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How Sustainable is Emirates’

Business Model?
Dubai-based Emirates Airline, founded in 1985 with just 2 leased aircraft, is one of the
fastest growing and most consistently profitable carriers in aviation history. On track
to operate the world’s largest A380 and B777 fleets, it has also become Boeing’s
and Airbus’ single most important customer. Finally, if historical growth trends
persist, Emirates will become one of the world’s largest passenger and cargo
airlines by the end of the next decade (at that time, Dubai might also boast
the world largest airport). Nevertheless, there is a fair amount of skep-
ticism with respect to the commercial viability and long-term sus-
tainability of Emirates’ business model. Some critics, essentially the
CEOs of its (European) competitors, hold that Emirates’ growth
has simply been the result of subsidies. Others cite the political
instability of the Middle East, or argue that the buildup of
vast overcapacity in the Gulf region will dim the airline’s
prospects. In this article, we will provide a SWOT analysis
of Emirates’ business model that needs to be discussed in
the broader context of Dubai’s overall growth and deve-
lopment strategy into which it is firmly embedded.

By Andreas Knorr and Alexander Eisenkopf

A Brief History of Emirates from Pakistan International Airlines. turn, is only one element in a compre-
In 1974, three years after independen- The rest is history: in 1987, Emirates hensive bundle of aviation-related
ce, the rulers of the UAE decided to began to serve it first two European activities, all of which come under the
establish a joint flag carrier: Gulf Air. destinations – London Gatwick and responsibility of Sheik Ahmed bin
However, a tense relationship between Frankfurt –, from 1995, it has operated Saeed Al-Maktoum: (1) the Dubai
the airline and the Dubai government an all widebody fleet, and in 2001, World Central Consortium (activity: to
existed ever since its inception, as the 2003 and 2005 Emirates placed some build Jebel Ali Airport City including
latter refused to give in to Gulf Air’s of the largest aircraft orders ever. As of Dubai’s new mega-airport); (2) Dubai’s
demands to abandon its open-skies October 2007, Emirates’ route network Department of Civil Aviation (activi-
policy. In reaction, Gulf Air reduced extends to 91 destinations on all conti- ties: all aviation-related regulatory fun-
frequencies and capacities to and from nents. In its last business year, ending ctions, operator of DXB airport, of
Dubai by more than two thirds between March 31st, 2007, the airline transpor- Dubai Duty Free and Dubai Cargo
1984 and 1985 without advance notice ted 17.5 million passengers and 1.2 Village) and (3) Dubai Aerospace
(Wilson 2005). Since foreign carriers million tons of cargo on 102 aircraft. Enterprise (activities: aircraft leasing,
proved unable or unwilling to fill the Currently, 118 aircraft are on firm order airport planning and management, con-
gap, Dubai’s then ruler, Sheik (of which 20 will be all-freighters), sulting, maintenance and aviation-rela-
Mohammed bin Rashid Al-Maktoum, including 55 A380 and 43 B777. ted education and training).
convened a team of experts – headed
by Maurice Flanagan and later joined The Emirates Group Emirates’ Business Model
by Tim Clark and the ruler’s then 26- Emirates Airlines (including its cargo Emirates Airline (or rather the
year old son, Sheik Ahmed bin Saeed subsidiary Emirates SkyCargo) is Emirates Group as a whole) is a cruci-
Al-Maktoum – to devise an emergency only one division of the Emirates al element of Dubai’s growth and deve-
plan. The group’s recommendation to Group, a state-owned globally active lopment strategy. Currently based on
set up a home carrier for Dubai was travel and tourism conglomerate, the Dubai Strategic Plan 2015 (Dubai
quickly accepted by the ruler, but he which provides a plethora of aviation- Government 2006), its objective is to
imposed two conditions: The new airli- related ancillary services. Finally, the prepare the emirate for the post-oil era
ne should meet the highest quality stan- Emirates Group owns 43.6 percent of by firmly establishing it as a leading
dards and there would be no additional SriLankan Airlines. tourist destination (including trade
capital injections from the government fairs and conferences), as a center for
other than the agreed USD 10 million The Dubai Government’s aviati- financial, IT and professional services,
start-up capital. On October 25th, on-Related Activities as a location for corporate headquarters
1985, Emirates’ first flight departed to Viewed from an even higher level of and light manufacturing, and, last but
Karachi, using an A300, wet-leased aggregation, the Emirates Group, in not least, as a regional transportation,

