The Aviator

Emirates Airline has seen staggering growth in recent years, with global expansion and record profits. But the knives are out, with many rivals claiming it receives unfair subsidies from the Dubai government. In an exclusive interview, chairman H.H. Sheikh Ahmed Bin Saeed Al Maktoum tells Anil Bhoyrul why the criticism is unjust.

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By  Anil Bhoyrul Published  April 24, 2005

|~|S. Ahmed 200.jpg|~|FIGHT BACK: Sheikh Ahmed says the airline should be applauded for making a profit, not criticised.|~|FOR A MAN who wields immense power, Sheikh Ahmed is remarkably unassuming. The chairman of Emirates Airline wanders into his Dubai Civil Aviation office five minutes before the interview is due to start, without pomp, ceremony or security. He looks genuinely embarrassed that there is no coffee on the table. But his broad smile disappears when he sees a picture of the late Lebanese prime minister Rafik Hariri in a copy of Arabian Business. “When you become famous and powerful, like Rafik Hariri, then a lot of people hate you, just for being famous and powerful. A lot of people criticised Hariri, but they never did anything. At least he did something. I saw him two weeks before he died, you know. We had dinner together. He was never scared, he was never afraid. I admire people like that,” says Sheikh Ahmed. In many ways, similar compliments could be placed on the Sheikh himself. When the airline launched in 1985, it had just two planes. Today the fleet is 73 strong and will grow to nearly 200 by 2012, with one new plane being delivered each month. For the year to March 2004, profits came in at US$476 million, a staggering 74% rise on the previous year. In the six months following that, profits were US$236 million, a 40% jump. With an average yearly growth rate of 15%, Emirates now serves 77 cities in 54 countries. It is the world’s most profitable airline, and one of the most ambitious, having ordered 45 of the new Airbus A380 superjumbos — a third of the entire order book. But success attracts critics, and Emirates is undoubtedly at the top of that list too. Rivals such as Air France claim it gains US$522 million in tax savings. Other airlines privately suggest that Emirates benefits from cheap fuel, government subsidies and other unfair advantages, pointing to the fact that it has passed on fuel surcharges to customers, despite the record profits. Sheikh Ahmed, however, is not one to be phased by the growing dissent being directed at the company. “Yes, a lot of people criticise us. When you look at the aviation industry worldwide it’s a losing business. Every year it loses US$5 billion. So people think all airlines should lose money. They think we should lose money. And because we make money they find it strange.” He adds: “We’ve been in profit for the last 19 years. So that makes it difficult for a lot of people who don’t know much about the region. They just think, ‘oh it’s the Arab world. And all these Gulf States, well they have a lot of oil so they must be rich. And this is why they are in profit because they must be given free oil’. Or that we have some deal with America. But none of this is factual or correct. Everybody knows that Dubai has very little oil production. Dubai’s wealth comes from other factors.” The airline’s accounts show over US$1.7 billion in cash reserves: pretty impressive given that fuel costs represent nearly 30% of the airline’s total expenses, almost double the amount just four years ago. Air France chairman Jean-Cyrill Spinetta has been the company’s sternest critic, and in recent months has been joined by the owners of low-cost carriers, all of whom are convinced that Emirates gets a helping financial hand from the Dubai government. Again, it is a claim Sheikh Ahmed strongly rejects. “It upsets me a bit because if people read any article they think it is true. It doesn’t mean that it is true. Sometimes it is not true at all. But this doesn’t stop us from what we are doing. I think Emirates is very transparent. We publish our annual results. We have international auditors. We have been borrowing money from financial institutions and banks. All these people will not lend you money without knowing that you can pay them back. And we work with no guarantees from the Dubai government. It’s always based on our financial results.” The problem for Sheikh Ahmed in recent months is that those financial results have been so good, many Emirates customers are unclear why they are forced to pay a US$20 fuel surcharge for flights coming out of Dubai. Similar charges have been levied on Emirates flights coming out of other airports. He explains: “You know what has happened in the last year with oil prices. That has pushed the airline into a lot of costs. And when it comes to costs, somebody’s got to pay. It’s good that it is a problem that is hitting everybody across the globe. I mean, no airline can escape this problem.” So