Emirates: An airline that reflects Dubai's lofty ambitions

Beyond the artificial archipelagoes shaped like palm trees, not far from the tallest skyscraper in the world, stands another monument to the city-state Dubai’s stubborn ambition.

Even in this oasis of extravagance, Terminal 3 at the Dubai International Airport startles. It is not merely the world’s largest air terminal. It is the world’s largest building, period. And all 370 acres of it — all 82 moving walkways, 97 escalators, 157 elevators, 180 check-in counters and 2,600 parking spaces — were built with one very well-connected company in mind: Emirates, Dubai’s fast-growing flagship airline.

Emirates is pressing ahead with an ambitious expansion, despite the city’s financial near-collapse in 2009. Its executives, with the help of Dubai’s rulers, want to place this Persian Gulf city at the centre of a transportation network linking vibrant economies like India and China to Europe and the United States.

It might sound like bravado from the bubble years, another case of overreach in this sandy fantasyland. This is, after all, Dubai, where exuberant developers planned not one but three palm-shaped island chains and erected the glass-clad Burj Khalifa — more than twice the height of the Empire State Building — alongside an indoor ski resort. What is more, the recent political upheaval in Egypt provides a potent reminder that Dubai, for all its air-conditioned ease and stability, lives in a dangerous neighbourhood.

But here inside Terminal 3, the rise of Emirates hardly seems a mirage. Since its founding in 1985, Emirates, which is fully owned by the government, has grown into the world’s largest airline by passenger miles flown. By 6:30 am, Terminal 3 is teeming with travellers. Russians bound for Durban, Chinese headed for Khartoum and Indians travelling to San Francisco weave through the restaurants and duty-free shops. Families snooze on the white marble floors. It feels like a giant bazaar, devoted to a new era of air travel: crowded, animated, cosmopolitan.

Tim Clark, the president of Emirates, says his airline represents the future of mass air travel. In an era when many international carriers are struggling to sustain themselves, Emirates has filled its planes, raised fares and consistently turned a profit. It earned $925 million in the six months ended last Sept 30, up from $205 million in the year-earlier period.

Glamour

To win over customers, its executives want to bring a bit of glamour back to air travel. On the double-decker Airbus A380s, full bars are standard in business class, and the first-class cabin includes showers. No one pays for food or drinks, of course, on any Emirates flight.

So far, Emirates’ success is partly an accident of geography. Roughly 4 billion people live within an eight-hour flight from here. But to the consternation of rivals, Emirates also enjoys the patronage of Dubai’s rulers, in particular, Sheik Ahmed bin Saeed al-Maktoum, who is its chairman. While home-grown airlines in places like Singapore and Hong Kong have also turned those cities into global hubs, Emirates stands apart for the scale of its ambitions.

Competitors are fighting back. SkyTeam, the global alliance that includes Delta Air Lines and Air France/KLM, said recently that it would add two airlines — Middle East Airlines, from Lebanon, and Saudi Airlines — to counter Emirates’ dominance in the region.

“There is a reason that airlines around the world are afraid of the success of Emirates,” says John Leahy, chief operating officer of Airbus, the European plane maker, referring to Emirates’ mix of quality service, operating efficiency and low costs. “That should strike fear in the hearts of airlines around the world.” Emirates is one of Airbus’ top customers.
Over the next two decades, air travel in West Asia is expected to grow by more than 7 per cent a year, outpacing every other region, according to a forecast from Boeing in 2010. Much of that growth will be spurred by Emirates and two other fast-expanding airlines based in the Persian Gulf area: Etihad Airlines, based in Abu Dhabi, and Qatar Airways.

Emirates is by far the most ambitious of the three. Its greatest strides have come from building routes to developing countries long neglected by traditional carriers and providing an alternative to local airlines. Instead of connecting through European hubs like London or Frankfurt, all of these new routes run through Dubai.

“The legacy carriers still see us as the monster of West Asia, the bete noir of civil aviation in the 21st century,” says Clark, 61. “But they won’t accept that the business we are carrying wasn’t theirs anyway. The 21st century is very different from the 20th century.”

Wide network

Emirates, for instance, offers 184 flights a week from Dubai to India, to cities like Ahmedabad, the commercial hub in the state of Gujarat. It flies to 17 cities in Africa and, in China, to Beijing, Shanghai, Hong Kong and Guangzhou. It runs two daily flights to Bangkok and nine to Australia.

The strategy has prompted a strong reaction from airlines like Air France and Lufthansa of Germany. These carriers hope to persuade their governments to limit Emirates’ access to French and German airports.

“Emirates’ strategy is aggressive,” says Pierre-Henri Gourgeon, the chief executive of Air France, who complains that Emirates is siphoning off passengers from Europe’s traditional hubs. “Europe is at the centre of the global aviation world. It’s the result of aviation history.”

Craig Jenks, an airline consultant based in New York, says Emirates threatens established carriers in the one market where these airlines are making money: long-haul international trips. “There’s nothing better than a highly motivated cowboy airline in a small country,” he says.

