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Special report: Emirates faces protectionism

30 Jun 2010 by BusinessTraveller

Emirates recently stunned the aviation world with a further massive order for A380 superjumbos.

At the Berlin air show it signed an $11.5 billion contract for 32 additional A380s which will, when all are delivered, provide Emirates with a combined fleet of 90 superjumbos which is several times more than will be operated by its rivals.

But aviation experts are now questioning whether or not Emirates will actually be able to utilise this huge fleet of A380s.

The problem for Emirates is that it has become a victim of its own success. It has developed a quality and value for money brand which is as well known around the world as, say, the Easyjet brand is amongst cost-conscious travellers here in Europe.

Fearful of Emirates stealing more of their passengers, the world’s big national carriers and their governments are attempting to restrict the Dubai national airline’s growth.

Quoted on Dow Jones newswires in New York last week, Peter Hartman, CEO of Dutch airline KLM (part of the Air France and KLM grouping) said, “Emirates is likely to face more and more reluctance [by governments] to grant it traffic rights.”

This is already happening. According to reports in France’s “La Tribune”  the French government has rejected Emirates’ application for more landing slots in Paris. According to La Tribune, Emirates can expand in France but only provided it opens up a new destination: Lyon.

In the case of Germany, the government last year ordered Emirates to raise its fares in line with prices charged by EU carriers (see online news November 20, 2009). Emirates would dearly like to inaugurate services to two additional German cities: Stuttgart and Berlin. But permission has been refused unless Emirates were to drop flights to two of its four existing German destinations (Hamburg, Dusseldorf, Frankfurt and Munich) and this is something which it has refused to do.

The Dubai-based airline has also been refused permission to add extra seats on routes to Canada and South Korea.

Emirates built itself up by emulating the business models of transfer carriers like KLM and SIA. These airlines specialise in carrying passengers through, as well as to, their respective hubs of Amsterdam and Singapore. 

Dubai’s strategic location enabled it to capitalise on the voluminous numbers of East-West travellers (those flying from Europe to Asia and Australia, for example). More recently it has begun tapping a new growth area of North-South traffic (passengers flying from Russia, Japan and China via Dubai to Africa and Latin America).

The kangaroo route linking Europe with Australasia is a prime example of how Emirates has come from nowhere in the past 20 or so years to dominate the market.

Way back in 1988, our own British Airways was market leader. In those days BA served seven cities in Australia and New Zealand. An advertisement in BA’s 1988 timetable proclaimed  “We’re on top Down Under. No one offers a better choice of destinations. Or a better way of getting there.”

Fast forward 22 years and BA, with its Down Under schedule now cut to as few as seven flights a week to a single city (Sydney) is a minnow. Today it is Emirates, with its 70 flights a week (mostly operated by large B777s and A380s) to six cities, who has assumed BA’s kangaroo route mantle.

Interviewed on arabianbusiness.com, Maurice Flanagan, Emirates’ founding CEO and current executive chairman said, “We always planned to grow, we were just never able to put our finger on how quickly. Now we’re short of capacity all the time.”

Flanagan claims that rivals should follow its lead and order more planes for efficiency savings.

“I can’t understand why other airlines have been so slow to pick up on the A380. The economies are fantastic. It has given us a huge advantage because the seat mile costs are much lower than on any other aircraft.”

So for now Emirates’ expansion is based around adding new countries to its network and increasing seat capacity (where it is allowed to do so) on existing routes. Rostering an A380 in place of a B777-300 will add over 100 extra seats.

In the case of Europe a new destinations in the form of Holland (Amsterdam) came online last May, and the Czech capital of Prague joins Emirates’ network in July with the Spanish capital of Madrid following in August.

Although Emirates has not added any additional UK cities for a couple of years it has boosted the number of seats into Heathrow by upgrading two existing services to its A380 operation. The A380 will also be used into Manchester from September with Birmingham (a city to which Emirates operated a special A380 flight last year) a future possibility.

Interesting times like ahead. For more information visit emirates.com.

Report by Alex McWhirter

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