For companies that routinely announce the opening up of new routes and destinations, the question ‘where next?’ should be straightforward. But these are unusual times, and for many airlines today, ‘where next?’ has much deeper significance.
New technologies are transforming the economics of the aviation industry while rising political and economic nationalism around the world, from Brexit to Donald Trump, is redrawing the operating landscape in which international airlines operate.
Together, these trends are raising some fundamental questions about the future direction of the aviation industry.
Few companies come under greater scrutiny than Dubai’s Emirates, the world’s leading carrier and the Middle East’s biggest business brand.
Announcing the company’s half-year results in November 2018, Emirates Group chairman Ahmed bin Saeed al-Maktoum said the aviation sector was facing ‘myriad challenges’, including economic and political uncertainties, both globally and closer to home, and the relentless downward pressure on yield as competition heightened and capacity grew.
The toughening trading conditions have led to the airline embarking on an efficiency drive through the implementation of new technology and business processes that have been accompanied by a reduction in employees to about 101,983 in September 2018, down about 1 per cent on the previous six months.
But it was the decision in February 2019 to cut its remaining order for Airbus A380 superjumbo aircraft from 60 to 14 and discontinue deliveries of the A380 beyond 2021 that has made the biggest headlines.
The move has been described by some analysts as the beginning of the end of the hub-and-spoke model that has been at the core of Emirates’ hugely successful growth strategy for much of its 34-year history, and which has established its hub airport, Dubai International, as one of the most important transport centres in the world, serving about 90 million passengers in 2018.
For the man who has been at the helm of Emirates since its launch in 1985, being competitive is the priority.
“Cost is very important, regardless of what you’re doing and how successful you are,” says Sheikh Ahmed. “You always have to look at your costs because there is always somebody else who will come along and try to offer that service as well as you are doing for much lower cost. Those airlines will be successful.”
The Emirates chairman says there are many different factors putting pressure on airlines’ profitability. “Fuel prices are always a big factor in the aviation industry,” he says. “Currency is also a major factor in the profitability of airlines, or fuel and currency.”
In place of the cancelled A380 airliners, Emirates has ordered 40 A330 aircraft and 30 A350 aircraft, which are more fuel efficient. The changes have led some analysts to say the hub-and-spoke model of aviation has been beaten by the alternative model centered on affordable, point-to-point travel. In reality, there is a place for both and the aviation industry is unlikely to build on one model alone.
But Emirates is far more than just an airline. It is also a vital leading edge of Dubai’s development, establishing and deepening relationships with trade partners. For Sheikh Ahmed, the highest priority therefore is establishing bilateral agreements with other countries that enable the continuing expansion of not only Emirates, but also of Dubai and the UAE.
“The challenge is always to reach bilaterals,” says Sheikh Ahmed. “How many flights you would be allowed or how many passenger you would be allowed [to transport], or is it just between airport to airport.”
Since its launch in 1985, Emirates has expanded from humble beginnings, with just two aircraft and three destinations, to a leading airline with a fleet of more than 270 aircraft flying to over 150 destinations.
Sheikh Ahmed has led the development of Dubai’s aviation sector since 1981, when he was appointed president of the Dubai Department of Civil Aviation. In 1985, he became chairman of the newly launched Emirates Airline. He is now chairman and CEO of Emirates Airline and Group, which includes Dnata – the region’s leading travel services and ground-handling company.
“What we have achieved today as a global business has put Dubai on the map,” he says.
“The Open Sky policy model was really the plus,” he says. “When you talk to any country, they say this model is working. We have a small population base today, with a population of say 8-10 million. And yet we are seeing 90 million passengers [a year] come to [Dubai] airport.”
Sheikh Ahmed says that the increasing geopolitical risk makes it more important than ever to develop new routes.
“You’ll always have to diversify your business,” he says. “Not necessarily by jumping into different types of business. I think it is better to focus on the business that you know best.”
“Everybody used to be talking about America,” he says. “But we are also looking to the East. The East is a big place when we look at China and the development that has taken place there. China is a big market, as are India and the Indian subcontinent. I think there will always be new markets that we can explore. We shouldn’t forget Africa too. It is a big continent and needs a lot of service.”
“You have to invest in the infrastructure, and the people also,” he says. “Let’s say that you have all the money and you can build the biggest airport. That doesn’t mean that everybody will fly to you. You need a reason why passengers will come to this destination or airport.
“People want to see that the airport is really up to that standard,” he says. “So that when they land or pass through in transit, the airport is at that level. Otherwise, other airports will say, why don’t you come to us.”
Investment in technology is a key part of the equation. “We are pushing technology and that technology will have to process more people, either coming in or out or in transit,” he says. “The focus on technology will save a lot of costs in the future.”
The development of the Dubai World Central airport complex, which opened in 2010, is an integral element of Dubai’s vision for the future of aviation in the emirate, along with the Dubai Logistics Corridor, which links the new airport to Jebel Ali Port and Jebel Ali Free Zone. Together they will create one of the most sophisticated multi-modal supply chain transit facilities in the world.
Delivering Expo 2020
As chairman of the Dubai Expo 2020 Higher Committee, one of Sheikh Ahmed’s most important roles over the coming two years is to deliver a successful world-scale event that is set to have a huge role in shaping the future of Dubai.
“[Winning Expo 2020] was a success because what we are trying to do here is something that serves over a billion and a half people,” he say. “It is not only about the UAE, but it is good for the Middle East, the Gulf region, the Indian subcontinent.”
He says Dubai Expo 2020 is about much more than just the event itself.
“From day one, when we planned to have the Expo, we always thought about what will come after the Expo. This is why we have a legacy that this site will continue. Many companies will still use this place. It’s next to our big airport that we are building. It’s next to the free zone area. It’s next to the port in Jebel Ali. The city itself is moving toward the site,” he says.