The Emirates Business Model

The "Emirates business model" is the business model that lies at the heart of Emirates’ commercial success. Its main ingredients are a lean workforce comparable to a low-cost carrier and a flat organizational structure that allows the airline to maintain low overhead costs. 

Some industry analysts believe the airline is second only to Ryanair on a cash cost per seat basis due to lower operating costs at its Dubai base. This enables it to serve secondary destinations profitably by connecting these via its global hub in Dubai. 

Emirates has not joined any global airline alliance (although they planned to join Star Alliance in 2000, they remained independent), stating that unless an airline is the lead participant in such an alliance – e.g. Lufthansa in the Star Alliance or Air France in SkyTeam– individual alliance members' freedom of action is compromised by the imposition of common alliance goals that mainly serve the interests of the alliance leaders. 

Since 1995, Emirates had operated an all-widebody fleet, largely composed of Airbus A380s and Boeing 777s. This results in lower unit costs compared to other large airlines operating a mix of narrow- and widebody fleets and allows the airline to use the aircraft's cargo capacity to increase its revenues and total profits. Since Dubai International Airport does not have any night flying restrictions, Emirates achieves a higher utilization of its aircraft than competitors. It also has lower staff costs than longer established rivals, because in Dubai there are no unions and there is an abundance of cheap labor from India and Pakistan.

 

Source: Wikipedia

 The established network carriers in Europe, North America and Australasia, i.e. Air France–KLM, Lufthansa, British Airways,  Air Canada, Delta Airlines, American Airlines, Qantas and Air New Zealand, perceive Emirates' strategic decision to reposition itself as a global carrier as a major threat because it allows air travelers to bypass traditional airline hubs such as London–Heathrow, Paris–Charles-de-Gaulle, Frankfurt and Amsterdam Schiphol on their way between Europe/North America and Asia/Oceania by changing flights in Dubai instead. 

Some of these carriers, notably Air France, Delta and Qantas, have accused Emirates of receiving hidden state subsidies and of maintaining too close of a relationship with Dubai's airport authority and its aviation authority, both of which are also wholly state-owned entities that share the same government owner with the airline. They have also alleged that Emirates is able to reduce its borrowing costs below market rates by taking advantage of its government shareholders' sovereign borrower status. They have claimed that the government support cross-subsidizes the airline, masking its true financial performance. 

Many airlines have accused Emirates of receiving fuel subsidies from the Government of Dubai. The airline has denied these accusations, stating that it purchases its fuel at the same price, as well as on the same terms and conditions, as every other commercial airline at all airports in which it operates. In FY 2007/08, fuel accounted for more than 30% of Emirates total expenditure, comparable with other international long-haul carriers such as British Airways, Lufthansa, Qantas and Singapore Airlines. 

Emirates has also defended itself against competitor accusations claiming it pays discounted airport user charges at its home base. The airline rejected these claims, stating that it paid the same user charges at Dubai as everyone else, which were similar to those prevailing at other comparable airports in the region, including Abu Dhabi, Doha, and Bahrain. 

Many airlines have also accused Emirates of having an unfair advantage, since it does not have to pay local taxes. The airline rejected these claims by clarifying that in the absence of income or corporate taxes in the UAE, all airlines operating to and from Dubai benefit from this tax-free environment. In this context, Emirates also stressed that it had paid the Government of Dubai dividends totaling US$776 million, in return for US$10 million in seed capital given to the airline at its inception in 1985. 

Emirates robustly defends itself against recurring claims accusing it of stealing other airlines' transfer passengers. It points out that its detractors have carried international passenger traffic between different third country points on their networks via their hub airports for decades, and that Emirates is entitled to do the same. Emirates furthermore points out that this enables it to offer regional passengers based in or near important secondary cities such as Glasgow, Newcastle, Dusseldorf, Hamburg, Nice, Venice, Brisbane or Perth convenient, worldwide one-stop connections via its global hub in Dubai.

Emirates has countered rivals' frequent accusations that its ownership by the Government of Dubai amounted to a direct subsidy, representing an unfair competitive advantage not enjoyed by most other airlines, by stating that it was a fully-fledged commercial enterprise run at arm's length from the Dubai government, despite being wholly owned by it. 

Some airlines have claimed that being based in Dubai gives Emirates an unfair labour cost advantage over other airlines. Emirates has countered this by stating that it faces the same costs to attract and retain staff recruited from around the world on expatriate terms and conditions as other airlines. The airline points out that the total cost of expatriate employee benefits amounts to more than US$400 million per annum. 

In 2023, Emirates saw record profits of $4.7 billion. Emirates announced revenues of $33 billion, compared to $29.3 billion the year before. Profit for year prior had been $2.9 billion. The airline carried 51.9 million passengers in 2023 financial year, as compared to 43.6 million the year prior. 

The group declared a dividend to its owner, the sheikhdom’s sovereign wealth fund known as the Investment Corporation of Dubai, of $1 billion. It also gave its over 112,000 employees 20-weeks bonus pay. 

The United Arab Emirates, provided Emirates some $4 billion in a bailout at the height of the pandemic. The annual report said Emirates had repaid $2.6 billion of that loan during the last financial year. In November 2023, Emirates announced a $52 billion deal to purchase 90 Boeing 777 aircraft, 55 of them 777-9 variants and 35 of them 777-8s. Emirates will also add an additional five 787 Dreamliners to its previous order of 30 aircraft. 

For years, Emirates has relied on the Boeing 777 and the double-decker Airbus A380 to ferry passengers around the world. That will change in September 2024, when Emirates says it will be flying the Airbus A350 on routes. The airline has also embarked on a $2 billion retrofit program for its aircraft. 

MAS has a lot to unlearn and re-learn from the Emirates experience. We were ahead of the Middle Eastern airlines but now we are a pale shadow. Why? Because Management and Board are always firefighting and not planning on fleet size, replacement, cost per seat, revenue streams and backroom engineering! Don’t we need a complete overhaul? 

References:

Emirates Business Model, Wikipedia

 

Long-haul carrier Emirates sees $4.7 billion profit in 2023 as airline takes flights after pandemic, Jon Gambrell, 13 May 2024