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A group analytic report on a topic related to airline operations and

management.

Ahmed Al Jelali

Brian Yung

Dave Petrovski

JeanPierre Kabangu

Kenneth Nguyen

Mohamed Farah

RMIT University 6th of October

2011

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Executive Summary

The study of airline business structures is fascinating. Although many airlines

can be classed as either network or low cost carriers, within these categories

there exists so much contrast and how airlines run their business differs

remarkably.

For the purpose of this report, Emirates Airlines was chosen as the subject to

be analysed. Areas covered within this report examine the amazing

performance of the company since it began flying in 1985.

Within this report the Emirates Airlines business model is discussed in great

depth outlining the business strategies and government influence over the

business.

Furthermore the report importantly outlines how Emirates Airlines is part of

the picture for a corporation known as The Emirates Group. Behind the

success of the airline is the unique and world class product on offer. This

paper outlines and describes the contributing factors that drive this business

on a consistently upward. The airline is also subject to challenges and how it

has been affected or may be are covered deeper into the report as well as how

Emirates measures its performance. Finally the report discusses

recommendations that may be considered to further develop the business

through times of world wide economic hardship. Something that may seem

ludicrous considering Emirates Airlines success for almost thirty years.

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Table of Contents

Introduction 3

Literature Review 3

Emirates Airlines Business Model 3

Emirates Airlines Business Structure 3

•The Emirates Group 3

•Emirates Airlines 3

Emirates Airlines Business Performance Drivers 3

•Products and services 3

•Route network 3

•Schedules 3

•Fleet Selection 3

Emirates Airlines Challenges Facing its Business Model 3

Emirates Airlines Performance Measures 3

•Emirates Performance Indicators 3

•Emirates traffic results 3

•Emirates Expenditure 3

•Emirates market situation 3

•Emirates Productivity – RPK per employee and ASK per employee 3

•Emirates revenue structure 3

Investigating Factors Influencing the Running of Emirates Airlines Business 3

•Fleet selection 3

•Aircraft types 33

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•Aircraft configuration 4

•Aircraft productivity 4

•Aircraft comfortability 4

•Scheduling 4

•Financing 4

•Pricing and distribution 4

•Revenue management 4

•Cost management 4

Recommendations and Improvements Analysis 4

Conclusion 4

References 4

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Introduction

Within this report you will be witness to the operations and business structure

of one of the worlds finest and undoubtedly most successful airlines; Emirates

Airlines. Part of the Emirates Group, the airline, which was launched in 1985,

has become one of the most recognisable brands worldwide, not only for its

outstanding product but also for its branding and support of major world

events and locations. Since its third year of operations, Emirates Airlines has

maintained annual profitability throughout tumultuous economic downturns

and severe global events that have derailed and even bankrupt many airlines

across the globe. This report dissects the structures and models within the

company. The report also details how these structures and models have

influenced profitability, market share and overall brand position. Through

economic hardship worldwide, Emirates has prospered and taken commercial

and even cargo aviation to the upper echelon. They never settle for second

best and failure is not even part of their vocabulary. Under government

ownership, backed by a mountain of natural resources and a still seemingly

untapped market, Emirates Airlines has all the tools necessary to succeed into

the future. This paper will analyse the current position of the business as well

as give recommendations into the future happenings of the airline.

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Literature Review

In order to analyze the extent of previous research focusing on business

models, structures and studies related to Emirates Airlines, a literature review

was undertaken. This ensured that the topic was well researched and in turn

the paper was written using the most appropriate data. The review is also an

attempt to find gaps in the existing research which this paper can attempt to

fill.

According to Osterwalder (2005) ‘A business model is a representation of

firm’s underlying core logic and strategic choices for creating and capturing

value within a value network’. Doganis adds to this by saying that airline

business models can be traditional that are exemplified by Air France,

Emirates, BA and the Virtual airlines such as Ryanair, Southwest and the

aviation business groups such as Lufthansa or Singapore Airlines. Doganis

goes on to say that other business models that follow the firm within the firm

approach such as Jetstar with Qantas and Tiger with Singapore.

However in today’s economic times McGrath & McMillan (2009) argue

that as uncertainty increases, companies are finding themselves facing a high

ratio of uncertainty to knowledge as decisions are based on old assumptions

leading to unfortunate outcomes. Furthermore, Eisenkopf and Knorr n.d look

at Emirates Airlines business model as it prepares for the post-oil era by firmly

establishing Dubai; as the world’s leading tourism destination, as a centre for

financial business, IT and professional services, as a prime location for

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corporate headquarters and manufacturers, and finally the world’s biggest

logistics and distribution hub.

Research for this report was primarily conducted sifting through

Emirates Airlines annual reports and data provided online. It is difficult to

right a literature on the actual structure of the business and model that the

company is using because it has not really been covered by journal articles or

text books available. In saying this when Emirates airlines is used as a case

study the details provided are factual and therefore it is difficult to obtain

readings to extensively complete a literature review on that behalf. Most

research conducted for this paper was statistical data that represents the

performance of the airline. This type of research was carried out due to the

requirements of the report.

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Emirates Airlines Business Model

‘A business model is a representation of firm’s underlying core logic and

strategic choices for creating and capturing value within a value network’

(Osterwalder 2005).

Doganis (2006), states that airline business models are categorised into

three main business models. The traditional airline business model

exemplified by Air France, Emirates, BA and the Virtual airlines such as

Ryanair, Southwest and the aviation business groups such as Lufthansa or

Singapore Airlines. Also there are other business models that follow the firm

within the firm approach such as Jetstar with Qantas and Tiger with

Singapore. It has been argued that as uncertainty increases, companies are

finding themselves facing a high ratio of uncertainty to knowledge as

decisions are based on old assumptions leading to unfortunate outcomes

(Mcgrath & MacMilan 2009).

Emirates Airlines business model is an example of carrier that has the

flexibility to adapt to these unfortunate outcomes and strategically formulate

its business plan along with its regional home base. Emirates Airlines has

been a crucial element in the growth of Dubai’s economical development,

tourism growth and overall development strategy. It has been widely accepted

that successful airline business model, is that the business model activities

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could be divided into four categories: strategic choices, the value network,

creating value and capturing value (Emirates 2011).

