Etihad Airways suffered a huge full-year loss in 2016 as the Gulf carrier adjusted the scope of its operations.

A “Right Size & Shape” programme saw Etihad reduce its headcount and fleet size in 2016, which helped cut operating costs. But lower revenues and a large fuel hedging loss caused the airline’s net result to slump to a loss of US$1.87 billion, from a profit of US$103 million in 2015.

Traffic increased 5.1% to 18.5m passengers and seat capacity also increased, despite the fact that Etihad’s total fleet was reduced slightly to 119 aircraft. Etihad’s load factor remained relatively static at 79%.

Ray Gammell, Etihad’s interim group CEO, admitted that the airline faced “difficult market headwinds”.

“We continue to implement changes across the group as part of the comprehensive strategic review, with a focus on improving revenues and reducing costs,” he added.

Etihad’s total revenue declined 7.1% to US$8.36bn in 2016, while passenger revenues remained static at US$4.9bn. But the airline’s fuel hedging strategy, which locks it into pre-set prices for fuel, significantly impacted the company’s cost base. Etihad was also impacted by competitive factors and shifts in demand and spending patterns.

“We are in an industry characterised by overcapacity, declining market sizes on key routes, and changing customer behaviour as a weak global economy affects spending appetite,” said Peter Baumgartner, CEO of Etihad Airways. “Operationally, we performed well in 2016. We maintained load factor levels even as we increased capacity. Yields were under pressure in all cabins, with business class impacted particularly as corporate travel policies continued to encourage flyers to downgrade to economy.”