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logistics and distribution hub (“regio- (London, Frankfurt, Munich, Paris) for  high labor productivity: According
nal” refers to the area between long-distance flights. Typical destinati- to a recent study by UBS, a Swiss
Singapore, Europe, Southern Africa). ons in this category include Newcastle, bank, Emirates’ unit costs are around
Obviously, Dubai’s (and, as a result, Manchester, Birmingham, Glasgow, 40 percent lower than KLM’s
Emirates’) spectacular growth in recent Düsseldorf, and Hamburg in its (Horth/Alwyn 2005), a cost advantage
years – on average, GDP increased by European network as well as Kochin, that is likely to even increase after the
13.4 percent per year since 2000, and Kolkata, Thiruvananthapuram, and introduction of its A380 fleet; and
its population is set to grow from Ahmedabad in India, to name just a
today’s 1.45 million to around 5.4 mil- few. Emirates’ competitive advantage  no alliance membership: In the
lion by 2015 (1968: 6,000!) –, has been in these markets is enhanced by the words of Tim Clark: “If we take the
helped by two complementary factors: fact that it, unlike the competition, long-term view, then alliances offer a
sound politics and its very favorable does not have to deploy a fleet of rather sure-fire way of achieving mediocrity
geographical location. The former small and, hence, inefficient short-haul and reduced profitability” (as quoted
include its uniquely liberal (by regional and even regional aircrafts for feeder by Horth/Alwyn (2005)). However,
standards), cosmopolitan environment, flights to its hub, but can offer long- select codesharing agreements are in
political stability, free-trade agree- haul service standards instead (moreo- place.
ments with most of the booming Asian ver, given its much longer average
economies, world-class infrastructure, stage length, Emirates is not subject to
SWOT Analysis
efficient public services, and very low competition from low-cost carriers eit-
to non-existent corporate and income her); Many of Emirates strengths come from
taxes. The latter point reflects the fact the right decisions taken at its founda-
no major agglomeration on the globe is tion, and from its unique organizational
further than 8,000 nautical miles away structure. Not only does the carrier
from DXB. As a result, any two major benefit from having been created from
cities on earth can be connected via scratch only 22 years ago, resulting in
Dubai with only one stop. flat hierarchies and essentially no
legacy costs, but, more importantly, the
It is against this backdrop that central role of aviation in Dubai’s
Emirates’ business model must be ana- development strategy also guarantees
lyzed. First and foremost, the airline – Emirates a very favorable political
plus the next to 140 carriers which environment. First and foremost, the
serve DXB – provides excellent air  strong presence in markets that overall responsibility of Sheik Ahmed
links worldwide, not only for the bene- have been largely unconnected to the Bin Saeed Al-Maktoum for all aviati-
fit of Dubai’s thriving tourist industry, global air transport network, and espe- on-related activities in Dubai and the
but also of its rapidly expanding local cially to the Middle East, to India, lack of a “NIMBY-culture” with res-
business community (including the Southeast Asia and/or Africa, for lack pect to airport expansion or new airport
thousands of foreign companies that of a (potent) local flag carrier. This projects ensure that the airline will not
have set up their regional presence holds not only true for the vast majori- in decades face infrastructure bott-
there). To be more specific, Emirates’ ty of Emirates’ 15 destinations in North lenecks (which increasingly stifle the
business model is built on the follo- and Sub-Sahara Africa (Emirates’ CEO growth prospects of its principal
wing features: Tim Clark recently observed in an European competitors).
interview with the online edition of
 A well-balanced mix of O&D- and German weekly magazine SPIEGEL, Second, Emirates profits from the very
transfer traffic in its passenger business that “Africa is a ripe fruit which only low charges at its home airport. While
(currently 50:50, although the intro- needs to be picked”). It also includes landing fees are by and large identical
duction of the A380 fleet is likely to cities like Moscow, Brisbane, Perth, to those at major European airports, no
increase the transfer passenger share to São Paulo, New York, and Houston; airline flying into DXB has to pay any
60 percent); additional charges (such as noise char-
 high frequencies: The mid-term ges, ATC charges, security charges
 a very strong focus on cargo traffic, objective is to serve most destinations etc.). This is because the airport infra-
which generates 20 percent of at least twice daily. Currently structure and all related services are
Emirates’ revenues – one of the highest Emirates’ operates three waves at provided by Dubai’s government and
percentages in the airline industry (to DXB, a fourth is being gradually pha- fully financed from the state budget. It
the authors’ knowledge, only LAN sed in; is a hotly debated issue whether this
Chile tops Emirates in this segment, particular fee regime is a form of indi-
achieving a 40 percent turnover share);  high-quality service in all classes rect subsidy to Emirates. Judged
onboard and on the ground including against the EU’s state aid rules, this
 strong presence in those secondary up to 600 entertainment channels in all would clearly not be the case since
markets that are underserved by classes and limousine service (pick-up Dubai operates an open-skies policy
Emirates’ competitors such as BA, LH, and drop-off) for first and business and all airlines are subject to the same
and AF which focus on their own hubs class passengers; non-discriminatory treatment. From an

