Sky’s the limit for Emirates Airline

Middle East air boom fuels profits for airline.

DUBAI, United Arab Emirates (AP) — Emirates Airline has ordered a jaw-dropping 245 new widebody planes, but the company’s president shuns suggestions that he wants to create the world’s biggest airline.

“I’m not bothered personally if that makes us the biggest or not,” Emirates President Tim Clark said in an interview with the Associated Press.

Aviation analysts say that in fact the airline’s unprecedented rate of growth would make it the world’s largest within the next decade. At last month’s Dubai Air Show, Emirates ordered 120 Airbus A350XWB jets, 11 additional A380 super-jumbos — increasing its total order to 58 — and a dozen Boeing 777-300ERs — which more than double its current fleet of 112 planes.

The orders, amounting to $34.9 billion at list price, bring the value of the airline’s total order book to an unheard of $60 billion.

Clark, who helped establish the company in 1985 and has served as its president ever since, says his main aim is for the airline to keep its focus and remain an industry trendsetter in terms of quality of service.

“The business model saw us focusing on the geocentricity of Dubai, focusing on the fact that within that 8-hour flying zone we had 4 billion people,” he said.

Emirates currently serves 99 cities in 62 countries with new ones being added on an average of one every two months. A second U.S. route, between Dubai and Houston, was inaugurated in December. Other North American destinations are New York and Toronto, and Clark said routes to two more cities in the United States, which he declined to name, were in the plan for next year.

At a time when many airlines around the world are feeling the pinch of high fuel prices and a declining dollar, Emirates expects to top $1 billion in profits in the fiscal year ending March 31 on revenues of $8.1 billion. That would represent an 18.5 percent increase over last year’s figure of $844 million.

This is partly due to the currency peg between the UAE’s dirham and the U.S. dollar. Emirates reports in dirhams but a large proportion of its earnings is in euros and pounds sterling, and the dollar’s slide “actually makes us look good,” Clark noted.

Emirates also has benefited from the general economic boom in the United Arab Emirates, whose thriving economy has been fueled by high oil prices and a rapidly growing tourism industry.

Statistics show that nearly half of its passengers nowadays are people making connections in Dubai.

Over the past 15 years, Dubai International Airport has developed into one of the largest hubs in world aviation. A new airport, said to be the world’s largest, is now under construction near Jebel Ali, a massive complex comprising a port, airport, residential areas, hotels and a free trade zone about 12 miles from the city center.

Emirates Airline is currently wholly government owned, but its chairman Sheikh Ahmed Bin Saeed Al Maktoum, last month indicated that 30 percent of the company may be sold in public markets. He did not elaborate further.

Emirates’ operating costs are significantly lower than those of its European or U.S. rivals, according to Michael Dyment, an aviation analyst at Nexa Capital Partners, a Washington D.C. corporate finance group.

He credited Dubai’s zero tax rate, the airline’s ability to tap credit markets to buy new airplanes because of Dubai’s good credit standing, and the fact that legacy costs like pension burdens are low.

It doesn’t hurt to operate in a country where the laws prohibit trade unions.

“One of the key advantages they have over others is that the airline itself is not subject to the same labor rules,” Dyment said. “They are able to keep organized labor away, so they don’t have a unionized environment that has been detrimental to other carriers.”

John Strickland, director of JLS Consulting, a London-based aviation consultancy firm, noted that the airline is almost unique in civil aviation because it has kept the same top management team since inception. They have developed a product that has allowed Emirates to capitalize on high-end fares in business and first class on long-range routes.

“Dubai has a very good geographic location in terms of offering services to European consumers going on to Asia, and this has been which is a strong selling point for the airline,” he said. “But Emirates has also been very good at developing traffic flows that bypass Europe, like from China to Africa. This irritates European carriers who also perceive Emirates, rightly or wrongly, as subsidized by the government.”

Clark angrily denied persistent criticisms that the 20-year old Emirates carrier was receiving preferential treatment from the Dubai government in terms of lower fuel costs and other benefits.

“Categorically, unequivocally and emphatically, we have never been subsidized,” he said.