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Emirates Airlines vs. British Airways

A business model comparison

This paper aims to compare Emirates Airlines with an airline of free choice. The tasks are to identify the business model of Emirates and find similarities and differences to another airline. The author chose to compare Emirates Airlines, the largest airline of the Middle East to British Airways (BA), the largest airline of Great Britain. The facts and figures exposed in this paper derive, if not indicated else, from the article of OConnell (2011).

As John Fong (2013) explained in his speech at Emirates Academy in Dubai, Emirates Airlines is/was the driver and the reason of success for Dubai. Within the next two years it is forecasted that Emirates will be the largest airline worldwide (Fong, 2013). In the financial year of 2011/12 Emirates carried 34 million passengers and 1,8 million tonnes of cargo (Emirates, 2013). In comparison, the last financial year for British Airways ended with 37,58 million carried passengers and 788 tonnes of cargo (British Airways, 2013). The following table gives a short overview of the last financial year for Emirates and BA. As shown below revenue-wise British Airways generates 0,5 billion more than Emirates. But this advance for BA cannot be held the way down to the profit due to costs, taxes and other expenditures, Emirates is not suffering much from.
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Emirates Airlines British Airways Measure (financial year 2011/12) (financial year ended Dec 2012) Aircraft 169 273 Employees 42.422 38.761 Total Revenue 16,9 bil. USD 17,4 bil. USD Total Operating Costs 16,4 bil. USD 16,9 bil. USD Profit (Loss) 409 mil. USD (112,7 mil. USD) after taxes (Sources: The Emirates Group annual report; British Airways annual report;) There are several reasons why Emirates has some competitive advantages over BA. The three main advantages arise from the core competencies of Emirates, (1) creation of a mega-hub in Dubai, (2) low cost structure and (3) brand development with a focus on sports sponsorships. The mega-hub Dubai gives a clear advantage to Emirates because of the strategic valuable position of the destination. Since the last years Dubai developed itself as the most important hub in the Middle East (Alhaider, 2013). Dubai is supposed to be reached by 4.5 billion people in about eight flight-hours. Furthermore the cost structure is very well for this high-class airline. Reasons therefore are no taxes, less fuel costs because of the proximity to oil production and refining and the fact that labor-intensive work is done by cheap labor markets such as India or Pakistan. Emirates Airlines monitors precisely the yield and unit costs route by route, which results in fast decisions and flexibility. As a further strength Sheikh Mohammed bin Rashid Al Maktoum can be mentioned. His highness is in position of the Chairman of The Emirates Group as well as he is minister in charge of the civil aviation department. This allows for more

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freedom of action because usually those two positions do not always have the same objectives and motivation in business. In total Emirates had 39% less total costs than British Airways (within the year ending March 2008), which therefore can be mentioned as a clear competitive advantage. However, the strengths of BA are (1) multiple locations (London Heathrow as base, strong presence at London Gattwick), (2) global partnerships (one world), (3) a strong brand and (4) multiple aircraft types, which allows for flexibility and diversification. British Airways is seen as an important European airline with the hubdestination London Heathrow. London Heathrow is a relevant airport to reach American destinations, which is on the schedule at BA. Furthermore British Airways has a strong presence also at London Gattwick Airport. However, the airline is operating successfully as an international short- and long haul carrier, enabled also by one world, an airline alliance together with American Airlines, Cathay Pacific, Qantas Airlines and many more. This is seen as one of the most differentiating factors of the two airlines. As Samer Alhaider (2013), the E-Commerce Manager of Emirates was explaining in his speech, Emirates is not willing to join any alliances in the near future. There are several reasons for and against alliances. The key arguments are loss of autonomy versus economies of scale. Emirates is serving more than 130 destinations on his own, whereas British Airways is able to offer more than 400 destinations to its customers, while using the synergies arising from the alliance one world. Both airlines offer short- as well as long haul flights with a concentration