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economic perspective, the lower over- Brazil to Japan (1.2 million Brazilians ting factor to Emirates’ success, and a
all level of charges at DXB might are of Japanese descent). On this route, huge opportunity for future growth, is
result from a variety of reasons: cost three almost equidistant itineraries – Dubai’s very favorable location. Some
savings due to higher factor productivi- via the USA, Europe and DXB are 3.5 billion people live within eight
ty, the non-existence of a double mark- available, one of which – via the USA flight hours. Moreover, Dubai is placed
up (as a result of the central manage- – requires a transit visa. Another exam- right at the crossroads of some major
ment of Dubai’s aviation interests by ple would be the UK’s restrictive and passenger and cargo flows, e.g. Asia
Sheik Ahmed bin Saeed Al-Maktoum), complicated transit regulations for resi- (China/India)-Africa, Europe-
monopoly rents enjoyed by other hub dents of some Asian countries en route Southeast Asia, Europe-Australia/New
airports at the disadvantage of their air- to the USA even if they do not leave Zealand, India-North America, the
line clientele, and lower marginal the airport while in transit. economic importance of which is set to
damage costs of noise pollution in grow in parallel with the rise of the
Dubai (because of different ecological Fifth, another of Emirates’ strong point near-by emerging economies. In additi-
preferences). is its award-winning service in all clas- on, DXB has become a major – and
ses, which is matched or exceeded only frequently time-saving – connecting
Third, Emirates – like all other compa- by very few other carriers such as point for passengers (and cargo) trave-
nies doing business in Dubai or, for Singapore Airlines. Sixth, clever mar- ling from secondary cities, especially
that matter, in most Gulf states – bene- keting – for example, Emirates, not in Western Europe, en route to
fits from Dubai’s low tax regime, Lufthansa – was named official carrier Australasia and even Africa. In fact, for
which only subjects subsidiaries of for- of the 2006 FIFA World Cup hosted by passengers flying from, say, Hamburg
eign banks and energy companies to Germany – has created a very strong to Sydney, Emirates offers a one-stop
corporate tax. Obviously, this is an brand awareness worldwide. Finally, connection instead of at least two stops
advantage as long as the company since the UAE’s currency is firmly on almost all Oneworld, Skyteam or
remains profitable. As ordinary citi- pegged to the US dollar, Emirates has Star Alliance routings. And for flights
zens including expats do not pay inco- benefited, at least in recent years, from to Asia, Emirates offers the same one-
me tax either, and enjoy generous an additional devaluation-related cost stop service as its European rivals, but
government-financed social benefits, advantage, especially vis-à-vis its to a larger number of destinations).
too, Emirates is a very attractive Eurozone-based rivals.
employer paying above average net What is more, not only has the UAE’s
wages although gross wages are lower Weaknesses government has been very successful
than in Western countries. It is almost impossible for outsiders to in negotiating free-trade agreements
discern any relevant weakness. with all major economies from the
Fourth, Dubai’s immigration laws are However, although notoriously unre- USA to the emerging markets of Asia
quite generous by international stan- liable as a source, some posters on tra- (though not with a reluctant EU),
dards. This does not only hold for for- vel-related internet blogs are complai- which are very likely to further increa-
eign experts who may be easily recrui- ning about (allegedly) slipping service se demand for air travel to and from the
ted by local firms. It also applies to standards in general and lack of consi- UAE. What is more, the entire Arabian
transit passengers who do not have to stency in service quality in particular. peninsula has been one of the fastest
clear immigration at DBX when chan- Indeed, Emirates was less successful growing regions worldwide. Since
ging planes. While this might appear to recently in winning Skytraxx and other many neighboring countries, including
be a negligible fact at first sight, it awards for outstanding service quality. the most populous one, Saudi Arabia,
greatly improves Emirates’ competiti- have embarked on a progressive libera-
ve position on quite a few routes. A Opportunities lization of their air transport markets,
good example would be trips from Clearly the most important contribu- new opportunities for growth exist for
Emirates also in its home region.