‘The concept behind the three A´s Accept, Asses and Augment to deal

with taking decisions in an uncertain environment is also useful for a business

model point of view’ (Makridakis, Hogarth & Gaba 2010). But they also

suggest for an evolving business model to deal with uncertainty. Flexibility

and adaptability is the necessary condition to validate the use of options to

mitigate an uncertainty (GFC) (Brautigam, Esche & Bicher 2003). Thus the

identification of options and new concepts, inherited in a strategy could be

driven by the identification of those uncertainties towards which a quicker and

efficient reaction is possible.

As Emirates Airlines is a crucial developer of Dubai’s tourism and

economic growth, Dubai has strategically developed a plan to prepare for the

next five years, to counter any ad-hoc instability of the airline industry. The

plan’s objective is to prepare Emirates Airlines for the post-oil era by firmly

establishing Dubai; as the world’s leading tourism destination, as a centre for

financial business, IT and professional services, as a prime location for

corporate headquarters and manufacturers, and finally the world’s biggest

logistics and distribution hub (Eisenkopf and Knorr n.d).

Emirates business model is based on the following premises:

· Labour Cost Economies: A mix of Emirates lean workforce and young

fleet account for its remarkable low cost and a strong cost-baesd

competitive profile. The labour-triggered low cost is created by a very

lean workforce, comparable to the leading low costs ‘no frills’ airlines

rather than other traditional flag carriers. This along with a simpler

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organisational structure, allows EK to minimise overheads (El Namaki

2007a).

· Government blithe support: Emirates received and continue to receive

direct and indirect financial and non-financial support from the Dubai

government

· Strong presence in markets that have been largely unconnected to the

global air transport network, and especially to the Middle East, India,

Southeast Asia and Africa (El Namaki 2007b).

· Operational strategies: High frequency for mid-term objectives, serve

most destinations across the globe at least twice daily. The airlines

strategic behaviour can best be described as a proactive and

opportunistic at times (El Namaki 2007c).

· A well positioned hub: Dubai airport is an excellent hub that allows

Emirates Airlines to profitably serve secondary destinations that are

underserved by its competitors (BA, LH and AF who focus only on their

own hubs) as well as connect such places via its global Dubai hub (The

Economist 2006). A well balanced mix of Origin and Destinations- and

transfer traffic in its passenger business (Eisenkopf and Knorr n.d).

· Strategic distance: Emirates has refused to join any major global airline

alliance. Questioning the advantages and custom benefits that come

from alliances.

· High quality of services onboard and on-ground including 600

entertainment channels onboard each flight. Limousine services for first

and business class passengers (Eisenkopf and Knorr n.d).

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Emirates Airlines Business Structure

•The Emirates Group

The Emirates group is a global enterprise ini the tourism and travel market. It

is spearheaded by the ultra successful Emirates Airlines. The Group has

expanded its operations to all corners of the earth. The Airlines sector in

particular remains as one of the very few profitable airlines worldwide even in

times of crisis amongst many of the players within the aviation industry.

Employing more than 55,000 people across its 50 business units and

associated firms, it is one of the biggest employers in the region and offers

specialist services spanning almost every aspect of the market (Emirates

Group 2011). At the very heart of the Emirates Group business structure

Emirates airline and dnata. These are the two core divisions of the group. The

amazing success of the two sectors has led to the development and further

success of ancillary businesses. Emirates Airlines has achieved outstanding

success in the airline industry. It is renowned for its incomparable product,

service and quality and to justify this they have received over 400 awards for

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excellence in the industry worldwide. The other core division of the Emirates

Group is dnata. dnata specializes in the provision of ground handling, cargo,

travel, IT solutions and flight catering.

The following is a list of businesses that are operated under The Emirates

Group banner.

1 7he Sevens

2 Al Maha, a Luxury Collection Desert Resort & Spa

3 Alpha Flight Group Ltd.

4 Arabian Adventures

5 Arsenal Soccer Schools Dubai

6 Calogi

7 Cargo Partners

8 Changi International Airport Services

9 Congress Solutions International

10 dnata

11 dnata Airport Operations

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12 dnata Cargo

13 dnata Contact Centres

14 dnata Corporate Travel – Hogg Robinson Group (HRG)

15 dnata for Airport Services

16 dnata Government Travel

17 dnata Hajj & Umrah

18 dnata Holidays

19 dnata Inc.

20 dnata International

21 dnata Network Air Products

22 dnata Offshore & Marine Services

23 dnata Switzerland

24 dnata Travel

25 dnata Travel Services

26 dnata-PWC Airport Logistics LLC (DPAL)

27 Dubai Marriott Harbour Hotel & Suites

28 Emirates

29 Emirates Aviation College

30 Emirates CAE Flight Training

31 Emirates Engineering

32 Emirates Flight Catering

33 Emirates Group Security

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34 Emirates High Street

35 Emirates Holidays

36 Emirates Leisure Retail (ELR)

37 Emirates Loyalty Services

38 Emirates SkyCargo

39 Emirates Tours UK

40 EmQuest

41 Freightworks

42 Gerry’s dnata

43 Gulf Ventures

44 Hogg Robinson Group (HRG) MEWA

45 Le Meridien Al Aqah Beach Resort

46 Luxury Air Travel by dnata

47 Luxury Hotels by dnata

48 Marhaba

49 Mercator

50 mmi

51 mmi travel

52 Plane Handling Ltd

53 Premier Inn

54 SDV-UAE LLC

55 Sirocco

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56 Skywards

57 The Holiday Lounge by dnata

58 Toll dnata Airport Services

59 Transguard

60 Transguard Group

61 Wolgan Valley Resort & Spa

62 Xi’an dnata Aviation Services Co. Ltd (Emirates Group 2011)

•Emirates Airlines

The purpose of this report is to identify the relevant information in regards to

the airline operations of such a business structure. Therefore it is important

that we focus on the main business operation of The Emirates Group, Emirates

Airlines.

