Quotes of the Day
Once upon a time, when Maurice Flanagan was working at the airport in Nairobi, wet weather meant one thing: it was time to jump into his car and drive quickly up and down the clay runway. If his wheels got stuck, he would wave off any approaching airplane. He has come a long way. Now vice chairman and group president of Dubai-based Emirates Airlines, Flanagan is in charge of the globe's 14th largest and fifth-most-profitable airline. Under his watch, the once tiny, government-owned Emirates Airlines has been transformed, growing more than 20% a year for the past 17 years. It posted a record $429 million profit in the 2003-04 financial year—up 73.5% over the previous year. Its revenue reached an all-time high of $3.6 billion—up $1 billion, or 37%.
While most of the world's airlines have spent the past year slashing costs and trimming services, Emirates started eight new major routes in 2004 alone and now flies to 78 destinations in 55 countries. Last summer, Emirates began its first U.S. flights, to New York City's J.F.K. airport. The airline is already considering as many as nine U.S. destinations. "The U.S. is the final important piece," says Flanagan, whose airline also initiated flights to Lagos, Shanghai and Vienna last year. "Airlines are generally bad businesses. Emirates is different," says Damien Horth, an analyst at UBS in London. "It has been consistently profitable." Still dramatically expanding, it has more than $26 billion worth of new airplanes on order, including 45 of the massive, double-decker Airbus A380s.
Although many airlines are trying to become low-fare carriers, Emirates unabashedly is not. "Passengers' expectations on long-haul flights are different," says Dermot Mannion, an executive at the airline. "The low-fare model will not work on long flights. Passengers want good service, comfort and certainly some food." Emirates is betting instead on full service. The carrier has plenty of well-established rivals. Singapore Airlines, which flies to 94 destinations—among them the recently launched longest nonstop flight ever, from New York City to Singapore—has for years dominated customer-service rankings. Hong Kong-based Cathay Pacific is another carrier that receives rave reviews and competes around the world with Emirates.
One Emirates answer: new first-class interiors. First-class "seats" on its New York-to-Dubai route are fully enclosed suites whose seats turn into beds (with a massage feature), complete with vanity mirrors, 19-in. video screens with 150 selections and in-flight e-mail. There is a personal minibar (only juice, soda and water, but you can order alcohol from the flight attendants on your personal "room service" phone). And if that's not enough, the lighting changes to reflect the time of day, ending with a ceiling display of the Dubai night sky. The food is high quality as well, with ingredients from all over the world. The flight attendants are professional—and attractive. The airline keeps its cabin staff young as part of its youthful image. The price of a first-class seat from New York to Dubai: $8,999.
Nonetheless, planes are running at an impressive 73% capacity, say Emirates' executives. "We have a very good product, and there is no shame in seeking to retain pricing at the highest possible level," says Mannion. Hermann Michel, an Austrian who was recently hired away from Singapore Airlines as a catering manager, jokes about why Emirates takes service so seriously: "What do you talk about when you get off a long flight—how good the fuel was?"
High prices—along with some serious attention to expenses—also help drive profitability. Thanks in part to low labor expenses and the efficiencies of flying a relatively new fleet of planes, it costs Emirates only 8.5˘ to carry one passenger one mile (the cost per available seat mile, or CASM, a common industry measurement), which is better than most of its competitors' rates and rivals that of legendary cost king Southwest Airlines (which has a CASM of 6.5˘, excluding fuel). Emirates' operating margins—13% in 2004—not only are much better than those of comparable airlines Singapore, at 7%, and Cathay Pacific, at 8%, but also outshine Southwest's, at 8.5%.
But Emirates faces some obstacles on its way to achieving its world-class ambitions. Fifty-dollars-a-barrel oil has hit the airline hard: it has instituted a wide-scale hiring freeze and delayed starting service to San Francisco and other U.S. cities. The neighborhood is getting crowded as well: the government of Abu Dhabi—next door to Dubai—has just launched not one but two carriers: Etihad Airlines and low-fare Gulf Traveller. The emirate of Sharjah last year started Air Arabia. Doha-based Qatar Airlines, meanwhile, is improving and expanding. Then there is the reality that Dubai is in the middle of a volatile region—and is still apparently connected to terrorism, as shown by the arrest there of an al-Qaeda operative in September 2003.
Still, Emirates executives point out that Dubai—and the airline itself—is a tolerant, multicultural bastion, with English as the common language. "With more than 100 nationalities working here, and an open, self-critical way of doing business, we're not even an Arab airline," says executive vice president Gaith Al Gaith. And it's not as if Emirates shies away from its associations with the U.S.: it slapped a 20-story picture of the Statue of Liberty on a Dubai skyscraper last summer to advertise its New York flights.
For Dubai, the airline and its base at the airport—which is undergoing a $4 billion expansion—are just part of a bigger plan. They fit into the "superlative" strategy of the ruling Maktoum family. The tiny emirate on the coast of the Persian Gulf—once a significant trading hub—is now spending billions of dollars to become the world's high-end playground. And getting Emirates' brand known worldwide is part of that plan: last year the airline spent $150 million to buy the naming rights for a new 60,000-seat stadium for the popular London soccer team Arsenal. It was the biggest sponsorship of its kind in British history.
Flanagan knows better than most how far he—and his airline—has come in the past quarter-century. Today, he points out, Dubai is as close to the center of the world as a passenger can get. "Emirates needs only one stop to get you anywhere," says Flanagan. Of the world's top 50 airports, so far Emirates flies to 15. That's not enough for him. He intends to spend the next few years getting Emirates Airlines to take you to the rest—in style.
- Sally B. Donnelly
- Most of the world's airlines are cash squeezed, but Emirates is rolling in it