Emirates Airline: aptly seizing the opportunities of globalization.

For centuries Dubai, one of the seven states in the United Arab Emirates (UAE), operated as a British protectorate and a conduit for goods moving from India and Iran into the Middle East and Africa. In 1985, after the UAE had been established in 1971 through a union between the rulers of the two emirates Abu Dhabi and Dubai, which had just gained their independence from Britain, Dubai’s ruler, Sheikh Rashid bin Saeed al Maktoum, reenergized a long-standing project to make Dubai into an international transportation hub. Simultaneously, al Maktoum also founded a tiny new carrier, Emirates Airline, with two leased planes, which provided two daily flights to Karachi, the largest city in Pakistan, and a US$10 million loan. In the mid-1980s, Dubai’s oil incomes were on the decline and the need to diversify Dubai’s economy was pressing. Al-Maktoum hired British expatriate Maurice Flanagan (who retired as Executive Vice Chairman of Emirates Airline & Group in 2013), then general manager of Dubai’s airport-handling business, to assemble a team to launch the new airline. He also installed his younger brother, Ahmed, as head of Dubai’s new Department of Civil Aviation. Flanagan quickly recruited Tim Clark, a fellow British expatriate (now president of Emirates), then at Gulf Air, as head of airline planning. Strategically savvy Clark immediately pounced on routes that other airlines had passed up as immature or lacking potential. Pakistan had 165 million people but just one state carrier. Clark also added services to Mumbai and New Delhi in India. He recalls that “we could all see that in terms of geography, there was something there.” In its first year, Emirates already managed a profit.

Back in 1960, when oil was discovered in the small emirate, Dubai had opened an international airport suitable for commercial airlines and instituted an ”open skies” (in contrast to Western airports which favoured more protectionist models), policy, permitting any airline to use it with no need for bilaterally negotiated landing rights. When regional airline traffic picked up in the 1970s owing to the first global oil boom, Dubai’s airport, however, mainly attracted transit passengers. Extensive high-quality duty-free shops, therefore, were established which funded the launch of the Jebal Ali free zone, an area where local and foreign businesses can take advantage of the emirate’s highly competitive tax, customs and legal regimes. Significantly, Qatar and the UAE share the lowest taxes and easiest tax compliance regulations globally. In addition, there are no direct taxes on personal income, no capital gains tax, value-added tax, withholding tax or corporate tax in the UAE. Emirates, thereby, last year, saved some US$250 million.

And Emirates Airline’s, which is owned by the government controlled Investment Corporation of Dubai, growth adventure quickly gained speed. By 1994, it was flying to 33 cities, bringing in about US$600 million in revenue. Meanwhile, the Dubai government launched another grand scheme: to become a tourist destination on par with Las Vegas. The task fell crown prince Sheikh Mohammed, who had become Dubai’s leader after his father’s death in 1990. In Mohammed, Clark and Flanagan found a boss who was willing to bankroll their ambitious expansion plans and refrain from meddling in day-to-day operations. By 2011, Emirates had become the largest airline company in the world in terms of scheduled international passenger kilometers flown. In the financial year 2012–13, Emirates revenue reached US$19.9 billion, a 17.4% increase over financial year 2011–12 while net profit was more moderate US$622 million, reflecting high fuel prices. The number of passengers flown in, however, reached 39 million, a 16% increase over the previous financial year and cash in hand totalled US$6.7 billion. Revenue Passenger Kilometres (RPK), moreover, reached US$ 188.6 billion, resulting in a Passenger Seat Factor of solid 80%. And last year it posted a profit of US$517.3 million for the six months ending Sept. 30, achieving its 26th consecutive year of profit in spite of record increases in capacity and significant business investments across the Group (it launched a record 10 new A380 routes, bringing the network to over 145 passenger and cargo destinations, and added frequencies to 20 existing destinations). Profit for the wider group, which not least comprises Dnata, the world’s fourth largest combined air services provider (i.e. ground handling, cargo, travel, IT solutions and flight catering), which serve almost 40 countries, meanwhile, rose 1.1 percent to US$599 million. And revenue grew 11 percent to US$12 billion, while group revenue rose 12.3 percent to US$ 13 billion. The Emirates Group, incidentally, which also runs hotels and tourism firms, employs more than 62,000 people.