Emirates Airlines is the largest airline in the Middle East, flying to over 115

destinations spanning 6 continents. Based at Dubai International Airport,

Emirates Airlines operates over 2,300 flights every week and boasts more

than 400 awards for excellence worldwide. In the financial year 2010/2011,

Emirates carried 31.4 million passengers and 1.8 million tonnes of cargo.

Emirates flew its first route out of Dubai on the 25th of October 1985. Since

then it has conquered the domestic market as well as expanded far and

beyond to all corners of the earth, offering an outstanding product and most of

all safe and reputable product. According to Emirates (2011), Emirates has

evolved into a globally influential travel and tourism conglomerate known the

world over for our commitment to the highest standards of quality in every

aspect of our business. The business is wholly owned by the Government of 15

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Dubai. With vast resource reserves, as well as a previously untried market,

and a globally central location, the potential for growth was always there and

as is evident today, finally realized. This success is justified by the financial

performance of the carrier, as every year from its third in operation, the

airline has returned a profit.

The airline boasts a fleet of 153 aircraft and flies to over 100 destinations in

66 countries (Emirates 2011). Furthermore over 100 flights depart Dubai

every week making their way to six different continents. To further reiterate

the scope that Emirates has and is seeking to achieve, the company is known

for its news headlining investments, in particular the ordering of aircraft.

Emirates’ current order-book stands at 199 aircraft, with a total value of

approximately USD 66 billion (Emirates 2011). This is a mix of Boeing and

Airbus aircraft and is represented by the company’s position as the world

leading operator of Airbus A380 and Boeing 777 aircraft.

At the core of its insurmountable success, Emirates Airlines offers a

product that is first class and most of all unique from its competitors. Offering

three classes of cabin seating, economy, business and first class, the airline

also offers both mobile and web check-in. Furthermore, Emirates is renowned

for its two world class loyalty programs. Business rewards that is tailored to

small and medium-sized business, allowing organizations to earn points which

can be redeemed for further business travel by any staff member, and

Skywards, that allows members to earn points when they fly with Emirates or

shop with their affiliated partners. Emirates also offer its passengers 26

dedicated lounges located across the UK, Europe, the Middle East, Africa,

Asia and the Pacific. Lounges include a range of services and facilities

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including large plasma screens, shower facilities, Business Centers and free

wireless internet access (Emirates 2011).

Emirates Airlines Business Performance Drivers

•Products and services

Emirates Airlines offer a unique level of services and products on broad and

on the ground and also ranging from in- flight entertainment to lounges.

a. In-flight Entertainment

There are 3 types of in- flight entertainment and they are as follow:

Information: Follow the progress of your flight, or take in the view from the

aircraft’s external cameras. Keep in touch with live business, news and sport

headlines from BBC News, and read up on Dubai and the Emirates.

Communications: Phone, SMS and email from your seat, or call friends and

family seated elsewhere on the aircraft.

Entertainment: Over 1,200 channels of premium entertainment to keep you

busy during the flight. The latest and best movies, television, audio and games

from around the world.

b. Seating

As we know there are the first class, business class and the economy class and

the level of service can varies from one to the other.

First class: If you value privacy and personalised service above all else,

you’ll love our First Class Private Suites. Each suite comes fully equipped with

a sliding door, a personal mini-bar, adjustable ambient lighting, and its own

vanity table, mirror and wardrobe. If you want to stretch out and sleep, our

crew will convert your seat to a fully flat bed with a mattress, so you can

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arrive at your destination totally refreshed. And if you're travelling with a

companion, the privacy divider separating the adjoining suites can be

lowered, allowing you to share your experience together.

Business class: The Flat-bed seats also include several features tailored to

the way you like to travel, from personal storage area and in-seat massage

functionality to a privacy divider. An in-seat power supply for laptops, dual

port USB and extra-large table provide a comfortable workspace, and over

1,200 channels of entertainment are available on our ice Digital Widescreen

TV. And there is even a built-in mini-bar in every seat.

Economy class: to create more space and comfort. Personal seatback

monitors provide up to 1,200 channels of news and entertainment

programming. And to ensure that you're able to stay in touch while in transit,

we offer SMS, telephone and email service at every seat.

c. Dining

Experience cuisine and service worthy of the world’s finest restaurants

in Emirates classes, with a range of dishes, carefully selected and prepared,

available on demand throughout your flight. Presented on Royal Doulton fine

bone china with exclusive Robert Welsh cutlery, alongside the finest wines in

the air. Enjoy multiple courses and complimentary champagne and vintage

wines, along with other cocktails and beverages. Beside the food they provide

on broad they also offer a range of wine, drawing from a variety of wine-

producing regions around the globe, our chief sommelier carefully selects

wines that best complement our gourmet cuisine. Each wine is especially

chosen to withstand the rigors of flight.

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d. Lounges

Emirates Airlines also offer a great range of lounges at Emirates

Lounges and as a First Class traveller, Business Class traveller or Skywards

Gold member, you’re invited to unwind in our world-class Emirates Lounges at

select destinations across the globe. On other hand you have the alternative of

having a delicious meal, take a shower, or catch up on business. Beside the

Emirates Lounges there are also the Dubai airport lounges which features

gourmet buffets, a la carte meals, and fresh juice bars, these luxury lounges

offer comfort, convenience and nourishment. Or delight in the moment with a

spa, massage or beauty treatment. Nevertheless they also have 60 partner

lounges located around the world and providing same services.

•Route network

Emirates is one of the fastest growing airlines in the world, now serving

over 100 destinations and every day, over six continents, Emirates helps its

passengers discover the world in award-winning safety and comfort. Emirates

airways operate over 2,300 flights every week across its network of 103

destinations in 65 countries on six continents from its hub in Dubai. In

2011/12 Emirates airways will launch flights to new destinations including

Argentina, Brazil, Iraq, Ireland and Russia (Kozhikode, 2010).

Emirates routes network map.

