Ṝecently, on May 20th 2014, the Air French – KLM announced their results showing record losses. The strategy of alliance between two struggling airlines is yet to prove its success. Meanwhile, in a complete contrast, The Emirates Airlines have passed a massive order of 32 Airbus 380 super jumbo jets at the Berlin Air show 2010. Today, Emirates has a total of 140 orders for the Airbus 38010 and is the largest operator of A380 crafts around the world.
Emirates is an industry bellwether for aircraft purchases, having purchased a whopping 200 aircrafts in 2013 alone.
In over a period of 29 years, Emirates has grown to be one of the biggest players in the airlines industry. This solid growth and an impressive financial performance over the past years is the proof of an invincible business strategy adopted by the company. We can link its success to the leadership of the company and to the Dubai Government’s support.
The Emirates Airlines success has been the continuity of its management team, many of whom have been with the airline since its start of the company. The leadership team has 23 years of experience inside the company. HH Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Chief Executive, Maurice Flanagan, Executive Vice Chairman and Tim Clark, President of the Emirates Airline.
The major contribution on each of the below mentioned fields has taken the airline and the aviation industry, far from where it started.
Dubai benefited from relatively good weather; aside from occasional fog and the general heat, airport operations remained relatively free of the rain and snow storms that often caused delays in European and American airspaces.
Strategic Alliances with Manufacturer: Existing plane models with Emirates in the end of 20th century, could only fly distances of up to 14 hours, due to which they were not able to connect to the key potential markets such as Los Angeles or Sao Paulo. To increase the range of the aircrafts, Emirates approached Boeing and Airbus and pushed the two airline manufacturers to develop ultra-long-range, wide-body aircraft that were better suited to Dubai’s longer routes13. They also assured the companies with a guaranteed buy from them.
Emirates also maintained a younger fleet in the industry, with an average airplane age of 6.4 years, which enhanced the passenger experience and increased fuel efficiency.
Leadership at Emirates is considered as an influential and democratic. The aptitude and skills inspire as well as influence the subordinates to achieve a common goal. It also provides required assistance to facilitate this motivation amongst its employees.
Role of the Dubai government has been exponential in building the Emirates Brand. The government maintained a strict arms-length financial relationship with the airline through its holding company, the Investment Corporation of Dubai (ICD). The UAE government supported Emirates’ entry into new markets by negotiating bilateral aviation agreements with foreign states whose markets Emirates wished to enter. Emirates also enjoyed subsidised fuel, no income tax, and strategic synergies with the Government at its principle hub which also aided the success of the airline.
Dubai’s government had worked hard to build up the city’s tourism base and establish it as a travel and logistics hub high-profile projects, along with close coordination with the hospitality industry. It helped create a strong pull that attracted business and leisure tourists alike. The Dubai government further facilitated incoming tourist flows by eliminating the majority of visa requirements and launching marketing campaigns. The government also sees Emirates to be one of the strong pillars in their economy, which has paid a total of $2.3 Billion in dividend since the royal family bankrolled the venture 28 years ago.
In the initial years of Emirates, many potential customers in target markets were still largely unfamiliar with Dubai, and few saw it as a principal tourist destination. This view of Dubai hindered Emirates to be known as a popular brand in the aviation industry.
Though, Emirates was not able to change this face of its primary hub, the Government of Dubai invested a huge amount of money to change the global view of Dubai. High profile projects such as the Burj-al-Arab, the World and Palms development projects, and the Burj-Khalifa tower helped grow the city’s global renown, which in turn led to higher volumes of tourists. To lure tourists, Emirates partnered with local tourism organizations to promote the city of Dubai. Tourism packages offered events such as desert safaris, and the airline structured its bookings to allow short stopovers for little or no cost.
Dubai’s contribution in the success of Emirates Airlines is as mentioned below: –
Location2: The Dubai benefited from several inherent strategic advantages as a hub city. Dubai’s position on the Arabian Peninsula placed it at the nexus of global transit routes, a strategic location between Europe, Oceania, Asia, and Africa. This allowed Emirates to take maximum advantage of its connectivity.
Resources: UAE being the major exporter of oil in the world meant that the major resource for the Emirates – the fuel – was available at a very low price than many of its competitors. Emirates was capable of reducing their fixed cost, and the subsidies and Tax exemptions by the government fused many of the profits made by the company into its own development.
Due to the lower operation cost, Emirates was able to pass the benefits on to the customers which many of its competitors couldn’t afford to.
Air Traffic: Dubai’s relative distance from congested European airspace meant that aviation traffic was minimal and that flights could connect at almost any time of the day, allowing for twenty-four-hour operations.
For Emirates, the flexibility in operations meant covering trips to the entire world and having customers reach their destinations at the most preferable time.
Weather: Dubai benefited from relatively good weather; aside from occasional fog and the general heat, airport operations remained relatively free of the rain and snow storms that often caused delays in European and American airspaces. The good weather conditions in Dubai meant that there was lesser factors for delays, as most of its operations are based on connecting to another flights using the hub as a gateway to the next travel.
The Dubai government further facilitated incoming tourist flows by eliminating the majority of visa requirements and launching marketing campaigns.