Like so much in Dubai, Emirates started out small but dreamed big. It was established after Gulf Air, a regional airline then owned by Bahrain, Qatar, Oman and the UAE, reduced its service to Dubai in the early 1980s. Feeling shunned, Dubai’s rulers created their own carrier.

The government provided $10 million in capital. Emirates began flying with two planes, a Boeing 737 and an Airbus A300, both leased from Pakistan International Airlines. The new carrier was run by a band of British aviation executives, including Clark, who had been at Gulf Air, and Maurice Flanagan, a former top executive at British Airways.

Much of Emirates’ early traffic connected Dubai with cities throughout the Indian subcontinent and a few European destinations, including London.

By the 1990s, however, new airplanes with longer reach, like Boeing 777s, enabled Emirates to establish Dubai as a world hub. Sheikh Ahmed, the company’s chairman, boldly proclaimed that Dubai would be “at the centre of the new Silk Road between East and West.” Rivals express grudging admiration for Emirates. “Emirates recognised the value of a global hub,” says British Airways’ chairman, Willie Walsh.

And Clark says: “If you want to go from Africa to Asia, or from South America to China, the straight line is through the Middle East.”

But geography is only one element in the Emirates formula. Government support has also been essential. From the start, Emirates was seen as integral to the government’s ambitions of building Dubai into a commercial, financial and tourism centre in the Persian Gulf.

Mr Aviation

Sheik Ahmed, the airline’s chairman, plays a role in almost every aspect of air travel into and out of Dubai. Indeed, he is known as “Mr Aviation.” He is the chairman of FlyDubai, the city-state’s budget airline, and of Dnata, the airport’s ground handling company. He is also the president of the Dubai Civil Aviation Authority, which oversees the industry. And he happens to be the uncle of Dubai’s current ruler, Sheik Mohammed bin Rashid al-Maktoum.

Critics say this tight relationship among Emirates, airport authorities and regulators gives the airline an unfair advantage. Emirates, these critics say, essentially receives government subsidies, in the form of low tax rates and shiny new facilities like Terminal 3, where another expansion is under way to accommodate Emirates’ growing fleet of A380s.

Emirates disputes this characterisation. The airline publishes audited financial reports, and its executives say Emirates gets no government subsidies. “Emirates works like a corporation,” says Ram C Menen, who runs the company’s global cargo operations. “We’re a business unit of Dubai Inc. And it’s a happy relationship.”

The airline, however, does have undeniable advantages over competitors, including lower labour costs. While Emirates pays its pilots international wages, it hires inexpensive workers, usually from the Indian subcontinent, for tasks like handling baggage or working in catering services.

Although Dubai has shaken off the worst of its financial crisis, the shock has nonetheless stalled this grand plan for now.

Yet Emirates has proved remarkably resilient to recent financial shocks – the economic slowdown did not hamper its growth. The question now is whether Emirates can sustain its momentum without jeopardizing quality and service.

Each week, as many as 90 new trainees file through the company’s training academy, a modern building near the Tennis Club, a popular Dubai spot among the expatriate community, close to the historical center of the city.

Its growing fleet of A380s means that the airline will need to hire an additional 11,000 flight attendants in coming years, nearly doubling its current roster of 12,000. Over eight weeks of training, the new employees – most in their early 20s and speaking some English – learn all the ropes of the job. Life-size mock-ups of airline cabins mounted on hydraulic legs are used to simulate safety drills. Elsewhere, the trainees are taught how to serve meals or use the first-aid kits.

Emirates executives say they recognize the challenges ahead. “We don’t forget who we are, and what we do,” says Clark, the president. “We’re a bus company. We have seats, we have people, and we recognize what it is that makes life more comfortable. If we hit the spot, passengers come back.”

A formidable player

Emirates has emerged as a formidable player on the international travel scene. Its innovations, including private suites in first class and individual entertainment screens in the coach cabin, have been copied by many other airlines; its emphasis on quality has forced traditional legacy carriers to pay more attention to their own products.

So far, Emirates has benefited from the weakness of some airlines in China, India and African nations as it establishes its presence in those and other developing countries.
But that advantage may one day come to an end. In India, the advent of a new generation of quality carriers, including Kingfisher Airlines and Jet Airways, now offers some appealing domestic alternatives for India’s vast expatriate population, long one of Emirates’ growth engines.

The recent tensions in Egypt, Yemen and Jordan have also hurt Emirates. Clark said last week that traffic to many of these destinations had a “pretty resounding” drop as tourists postponed holiday plans.

Another threat is on the horizon. As more airlines start using long-range planes now in development, like the Boeing 787 Dreamliner and the Airbus A350, they will be able to fly more people nonstop to most any other place in the world. That could pose a problem for the Emirates business model: its reliance on the Dubai hub.

“One survey that is consistent is that people simply do not like to change planes,” says Richard L Aboulafia, an aviation consultant at the Teal Group, a consulting firm in Fairfax, Virginia, the US. But, he added, “Underestimating the competition is a time-honoured feature of the airline business. Is it confidence or is it hubris? It is only hubris if you lose.”