Sandstorm Passing?: Emirates, after a tough spell, welcomes better demand conditions. But threats remain.

When Emirates dreams about the good old days, it’s probably thinking of 2010. The giant Gulf carrier had just sailed through the global economic recession. Then it rode the recovery to a 10% operating margin, among the best figures at the time, industrywide. Rivals feared it, envied it and copied it. Some urged regulators to squash it. Suppliers practically worshiped it. As the global airline business entered the new decade, Emirates was its brightest superstar.

Until it wasn’t.

That very next year, fuel prices spiked, Arab spring revolutions swept through the Middle East, a Japanese tsunami disrupted industrial supply chains, the eurozone experienced a debt crisis and global cargo markets contracted, sending Emirates into a tailspin—operating margin for its fiscal year that covered most of 2011 dropped to just 3%.

Margins steadily climbed their way back to 2010’s lofty levels by 2015, when a sudden plunge in oil prices momentarily helped the airline’s cost base more than it hurt the Gulf region’s economies. Once again though, in 2016, Emirates watched frustratingly as its 10% operating margin shrank to 3%. (The U.S. legacy carriers dispute Emirates’ financial results, claiming they are juiced by subsidies, but regardless of which side is right about that, there’s no reason to doubt the year-to-year trajectory of the carrier’s fortunes.)

In this brave new world of 2016, commodity export regions like the Middle East, Latin America, the former Soviet Union and Africa faced an economic shock.

Emirates, in turn, shifted planes and seats to the U.S., a move that backfired when new visa and airline security policies dented demand. Emirates more generally saw its revenue base wither as most of the world’s non-dollar currencies depreciated. Revenues faced additional pressure from rivals growing wildly. In 2016, Qatar Airways and Etihad each grew their scheduled ASM capacity a jaw-dropping 19%, according to Diio Mi data. Turkish Airlines, which competes for many of the same traffic flows, grew 15%. Emirates itself grew 11%, to speak nothing of its sister airline Flydubai, which grew 33%.

The latest financial data for Emirates show some recovery from the depths of 2016, with margins up a few points y/y during the six months from April through September 2017. During the period, certain pressures eased as rebounding commodity…

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