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Source: boardingarea (2011)

•Schedules

The official website of Emirates has a complete schedule available for its

passengers, which can be downloaded. The schedule has been designed

accordingly, by taking care of the passenger’s comfortable travelling

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experience. It is recommended to view the entire schedule, before booking

your seat. Having a complete knowledge of the flight will help you make up

your mind about the journey. Download the schedule on your personal

computer, and take your time to make the right decision. The Emirates

schedule makes your travelling experience fun and memorable. You can book

a seat online from the official website of the airline. Booking your ticket

online, rather than going to the local airline office, is beneficial. Online

booking gives you many advantages, like booking your seat, and take

advantage of the deals being offered. Also, the price charged will be

guaranteed company price. The risk of extra charges will be minimized

(Kozhikode, 2010). Having said that with over 1000 flights a week you are

able to travel anywhere in the world at any time you want, it doesn’t matter if

you are first class, business class and economy class. They also have missive

flexibility when it comes down to passenger travel of any class or time.

•Fleet Selection

Emirates Airlines operate one of the youngest fleets in the world. And

regular upgrades mean they will continue to provide their passengers with a

superior flight experience. Emirate’s fleet features purely wide-body aircraft

from three aircraft families: the Airbus A330/A340, Airbus A380 and the

Boeing 777. In keeping with its policy of maintaining a young fleet, which

stands at an average of 6.4 years in as of 21 December 2010. Also Emirates

aircraft utilization remained one of the highest in the industry at 18 hours per

day. Emirates have firm orders for 212 aircraft, and options for 50 more. In

July 2010 its orders comprise of 212 aircraft from Airbus, including 80 Airbus

A380-800s (15 delivered as of March 2011), and 63 Boeing aircraft. As of

February 2009, the company had an order book of over $70 billion,

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comprising 212 firm orders, and 50 unconfirmed orders Hofmann, Kurt

( 2009). Emirates Airlines also operate cargo fleet aircrafts which include

Boeing 747-400s with capacity for 120 tones and a Boeing 747-200 with

capacity for 110 tones.

Emirates Airlines Challenges Facing its Business Model

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SWOT Analysis: A review of strengths, weaknesses, opportunities, and

threats, is a core requirement of any organization, and essential to

understand any industry. The volatile airline industry is no exception.

While individual airlines each analyze and make decisions based on their

own situations, there are overall industry similarities that all airlines

face, with each endeavouring to maximize strengths and opportunities

while minimizing weaknesses and threats. Using SWOT analysis will help

identifying Emirates Airlines’ Strength, Weakness, Opportunities and

Threats.

1. Strengths: Firstly, flexible family organisation, Emirates’ success has

emerged from taking a non-traditional management approach,

rather than relying on the industry’s conventional wisdom. This is

the great thing that Emirates has done to manage the company.

Emirates Airlines has multi-culture management board which is

making them pretty rich about the strength, the skill of

individuals. Developing those strengths in the peace agreement

brings the new and strange breath to the airlines and makes it

totally different from others (Emirates Airlines, 2008).

Secondly, Emirates is one of the fastest growing and most

profitable airlines in the world. The airlines now serves 115 destinations in 66

countries in the Middle East, Far East, Europe, Africa, Indian subcontinent,

Pacific Rim, Australia. According to Abdulaziz Al Ali, Executive vice President

Human Resources said that, the most important thing make the airlines like

Emirates become the best airlines in the world is their employees as all of

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employees are made to feel that they are family of Emirates Airlines. They are

treated very farewell under the same roof (Emirates Airlines, 2011).

Emirates’ young and vast fleet is the next strategically strength of the

airlines. Emirates Airlines’ fleet consists of 153 new advanced technologies

and fuel efficient aircrafts. Their aircraft type ranges include B777-200ER,

B777-300ER, A380s and ordering more 32 A380s and 30 B777-300ERs

(Emirates Airlines, 2011). The airlines’ network is expanding constantly and

dominating the international air travel market itself. Youngest fleet and big

markets are the dream of other airlines, because the airlines could reduce the

operating cost by taking advantage from new fuel and noise efficient aircrafts.

In the mean time, cost is reduced, the airlines could easily adjust the prices

offering on its routes. This leads to Emirates definitely keep and attract more

customers around the world.

In addition, with many awards received, Emirates could be proud of

what it has achieved and developed. These awards such as: World's Best

Airline Inflight Entertainment, Treasury team of the year, Gold Annual Air

Cargo Excellence Awards help Emirates easily to confirm its position and

attract more passengers in the domestic market in particular and all over the

world in general (Dinar Standard, 2010).

Finally, with the highly confidence about quality and quantity that the

company is serving and providing to people using air transport around the

world, Emirates does not want to join in any alliances or buy codeshares with

any airlines. This is very controversial, because some people think alliances

and codeshares would help expand the routes and gain more market shares as

well as somehow minimising costs. To Emirates, they have their own business

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strategies and they are very successful so far. Not doing thing like any other

airlines makes Emirates Airlines become unique in the market. Clearly, saying

anything needs to have evidence and the financial result of them are showing

that. In the financial year 2010/2011, Emirates Airlines has carried 31.4

million passengers and 1.8 million tonnes of cargo. A bright future is waiting

for them in which they will carry many millions more across a growing

network of international destinations (Emirates Airlines, 2011).

2. Weakness: As one of the world’s fastest growing airlines, Emirates’

biggest challenge is ensuring that its brand continues to be

relevant and is consistently adopted throughout the organisation.

However, their high levels of brand recall concurrently raise the

expectation levels of customers. Once customers are satisfied at a

certain level, their expectations will rise and Emirates has to keep

up with new developments and innovations otherwise a competitor

will notice this and fill the gap (Shikoh 2005).

Ground handling is other difficulty for the airlines when operating in

other airport. Instead of using human source of its owned ground handling

staff at Dubai, Emirates Airlines is costed half of the operating costs at Changi

Singapore Airport for an example, because the Emirates’ ground handling

agent at Singapore prefer using intensive technology to manage processes in

real time (O’Connell in press).

