Going strong

In a time of trouble for the aviation industry, Emirates has been a near unique success story, constantly launching new routes and expanding its fleet. HH Sheikh Ahmed bin Saeed Al Maktoum, chairman of the Emirates Group and president of Dubai’s DCA, outlines the airline’s plans for the future.

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By  Neil Denslow Published  July 1, 2004

I|~|ahmed230.jpg|~||~|The growth of Emirates Airline and its home airport, Dubai International has been one of the few success stories in the aviation industry over recent years. While other carriers have fallen into bankruptcy, Emirates has continued expanding at a tremendous rate, launching new long-haul routes seemingly every other week and constantly announcing new additions to its fleet.

Emirates’s latest initiative has been the launch of a direct Dubai-New York route, the carrier’s first service to the USA. The launch followed Emirates’ successful entrance onto the Kangaroo route to Australia, and it will be followed by a host of new destinations in North America and South America. To support this expansion, the carrier is continually growing its fleet, especially in terms of long-haul aircraft. It has recently taken on eight Airbus A340-500s, and it has a huge number of other aircraft on order, including 45 Airbus A380s and 26 Boeing 777-300ERs.

This huge expansion has also been carried out in line with rising profits, even as other airlines around the world spill galleons of red ink. Last year, Emirates recorded a 67% year-on-year rise in profits, hitting US $476 million. Capacity also rose by 39% and that figure will rise by another 26% this year.

Aviation Business: How has Emirates managed to achieve positive results while many other international airlines have seen their revenue dropping, especially over the last two years?

HH Sheikh Ahmed: Emirates operates on routes that have huge demand and all our routes work at full thrust because of their vitality. If you look at all the destinations that we operate to, you will see that they have not been affected by crises, such as the 9/11 attacks. We did not have any US routes at that time and we were not affected by the SARS crisis that hit Eastern Asia either. Our company enjoys a kind of resilience when dealing with crises that other airlines cannot match. Also, Dubai is an international transit point between East and West. This has helped us keep our operational capabilities full on all routes, even during the crises that hit the travel industry over the past couple of years.

AB: Emirates and Dubai Airport both have massive expansion plans. How do you expect to fully utilise this capacity?

HH: The airport expansion decision was made based on strong indicators of the increase in the number of passengers to Dubai; we expect the number to reach 60 million by 2015. That kind of increase requires the current service set-up and capacity of the airport to be expanded. Add to that the growth rates in cargo, tourism, trade and exhibitions, and we also expect Dubai’s population to reach 3 million by that time. Such increases will put pressure on the different services in Dubai and on all the vital facilities like the airport.

AB: What do you base these growth predictions on?

HH: They are based on our recent history. Growth rates in Dubai have risen annually over the past ten years even during crises in the region, such as the first Gulf War and the recent crisis. We also have clear indications that the business sector is growing in all areas in Dubai. The Emirate achieved a growth rate of 5% last year, and, today, it is bound to continue growing at an even faster rate due to the oil price increases that have reached unprecedented levels. All this will contribute to an increase in investments in all areas, such as travel and tourism, trade, business and shipping.

The increase in the number of people visiting Dubai is also the reason for the growth of Emirates Airline and our success in achieving high profit margins. We are trying to connect Dubai to international tourist and business destinations, and we are concentrating on this role by adding as many destinations as possible throughout the world.||**|||~||~||~|AB: How will Emirates finance and pay for its new aircraft?

HH: We have strong cash flow and can access debt. We recently issued a bond financing scheme that went very well — more than Dhs 3 billion (US$ 817 million) was subscribed, which was double the sum we needed. Currently, we have a lot of liquidity in the region, everyone is investing here because the returns are good and there are many opportunities. We will not dismiss the concept of issuing bonds again if needs be. We also have a good source of financing with Dubai Islamic Bank, and we will launch new finance schemes in different ways. We can pay our debts to banks or to our bondholders by our increasing revenue, we do not have any problem with that. We would not have distributed profits and bonuses if we did not have extra revenue. Last year, it was exceptional; exceeding Dhs 1 billion ($272 million) and we expect a 20% profit increase this year looking at the first few months of operations this year.

AB: Many other Middle East states are constructing new airports or investing in their airlines, such Qatar and Abu Dhabi. How will these affect Emirates and Dubai?

