Cry Dubai: Singapore Airlines has lost its profit mojo. Is Emirates heading down the same path?

Once upon a time, it seemed unstoppable. It was one of the world’s most profitable global airlines. It was government owned, yes. But more importantly, it was owned by a government that greatly prioritized aviation development. Its customer service was world renown. Its hub was well-positioned geographically. Its home airport ranked among the best. Its fleet consisted of all the latest and greatest Boeing and Airbus widebodies. And its rivals eyed it with both scorn and envy.

Today, Singapore Airlines retains many of these distinctions—but not the most important one: It’s no longer a big money maker and hasn’t been all decade. But this is not a story about Singapore Airlines. It’s a story about Emirates, an airline that’s strikingly similar to the airline it aspired to be when first launching in the 1980s. Emirates too has an aviation-friendly government owner, a reputation for good service, great geography, a gleaming home airport, an ultra-modern all-widebody fleet and a legion of both admirers and critics. Yet increasingly, its pressures on profits also resemble those affecting Singapore Airlines.

Those pressures, to be clear, weren’t readily apparent in the latest financial results that Emirates published. In the 12 months to March of this year, it did rather well, producing $1.2b in net profits and a 7% operating margin. In fact, for the first time all decade, it earned fractionally lower margins in the peak summer half (April 2014 through September 2014) than in the winter half (October 2014 through March 2015), reflecting rising margins as the year progressed. Emirates, it’s clear, is doing better now than at any time since 2010, an unusually strong year for most global airlines, including—incidentally—Singapore Airlines. Put another way, while Singapore Airlines has never come close to repeating its 2010 performance in the four-plus years since—its operating margin didn’t even top a mere 2% during the past three years—Emirates today is not far from its 2010 peak.

So what’s the problem?

Actually, the problems are many and mounting. The hidden truth is that Emirates managed solid margins last year for a simple reason: Its fuel costs dropped dramatically. For the full 12 months, its fuel bill fell 7% y/y on 9% more ASK capacity. So it used a lot more fuel to fly all those additional seat kilometers but still wound up with a lower bill. And this sharply understates the tailwind. In the first six months of the fiscal year—in other words, the summer half—fuel prices…

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