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Wednesday, September 23, 2020

Journey to the centre of the earth

by Andrew Scott

© Emirates

If you live in Dubai, flying Emirates is a normal occurrence because it is the first name you think of when you are booking a flight elsewhere. But to the billions of people that do not live here and are now looking at Emirates flights before their national carrier, or any other airline, a sea change has happened. Andrew Scott reports.

In May 2013, Emirates airline ranked fourth globally in terms of international passengers according to the International Air Travel Association (IATA). The airline reported a profit of AED 2.3 billion ($622 million) for the fiscal year ending March 31, up 52 per cent from 2011. That compared with profit of AED 1.5 billion in 2011. Emirates reported its largest increase in capacity in its history last year, receiving 34 new aircraft.

It has become one of the biggest brands in air flight, and it’s not just because of its service, its airplanes or Dubai’s sparkling new airport. It’s been part of the marketing strategy of Dubai since its inception in 1985 - designed to build the city as a destination as well as a hub. But it is now not only the leading cheerleader for Dubai, but the leading player in its field.

With its high profile sponsorship of cricket, football and rugby (all sports that people are more than willing to travel for) and naturally think Emirates. The sports are watched across different continents and have helped the brand become part of the viewing public’s consciousness. In less than a generation, Emirates has become the airline that all others aspire to, in the same generation that no frills airlines started becoming the de facto standard; Emirates bucked the trend and realised that people will always pay, and generally pay a premium, for hassle-free service, in beautiful planes with state-of-the-art entertainment.

So how has this meteoric rise come about? Dubai’s ruling family realised that its oil reserves were running out and developed the emirate’s travel and tourism industry as a major revenue generator. Dubai’s natural strength is its historic position at the crossroads of intercontinental trade routes and its centuries-long tradition as a trading point. State property and personal property are difficult to distinguish and such a constellation allows a comprehensive master plan for the country and its economic development with all interests supporting the same goal – to increase the wealth of the emirate and its population. Furthermore, as the UAE is a federal, presidential absolute monarchy the possibility of designing and realising long-term projects is far keener that in other systems.

Emirates was founded in 1985 as Dubai’s counterpart to the multinational home carrier Gulf Air, a joint venture of Bahrain, Oman, Qatar and the UAE. Over the subsequent years, Emirates has played a key role in connecting the old Dubai trading point with important cities in the Middle East and Gulf regions, as well as Europe and Asia.

Emirates enjoys significantly lower operating costs than its competitors, with labour costs estimated at 18 per cent of its total expenditure compared to 30 per cent of European and North American carriers. Reasons are varied, but an important factor is the availability of cheap guest workers; ground handling, maintenance and catering are tasks for which workers from low wage countries, especially Pakistan and India are employed. Labour costs may well play an important part in the Emirates success story but it fails to address the fundamental stewardship of the business.

When American Airlines sought bankruptcy protection at the end of 2011 it marked the 189th time a US airline has done so since the government deregulated the industry in 1978. This is on a continent where air travel has been established as the de facto transport of choice when travelling ‘significant’ distances. Here in the Middle East every new route has to be opened up and built as a revenue generator while huge sums have been invested in the airports and facilities, yet Emirates still posts impressive profits. In the past decade, US airlines have lost a combined $54.5 billion (AED 200.17 billion) and failed to make money in seven out of 10 years.

The biggest problems of posting profits in the airline industry are manifold:

  • Very capital-intensive: for a Boeing 777 the book price is approximately $100 million (AED 367 million) plus change.
  • The industry is heavily dependent on economic cycles, when the economy starts to cry the airline industry generally starts to scream.
  • Hamstrung by high fuel (oil) costs which makes a cost war with competitors hugely detrimental to everyone.
  • Selling what is essentially a commodity (airline seats) and therefore price is what people will look to first.
  • Because of all the variables there is a real bankruptcy risk.

Few businesses have as many variables and challenges as airlines. They are capital-intensive. Competition is fierce. Airlines are fossil fuel dependent and often at the mercy of fuel price volatility. And a lot depends on the weather.

Which brings us back to the soaring numbers of Emirates and whether there is still growth on the horizon. Tom Hall, the London Editor for Lonely Planet is quoted as saying, “Asia is a fundamentally important destination, but the Middle East is increasingly taking more and more of that flythrough traffic, and there are benefits to them being able to do that. The Middle East, geographically, is very, very well situated for access to the Indian subcontinent and Africa and these are emerging markets which are becoming more and more important, and also can serve lots of different places in China.”

He goes on to say, “Probably one of the things that it’s really being challenged on is its status as that iconic classic stopover. When you’re traveling from Australasia to Europe, onwards to North America, you’re coming this way on an around-theworld ticket that’s the challenge. And if Dubai starts to be seen as the centre of the world when it comes to flying, and that’s a title that’s probably up for grabs a little bit at the moment, and then I think there’s implications for carriers, for airlines, and for passengers all over the world.”

Emirates has already made Dubai the centre of the Middle East, it doesn’t take an imagination like Jules Verne’s to see its journey to the centre of the world.

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