Business and Financial Analysis Of

Emirates over three year Period

Gul Nawaz Khan

ACCA reg No. 2320336
 Introduction
Emirates originated in 1985 with support from Dubais royal
family.
Emirates is based in Dubai and is a subsidiary of The
Emirates Group.
It operates nearly 3400 flights per week to 150 cities in 74
countries across 6 continents.
In 2012 it was the fourth largest airline in the world in terms of
international passengers carried and scheduled passenger-
kilometers flown and it became the third largest airline in the
world in terms of scheduled freight ton-kilometers flown.
Emirates has received over 400 international awards over the
years which shows their commitment to quality.
Emirates is currently extending its fleet with one new aircraft
per month on average.
 SWOT analysis of
Emirates

Strengths
Weaknesses
Emirates Existence in oil rich UAE
Strong Financial Position(retained
earnings)
Experienced managers who have
been with them from the beginning
S W Inability to control cost
Operating under high gearing levels.
Not part of any global alliance.

Opportunities Threats
Establishment of low cost airlines
There's still room for more
and global financial crisis has

O T
expansion.
World Expo 2020 being held in dampened the demand for luxury
airlines.
Dubai will attract millions of people
Political unrest in middle east if
to Dubai and Emirates would be
continues or increases creates a
looking to exploit that opportunity.
threat for airlines as these places
become unattractive to costumers.
 Threat
Threat of
of new
new Entrants
Entrants
Big
Big barriers
barriers to
to entry
entry exist
exist in
in the
the
Porters Five form of capital expenditure
form of capital expenditure which
is
is required
required atat start
start up.
up.
which

Forces Framework Also

Also mature market makes
hard
mature
hard to
to gain
market
gain costumers
makes itit
costumers in in earlier
earlier
years.
years.

Threat of Substitute Rivalry among Bargaining Power of

Products
Substitutes for travelling are
trains, sea, bus etc.
This threat exists for national
carriers.
There is no substitute for
international travel when time
and cost is taken into account.
Existing Competitors
Competition is very tough
as market is mature and
competitors fight for
costumers.
The recent consolidation
in industry has created few
big Airlines which
increases their
competitiveness.
Costumers
Individual travelers who travel
for business or tourism
cannot influence much an
Airline.
The use of internet has made
the costumer aware and has
somewhat increased
bargaining power of the
costumer.

Bargaining Power of
Suppliers
Major supplier for Airlines are Aircraft
manufacturers. There are only few
aircraft manufacturers. Still they dont
have much bargaining power as
Airlines are the only source of income
for manufacturers.
The second major supply is oil but its
price is determined by market
Financial Analysis Of Emirates against Air
Arabia
Analys of Emirates Revenue And Cost
90,000

80,000

70,000

60,000
AED Million

50,000 Revenue
Operating Cost
40,000 Fuel Cost

30,000

20,000

10,000

-
2011 2012 2013 2014

Year

Emirates has shown impressive growth over the years with continuous
expansion.

But fuel cost continue to eat profits of Emirates

 Analysis Of Air Arabia Revenue and Direct cost
3,500
3183.82

3,000 2942.43
2681.27

2,500 2434.66 2418.41

2080.31 2112
AED Million

2,000
1768.64 Revenue
Direct Cost
1,500

1,000

500

0
2011 2012 2013 2014

Year

Same is the case with Air Arabia but Air Arabia has hedged some of its
fuel and so is safeguarded somewhat from increasing prices.
 Comparison of Asset Turnover
1.4

1.2
1.19 1.19 1.09

0.8
Emirates
Air Arabia
0.6
0.48
0.43
0.40.46

0.2

0
2012 2013 2014

Year

Emirates is doing quite well in respect of asset turnover and assets are used
more efficiently by Emirates to generate revenue.
 Comparison of Return on Capital Employed
8%

7% 7% 7%
6%
6%
5%
5% 5%
4%
Emirates
4%
Air Arabia

3%

2%

1%

0%
2012 2013 2014

Year

In the year 2012 Emirates increased its total assets by 18% and profits fell
by 61% resulting in drop in ROCE.

Air Arabia on the other hand was not that much effected by rising fuel cost
due to its hedging strategy.
 Operating And Net Profit Margin
16%

14%

12%

10% Air Arabia Net Profit Margin

Air Arabia Operating Profit Margin
Emirates Operating Profit MArgin
8%
Emirates Net Profit Margin

6%

4%

2%

0%
2012 2013 2014
Emirates refusal to increase prices or use forward hedge has resulted in
reduced profit margins over the years.

This reduction is mainly due to increasing costs and fuel cost is main
constituent of cost approximating to 40% of operating cost in 2012.

Air Arabia is able to maintain margins due to forward hedge, absence of

taxes, and finance income being more than finance cost.
 Current Ratio

1.16
2014
0.84

Emirates
1.50 Air Arabia
2013
1.12

2.11
2012
1.01

0.00 0.50 1.00 1.50 2.00 2.50

Both Companies feature healthy current ratio

Air Arabias current ratio however is on decline and could be worrying in the
future if trend is continued.
 Comparison of Quick Ratio

2014 1.15
0.79

2013 Emirates
1.49 Air Arabia
Year

1.07

2012

0.95 2.10

0.00
0.50
1.00
1.50
2.00
2.50

Both feature similar quick and current ratio due to inventory being an
insignificant part of current assets.

Emirates features a very stable quick ratio

A worrying sign for Air Arabia if its quick and current ratio continue the
same trend.
 Comparison Of Gearing
70%

60%
60%
61%
56%
50%

40%

30% Emirates
26%
Air Arabia

20% 19%
14%

10%

0%
2012 2013 2014

Year

Emirates gearing is at an alarming level but seems to be acceptable

to owners

Air Arabia operating completely equity has low level of gearing.

 Comparison of Interest Cover
16.00

14
14.00 13

12.00
11

10.00
Emirates
Air Arabia
8.00

6.00

3.75 3.94
4.00 3.55

2.00

0.00
2012 2013 2014

Interest cover of both companies is well above normal levels.

However the level of interest cover of Air Arabia begs the question as to why
the money is not being used to generate higher returns.
 Passenger Seat Factor
0.83

83%
0.83

0.82
82% 82%

0.82

0.81 Emirates
Percentage

Air Arabia
0.81

0.8
80% 80%

0.8 80%

0.79

0.79

0.78
2012 2013 2014

Emirates has stable seat factor which is supported by flex tracks which is used
to plan and optimized load factor.
 Conclusion
Emirates has done quite well with increasing destinations and
gaining market share.

Emirates has lost control over its cost and margins have
severely eroded as compared to figure from year ended 31
March 2011.

Two great opportunities lie in World Expo 2020 and Qatar

World Cup 2022 which Emirates should be looking to exploit.