HH: Each country in the region is trying to develop and reinvigorate its investment environment and its core infrastructure. I believe we are all better off with these developments. The diversified projects in Dubai serve the developments of the Emirate, and the projects in the rest of the region complement what we are doing. We would like to have a well-developed region that is able to attract more visitors, businesspeople and investors. We are not afraid of competition and we think it is to the benefit of all. The growth of all economic sectors helps the expansion of our business.

AB: There are new initiatives to privatise airports and the cargo sector in Saudi Arabia, would Emirates Airline and Dubai Airport follow that trend?

HH: Let us ask who is doing the privatisation and why — I am not talking now about just the region but all countries. It is failed government departments that have privatisation plans in order to achieve better quality, more efficiency and profitability. The need for management improvements is the reason behind privatisation. We do not have that situation in Emirates Airline nor at Dubai Airport nor in Dubai in general. All government departments are run at the highest level like private businesses with a professional business-oriented approach.

You just need to look at the government departments to see they are using cutting edge technologies and talking about e-government applications. Now they are planning the construction of a rail network in a city that is small by comparison to other cities. You also see the best telecom infrastructure in the region and the best telecom service, even though it has no competition as yet.

We are the only example in the region, or the world, where the government leads ahead of the private sector. Emirates Airline is just one of the pioneering projects in Dubai that the private sector could not do better than the government already is. We have unbeatable quality that none of our competitors have, plus the most modern jets, the most advanced human resources and technologies, and our efficiency levels are of the highest standard.||**|||~||~||~|AB: Emirates has recently launched a direct service to New York. What does that add to the network and what other new destinations are on your agenda?

HH: We had plans for New York prior to the 9/11 attacks, but the launch was postponed for understandable reasons. However, we have already launched our US cargo line through a European stopover [in Gothenburg] and it has done very well
The benefits of the operation are clear cut, and there is a big potential to achieve revenue from American destinations. Emirates also needs to connect to North America, Canada and South America, as we are striving to be a global carrier. In the future, you will see further new destinations added all over the American continent, both North and South. In the past, all trips from America to the Middle East would go through Europe or South Asia, but we have now started a direct service. This way, Emirates has an operational advantage over those airlines operating through Europe. It also reinforces the reputation of Emirates as a leading airline and of Dubai as a major international destination.
We have had a lot of success flying to Australia, which is at a similar distance from Dubai [as America]. The results have been good for Emirates Airline and for Dubai — and for Australia as well.

AB: Some say though that the decision to fly to America was based more on political factors than economics.

HH: In Emirates, it is always the principles of economics that guide our operations. We never open a new destination without a cost effectiveness study. Since the inception of the airline, the government has never forced us to open a destination for political reasons. Also, our [Dubai’s] relations with the rest of the world are good and there is no need for a new station to be launched because of political considerations.

The direct New York flight is just the first; many will follow it. The reason is — and always has been — that it is the interests of the company to do it. There are several American and Canadian destinations in the pipeline; North America is huge and the demand is huge. Our Australian service has been successful: we now have six daily flights there, but we will have many more for the Americas.

AB: Within the Middle East, there has been much talk about low cost airlines. Have you thought launching another airline to operate in that space?

HH: Currently, we do not have any intention of entering the low cost airline business. Also, when you look at similar international initiatives, and analyse them you find that the results have not been that good compared to the impression that was created at the launch. As for Emirates, we cannot nor would we want to buy into these companies. The bottom line is that we have to know our limits, and we don’t have the human resources nor the financial capabilities to develop that kind of company.

I also think, especially in this region, that there is no chance that these companies will succeed because you do not have open skies nor open markets here. These kinds of companies need increasing growth and a large number of routes and flights to cover their operational costs. If most of the region’s market stays closed, even if a few airports are open, I think these companies will have to close up shop. They will not be able to compete unless the market policies in the region and in India change. This kind of airline needs a different environment to grow and make profits.

AB: How has the open skies policy in Dubai affected Emirates’ business?

HH: We support the open skies policy, which has given us huge benefits in Dubai, although it brings in competition. I think opening the skies is much better than the narrow-minded outlook that only serves the interest of the national carrier. In the end, there will be better service and the growth will be better. I hope that all the countries in the region follow that policy and look at whatever is making sense around the world in the airline business.||**||

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