The main cost advantage of Emirates comes from high employee productivity. Labor costs tie up just 18 percent of the airline’s operating budget, compared with 27 percent for Lufthansa and 29 percent for United Airlines, not least reflecting that Dubai has no labor unions. Yet, Emirates is, in fact, at a disadvantage compared with Singapore Airlines, which has lower relative labour costs and the lowest price of a barrel of jet fuel in the world. Fuel costs, it must be stressed, represent the largest component of an airline’s cost. Emirates’ employee costs only represents the second largest expenditure at 16%. Adel Al Redha, the company’s Executive Vice President and Chief Operations Officer, recently estimated that Emirates total fuel costs fell by 35–37 per cent during the current financial year, which terminates by the end of this month, from 42 per cent in the previous 12 months. Fuel costs, thereby, constituted 38 percent of the operating cost. More systematically, Emirates has also benefitted from the relative youth of its fleet (which is less than 3 years old), which keeps productivity high, the location and efficiency of the Dubai hub as well as its strong management team and flat organisational structure. As regards to the location, it can be noted that residing within 4,000 miles of Dubai — an eight-hour flight — are 3.5 billion people, more than half of the world’s population. In addition, unlike most competitors, Dubai’s airport, hosts landings and takeoffs at any hour. As a result, Emirates can keep its fleet in the air an average of nearly 14 hours a day, compared with 11 for many rivals. At an average cost of US$150,000 per hour to maintain a plane on the ground that translates into tens of millions of dollars in annual savings. In addition, Dubai’s airport authorities charges very low landing fees. And the impressive growth has to be seen in the context that Emirates, like other transcontinental carriers, in recent years has been hit by substantial international foreign exchange volatility, which has reduced some local profit margins by up to half.

At a strategic level, Emirates has maintained a highly independent profile. Unlike most other airlines, it has refrained from joining an international airline alliance. Emirates, though, has entered a series of codeshare partnerships, i.e. an arrangement where two or more airlines share the same flight, so that each airline publish and market the flight under its own airline designator and flight number as part of its published time table/schedule, a 10-year revenue sharing agreement with Qantas (which will expire in 2022) and a management agreement with TAAG Angolan Airlines. Emirates has codeshare agreements with Australian Qantas, Air Mauritius, Alaska Airlines, Air New Zealand, Japan-based All Nippon Airways, Chinese Cathay Pacific, Garuda Indonesia, US-based JetBlue, Australian Jettar, Singaporean Jetstar Asia, Korean Air, Philippine Airlines, Royal Air Maroc, Royal Jordanian Airlines, Singaporean Silk Air, Singapore Airlines, South African Airways, Thai Airways, TAP Portugal, and Virgin America.

It has also benefitted from fierce competition, especially with Etihad Airways, which is owned by the Abu Dhabi emirate, and Qatar Airways, the flag carrier of Qatar, which is owned by the Qatar Investment Authority, a sovereign wealth fund, which is controlled by the Qatari royal family. Qatar Airways, which was established in 1993, is based on a so-called hub-and-spoke network, i.e. a system of connections arranged like a chariot wheel, in which all traffic moves along spokes connected to the hub at the center. And unlike Emirates, in 2012, it joined a leading international airline alliance, Oneworld. But resembling Emirates, the lesser independent carrier, has also entered a series of codeshare agreements with Air France, Japanese All Nippon Airways, Japan Airlines, American Airlines, Korean Aseana Airlines, Azerbaijan Airlines, Bangkok Airlines, Chinese Cathay Pacific, Garuda Indonesia, Brzilian Gol Airlines, US-based JetBlue Airways, US Airways, Malaysia Airlines, Middle East Airlines, Oman Air, Royal Jordanian, Russian S7 Airlines and SNCF, a French state-owned railway giant. More importantly, in January, cash-rich Qatar Airways purchased a 10% stake in the International Airlines Group (IAG), making it the biggest shareholder in the parent company of British Airways (BA) and Spanish flag carrier Iberia, cementing the Qataris long-running interest in British and Spanish assets. Qatar Investment Authority also owns Harrods and the Shard skyscraper, western Europe’s tallest building, in London, and has stakes in Sainsbury’s, a major supermarket chain, Barclays bank, London’s Olympic Village, HSBC tower, Shell Centre, residential redevelopment at Chelsea Barracks; half of the luxury apartment block One Hyde Park, the former US embassy in Grosvenor Square; and an emerging Thames-side development known as Grosvenor Waterside, as well as — and more significantly — Heathrow airport. Indeed, having a 20 per cent stake in the giant airport, Akbar Al Baker, Qatar Airways’ chief executive officer, sits on the board of Heathrow. In Spain, it has not least bought into Iberdrola, an electric utility company, Santander Brazil, a bank, Ferrovial, an infrastructure company, SFL-Clonial, a property company, as well as Hotel W and Renaissance Hotel in Barcelona, and Madrid’s InterContinental hotel. In 2013, Qatar Airways, moreover, replaced the charity Qatar Foundation as football giant FC Barcelona’s shirt sponsor.