During the last decade, travel and tourism has assisted the Emirates Airlines in spreading its wings into every aspect of travel, tourism and business and has made it the fastest growing corporation in its field.
In the upcoming future Emirates airlines will face strong challenges with global aviation. The overall growth aspiration of the region demands a high-performing aviation system – including airlines, airports, and air traffic control – that in 20 years must successfully serve more than four times the passengers it serves today. International benchmarks illustrate that even today’s aviation system does not fulfil current demand. Middle East aviation markets, especially United Arab Emirates, have set the level for reforming their aviation systems and have started encouraging trading and deregulation of airlines rules. In addition, the Middle airline sector plays a smart role in developing a world-class airline services, such as Emirates Group, with above average profitability4 & Qatar Airways, which has a five-star Skytrax ranking14.
Emirates has always been precise with its strategies, and has always enjoyed it benefits. But, in the upcoming future few of the factors which Emirates enjoy today will start to deteriorate such as
Etihad Airways: Emirates has enjoyed the subsidised fuel offered by the UAE region. While other airlines such as Lufthansa, Singapore Airlines have struggled to bring their operating cost 6 down, Emirates has always been able to work under at the lowest possible operating cost 6, providing its customers with the benefit and grabbing a huge market share.
The invasion of Etihad Airways, the national airline of the UAE, is an in house competitor for Emirates. Etihad, which enjoys all the exclusive facilities like Emirates, such as the subsidised fuel, exemption from the Income Tax, Free-Air initiatives from the government has structured a similar business model for itself. It also accesses to be the gateway to major cities around the world and is the hub of the UAE tourism at the Abu Dhabi International Airport, few kilometres away from Dubai.
With the youngest fleet3 amongst any other players in the industry, it has grown at a humungous rate within a decade of its operation. It has learnt from the mistakes done by the Emirates and has tried to imitate the same to improve its quality and to be one of the best airlines in the world at the age of 10. Etihad has also shaped its airlines to be the cheaper of the two in many of the common destinations, taking away Emirates’ customers. Emirates’ lower operating cost, and the premium services had brought huge profitability to the company, but Etihad by dropping down the premium services one-step below has been successful in attracting more customers at a lower price tag.
Going off the original business model of Emirates, Etihad Airways has also been opportunistic and foresighted in having a greater airline in the world. It has not just increased its fleet size, but has also held stakes8 in many major airlines around the world such as Alitalia, Air Serbia and Jet Airways. Etihad has agreed to be in code-shares9 with some of the major players in the industry.
Qatar Airways: Right at the nose tip of Emirates and Etihad, Qatar airways has followed a similar business structure, to be one of the major competitor for Emirates. Qatar, being one of the major oil sources in the gulf has allowed Qatar airways to enjoy similar facilities as its competitors. Qatar Airways soon realised the lack of tourist for its primary hub, contrast to that of Emirates/Etihad, and have modified its business model to suite its transit customers. Doha Airport, Qatar airlines’ primary hub has reported to have more than 90% of its arrivals customers to be in transit for their next flight.
Qatar airlines, capitalizing on the above figures, has reduced its waiting time significantly, gaining customers attention who are in longer routes. With a Five-Star Skytrax rating14, Qatar Airways has differentiated itself from the Emirates to be higher premium brand of the two. Emirates, which was in-turn knows for its high quality service is facing serious threats from Qatar Airways, which has renounced itself to have the best in class air experience. Qatar airlines has also joined the One-World air alliance15, providing customers with a greater value in the any of the seating class and helping them earn frequent flyer points.
Pacific Sector: Emirates has been very successful in connecting eastern and western worlds. But, when it comes to the pacific travels, they have no existence. Today, even though a greater number of population are in Emirate’s reach, a majority of those population is still under the middle-class level. The rich population between the pacific is out of the emirate’s reach. With huge number of population traveling between the European and the American (South/North) regions, there is nothing much Emirates can do to attract these customers.
The location of Emirates’ primary hub does not allow it to take any advantage of people traveling from Europe to Americas. Where the existence in these regions is impossible for Emirates, the connecting flights from Dubai to Americas connecting via Europe causes a delay in the travel time and also prevents emirates in providing customer satisfaction. Thus by missing this route, Emirates has a significant part of the global traveling sector out of its reach.
Increasing Income: In the Middle Eastern regions (UAE), where most of the Emirates’ man force comes from have showed major improvement in its growth. Adding on to this, the lower labour population of Emirates, which comes from Asia Pacific regions of India, Sri Lanka and Pakistan have also showed improvements in their average per-capita income These factors will force Emirates to rethink its cost structure. The lower labour which Emirates have enjoyed over the past decade will be one of the major factor shaping the future of Emirates as the leader of aviation industry.
International Competitors: Strategic competitors such as Singapore Airlines and Turkish Airlines have also been able to mark themselves as a hub in connecting different parts of the world. Most of the Asian and Australian population traveling to Americas find it easier to travel via Singapore Airlines which has a lower travel time, such as Sydney to California; Others traveling from developing regions of china find it convenient to fly to European regions with Turkish airlines. The gateway created by Emirates, has no upper hand in these unfortunate situations as their hub will take a longer flight time.