to fill the aircraft that are flying, be it marketing or price cuts.

What has taken a pause is the unprecedented growth in top and bottom line of the financials. Passenger growth might also take a hiatus. If it does it will depend more on geo-political events than Emirates capability to generate interest for its offering.

43 Comments on “Is Emirates in trouble?

  1. Hello

    What is the difference between operating lease and finance/lease loan ?

    Operating lease is from “classic lessor” like GECAS ?
    Finance lease / loan are the so-called “special purpose vehicule” like Amedeo (

    Is that it ?

    Best regards

    • It has more to do if you are registered as the owner of the aircraft or not.

      An operating lease is renting the aircraft from someone who is owning the aircraft. The agreed lease=rent period is for Emirates usually 12 years.

      A financial lease or a loan in some way lends you money to buy the aircraft, i.e. the aircraft has to be in your balance sheet as an asset on the assets side and the loan/finance lease shall be shown on the equity/liabilities side.

      So its simply a matter of renting or owning an aircraft.

    • Amedeo is an operating lessor.

      An operating lease is straight-forward: you lease the airplane for a set period and either return it or renew the lease at the end of the term.

      A finance lease has a purchase option at the end of the term. (Simplistically.)

  2. All right thanks

    Are you the ower of the aircraft at the end of the financial lease then ?

    • In a conventional finance lease the lessee (airline) owns the asset in all but name normally. The critical issue of the leasing vehicle is that the title of the asset never passes to the lessee however. Scott helpfully answered my questions on the airline leasing industry in a previous post a couple of years ago. Aircraft leasing can become more complex than the simple arrangement I have suggested.

      Keeping it simple an operating lease is simply renting the asset (dry, damp, wet). A finance lease is financing tool.

    • No the leasee generally returns the aircraft to the lessor under contract requirements

  3. Interesting article, but I can’t see any but the first picture. Tried three different browsers. Anyone else have the same problem?

    • All those pictures are png files, except the first one. No problem here in Firefox. If I click on them to view full size it opens in picture viewer and not in firefox though.

    • Using Vivaldi here (based on Chromium engine) – if I click on the broken image thumbnail then it requires a login… so that’ll be the issue – the text is free to view but images are behind the paywall.

      PNG images should work in any browser these days – it was only IE in the bad old days of the browser wars which refused to accept the standard.

  4. Really the main problem for Emirates is the perplexing reluctance of Airbus to produce a 380neo. It would turn the program into a real money maker.

    • What is so perplexing? Its called a business decision.

      Costs something like 3-4 billion, RR is in trouble (orders down and a lots of new production) and the A380s they have won’t sell even used.

      Lack of sales has nothing to do with their efficiency , it has all to do with they are too big except for selected routes and most operators have found something around 10 is all they can fill. A half empty A380 is a full 787!

      They lack cargo capacity (belly). That too often is not understood is the ability to take cargo and offset costs. So its part of the revenue generating capability, and after all that’s what these are, revenue generating (hopefully) machines.

      Airbus is moving rapidly to rate 12.

      Malaysia can’t make their work and spun them off into a weird sub operation (will see how well that plays out)

      Quants will take no more, Virgins is gone, Amedeus is a joke.

      • Malaysia couldnt make their 777’s work either and retired all of them.-gone. (Doesnt make the 777 a bad plane ) Yes the A380s are on the way out but that is mostly because the competition from the ME3 has grabbed all Malaysia’s passenger growth predictions. This too is why North American airlines/countries are so hostile.

    • “Really the main problem for Emirates is the perplexing reluctance of Airbus to produce a 380neo. It would turn the program into a real money maker.”


      I love the Airbus a380, but I’ll also be the first to tell you that it is a financial failure. Sure, I’ve been known to joke about the prospects of the a380 on this forum – even calling 2017 the “Year of the A380” – but that’s just silly talk. Seriously…the A380 is not the future – it’s just not as cost efficient as a lot of other options that are out there. And, let’s admit…at the end of the day, an airliner is foremost a tool for making money, and if an airliner can’t do that competitively (compared to other airliners) then it really has no future. Such is the A380.

      • @Jimmy

        I would agree that the current A380-800 doesn’t not have much of a future post 2020. What quite a few people seems to be unable to see, though, is the enormous upgrade potential of the basic A380 platform. A 40 percent-plus lower trip fuel burn is IMJ achievable for an A388-sized, A380-derived twin (as I outlined in the previous thread). That would translate into a slightly lower trip fuel burn than even the current 777-300ER. Hence, an A380neo is not the right move going forward — something Airbus probably has long since realised.

        • I agree. It certainly needs a longer wing span and the 777X with its folding wing tips is leading the way for that feature.

    • “…the perplexing reluctance of Airbus to produce a 380neo.

      The perplexing reluctance of Airbus to throw good money after bad?

      • For many reasons the wave of retirements for the 747-400 in the last decade havent been upscaled to A380 or the new 747-8. Instead they have mostly gone for the 777-300ER which has a smaller capacity. Emirates of course never had the 747 and went for the 380 and 777 either side of it.
        The unanswered question is what will airlines replace the 777-300ER with ?
        Will it be a mix of 777X and 380 or will they be cautious and keep with the big medium twins, A350 and 787?

