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Emirates Airlines: Story of Success and Failure
Introduction
Emirates Airlines is one of the largest airline companies in the world. Operating highly advanced Airbus A380 carriers as well as Boeing 777 models, it possesses the most modernized commercial air fleet in the world (Alcacer and Clayton). The total number of planes owned and operated by Emirates Airlines is 252, serving over 141 city pairs across the world (Alcacer and Clayton). The airline operates from Dubai, which is one of the largest and the most important logistical hubs that connect the West and the East. The combination of intelligent management, geographical location, and governmental support have contributed to the success of Emirates Airlines. However, in the past 3 years, the company has seen a marked decline in its profits and overall revenue, due to various socio-political factors that began affecting the airline industry as a whole. The purpose of this paper is to analyze the history of the company and the current trends in the market in order to determine whether Emirates Airlines are going to maintain their position as the leading airline company in the Middle East and the world, or if their story of enduring success is at an end.
Factors behind the Success of Emirates Airlines
In order to understand how a small company operating two wet-leased commercial airplanes managed to become a supergiant of airline industries, it is required to analyze the historical predispositions for the companys creation as well as the key factors influencing its growth and giving it an advantage that other competitors did not have. Emirates Airlines is a special case due to possessing several key strategic advantages unique to the region and the city of Dubai.
Historical Predispositions
Emirates Airlines creation was aided by the royal family of Dubai, who sought to increase trade and air connectivity of the region after Gulf Air (the dominant airline company in the Gulf at the time) refused to increase the number of routes to Dubai, deeming them as unprofitable. The company was established in 1985, with the initial goal of claiming underserved markets. Emirates Airlines was supplied with the initial seed capital by the Government of Dubai, which later became the sole proprietor of the company (Alcacer and Clayton).
Sole Proprietorship
One of the major advantages that Emirates Airlines initially had was, according to Tim Clark (the CEO of Emirates Airlines), the fact that it was a sole proprietorship (Alcacer and Clayton). The company was owned by the Government of Dubai, meaning that the CEO had the capabilities of managing the company as he saw fit, so long as it was successful. Not having to cater to the interests of numerous stakeholders, Clark was capable of running the company quickly and efficiently, which significantly increased the speed of the decision-making process and enabled Emirates Airlines to react to the changing realities of the airline market at a much quicker pace.
Government Support
Government support plays a large role in the airline industry, largely due to various laws that are in the way of establishing new traveling routes. Due to the Chicago Convention of 1944, many countries regulate their levels of air access (Alcacer and Clayton). The government of Dubai conducted numerous negotiations on behalf of Emirates Airlines, granting the company access to many airline routes within a short span of time, which helped the company expand to untapped markets and greatly increase the number of customers the company has been serving. This strategy helped Emirates Airlines expand over the past 28 years and grow to serve over 40 million passengers on a yearly basis (Alcacer and Clayton). The government of Dubai assisted the company in various other ways, such as providing credit at a rate far below the average interest rate, speeding up bureaucratic processes associated with permits required for commercial flights, as well as bending the rules and regulations when needed.
Dubai as a Strategic Location
One of the greatest advantages of Emirates Airlines is the location of its hub airport. Dubai is, arguably, the best location for an international air hub, as it allows transfers and charter flights to almost every major city and capital in the world. In addition to possessing an excellent infrastructure for tourist and commercial flights, Dubai also possesses a large seaport, which enables sea-to-air and air-to-sea transport transactions. Due to the strategic location of Dubai, it serves as a transfer point for passengers from Asia traveling to Europe, from Europe to Asia, and anywhere in between (Al-Mehairi 3). For many passengers, Dubai is the end destination on its own, due to its attractiveness as a tourist resort and as a business center. Lastly, Dubai has an Open Skies policy, which enables all and any aircraft to land and take off from Dubai airports, which simplifies the establishment of new trade and transportation routes. To summarize, Emirates Airlines accommodates the majority of these passengers due to having a higher quality of service, and a larger selection of transfer routes, which gives it an edge against its competitors (Al-Mehairi 4).
