Eight reasons why Emirates is crushing it

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When we departed Dubai airport we were flying from the busiest international airport in the world. Sure there are busier airports with big domestic markets, but this year DXB has edged out London’s Heathrow as the airport serving the most international passengers.

Dubai airport’s meteoric rise has largely been on the back of Emirates. Emirates was only founded in 1994 and, in a world where most big movers in aviation have been low cost carriers, it has made a conventional hub-and-spoke strategy work. It’s now the operator of 777s, A380s one of the fastest growing carriers in the world.

Here are eight the many reasons why Emirates has been successful.

1. High wealth passenger; low cost labour

Rich countries have wealthy travelers, but labour in them tends to be expensive. Poor countries have cheap labour, but nobody flies. Dubai is a rare example where there is a wealthy flying population, but the basic labour needed to run an airline (think baggage handlers) is incredibly cheap because it’s all guest workers. This keeps operational costs down and lets Emirates offer competitive fares.

Because the labour force can’t unionise Emirates can also do things like decide to have its major banks of flights in the middle of the night when its colder and aircraft need to burn less fuel on takeoff. And none of them can really complain.

2. A natural crossroads

Most airlines that have success disproportionate to their home population are based in big port cities. Think Singapore Airlines, Cathay Pacific, or Copa Airlines. The cities they fly from (Singapore, Hong Kong, Panama City) represent natural geographic transit points.

Dubai does not have a port of the same scale, but it still represents a historic crossroads between cultures. This kinds of position and cosmopolitanism can be leveraged to make a hub airport, and the Dubai crossroads is all the more important given where the world’s population is growing. These days Dubai is within eight hours flight time of half of the world’s population.

Some great examples of connections that make sense via Dubai include:

  • The growing stream of Chinese setting up businesses all over “Africa province”
  • South Asian and Filipino guest workers heading to the Middle East
  • South Asians heading to Europe and the Americas
  • The Kangaroo route, as discussed below

3. Supportive policy settings

There is a raging argument about whether or not Emirates receives state subsidies. European and North American carriers cry that it does when complaining that it’s taking away “their” customers. I can’t find a shred of evidence to say that Emirates has been subsidised beyond its start up, and certainly no more than the other carriers that are doing the complaining.

But, Emirates does benefit from a range of policy settings, including loose regulation of labour, government investment in the Dubai airport and especially the complete absence of corporate tax in the UAE. It may not receive subsidised  fuel but the oil flowing into government coffers mean it isn’t taxed, and neither are its employees.

4. The A380

Around the turn of the millennium the two major aircraft manufacturers were developing aircraft for two different markets. Boeing thought traffic would disperse away from hubs an into longer thinner routes, so it built the 787 to fill that role. Airbus thought busy routes would just get busier so it developed the A380 super jumbo. You’d have to say that Boeing’s strategy was more successful, but Emirates is a counter example of where the A380 really works.

Emirates still operates a hub-and-spoke system and feeder flights funnel massive numbers of passengers on to routes like Dubai-London where it flies a whopping 9 times a day, all but once with 380s. The Emirates CE is quoted as saying that once they get an 80% plus load factor on a 380 its economics are better than a 777 i.e. scale makes it more profitable.

5. A good hop on the Kangaroo route

The route between Australia and Europe involves long sectors and high yields, dominance on it is a prize that has been sought by many carriers. What Emirates offered was a transit point close enough to Europe to make direct flights to secondary European destinations (Birmingham, Venice, Dublin…) viable and that gave it an advantage against carriers that traditionally stopped over in South East Asia. With growth it could fly to secondary Australian cities too, like Perth and Adelaide.

Qantas couldn’t beat Emirates, so now it has joined them, operating all its flights to Europe through Dubai and code-sharing most of them on Emirates metal.

(Emirates flights to New Zealand are a different story – they fly because it costs the airline less than having its planes sit on Australin tarmac all day).

6. The airline you know to the destinations you don’t

Emirates flies to many developing and transition economy countries that offer untold potential for Western investors but don’t have reliable airlines of their own. Leveraging a globally recognised brand, Emirates can easily be the preferred carrier for wealthy travelers heading to West and South Asia, and to Africa.

7. Not sweating the small stuff

Emirates only flies big planes to big destinations. It leaves the thin routes to a low-cost(ish) carrier called flyDubai that it helped set up, but now leaves alone. Where flyDubai competes directly with Emirates, like to Tehran, it does so by taking out the most price sensitive group of passengers (like me). So Emirates is only flying where it has scale and high yields. flyDubai isn’t part of Emirates, but this approach is kind of similar to what Qantas does with Jetstar, Singapore Airlines with Silk Air or Cathay Pacific with Dragonair.

8. The network effect

When a hub carrier starts flying to its third destinations it can offer connecting flights to only two cities. When it starts flying to a hundredth destination it can offer connecting flights to ninety nine. The plane load of passengers it is trying to fill to the new station can be split between them all.

This is another way of saying that as Emirates’ network gets bigger, it gets easier for it to get bigger again. Few passengers inbound from Buenos Aires will stay in Dubai, but Emirates can operate the route because of all the places in Asia and Africa it can now connect those passengers to.

This network effect means that you can expect Emirates to keep growing.

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