  5. I get the feeling that any pain that Emirates suffers will be passed on in spades to other traditional flag carriers. The policy of dumping seats on more and more city pairs must have consequences for the price points both directly and indirectly

  6. Emirates, should it need to or decide to, can ‘start’ to follow non gulf airlines and reduce the 5-star services and start to normalize itself and increase revenues by charging for ancillaries etc.

    That is, they haven’t yet tapped any of those ancillary revenue streams as yet… which likely contribute a huge % of ‘normal’ airline profits beyond the pure transportation aspect. Being at the top-end f the market, they have more to play with than their competitors if/when things get tighter.

  7. Simply parking aircraft does reduce capacity and flight related losses, but financing a bunch of big aircraft and keeping them airworthy also costs a lot of money, no? How many aircraft can Emirate afford to park in the desert and wait for better days?

  8. I don’t agree that Emirates has good flexibility to adapt to lower capacity growth. They have rationalized their fleet to two types only: 777 and A380. The A380 is only profitable with high load factors. That’s a high risk in an economic downturn.

    What has been completely overlooked in this article is their staffing crisis.
    Despite heavy advertising and recruiting attempts they are currently (barely) beeing able to hold current staffing levels. Fatiguing schedules are driving staff away and the feedback on social media is so bad it severely impediments recruiting (source

  9. My take (or questions for the route experts) is that Emirates has ALL very large aircraft and no flexibility in their fleet at all.

    So they fly an A380/777 into marginal destinations.

    Fuel prices are going UP

    I don’t believe they will sink, but do they need to have a mixed fleet that includes 787/A330 and or A350 types?

    There are more and more competitors trying to pick their traffic off.

    • The flexibility is to park owned airplanes or return leased ones to manage growth.

      • If I sign a lease on an apartment for 12 months and move out after 6, I’m still on the hook for the remaining 6 month’s rent.

        I guess it doesn’t work that way in aircraft leasing?

        • Yep that is the rub.

          You need to park now, then its your airplane, the lease goes on for the term of the contract.

          If you time the leases so some come due every 6 months maybe.

          Does nothing to address too big an aircraft for all markets, or only can serve the markets that take big birds and if that market is limited then……

          And fuel cost are going gup.

          777/A380 is like a 25 lb or 30 lbs sledge, usually a 5lb is the ticket.

  10. 500 787’s are in the air, lots of A350’s now flying. Is the business model of Emirates, which has profited from it’s strategic hub location being eroded by smaller long range aircraft?

    • They fly to so many places where they make a 777 work a smaller plane makes no difference. being first means they have the competitive advantage.

        • Who else can make triple daily A380s to Manchester work, or a daily 777 to Newcastle. Or Sialkot in the Punjab, its only the 12th biggest city in Pakistan. In most cities even with a heavy Emirates presence they are only 5-6% of the traffic

  11. You have mistakenly quoted financials in million when in fact they are AED bn e.g. Figure 6 should 20 billion dirhams not 20 million.

  12. “If one compares the Emirates’ cost per transported tonne kilometer of passengers with that for a major competitor on the worldwide long-haul market, the Emirates cost would be $0.36 per TKM versus $0.70 for British Airways during the 2015/16 period.”

  13. Going away from the strategy of flying only B777s and A380s to a mix of larger and smaller aircraft such as B787 and A350s is an option, however what about the impact in terms of landing costs, let’s say in an airport such as London Heathrow?

  14. I believe the decision to slow deliveries of the A380 is more about mutual consent to fit in and around Airbus production which now has to slow production as expected orders to did not materialise from others. For example, Emirates took additional aircraft in 2016 to help meet the production plan. Possibly the RR engines are not yet meeting the improved performance they were promised over the GE engine may also play a part in this. I feel any detailed business analysis of the Emirates model should include freight and the revenue generated from premium features connected with the brand. Although the airline keeps it fleet relatively young they will hold on to their early A380s and possibly convert some to freighters. Long haul travel is a growth area but not on the scale it was thought to be even 7-10 years ago. After 2020 the growing capability and spread of single aisle aircraft routes means travellers will have increasing amount of options to depart from airports closer to their home and to get to nearer to their final destinations could mean hub and spoke models will grow at slower rates that predicted.

  15. A couple of issues that has led to this turbulence in the Emirates flight upwards. 1st the loss of the head of yield management in 2015. Yield management is a very specialised skill and the people who took over since we’re not experts in this field. 2nd the lack of replacement of the AirbusA330 for lights load routes. The A350 or Boeing 787 would have been a necessity. Using A380’s and B777 and running at less than 50% load factor leads to higher operational costs and revenue reduction. A smaller aircraft would ideally take up the slack and produce more profit.

  16. They should really cut the billions they spend on marketing and sponsorship’s. Its great that everyone knows the Emirates brand but $3bn a year is a bit excessive for an airline.

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