The Dubai carrier is gradually building market share and plans to double its fleet by 2012.
Established in 1985 with a fleet of two aircraft and start-up capital of $10m, the Dubai-based carrier expects to become the world’s biggest in terms of international passenger traffic by the middle of the next decade.
State-owned and chaired by Sheikh Ahmed bin Saeed al-Maktoum, Emirates has spearheaded Dubai’s emergence as an international travel hub and tourist destination.
The company has returned a profit in all but one of its 23 years, riding out the global slump experienced by the industry after 9/11, and is producing record figures at a time of soaring fuel costs. Net profit leapt to AED5.3bn ($1.44bn) in March 2008, a 54 per cent increase on the previous year.
Emirates has endured countless allegations that the airline is bankrolled by covert government subsidies. Only through state support, the cynics claim, could it be so immune from the cyclical peaks and troughs in the industry that have hit its rivals.
The company’s management has always angrily denied these claims, while Emirates itself continues to expand. A flotation of part of the business on the Dubai Stock Exchange is eagerly anticipated within two years.
Like most state-owned enterprises in the region, Emirates maintains a narrow ownership structure. Sheikh Ahmed, the chairman and chief executive officer, has executive control, but beneath him the group divides into three.
Maurice Flanagan, executive vice-chairman, who has been with the company since its inception, has oversight across the entire group on the government’s behalf, with communications and internal audit reporting to him.
All aviation business is overseen by Tim Clark, president of the airline. As well as the central carrier operation, this includes the freight business, Emirates SkyCargo, the frequent flyer business, Skywards, airport services and the growing hotel and holidays business.
The third grouping is overseen by Gary Chapman, president of group services and Dnata, the aviation services and cargo group.
It is a structure that allows for clear communication and rapid decision-making at a senior level. This has tempered enthusiasm among the management for an initial public offering. With the business already maintaining high levels of financial transparency and making record profits, Flanagan says the corporate governance obligations of a flotation mitigate against going to the market since the appointment of a full board would disrupt this structure (see Q&A).
Emirates is built around its passenger airline service. From the outset, the company has focused on the long-haul market, exploiting Dubai’s potential position as a hub between east and west. With the arrival of new long-range aircraft, it is now possible to fly from the west coast of the US to Australia or China with a single stop in the emirate. Skycargo, the airline’s freight business, aims to mirror this success.
When it was founded, Emirates picked up the aviation services and cargo group Dnata, the largest ground and passenger handling company at Dubai International Airport, and has diversified into a niche holidays and hotels business to complement its airline operation.
The group has also developed a lucrative venture with Mercator, the IT services business, which now counts more than 50 airlines and aviation groups among its customers, providing revenue and accounting solutions tailored to the business.
Emirates plans to expand to meet the needs of the growing volumes of passenger traffic between east and west. There are new routes to establish and new markets to be explored.
Next year, the airline will move into purpose-built facilities at terminal 3 of Dubai’s new international airport. Here, Emirates will receive a terminal designed specifically for the airline’s forthcoming fleet of Airbus A380s.
As the world’s biggest customer for the A380, the aircraft’s steady arrival in Dubai will ramp up capacity at the airline still further. Emirates will receive its first superjumbo this summer and with the delivery of its order of Boeing 777s, will double its fleet by 2012. The company currently has 243 aircraft on order, worth $60bn.
The firm says these increases are just the beginning. Acquisitions and a move into the low-cost market have been ruled out. After its experience with SriLankan Airlines, Emirates appears to have decided to stick to the formula that has served it so well so far, doing the basics right, building frequency across its network, and steadily building market share.
Emirates has inspired admiration, fear and loathing among its international peers during its apparently inexorable rise to the summit of the industry. The airline has encountered widespread opposition as it has spread globally, with some countries still limiting the carrier’s traffic rights to protect beleaguered national carriers.
Despite this, the group’s position in the upper echelons of the market now seems assured. The airline’s challenge in the coming years will be to continue to maintain standards of service on board and on the ground while sustaining the company’s extraordinary rate of expansion. The new fleet of A380s and 777s will require huge investment in staff and training, particularly pilots and cabin crew.