Etihad, which was established in 2003, targets travellers who want a premium service, at a competitive international price and represents the first Gulf-based airline to apply the premium economy concept. Passengers are referred to as guests and has guest zones — Diamond, Pearl, and Coral — rather than fare classes. which do not correspond directly to first, business, and economy classes. Etihad, moreover, has entered a growing number of equity alliances, i.e. it invests in carriers in selected markets. So far, the rapidly expanding Adu Dhabi-based giant has taken substantial minority stakes in Alitalia, Air Berlin, Irish Aer Lingus, Air Serbia, Swiss-based Etihad Regional, Virgin Australia, Air Seychelles as well as the Indian Jet Airways.

Currently, the Gulf carriers competition is particularly fierce on the lucrative US routes. Emirates, Etihad and Qatar Airways have all added thousands of seats on new routes into airports such as Dallas-Fort Worth, Los Angeles and Boston. Kayak, a price-comparison website, informs that Emirates and Qatar are vying for the lowest fares out of Dallas-Fort Worth to Dubai for the next three months at below US$1,000 a single fare. The nearest price from a US carrier (United Airlines) for the same period is US$1175.

Western rivals regularly claim that the Gulf carriers benefit from indirect government subsidies in the form of fuel subsidies, cheap aircraft financing and discounted airport user charges. But the allegations have never been verified and Emirates and Etihad has pointed out that national carriers enjoy massive state subsidies all over the world, including in Europe and North America. Emirates, moreover, stresses that it raises its funds on a commercial basis, pays market rate for fuel and only some 20% of its fleet is financed through export credit agencies such as the US Export-Import Bank, commercial asset-backed debt as well as some non conventional sources such as Islamic funding and equity from Japanese, German and other investors (as part of tax-based cross border leveraged leases) and that the European legacy carriers have inherited around half the valuable slots at their respective hub airports. No financing has been obtained from the Investment Corporation of Dubai (ICD) or the Government of Dubai. And unlike some Gulf-based airlines who benefit from sovereign debt guarantees, such as Qatar Airways, Dubai’s government does not act as guarantor for any of its loans. Emirates, incidentally, has raised a total of US$26 billion over the last 15 years for financing aircraft and other corporate finance requirements.

As regards to marketing, in April 2012, Emirates launched a new global brand platform themed “Hello Tomorrow” which positions the airline as the enabler of global connectivity and meaningful experiences and has made it the world’s most valuable airline brand for the third year running — with a brand value of a staggering US$5.48 billion — according to Brand Finance, a British brand evaluation consultancy. The Hello Tomorrow brand platform, which represents an integrated marketing communications plan, moreover, was designed to facilitate a smooth repositioning of the carrier from a traditional travel brand to a more timely lifestyle brand. Designed for the age of consumer engagement and empowerment, it seeks to inspire people to greet tomorrow’s unlimited potential. “Hello” is a greeting, an invitation to a person, a place or an experience. “Tomorrow” is a time, a place, a state of mind. According to Flanagan “Emirates is not just offering a way to connect people from point A to point B but is the catalyst to connect people’s hopes, dreams and aspirations. Emirates is connecting people and cultures creating relevant and meaningful experiences that are shaping the world”. The “Hello Tomorrow” campaign, thus, is at the vanguard of a growing trend for global brands to spark movements, connect people and communities and encourage them to make a positive societal impact.