Opportunities: The implementation of Open Skies policy in Middle East will

have a very positive impact on the region's overall growth, and will boost civil

aviation and tourism in the region, so that Emirates will be able to attract

more passengers, also they can use their positional advantage to maximise the

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market for them. Dubai has a big population that would be potential for

leisure and business passengers flying with Emirates. Moreover, there are a

lot of UAE people living around the world especially in developed country like

American, United Kingdom, Australia, countries in Asia and Europe lead to

Dubai be the most efficient connection point to visit relatives every year

(Knorr & Eisenkopf 2007).

Furthermore, Dubai now becomes a gate for connecting trade between

India with Asia, US, EU countries. In order to keep many important trades

moving fast between countries, Dubai facilitates fast export and import and

Emirates will be able to carry more cargo (Aerlines Magazine, vol27).

There are many neighbour countries now try to follow Dubai’s footsteps

by progressively liberalizing their air transport markets. On the one hand, this

will surely increase competition for Emirates; however it also brings new

opportunities for growth to establish routes in this regional area (Knorr &

Eisenkopf 2007).

3. Threats: First of all, there are many airlines in the world which are

significant threats to Emirates and potential to take over its

market shares. However, the greatest threat that Emirates Airlines

faces are its local competitors carriers such as Qatar and Etihad

Airways try to offer similar products and services to Emirates with

a much competitive low prices (Emirates, 2010).

Furthermore, the governments in some countries like Germany and

Canada try to protect their nation flag carriers by make the bilateral very hard

to Emirates. Like Canada, the government refused the proposal for

negotiating additional flights to Toronto, Calgary and Vancouver. Similarity, in

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Germany, the government forced Emirates increase its business class fares on

routes to Germany with the justification that these were too low to allow for

fair competition. However, fares of several other EU and non-EU airlines are

even lower than Emirates’ and yet these have not been asked to be adjusted

Competitors from the same operating country (Knorr & Eisenkopf 2007).

Nominating the largest market is also a threat to the Emirates. Due to

the out of balance competition with Emirates, some countries will resist

further liberalization to them such as Germany, Australia, and France…(Knorr

& Eisenkopf 2007).

Fuel prices increase: High fuel prices is a problem for every airline in

the industry, with oil now exceeding US$120 per barrel, up from US$86

per barrel a year earlier according to figures below from the

International Air Transport Association (IATA). Although volatility of fuel

price is the most impact to the airlines industry over the world, however

to Emirates, this is a new advantage. The hub Dubai Airport and the

airline are owned by Government of oil rich country. This leads to

Emirates has more advantage in fuel price than other airlines in Europe

or US (Manisha, 2011).

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IATA Jet Fuel and Crude Oil Prices.

Source: IATA (2011)

Airline operating costs (Fuel)

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Source: IATA (2011)

Furthermore, the increase in fuel price recently has cost other airlines

40 per cent of the operation cost so that some airlines like Lufthansa have to

offer higher fares than Emirates leads to them losing customers. Have been

saying this to help understand more why Lufthansa and its alliances always

blame to Emirates by allegations of an unfair playing field without any

evidences til now (Manisha, 2011).

Finally, although Emirates could get a lower fuel price compared to

other airlines, due to the price up of fuel, the airline still had to raise ticket

prices, but the increase would differ by markets and routes. Also, like every

other airlines, Emirates regularly reviews its fares to reflect market dynamics

including demand and rising fuel prices. According to the spokesperson of

Emirates, the airline has a programme which is very active in managing fuel

risk but with such market volatility it is impossible to fully absorb the impact

of soaring oil prices (Emirates, 2011).

Research on competitors (Eithad, Qatar…ect) who are trying to apply

the same business model of Emirates in the UAE:

Emirates Airlines is building the fleet to establish Dubai as an inter-

continental hub and win passengers from Air France- KLM Group, British

Airways and Lufthansa while fending off Qatar Air and Etihad Airways. It will

resist cutting flights as oil prices threaten the profitability of some

destinations and instead aims to stir up demand with cheaper tickets,

President Tim Clark said in an interview on June 20.

Qatar Air, the second-biggest Middle Eastern airline, has 91 jetliners in

its fleet, 56 of them wide bodies, with 172 on order, of which 160 are twin-29

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aisle. Including retirements, it may operate 190 planes by 2020 (Qatar

Airways, 2011). Qatar Airways’ catch-up strategy with Emirates seems to rely

largely on undercutting its competitor while offering similar product quality.

By that, Qatar Air chose Doha International Airport as its hub to fly to Middle

East, Far East, Europe, Africa, Indian subcontinent, Pacific Rim, Australia.

Like what Emirates Airlines did, Qatar Airways has ordered the range of new

aircrafts consist of B777s, A380s, B787s to expand their routes to the

destinations that Emirates Airlines flying to and to make Doha Airport become

the centre hub in Middle East instead of Dubai. A clear example is China, it

used to be Emirates big market but now Qatar Airlines is taking a part of the

market in here from Emirates (Arabian Business, 2008).

Etihad, the regional No.3, is pursuing a less expansive growth plan,

according to CEO James Hogan. The carrier has 57 wide-body planes, with

103 jets due for delivery in the coming decade, including 10 A380s, 25 Airbus

A350s and 35 Boeing 787s (Etihad Airways, 2011). As the way Qatar Airways

cut down Emirates Airlines market shares in China, Etihad Airways tried to

operate flights on the same routes like Emirates Airlines . An example for this

is route from Singapore-Abu Dhabi, it took down the market shares of

Emirates Airlines from these routes since 2008 (Arabian Business, 2008).

Furthermore, people could easily see that Etihad Airways and Emirates

Airlines are two airlines in United Arab Emirates and doing business under

similar model. There is a question “Does Etihad Airways copy business model

of Emirates Ailrines or not?” asked in the wolrd. Why is that? Because when

we look at aircraft painting is similar, the uniform’s style of flight attendant is

similar only different colour. Also, inflight entertainments are similar too. This

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is very easy found out and compared how much Etihad Airways is the same

Emirates Airlines when looking at their advertisements or their websites.