Finally, Emirates’ decision to operate a

huge fleet of A380 aircraft will enable
the airline to continue to grow at all
slot-constrained airports it serves, too –
including all of its European competi-
tors’ main hubs.

From the point of view of most for-
eign, in particular North American,
observers, the (alleged) political insta-
bility of the Middle East, poses by far
the biggest threat to Emirates’ growth.
However, this perception is clearly
not based on hard facts with respect to

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visionary development master plan.
Nor is it unique. In many respects,
strong similarities exist between
Emirates’ approach and Singapore
Airlines’ rise from a small regional
player to a global powerhouse in the
airline industry only a few decades
ago. It therefore seems reasonably safe
to conclude that Emirates is writing
another of the very few success stories
in the history of civil aviation.

Dubai Government (2006), Dubai
Strategic Plan 2015. Highlights, Dubai.

Horth, D., and T. Alwyn (2005), The next

low-cost threat. What does Emirates mean
for Europe?, UBS Investment Research Q-
Series, January 13th, 2005, Zurich.

Wilson, G. (2005), Emirates. The Airline of

the Gulf states, and recent history tells 57 aircraft with another 113 on firm the Future, London and Dubai.
a different story as well. Although order, and Etihad’s fleet comprises 25
also affected by severe regional politi- widebodies (plus 21 aircraft on order). About the Authors
cal crises even early in its start-up While Qatar Airways’ catch-up stra- Professor Dr. Andreas Knorr, c/o German
period – Iraq’s invasion of Kuwait and tegy with Emirates seems to rely large- University of Administrative Sciences,
Chair for Economic Policy, Freiherr-vom-
the latter’s liberation soon after cross ly on undercutting its competitor while
Stein-Str. 2, 67346 Speyer, Germany,
one’s mind –, but also by more recent offering similar product quality, (Corresponding
events like the wars in Afghanistan Etihad’s expansion might prevent author)
and Iraq, as well as the outbreak of Emirates from obtaining much needed
SARS, Emirates has so far proven its traffic rights to countries that do not Professor Dr. Alexander Eisenkopf, c/o
robustness. pursue an open-skies policy (note that Zeppelin University, Chair for Business
both Emirates and Etihad are UAE- Administration and Mobility Management,
A much more likely threat is the based carriers). What is more, both the Am Seemoser Horn 20, 88045
increasing lobbying by some of its Qatari and Abu Dhabi’s governments Friedrichshafen, Germany,
competitors in core markets such as (i.e. ruling families) have devoted huge
Australia, France and Germany, as well budgets to the expansion of their local Footnote
as in largely untapped ones like airport facilities. By 2008, Doha’s air- 1 It is noteworthy that the term “stated-
Canada, for legal protection against port will be able to handle 50 million owned” has a different meaning the con-
Emirates’ expansion on their “home passengers (compared to today’s 6 mil- text of Gulf societies compared to the West
turf”. For instance, Lufthansa is vigo- lion), while Abu Dhabi’s airport will be because many assets are owned by the rul-
rously campaigning against Emirates’ upgraded to 40 million pax (9 million ing families. This, in turn, means that
plans to serve Berlin and Stuttgart even today) – in addition to a substantial “state-owned” companies there are more
though the operators of these two air- expansion of cargo facilities. It remains similar to Western-style family businesses
ports have long attempted to attract to be seen whether this unprecedented than to Western-style state corporations.
more intercontinental services which buildup of capacity by two (still) Moreover, and again in clear contrast to
Western practices, most of Dubai’s “state-
Lufthansa has been unwilling to provi- unprofitable regional competitors (and
owned” enterprises must operate in open,
de, or, in the case of Berlin, has been their government owners) will have a competitive markets on commercial terms.
unable to provide profitably. negative impact on Emirates in the Their profits and dividend payments –
long-run. instead of taxes – are also the main source
Nevertheless, it is the very aggressive of income in Dubai’s state budget.
growth plans of some other Gulf-based Conclusion 2 In 2006, with 6.5m guests, Dubai’s hotels
carriers, most notably of Qatar Emirates’ success is clearly not built (occupancy rate of 86%) accommodated
Airways and Abu Dhabi-based Etihad on sand. In fact, it is based on a hard- more visitors than Australia.
Airways, that might pose the most to-emulate mix of an excellent geogra-
serious future threat to Emirates. Qatar phic location and outstanding manage- Pictures
Airways currently operates a fleet of ment, embedded in an ambitious, All photos used in this article are cour-
tesy by Emirates Airlines.

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