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on long haul. Another similarity is the use of the Sixth Freedom of the Air. The socalled Sixth Freedom of the Air is the right or privilege, in respect of scheduled international air services, of transporting, via the home State of the carrier, traffic moving between two other States. (ICAO, 2004) Due to the location of both hubs, they can profit from this Right. A significant difference between British Airways and Emirates is the ownership model of the airlines. Emirates Airlines is fully governmentally owned, while British Airways is 100% privatized as a stock corporation. Therefore British Airways can somehow profit on the decrease of political pressure, whereas Emirates can benefit from the governmental assistance. Both types do have inherent strengths and weaknesses, which one needs to be aware of. British Airways is part of the 2011 formed, International Airlines Group (IAG), which, based on revenue, is the third largest group in Europe. This Spanish registered parent company consists of British Airways, Iberia and Vueling (IAG, 2010). As a contrast Emirates Airlines is one of the two key divisions in The Emirates Group, besides dnata, which provides services in ground handling, cargo, travel, IT solutions and flight catering. (Emirates Group, 2013a) This means that again British Airways is able to benefit from synergies arising from the IAG, while Emirates Airlines (as an airline) operates on itself. The advantage Emirates has, comes from dnata that allows revenue-generating opportunities and potential cost advantages. Emirates Group sets an ideal model as a corporation that continues to aspire

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to higher and better standards of innovation and originality. This can be read in the Annual Report of Emirates Airlines (2013). As a comparison the vision of British Airways is to be the most admired airline across the worlds key cities. (British Airways, 2013) Furthermore BA wants to be the very best in customer service, which is also true for Emirates. Additionally caring for environment, employees and as well stakeholders are focuses of both airlines. (British Airways, 2013; Emirates Group, 2013). However, according to the World Airline Awards, Emirates is the best airline 2013 (8 in 2012) defined by a customer voting, whereas British Airways is on place 27 (28 in 2012) (Skytrax, 2013).

To summarize this paper it seems that Emirates Airlines is having more success with its business model, which comprises of a strong hub, a low cost structure and the development of the brand. However, also British Airways is an important player in the international carrier sector with an advantage because of the focus on the customer service, their hub destination and the cooperation with one world. Nevertheless Emirates has some inherent advantages British Airways cannot benefit from. For example is Emirates Airlines operating tax free, without legacy cost, in a destination where strikes are forbidden and no trade unions exist. These are exactly some issues British Airways is facing in their country of origin. Furthermore British Airways is privatized, while Emirates is governmentally owned and promoted. Both Airlines have a strong focus on their customer and want to be

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the favorable airline for Business and Leisure trips. The potential for Emirates Airlines is seen as very high due to the rapid growth and the strategic valued position of Dubai.

Literature
Alhaider, S. (2013): The Airline Industry: Trends, Growth and Global Hubs, notes taken from speech in Dubai during the Study Tour, October 2013 British Airways (2013):! British Airways Plc - Annual Report and Accounts, Year ended 31 December 2012, online:

http://www.iairgroup.com/phoenix.zhtml?c=240949&p=irol-reportsannual, accessed on 2013-11-18 Emirates Airlines (2013): The Emirates Story, online, on

http://www.emirates.com/english/about/the_emirates_story.aspx, 2013-11-18 Emirates Group (2013): Our Vision &

accessed

Values,

online:

http://www.theemiratesgroup.com/english/our-vision-values/our-vision-values.aspx, accessed on 2013-11-19

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Emirates

Group

(2013a):

Company

Overview,

online:

http://www.theemiratesgroup.com/english/our-company/companyoverview/company-overview.aspx, accessed on 2013-11-19 Fong, J. (2013): Dubai and the Emirates Academy, notes taken from speech in Dubai during the Study Tour, October 2013 IAG (2010): IAG Profile, online: accessed

http://www.iagshares.com/phoenix.zhtml?c=240949&p=aboutoverview, on 2013-11-19

ICAO, (2004): Manual on the Regulation of International Air Transport, Doc 9626, chapter 4 O Connell, J.F. (2011): The rise of the Arabian Gulf carriers: An insight into the business model of Emirates Airline. Journal of Air Transport Management, 17(6), 339346. Skytrax (2013): The Worlds Top Airlines, online:

http://www.worldairlineawards.com/awards_2013/Airline2013_top20.htm, accessed on 2013-11-19

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