Emirates will need to carefully plan their business strategy to protect

their market shares from those two big rivals in region. Emirates’ success has

put themselves in the higher local competition. Air Arabia, the first low-cost

carrier in the Middle East started operations in the UAE in October 2003. Not

long after, Etihad Airways started to offer flights from Abu Dhabi, just 60

miles from Dubai. Emirates have to keep fighting back. Furthermore, Emirates

wants to be a global hub and spoke system with passengers able to fly from

any major city in the world to any large destination through Dubai. But

Emirates is not alone in spotting this opportunity. Well-respected rivals such

as Singapore Airlines are also poised to emerge as serious rivals in the global

hub and spoke competition (Emirates, 2005).

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Emirates Airlines Performance Measures

•Emirates Performance Indicators

EMIRATES IS RANKED 5th BEST INTERNATIONAL AIRLINE COMPANY

IN TERM OF SCHEDULED PASSENGERS CARRIED

Rank  Airline   Thousands

1 Ryanair 71,229

2 Lufthansa 44,460

3 easyJet 37,665

4 Air France 30,882

5 Emirates 30,848

6 British Airways 26,320

7 KLM 22,787

8 Delta Air Lines 21,029

9 American Airlines 20,356

10 Cathay Pacific airways     19,723

EMIRATES IS RANKED 3rd BEST INTERNATIONAL AIRLINES COMPANY IN

TERM OF SCHEDULED FREIGHT KILOMETRES CARRIED

Rank Airline Millions

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1 Cathay Pacific Airways 9,587

2 Korean Air 9,487

3 Emirates 7,913

4 Lufthansa 7,422

5 FedEx 7,421

6 Singapore Airlines 7,001

7 China Airlines 6,410

8 UPS Airlines 5,215

WORLD AIRLINES REVENUES AND OPERATING PROFIT

MARGIN

Source: Centre of Aviation (2011)

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AERO 2410 AIRLINE OPERATIONS

WORLD AIRLINES REVENUES AND OPERATING PROFIT

Source: Centre of Aviation (2011)

Negative net profit margin in the airline industry worldwide (+0.2%)

with profit of around 15 billion USD in the period 2001 to 2009 clearly

indicates route profitability improvements of Emirates.

Carlos Martin and Roman (2011, p.29) argue that airlines’ operational

performance is based on a set of indicators which can be characterized by

three different aspects of their operations, namely: resource input (labour;

capital; fuel; materials), service output (aircraft-hours; aircraft-km; seat-km),

and service consumption (passengers emplacements; cargo; passenger-km;

operating revenue), which constitute the three corners of an operational

triangle. These three sides represent different efficiency concepts: resource-

efficiency (measuring service output against input), and service-effectiveness

(measuring service consumed against service output), respectively. The key

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elements intervening in performance indicators of airlines include Available

Seat Kilometres (ASKs), Revenue Passenger Kilometres (RPKs), Seat Factor

(SF%) (Or load factor LF %), Yield (both per RPK and per ASK), Expenditure

per ASK, market share and productivity – RPK per employee and ASK per

employee. Several airlines now use EBITDAR (Earnings before interest, tax,

depreciation, amortization and rent) as a measure of performance (RMIT

blackboard, 2011).

•Emirates traffic results

Emirates Available Seat Kilometres (ASKs) in millions

Source: Emirates (2011)

Emirates Capacity, traffic and load factor

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Source: Emirates (2011)

Emirates Overall and breakeven load factor in %

Source: Emirates (2011)

Emirates Available tonne kilometers (ATKM) in million and

number of aircraft

Source: Emirates (2011)

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Emirates Passengers carried in 000

Source: Emirates (2011)

Emirates Cargo handled carried in tones 000

Source: Emirates (2011)

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Emirates Seat Factor in % (or Load Factor) (a measure of capacity

usage)

Source: Emirates (2011)

Emirates Yield (both per RPK and per ASK)

Source: Emirates (2011)

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•Emirates Expenditure

Emirates Operating costs

Source: Emirates (2011)

Emirates Jet fuel cost in %

39

AERO 2410 AIRLINE OPERATIONS

Source: Emirates (2011)

•Emirates market situation

Emirates Market share

Source: Emirates (2011)

Emirates Codeshare Partners

Air Malta

Air Mauritius

Japan Airlines

Jet Airways

Korean Air Lines

Oman Air

Philippine Airlines

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AERO 2410 AIRLINE OPERATIONS

South African Airways

Thai Airways International

Source: Center of Aviation (2011)

•Emirates Productivity – RPK per employee and ASK per employee

Emirates EBITDAR (Earnings before interest, tax, depreciation,

amortization and rent) in million

Source: Emirates (2011)

Emirates Capacity per airline employee in ATKM ‘000

Source: Emirates (2011)

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AERO 2410 AIRLINE OPERATIONS

Emirates Employee productivity

Source: Emirates (2011)

•Emirates revenue structure

Emirates Revenue by line business in %

42

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Source: Emirates (2011)

Emirates Geographical revenue in %

Source: Emirates (2011)

Emirates Development revenue in AED bn %

Source: Centre of Aviation (2011)

43

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Emirates Profit margin in %

Source: Centre of Aviation (2011)

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Investigating Factors Influencing the Running of Emirates Airlines

Business

•Fleet selection

Fleet selection is one of the most important factors of an airline’s planning

because it is an expensive asset to an airline but also determine its flight

route, payload and range therefore, basically its whole operation (Belebaba et

al., 2009). Therefore choosing the correct aircraft enables an airline to earn

profit otherwise, it could go bankrupt in term of the operating cost of the

aircraft.

•Aircraft types

Aircraft do not come to an airline on the next day they purchased it. It usually

arrive in a period of time usually few years later on therefore airlines need to

forecast their financial and demand in the future so that the aircraft can arrive

at the right time and serves its purpose (Belebaba et al., 2009). When looking

at Emirate aircraft types, there are mainly 4 types which include A330, A340,

A380 and B777 (Emirate, 2011a). Although some aircrafts are from different

manufacturer which can lead to high maintenance cost and flight crew salary

(Belebaba et al., 2009), they fly alternate routes and carry different capacity of

payload so in a long term perspective, the cost can be covered. According to

Mutzabaugh (2010), Emirate has now ordered ninety A380 which is

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AERO 2410 AIRLINE OPERATIONS

impressive when you look at how much each A380 cost. This is due to its

capacity and the amount of passengers that can carry. In short term this could

be a huge cost but when you look into the long term perspective, the amount

of passengers and cargo being carry will reflect how much revenue the airline

has earn.

