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Emirates Capitalizes on Geography, Aircraft Innovations

Saturday 20/05/2017 - Source: Aviation Week


Capacity constraints and aircraft shortages appear to be the only factors slowing the growth of Emirates, but the airline is still developing into a huge threat to European and Asian airlines.

Emirates has been the role model of a new breed of carriers taking advantage of two factors: geography and technology. From hubs in Dubai, Abu Dhabi or Doha, they can now reach any point on Earth nonstop and connect any two city pairs with only one stop in the Middle East. Recent enhancements in aircraft technology have made this possible, with the introduction of ultra-long-haul airplanes such as the Airbus A340-500 and Boeing 777-200LR.

Emirates now has an all-widebody fleet of 103 aircraft and has an additional 107 on firm order, among them 47 Airbus A380s. The company is evaluating further orders for around 100 Airbus A350s or Boeing 787s to ensure future expansion. It is hardest hit by the delay of the Airbus A380: By the time the first A380 is delivered in August 2018, Emirates should have already been operating 18.

The story of Emirates is intertwined with the development of Dubai into a commercial and financial center midway between Asia and Europe, strongly promoted by the ruling al-Makhtoum family. The al-Makhtoums have been trying to make Dubai less dependent on oil for years, and now oil revenues only account for about 6% of Dubai's GDP. The government continues to invest billions in infrastructure, tourism and industry projects to raise Dubai's profile. Others in the region, like Abu Dhabi and Qatar, are following suit, beginning to develop into trade and tourism destinations, too.

Fully state-owned Emirates is a key ingredient to the plan and its success can only be explained when the Dubai story as a whole is taken into account. The company has had just one loss-making year in its history and now is among the most profitable carriers worldwide. Emirates' rivals claim it benefits from state subsidies, but none of them has been able to prove the allegations yet. For several years, Emirates' results have been audited by an independent firm. Last year, the airline's profit rose 23% to $942 million on $8.5 billion in revenues, which are themselves up 28%.

Particularly its biggest European rivals Air France-KLM and Lufthansa are strongly lobbying against further traffic rights for Emirates and its peers. A recent study made by a consultancy affiliated with Lufthansa, the European Center for Aviation Development, pointed out that Emirates benefits from low user charges and handling fees at Dubai airport and the fact that there is no income tax in the emirate, among other things. However, another study recently completed by Boston Consulting came to a different conclusion: Emirates is enjoying the benefit of the geographic location of its hubs, which can operate 24 hr. a day with no curfews, providing it very high aircraft utilization.

The Boston Consulting analysis shows that Emirates' rivals have good reason to worry. The study finds Emirates enjoys a unit cost advantage of at least 18-21% over its European and North American competitors and is no more expensive than airlines based in Asian countries that have extremely low labor costs. "It is clear that European and Asian airlines are going to be facing large, new blocks of low-cost capacity in the Europe-Asia corridor," Boston Consulting


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