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Overview - Emirates

Emirates – challengers seek to emulate visionary airline

The most obvious extension of Dubai’s aviation supremacy is Emirates – the Middle East’s leading carrier in every conceivable category. Its industry-changing success, which is inextricably linked with and which both feeds and feeds off the growth of Dubai, has spawned a host of imitators around the region.

The carrier’s remarkable year-on-year growth trends continue to gather steam, even if aircraft delivery delays have slowed its capacity build-up in 2006 and 2007.

The carrier ended 2005/06 carrying 14.5 million passengers, an increase of 2 million on 2004/05 (16%). The passenger gains were fuelled by the addition of 16 aircraft in the year, bringing the fleet to 91 units. (It currently has 101 aircraft, all widebodies.)

If capacity additions do not necessarily make the carrier stand out in the Middle East, where Etihad and Qatar Airways also integrate new units on a monthly basis, the Dubai flag carrier’s ability to profitably use them certainly does. 

Emirates last turned in negative results in 1986, its second year of operations. In 2005/06, the group reported USD762 million net income, a 5% increase, as revenue rose by USD1.4 billion to USD6.6 billion, a 27% gain. Profit growth was down, largely on higher fuel costs, but the carrier’s results were still near the top of the global industry.

Emirates continues to move forward with its growth plans. Its intended aircraft purchases are set to bring 112 new widebody aircraft (costing USD33 billion) into the fleet, units with which it intends to serve 150 destinations by 2012 (it currently operates to 88 airports).

The carrier has had its plans momentarily stunted by problems with suppliers, notably Airbus. The delays with the A380, of which the airline has 55 on order (making it far and away the biggest customer for the aircraft) mean that by the time it receives its first of the type, it should already have been operating 18. Less damaging but still hindering growth was the manufacturer’s inability to deliver on performance guarantees of the A340-600, which resulted in Emirates cancelling its order for 12 (and eight options) in Oct-06.

But these obstacles will be temporary only, as the airline will eventually get its A380s and it has substituted greater numbers of B777s for the A340-600s. The bigger question is whether it will continue to operate them as profitably.

Arguing on the affirmative side are some compelling fundamentals. Emirates has 30-40% lower unit costs – largely due to its higher unit size and aircraft utilisation - than its Europe-based competition.

It also is well placed to present an attractive long-haul, one-stop offering, with competitive times in many growing intercontinental markets, notably including those to the fast-growing India market, where it has 8 destinations and 71 weekly flights.

The airline understands that its future lies in taking a global, as opposed to a regional, approach, and as a result its future plans would sound surreal at practically any other carrier. It has recently added or announced service to Nagoya, Beijing, Abidjan (Cote d’Ivoire), Lagos, New York (where it now has three departures, two non-stop to Dubai and one to Hamburg), Houston, Venice and Newcastle (its sixth destination in the UK). Management speaks of likely 2007 service to Toronto and Phnom Penh. To serve these secondary-sized cities with the appropriate size aircraft, the carrier intends to add 60-100 midsize twin-aisle aircraft. It has said it will choose between the A350 and B787 with an order in the second half of 2007.

But there are question marks as well. A major threat to growth – and indeed the profitable application of ordered capacity – is lack of access. But, encouragingly for Emirates, liberalisation of key markets continues. In Australia, for example, Emirates has quickly become the third largest foreign airline, overtaking the likes of Thai Airways and Malaysia Airlines, with a share of just under 7% in the 12 months ended 30-Jun-06. Singapore Airlines (11% of the Australian international market) and Air New Zealand (17%) are next in Emirates’ sights – as it introduces 35 new weekly services by 2011, secured by a recent bilateral agreement signed in Mar-07.

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