•Aircraft configuration

Aircraft configuration is an important factor in terms of amount of passengers

being carried, what service can be offered and where the interior are going to

be layout. As an example of looking at Emirate’s B777-300ER, they offer three

types of configuration which suits different type of routes and passengers

(Emirate, 2011). There are the three class seating with private suites in first

class, normal three class seating and two class seating. The first configuration

is very unusual because it only happens in Emirate. They are for people who

do not want to be disturbed by other passengers and enjoy their private space.

Another example from Emirate is their unique A380 shower bar and on

board lounge (Emirate, 2011b). The interior configuration would be very

unique since this is a breakthrough achievement in any model aircraft.

•Aircraft productivity

Since an aircraft is expensive, airlines would want to use their aircraft as

much as possible to make maximum profit. Therefore there are two things that

we can measure productivities; aircraft utilisation and ASK per aircraft per

day (RMIT, 2011). Belebaba et al (2009) has suggested three ways to increase

productivity; by increasing the frequency of flight with the certain aircraft,

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AERO 2410 AIRLINE OPERATIONS

increase the flying distance and increasing the number of seats within the

aircraft. However, this could increase marginal cost from flying longer and

further or putting seats in the aircraft therefore marginal revenue on the

other hand must be equal to gain maximum profits.

•Aircraft comfortability

Safety is the most important thing to air travel and comfort comes second in

many cases (McDonough, 2010). Comfort is only considered when passengers

are travelling long haul or overseas, especially to those business and first

class passengers. This can be arranging by the seat pitch and width to provide

more legroom and seating area. However, this has a huge impact on the

number of seats can be store in an aircraft hence lower aircraft productivity

(Belebaba et al., 2009).

•Scheduling

The best schedule is the one that earns most profits for the airline. However,

there are many factors that we need to be considering when setting up a

schedule; location of crew and maintenance base, airport slots, bilateral

agreement and government restrictions (Belebaba et al., 2009). Therefore an

airline would need to decide what type of network they are flying, load factor

and frequency of each flight and create a short term schedule to meet the

demand in order to increase frequency (Bazargan, 2004, p.31-33). The

importance of scheduling is to maximize aircraft productivity but at the same

time dealing with the factors mention before so that the aircraft can still

operate as much as it can.

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AERO 2410 AIRLINE OPERATIONS

•Financing

Airline finance looks into the source of internal and external funding and cost

of running the airline for example fix operating cost, variable operating cost

and in-direct operating cost (Baxter, 2011). It is vital to airlines to cut as many

cost as they can in order to maximum their profit because if the breakeven

point is too high for airlines, they cannot make any profits and only go

bankrupt (Belebaba et al., 2009). Also airlines must repay their shareholders

in order to get extra funds for further investments.

•Pricing and distribution

The Law of demand stated there is an inverted proportional relationship

between price and demand, as one rise, the other falls (RMIT, 2011a).

Therefore, the price of air ticket will determine the demand of passengers so

airlines are trying to set their price at a values the maximize demand at the

same time maximize their revenue. This is the reason why revenue

management is introduced. Belebaba (2009) suggested there are 3 types of

pricing; cost-based, demand-based and service- based. Depending on the route

an airline is flying, different price structure can apply.

Distribution looks into 4 Ps; place, promotion, price and product. Therefore

airlines must provide their service base on those Ps. Also airlines are looking

at how to sell their tickets for example by travel agents or online (RMIT,

2011a).

•Revenue management

Revenue management is trying to maximize revenue by filling as much seats

as possible at the optimal price (Belebaba et al., 2009). There are two

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AERO 2410 AIRLINE OPERATIONS

suggested way to maximize revenue; differential pricing and yield

management. By selling the same seats at a different price can stimulate

demand which helps to increase load factor of each flight. Other methods that

can help to increase load factor are CRS and overbooking (Belebaba et al.,

2009).

•Cost management

This is very similar to airline finance however; this only looks at the cost side

of the finance for example what are operating cost and capital cost, how to cut

down cost remaining at the same level of services and any type of investment

in facilities that increases total efficiency (Belebaba et al., 2009).

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AERO 2410 AIRLINE OPERATIONS

Recommendations and Improvements Analysis

Clearly, it is possible to infer that the business model of Emirates Airlines is

a typical traditional business model. From the above research conducted an

accurate evaluation of Emirates Airlines business is if the airlines

performance is meeting the airlines current and future goals. Several key

elements will be analysed to conclude if the business model/structure

implemented by Emirates Airlines is of a profitable, cost effective, revenue

driven, product services level, destinations (route network), distribution and

pricing, aircraft productivity, performance drivers, performance measures,

labour productivity and market share and structure driven are meeting the

airlines future long term plan objectives. The idea behind this analysis is to be

able to recommend improvements or strengths of the airlines current

operational level (Nair, Palacios and Ruiz 2011).

Emirates Airlines Business Model and Business Structure,

recommendation of Improvements or Highlighting Strength?

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AERO 2410 AIRLINE OPERATIONS

Emirates Airlines business model is the core and the foundations of the

airlines success. The airline industry, which plays a pivotal part in any

country’s economy, is one of the most volatile industries, plagued with

excessive losses, restructuring and bankruptcies. Four or five years of poor

performance precede five or six years of improved performance. Emirates

Airlines was conceived within this turbulent environment and has

demonstrated an unfailing ability to grow in these unstable conditions.

Emirates business model is clearly of unique management, in fact, the only

factor that is believed to have resulted from Emirates successful

penetration and rise in the airline industry is the geographical location and

outstanding management, embedded in an ambitious visionary business

development master plan. However, Eisenkopf and Knorr (n.d) believe that

even though with outstanding management and unique business model,

Emirates Airlines is not the only airline that in many respect has this

unique business model approach, Singapore Airlines rise from a small

regional player to a global powerhouse in the airline industry only within

few decades ago highlight that business models are only as affective as the

airlines core logic, strategic choices and value of its network (Osterwalder

2005).