The Emirates brand repositioning also reflects that as the world becomes increasingly interconnected, borders are being blurred and many people are becoming more mobile and globally focused; and they are creating and sharing ideas that are propelling the world forward. Emirates, which boasts an explicitly multicultural work force which is made up of more than 45,000 people from over 165 different nations, is perfectly fitted to serve this growing global audience. Clark also stresses that “our brand strategy (…) not only involve marketing and sponsorships, but everything we do including product innovation and service delivery (…). Our aim is to become one of the world’s leading lifestyle brands, and to make the Emirates name synonymous with aspirational travel and experiences”. Scott Goodson, founder and chairman of Strawberry Frog and the creative mind behind the Hello Tomorrow campaign, adds that ”the goal for new brands should be to build global ideas. If your idea is less focused on the product and more on a BIG relevant idea, you raise the center of gravity and it can work across many territories much easier than a message that is product focused”.

Targetting a younger audience, the campaign has also entailed vignettes of the TV spots on Emirates’ social media channels, TV commercials as well as outdoor and print ads around the world including iconic billboards in New York’s Times Square and Milan’s central train station. “Trek”, the anthem of the campaign, which is produced by Antfood, a creative audio studio headquartered in New York, moreover, finely propels the cinematic narrative of six degrees of separation across the world. It begins with a young blonde English businessman visiting Dubai, passing through Milan, Rio de Janeiro, Guangzhou, New York, and Australia before finding a familiar face in rural India. Thereby, it positions Emirates as the catalyst that connects people’s hopes and dreams. In addition, Harmony, an online concept, has invited consumers to create their own mash-up of a specially commissioned piece of music, or record their own interpretation of the composition. Developed by New York-based Atmosphere Proximity, the Harmony site features videos of people playing a variety of instruments. Each clip is designed to combine with its companions to create unique version of the Harmony theme, which can be shared via Facebook, Twitter and e-mail. Those deemed most impressive by Emirates have been uploaded on the airline’s dedicated YouTube channel. Emirates recognizes that people and cultures connect through music. The brand is also synonymous with luxury and innovation. Indeed, Emirates was the first to offer inflight telephony across all classes, individual TV screens on every seat, First Class suites and an onboard Shower Spa on its A380 aircraft.

The campaign aptly also takes advantage of the fact that many sports fans are frequent travellers, and with the demographics of sports fandom rapidly shifting towards those with more disposable income, the association with travel and sports has been growing in recent decades. Emirates, in fact, has been committed to sports sponsorship since 1987, beginning with the first powerboat race held in Dubai. Today, the Emirates sponsorship portfolio emphasizes football but also comprises rugby, tennis, horse racing, gulf, cricket, sailing, and Australian Football. To be specific, Emirates has long backed some of the biggest football teams in the game including Arsenal, Real Madrid, AC Milan, Paris St Germain, Hamburger Sports Verein (HSV), Olympiacos FC from Greece, as well as the Asian Football Confederation (AFC). Arsenal, in particular, has been a long-standing focus. In 2004, Arsenal’s newly constructed Ashburton Grove stadium in London was renamed ‘Emirates Stadium’ as part of a £100 million sponsorship deal. Significantly, Arsenal, one of the best supported clubs in the world, enables Emirates to reach an enormous and growing international audience. Research indicates that the legendary North London football giant boasts a global fan base of some 27 million people. Expanded access to satellite television, in particular, implies that the British Premier League’s, the top division of British club football, faithful fan base in recent decades has grown significantly across the world, not least in large parts of Asia. For the same reason, the airline, last year, also opened up its first branded VIP lounge at Real Madrid’s legendary Santiago Bernabéu Stadium, aptly modelled on the Boeing 777 serving its vibrant Dubai-Madrid route. Emirates’ biggest sports sponsorship deal, however, was as the Official FIFA Worldwide Partner since 2007 but the deal expired last year. In addition, though on a lesser scale, Emirates also sponsor Australian and San Francisco Symphonies, the Dubai International Film Festival, Emirates Airline Festival of Literature and Skywards Dubai International Jazz Festival.

Emirates’ focus on football sponsorships, though, reflects a general trend. In recent decades, a growing number of American, Asian and Arab corporations have invested heavily in top-level sports, primarily football, assets around the world. Some US$1.5 billion, for instance, has been spent by Middle Eastern investors on football team ownership across Europe. And 65% of the clubs in the English Premier League are owned or partly owned by foreign companies. For instance, while Arsenal and Manchester City have Gulf-based shareholders, Chelsea long has had a Russian owner, and Aston Villa, Manchester United and Liverpool are all owned by US-based businesses. Looking beyond British shores, French champions Paris St. Germain and Spanish top flight club Malaga are both fully Qatari owned, Monaco is Russian owned, Valencia is owned by a Singaporean businessman, and last month the Chinese Dalian Wanda Group bought a 20% share in Atletico Madrid. In Italy, moreover, big clubs Roma, Inter and Bologna are all under foreign ownerships. In addition, it is worth remarking that Asian businesses have invested some US$1.1 billion in US sports franchises.