The airline’s peers cannot be expected to roll over. Emirates will face stiff competition from Asia and, closer to home, from regional carriers Etihad and Qatar Airways. Emirates appears well equipped to cope for the foreseeable future, and though it continually stresses its commercial independence from the Dubai government, the unstinting support of Sheikh Mohammed bin Rashid al-Maktoum, ruler of Dubai, is a huge boost to the airline going forward.
The symbiotic relationship between the airline and the city state is a huge advantage to the company and, indeed, its main rivals from the region in the international long-haul market.
Date established: 1985
Main business sectors: Aviation
Main business regions: Worldwide
Group revenue: (2007/08) AED41.15bn ($11.21bn)
Executive vice-chairman: Maurice Flanagan
Q&A, Maurice Flanagan, exectutive vice-chairman
The biggest challenge facing the industry at the moment is the cost of fuel. How do you see the industry coping when $200 oil is being predicted?
One guy says $200, another equally reliable expert says $70. So who do we believe? We are budgeting for $101 a barrel for this financial year. We have some hedging, but you can’t really hedge against fuel prices as they are now.
It is not really hedging, more commodities trading. Our programme saved us $250m last year and fuel still cost us $500m more than we forecast.
A few years back, fuel was 13 per cent of our total costs; now it is about 30 per cent. It is the biggest single element of cost. It costs much more than staff or owning or leasing aircraft.
When do you expect to become the world’s biggest airline?
We don’t think in those terms. It is not an ambition - if it happens, fine. We just focus on what we are doing.
We service markets we know are there. We are short of capacity all the time despite the new aircraft.
Protectionism has diminished but it is not diminishing fast enough. The deal we have in the US is beautiful. We can fly to any point, any frequency.
It is not like that with its northern neighbour. Vancouver would be perfect but the Canadians will not give us traffic rights - to protect the national carrier and harm the bottom line of the economy by driving tourist traffic away, they do that.
When we started flying to Australia, Qantas objected bitterly. The Australian government listened until they saw the results of the flights to Melbourne and the amount of trade increased to points into Dubai and beyond. We now have 49 flights a week into Australia and traffic rights for 80, which we will build up to when we have the capacity.
When is the flotation of the company expected?
Sheikh Ahmed [bin Saeed al-Maktoum] has said we may float 20-30 per cent but we don’t need it. In the interests of Dubai as a whole, Sheikh Ahmed may decide it should happen.
It would give us some problems because it would open us up to governance that we don’t have at the moment. Sheikh Mohammed [bin Rashid al-Maktoum] does not get involved except on buying planes, and those decisions are made very quickly.
There would have to be a board and non-executive directors. All that is manageable, but it would change the way we operate. The airline itself does not actually need it.
Do you still encounter envy from other airlines?
Yes, we have problems with Air France. Not really with Qantas any more. Air France still says we are the biggest threat to it in the future. It is flattering. I don’t like to see it but it is flattering.
You have said before that Al Gore’s ‘An Inconvenient Truth’ is “rubbish”. Do you stand by that?
I have watched it three times and it gets more rubbish every time. Would you put a bet on the weather next Monday, let alone the end of the century? It is not happening.
In the 1970s, the scare was global cooling. It is cyclical, yet they talk about climate change as if it is a new imminent threat. Climate changes, that is what it does.
More and more evidence is coming up now suggesting this is alarmist. The statistics are so flabby and unscientific.
Is it irritating that the airlines have been singled out?
We are told shipping produces far more [greenhouse gas emissions] than airlines. But it is a problem for the airlines because the perception has been placed in people’s minds that air travel is damaging.
Is it changing people’s behaviour?
No, it is not changing at all. Reducing global emissions is still in the interests of airlines because we all want airlines that use less fuel.
The 380 generates fewer emissions per seat than any aircraft in history. That is the way the industry is going. We want those aircraft because it is more economic.
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