The business structure of Emirates Airlines is of the same type of

Corporate owned business groups such as Qantas, KLM/Air France and

Lufthansa Group. One can argue that, within a corporate governed

business their can only be outcome of advantages. Corporately owned

airlines are heavily reliant on capital injections, often the only thing that

keeps an airline operating and not falling into bankruptcy are those

carriers who have capital corporate insurance, corporate who are willing to

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AERO 2410 AIRLINE OPERATIONS

inject billions into the carrier just to offset its operating costs and keeping

it at the forefront of competition within its market segment and market

share (Nair, Palacios and Ruiz 2011).

Emirates Airlines performance drivers and performance

measures, recommendation of Improvements or Highlighting

Strength?

The brand, the product and the services, are essential to Emirates Airlines

performance drivers in development, uniqueness and global dominance. In a

time of economic uncertainty, airline brands need to connect with both leisure

and business travellers. In difficult economic times, customers will only look to

carriers who offer product and services value. In the case of Emirates their

biggest asset is their brand, products and services, with the world’s most

technologically advanced entrainment system onboard and three class levels

at any given flight at varying prices (Ross 2011).

Passenger’s expectations and perceptions are among the factors driving

service decisions of airlines. Empirical evidence has indicated that success in

customer-focused service development requires a deep understating of

customers needs, expectations and preferences (Gustanfsson, Ekdahl &

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AERO 2410 AIRLINE OPERATIONS

Edvardsson 1999) and that marketing strategies implemented by airlines must

take into consideration the different expectations and perceptions of

passengers (Sultan & Simpson 2000) . Emirates Airlines is well positioned in

the market and in the travellers mind such product and services levels offered

by Emirates will give the airline a better chance of survival in their strongly

competitive environment (Surovitskikh 2007).

Emirates Airlines is also one of the world’s fewest carriers who offer

flexible scheduling with any type of passenger at any time of the year. Their

growing network of destinations, economical scope, products and services and

array of wide-body aircrafts enabled them to control market shares and

manipulate prices. The airlines operational performance measures is nothing

short but a pure dominance (Emirates 2011). The airlines region (Middle East)

is labour effective, allowing the airline to mitigate its labour expenses and

increase productivity levels. The carrier’s key performance strength is the

resultant APK’s increasing to and in-between 20-30 thousand per kilometre

annually. Furthermore, the carrier ability to continuously generate revenue

and decrease its operating costs by 22 percent yearly, just shows how

affective the airline uses its geographical position to its ultimate advantage. It

can be safely said, that any future economical crisis that Emirates might face,

it will not affect the airlines operational performance simply because of its

dexterity and ability to adapt to changing market conditions quickly (Seristo

and Vepsalainen 1997).

Emirates Airlines Internal and External challenges and Factors

Influencing the Running of the Business

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AERO 2410 AIRLINE OPERATIONS

Emirates Airlines strengths come from the right decisions taken at its

foundation, and from its unique organisational structure. Not only does the

carrier benefit from having been created from scratch only two decades ago,

the continuous development strategy also guarantees Emirates a very

favourable political environment. Furthermore, the overall expansion activities

related to Dubai’s airport and new projects ensure that the airline does not

decade face infrastructure bottlenecks (which increasingly stifle the growth

prospects of its principal European competitors) (Eisenkopf and Knorr n.d).

Secondly, Emirates major hub in Dubai is another strength factor, not only

that 140 airlines use Dubai because of its free additional charges (noise

charges, ATC charges and Security Charges) the airports generates

substantial profit for its home-base carrier and the open skies agreement

subject all carriers to and from Dubai to non-discriminatory treatment. It’s

weakens are almost impossible to count. Notoriously unreliable resources,

comment on the carriers inability or inefficiency to meet individual quality

services, although it is a common sense that it is impossible for a carrier to

meet every individual customers needs and services qualities (Eisenkopf and

Knorr n.d).

One of the key factors influencing Emirates airline performances is its

ability to manage revenue. Emirates Airlines revenue management is quite

complex in respect to the allocation of seats to every single passenger at its

wide network of destinations. Essentially revenue management is crucial for

Emirates due to their aircrafts fleet being wide-body. The Airbus A380

presents a quite challenge in regards of management being able to forecast

customer historical booking and overbooking practices (Cusano 2003).

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AERO 2410 AIRLINE OPERATIONS

The airline increasing reputation and the support of its government

almost make Emirates; invulnerable to challenges and decrease in operational

performance. That being said as Emirates Airlines is a traditional legacy

carrier, aircraft productivity and fuel are the only challenging factors that can

be identified. With their wide-body aircraft, and their long-haul flights it is

almost impossible to increase the aircraft productivity to the level of low cost

carriers. Having the world’s largest aircraft in your fleet is not a cost effective

decision, but if cost is managed and channelled in affective manner

operational costs can be turned into operating revenue. It is the details in-

between the lines, that affect cost management plan. Reduction of costs

almost always comes with reduction of services if mitigated strategically costs

effectiveness can be achieved (Belobaba et al. 2009).

Conclusion

As you may have just witnessed, Emirates Airlines is one unique company. It

seems to be living and operating in a world of its own. Trapped in a timezone

that has protected them from all the economic troubles that most other

airlines have experienced around the world. Emirates Airlines has somehow

been annually profitable since 1988. It is heavily regarded as the best airline

in the world. The hundreds of awards it has won over the years represents this

and is testament to the unique and forever innovative business that the

airlines run. After pouring over many statistics and corporate documents, it is

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AERO 2410 AIRLINE OPERATIONS

difficult to offer recommendations on such a successful and innovative

establishment. Does anyone actually think they could do it better? The airline

is backed by a government that is reaping the rewards of an excellent

geographical position as well as a huge demand for its natural resources

coupled with a surge in industry across the whole middle eastern region. All

factors considered, it is hard to foresee Emirates Airlines undergoing any

hardship during the not too distant future.

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