why doesn’t Emirates, with its huge cash reserves, simply absorb the costs? “At the end of the day, whichever type of business you run, you have costs and you have profit margins. It’s always the way — you have to keep your profit margin. And this is not something that is happening on a temporary basis," he says. Sheikh Ahmed adds: “Okay, if fuel prices were only going to rise for one or two months then I would pay for it. But this is something that has been going on for sometime. Nobody can tell you today where oil prices are going. All we have seen is the prices go up. And I’m not going to pay for that." Despite the huge profits, cost remains king: Last year the company issued a US$500 million bond in Luxembourg, which was oversubscribed by 25%. With the new A380s to pay for, and new routes to the US, China and Europe, raising new money is still an issue. Sheikh Ahmed admits the company may even go for an IPO. He explains: “We have one new aircraft coming every month for the next five to six years and that takes a lot of financing. Whether we do an IPO is a decision for the government. We are always thinking about it, but we haven’t taken a firm decision. It’s something we have looked at, but I am waiting for the owner to make any final decision.” Another on-going issue is that of low-cost carriers. Air Arabia now flies across the region from Sharjah International Airport, while the launch of Al Jazeera Airways is expected later this year. But none of these carriers — and other planned ventures — have been given permission to operate out of Dubai International Airport. So is Emirates Airline deliberately trying to shut them out? Sheikh Ahmed says: “People who don’t know much about the industry can easily make comments but they don’t really understand how these things work. There is no practice of open skies policy in this region. You can’t compare this region to the US and Europe. For any carrier to establish in Europe, they have the freedom to operate in any airports. They are restricted only to slots, not airports. But there are so many airports in Europe that are under-utilised. Most don’t go out of major airports. So if we say let’s let them into Dubai, well, where? Which airport? I think this is a big challenge for them. Air Arabia has started here and I hope they are doing well, but I’m not worried.” Sheikh Ahmed is now a key figure in realising the vision of Dubai’s ruler Sheikh Mohammed Bin Rashid Al Maktoum, charged with the task of delivering an airline capable of handling the millions of visitors the city is expecting in the coming years. He has been close to Sheikh Mohammed for several years, recalling how as a youngster “he would ask me to come to his office and sit in on meetings, even though I didn’t have an official job. I suppose he just wanted to test my opinion on various matters. Then he asked me to get involved in Emirates”. He adds: “I remember a few years ago he said, ‘Ahmed, I want to see 15 million hotel guests in Dubai by 2010’. To me the number was shocking. At that time Dubai had 3 million. That’s a big leap. So he said look into it. I went back with the rest of the team at Emirates to see if we could achieve that number. Could we achieve it? Could we do it? Well, yes, there have to be shopping malls, projects, theme parks, more planes and so on. But I think achieving 15 million is no problem, no problem at all. I am very confident it can be done.” Sheikh Ahmed is quick to pay tribute to Dubai’s ruler, explaining: “He is the one guy I report to and he has always been encouraging us to expand. He has never underestimated growth because he always looks at the big picture. Maybe sometimes it’s harder for people like me to see it because I don’t always have the full picture. We just look at our angle, our business. But he sees everything.” Sheikh Ahmed admits to liking the power that his position brings, and the chance to meet business and political leaders from around the globe. After 20 years in the industry, he says it is “part of his life”, though there is still time for “relaxing, playing sports and doing fun things.” He travels on Emirates 90% of the time, the rest on other planes so he can check out rivals’ standards of service. And he says he has learned a lot by doing so. “I wouldn’t like to say I’ve actually made mistakes. I don’t think I have. Sometimes you don’t call them mistakes. You call it learning, gaining experience. Maybe some things I look back at and think I would have done them in a different way,” he says, before adding: “But not many.” He can say that again. While it is unlikely the criticism will stop, Sheikh Ahmed says he will carry on with business as usual. That means in the coming year, more new routes will be added, more new planes will join the fleet and the group will, almost certainly, report another set of record-breaking profits. As he says: “I have a lot to be pleased about." ||**||

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