Emirates Airline president Tim Clark said managing the impact of rising fuel prices is the biggest challenge for the Dubai-based carrier, which is seeing an annual fuel bill of $10 billion that will continue to rise as prices go up.
Clark said the price of fuel has increased 42% compared to the same time last year. “The price per barrel is going up to over $80,” Clark told ATW on the sidelines of this week’s Aviation Day in Mauritius.
Clark said fuel prices are not a steady growth factor. “Remember, 18 months ago [the cost of fuel] was down to $30 [per barrel]. Now it has more than doubled. It is hitting us quite badly, but we are managing it,” he said.
Emirates buys fuel at market rates and has not implemented a hedging program, which Clark said “is surprising for some carriers, but one year you are ahead of the game, the next year you are behind. When you hedge at $70 or $80 per barrel and fuel is at $30, you may lose your shirts.”
Clark said the reality of the situation is that airlines pass along the increase as fuel surcharges in air fares to passengers.
He said airlines continually work to keep costs down. In 2008 or 2009, after the global financial crises, airlines saw a significant cost increase and demand drop. “Over the past five years, the airline industry has been [keeping costs down] and becoming far more efficient, but was suddenly hit by a 42% increase in fuel prices,” Clark said.
He said the cash situation for the Dubai-based carrier remains strong because it started the financial year with a strong cash balance. “We will manage [rising fuel prices] during the next six to nine months; we will hopefully stabilize this situation,” he said.
Clark clarified that Emirates buys fuel in Dubai at market prices that is delivered from all over the world. “These are reflected in our financial statements; we have no benefits of arms linked related by the transactions, credits and benefits coming through, which is something the US carriers believe we do. We do not have that at all. We pay market rates,” Clark said, adding Emirates also pays a small levy of every gallon of fuel to the Dubai government. “So, it is the reverse of that,” he said.