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Emirates expansion emphasises earnings


SYDNEY (Centre for Asia Pacific Aviation) Emirates this week announced that it achieved a 6.6% growth in profits for the six months ended 30-Sep-05, ringing in a net profit of USD251 million, as the carrier was able to ride a hike in yields and load factor to boost revenues faster than costs.

As with every other carrier in the world, Emirates faces a rising fuel bill, as the amount it paid at the pump rose 84% over the same period in 2004, with fuel accounting for 27% of its expenditures, up from the previous year’s 19%. What enabled the carrier to overcome this massive outlay was both a focus on cutting non-fuel costs and a healthy increase in revenues. The carrier says that its revenue increase came about through both improved yields and a 2.6-point rise in system load factor, to 76% (with passenger numbers up over 15% to 7 million).

Emirates’ anachronistic growth in profits comes against a backdrop of seemingly perpetual expansion, all of it conducted with widebody aircraft. A key focal point for Emirates service enhancements is the market to Australia and New Zealand, much to the chagrin of local giant Qantas. The Australian flag carrier has long charged that its Dubai-based counterpart is the recipient pf market-tilting benefits, thanks to the fact that its government owner manages it, as well as the civil aviation authority and the Dubai airport.

These charges were seemingly endowed by the Middle East airline’s recent announcement that it would seek to double its frequencies to Australia, aiming to bring its weekly tally to 84. The carrier already serves Australian cities Brisbane, Sydney, Melbourne and Perth, connecting them via Singapore and Bangkok, as well as serving the last three nonstop using the ultra-long range A340-500. Emirates also flies local traffic across the Tasman, connecting Auckland with Brisbane, Sydney and Melbourne, and Christchurch with Sydney.

The Dubai carrier has fervently resisted charges of state sponsorship and Qantas’ oft-repeated claim has set off a volley of derisive comments flying between the two. After Qantas chair Margaret Jackson labeled the Middle East carrier’s claims of commercial operation “fiction”, Emirates vice chair Maurice Flanagan returned the shot, saying that Qantas is the bigger beneficiary of government support – even if its support comes in the form of protection and not subsidy. Flanagan noted that the Australian airline faces meaningful competition only on its route to London, and that “Qantas is one of the world’s most anti-competitive airlines and customers are paying higher prices as a result.”

Raising the stakes in their mutual mud-slinging campaign, Flanagan all but accuses his opponent of being inept at the planning function, saying that the Aussie carrier focuses on only its route to Heathrow, while Emirates has been successful with its forays into the antipodean market because it connects Australian passengers with markets Qantas ignores, such as Machester, Birmingham, Milan, Athens and Paris, as well as many African destinations.

It is easy to dismiss both sides’ arguments as so much empty rhetoric, but what is behind Qantas complaints is doubtless on myriad other airlines’ minds too: the effect Emirates’ unbridled capacity increases will have on fares and profitability for any number of key intercontinental routes. The world has never seen growth in capacity such as Emirates has put on display, and the carrier is nowhere near through yet. And Qantas’ home patch of Australia – which Emirates began serving only in 1996 when it commenced Melbourne service, with Sydney only coming online in 2000 –is merely one of the affected markets.

Aircraft type In Service Unfilled orders Delivery

Source: Emirates

When Emirates chair Ahmed bin Saeed Al-Maktoum says that the company is looking forward to using its “investments” to secure its future, he plainly isn’t kidding. With the fleet set to more than double on an aircraft basis (and considerably more than double on a seat basis) in the not-too-distant future, Emirates’ capacity increases will be coming in on a pretty constant stream. And that is before the industry even turns its attention to the new competitive realities that will result from the first of its A380s touching down in Dubai in a little over a year.

With 43 of the 550-seat giants eventually flying in and out of Emirate’s 24-hour facility, the game will be forever changed (and Emirates has waxed lyrical over the tiny unit costs that would accrue from putting a few 800-seat versions of the model in its stable).

The carrier has already said it plans to be a global carrier, and has used its A340-500s to make that vision a reality, just adding a second daily nonstop to New York, to complement its daily flights to Sydney and Melbourne. It seems every month features a new destination launch, recently adding Seoul and Abidjan, Cote d’Ivoire to its roster. But, as much as anything, it must be the service enhancements that worry the established airlines, especially those in the Asia Pacific region which will see their services to Europe, both passenger and cargo, undercut by the ambitious Middle East carrier.

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