Emirates also benefits hugely from Paul Griffiths’, CEO of Dubai Airports, strong leadership and the rapid expansion of the ambitious UAE airport hub. In January, a year-end traffic report found that Dubai International’s (DXB) had become the world’s number one airport for international passenger numbers. Full year passenger numbers totalled 70,475,636, up 6.1 per cent from the 66,431,533 recorded in 2013. Furthermore, it achieved a passenger traffic growth of 7.5 per cent in December with 6,498,573 passengers passing through the facility compared to 6,047,126 in the corresponding month the year before. For the full year 2014, the top market for growth in passenger volumes was Western Europe (+1,192,831 passengers) closely followed by the Indian Subcontinent (+936,449 passengers), Asia (+716,180) and North America (+432,597). In terms of percentage growth in 2014, Eastern Europe (+21.0 per cent) was the most exciting market followed by North America (18.6 per cent), Asia (12.6 per cent), Australasia (9.2 per cent) and Western Europe (8.8 per cent). The countries with the largest number of airports served by Emirates, incidentally, are India with 10, United States with 9, the United Kingdom with 6, and Australia and Pakistan both with 5. Regionally, however, — apart from the South Asian market — Emirates is particularly strong in Southeast Asia. In Europe, its main markets are Britain and Germany. On average, it operates 3,500 flights per week.

At the same time, the Dubai government is investing heavily in its airports. For a start, facility upgrades including the opening of Concourse D (part of a wider US$7.8 billion expansion programme designed to boost the Dubai airport’s capacity to over 100 million passengers annually by 2020) will increase Dubai International’s capacity to 90 million. This year’s projections, incidentally, is 79 million passengers. Even more significantly, it was recently announced that it plans to spend US$32 billion expanding Al Maktoum International Airport at Dubai World Central (DWC), the emirate’s second airport, making it the world’s largest airport and increasing its ultimate capacity by 25 percent to more than 200 million passengers a year when it is complete. Currently, Al Maktoum International Airport, which began accepting passengers in October last year, has a capacity of about 5 million people annually. Dubai’s government, however, has still not provided full details as to how the expansion plans will be funded but it is planned to be developed in two phases. Phase one will include two satellite buildings which will jointly be able to handle around 120 million passengers annually and accommodate up to 100 A380 superjumbos at any given time. This phase will likely take between six and eight years to complete. Ultimately, the airport may accommodate more than 200 million passengers a year when complete. The aviation sector, thus, could support more than 322,000 jobs and contribute 28 percent of the emirate’s gross domestic product (GDP) by the end of the decade.

The Gulf’s attractiveness as a tourist destination is also booming. Dubai’s Department of Tourism and Commerce Marketing (DTCM) recently announced that Dubai’s hotel establishments received 11.63 million guests in 2014, a 5.6 per cent increase compared to 2013. One of the reasons for the buoyant growth is a rapidly growing number of Chinese arrivals. A report by InterContinental Hotels Group (IHG) in partnership with Oxford Economics, a consultancy, conclude that favourable economic and demographic trends in China are expected to fuel huge increases in the number of Chinese travellers visiting the UAE over the next decade. To be specific, the report estimates that Chinese tourist arrivals will almost double to more than 540,000 travellers by 2023 from 276,000 in 2013. The well-off Chinese visitor segment is particularly attracted by Dubai’s and Abu Dhabi’s abundant entertainment opportunities, leisure trips and cruises. And total spending by Chinese tourists could jump by as much as 60 per cent, from US$488 million in 2013 to US$781 million in 2023. Growth in arrivals to and nights spent in Dubai and Abu Dhabi, moreover, is even expected to top that of other major global city destinations, such as London, Paris and Sydney. Globally, it can be noted, some 90 million Chinese households will likely be travelling overseas by 2023.

Far more importantly, Emirates has not run out of ideas or ambitions. Aptly supported by the emirate’s strategically sharp political leaders, who have refrained from taking control of the company, and Dubai airport’s savvy management team, growth will keep rising. Emirates will reach new heights. Hello Tomorrow.

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