Emirates Airlines SWOT Analysis
Strengths
Dubais location is a major strength for Emirates Airlines hub-based model due to the fact most cities can be reached from there within a single flight (Al-Mehairi 3). Additional strengths of the model include the existing airport infrastructure and the strength of the company brand, which translates well into various technical aspects of operating a hub, namely catering, ground handling of packages, luggage, and cargo, as well as fleet maintenance.
Weaknesses
One of the greatest weaknesses of the hub-based airline business model lies in the capacity for accommodation of various flights. Hub airports increasingly suffer from airport congestion. While Emirates Airlines managed to partially solve this problem by implementing A380 Airbus carriers, hub airports are required to expand in order to accommodate more planes, which increases the costs of flights and complicates the logistics and supply procedures for the company (Alcacer and Clayton).
Opportunities
The existing single hub-based model can be developed to accommodate smaller hubs inside and outside the country in order to increase the overall passenger flow and decrease the aircraft congestion that has been detrimental to the companys overall efforts. Decreasing congestion would improve the costs and waiting times while decreasing prices and simplifying the logistical network required in order to support the companys enormous fleet of carriers. In addition, shifting from a single-hub to a multi-hub model would enable the company to buy smaller conventional aircraft, not being restricted to A380 Airbus models.
Threats
Threats associated with Emirates Airlines hub model involve the limitations of the hub they are currently using. Any business expansion would require increasing the numbers of flights, which would be beyond the capacity of the existing infrastructure. Expanding the capacity of airports is a slow and expensive venture. Without significant capital renovations of its hub, Emirates Airlines may find itself unable to expand.
Is Emirates Airlines Still a Story of Success?
Although Emirates Airlines retains its positions as one of the largest and most well-equipped air transportation companies in the world, its success story seems to have approached its logical conclusion. According to Forbes, the companys profits for the year 2016 have dropped by 75% for the first half of a year, and the overall revenues suffered as well, dropping to 11.4 billion dollars (Dudley). This trend continued well into 2017 and 2018 and is largely connected to the political and economic situation around the world, which lies outside of Emirates Airlines control.
American and European airlines have been working for a long while to undermine Emirates Airlines in order to protect their revenues and their domestic markets. The ban on laptops on Middle-Eastern flights to the USA, issued by President Donald Trump in 2016 reduced the revenues from flights to the USA by 82% (Shankar). The EU may adopt similar protectionist policies in the future. In 2017, the EU issued a proposal to review the existing regulations of 2004 in order to safeguard competition in air transport ( EUs Proposal ). These new regulations would enable the competitors of Emirates Airlines, namely Lufthansa and Air France-KLM to launch official investigations against the company (Fioretti). The affiliation to the government also forces Emirates Airlines to participate in various political activities initiated by the UAE. After the start of Qatar political crisis, Emirates Airlines was forced to boycott the country (Dudley).
Conclusions
Although Emirates Airlines managed to create a powerful and capable air company, the foundation it was built upon proved to be unstable. Current political and social events in the Middle East, the US, and Europe will hurt its profits and curb its growth. At the same time, the companys foreign and domestic competitors grow stronger. Without a peaceful political climate, Emirates Airlines is likely to lose a percentage of its market share as well as its position among the Top 3 airlines in the world. While it will continue to be a profitable and well-established company, its days of glory are likely at an end.
Works Cited
Alcacer, Juan, and John Clayton. Emirates Airline: Connecting the Unconnected. Harvard Business Review. 2014, Web.
Al-Mehairi, Jamal. Dubais Geographic Location and Its Advantages for the Air Transportation Industry. 2015, Web.
Dudley, Dominic. Is the Emirates Airlines Growth Story at an End? Forbes. 2016, Web.
EUs Proposal to Safeguard Competition may Flush out Protectionist Complaints Against Gulf Airlines. CAPA. 2017, Web.
Fioretti, Julia. EU to Tackle Unfair Airline Competition with New Rules. Reuters. 2017, Web.
Shankar, Dakshayani. Emirates Airlines Reports 82% Plunge in Profits Amid U.S. Laptop Ban. NBC News, 2017, Web.
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