Emirates Airlines: the International carrier
Emirates Airlines: Enabling Customer Service Excellence through Cost-efficient Operations
The Dubai-based, Emirates Airlines (“Emirates”) is one the fastest growing airlines in the world catering to the growing international passenger travel industry. Its mission is to ‘connect people to places and business with opportunities’. The airline has one of the largest global route network and traffic scale of any carrier, currently flying to 144 destinations including 10 US destinations. In the 2014-2015 financial fiscal year, Emirates reported revenue of AED 88.8 billion (USD 24.2 B), a 7.5% increase year-over-year, with profit margin of 5.1% versus 3.9% the year prior. It also transported 49.3 million passengers, an 11% increase year-over-year, while increasing its capacity by 9%. The airline has had over 25 consecutive years of sustained growth and positive margin in an industry that is regarded as highly cyclical and competitive. Its success lies in being able to provide best-in-class service at competitive prices, attracting both passengers traveling to Dubai for tourism and business, as well as those traveling on inter-continental flights by taking advantage of Dubai’s geographic location (Figure 1).
Figure 1. Emirates’ global destination network (http://www.emirates.com/us/english/destinations/)
A key enabler of Emirates success is the effective alignment between its business and operating models as detailed below.
Cost-efficient operations
Emirates has one of the most cost-efficient operations in the airline industry giving it a competitive advantage. It has a lean workforce comparable to that of low-cost carriers and has a flat organization that keeps overhead costs low. However, the key cornerstones to its cost-efficient operations are: i) increasing passenger capacity by offering daily flights to almost all of its short and long-haul high-demand destinations, keeping fixed-costs low, and ii) only operating wide-body carriers in its fleet, allowing Emirates to have higher passenger capacity per flight, thus lowering its overall unit-cost versus other airlines that operate a mix of wide- and narrow-body carriers. Another benefit of wide-body airplanes is that it they are more fuel efficient contributing to Emirates low cost position.
Investing in its fleet
Emirates continually invests in growing its fleet. It currently consists of 231 aircrafts including Airbus A340 and Boeing 777. It plans to increase its fleet to 320 aircrafts by 2018 and 400 aircrafts by 2020. In addition, it has the largest fleet of Airbus A-380, the world’s largest commercial aircraft, with 68 A-380s currently in operation and 72 new A-380s on order. It invests in maintaining its fleet with the most modern aircrafts, while retiring its older planes. The average age of its airplanes is 6.25 years, making it the youngest fleet of any airline, allowing Emirates to provide customers with the newest technologies and better in-flight experience. Furthermore, it allows them to operate the newer, more fuel efficient airplanes again contributing to Emirates low-cost position.
Offering superior travel experience
In order to create a holistic travel experience for its customers, Emirates focusses on providing a number of best-in-class services both off- and onboard. Starting with getting to and from the airport, Emirates offers free Chauffer-drive shuttle service in 74 cities for First and Business class passengers. Next, they have invested $320 million in 37 Emirates (airport) Lounges around the world, where customers can dine or relax before traveling. Next, onboard Emirates offers its passengers 2100 channels of entertainment in 35 languages through in its award-winning ‘ICE’ entertainment system which offers the latest movies, music and games. They also invest $20 million annually to install and maintain free onboard Wi-Fi internet services across its fleet. And finally, its award-winning Skywards miles reward program offers members exclusive benefits such as faster check-in and airport ushering services, and very regular upgrades to Business and First class cabins. Frequent flyer points are easy to collect making Skywards membership an attractive differentiator.
Diverse flight attendants
In order to serve its international passengers across six continents, Emirates employs a diverse workforce of 56,000 employees of which over a fifth are cabin crew attendants from over 160 nationalities. It is not uncommon to have a cabin-crew team speak more than ten different languages on any given flight. This serves well to cater to the diverse customer base traveling with Emirates. The airline actively recruits talent from around the world to work for Emirates. For instance, in 2014-2015 Emirates had over 400,000 applications from around the world, allowing it to recruit the best talent from a large candidate pool. Once hired, all Emirates cabin crew undergo regular training at state-of-the-art Emirates Aviation College to ensure learnings of providing the finest service for passengers.
Sources:
http://www.emirates.com/english/about/
http://content.emirates.com/downloads/ek/pdfs/report/annual_report_2015.pdf
http://www.theemiratesgroup.com/english/facts-figures/annual-report.aspx
http://www.emirates.com/us/english/destinations/
https://en.wikipedia.org/wiki/Emirates_(airline)
Very interesting read. I have flown on Emirates several times and was always impressed and intrigued by how they were able to upkeep high quality service at relatively reasonable prices, especially when compared to other international carriers with scale.
I agree with your assessment of the linkage between the business and operating models. Specifically, it is interesting to read about the linkage between Emirates’ new fleet with its ability to deliver high quality service at affordable prices; this makes sense especially since Emirates spends a lot on buying the latest airplane models.
With the help of Emirates’ airlines, Dubai has been able to attract a lot of leisure and business travel.
Great review Bass. I don’t do a lot of international travel, but if i did, Emirates sounds like a winner.
I do wonder though, if there is a tradeoff between the cost of upgrading to the newest fuel-efficient planes and the fuel they save. I wonder if they have a good mechanism for disposing of planes more quickly than other airlines. My guess would be they sell them to other airlines at an early enough age where they still hold good value, though I’m not sure.
Great job – the Middle Eastern carriers have done well over the past decade. Emirates kind of reminds me of Jan Carlzon’s SAS, with respect to the emphasis on service. It worries me that they’re aiming to almost double their fleet size by 2020. Especially with wide-body planes. Is there that much excess passenger demand they can fill? If not, load factors (utilization) per plane, and profitability, will decrease. Also curious what you think about the American big 3 airlines’ argument that the Middle Eastern carriers are subsidized by their governments. Seems hypocritical since American airlines weren’t deregulated until several decades ago.
Hey Bass,
Thanks for sharing this interesting write-up on Emirates, one of the few airlines that I have truly enjoyed flying on. I am really impressed with their ability to be a cost-efficient carrier, while at the same time constantly upgrading their fleet to ensure they have top-of-the line planes. Do you think this creates a potentially risky situation for the airline? If demand falls off a cliff or capacity rises from increased competition, then Emirates will be stuck with underutilized expensive planes?
Bass, thanks for the great article on how Emirates is running an efficient business model well aligned to its operating model. I am actually curious to know how have they responded (and / or plan to respond) to great competition especially from European airlines eg. Lufthansa. The reason I ask this question is because I mostly have seen Emirates and Lufthansa as the first two options while travelling to and from US, Europe, Asia and Africa which makes me believe even Lufthansa is trying to make it big. Further, it would be great to know how Emirates manage to keep its costs so low despite the superior travel experience they provide.
Bass,
Thanks for the post – I too have flown Emirates and really enjoyed the experience. I remember reading a few articles this past spring questioning whether Emirates had gone too far in their “lean cost” operating model as their crews were ranked as having some of the longest hours in the industry. The below article details allegations that Emirates coaches pilots to under-report time on duty to avoid the aviation regulator in the UAE. I am curious as to your stance regarding these reports and whether you think the company can continue to grow “sustainably”, given that safety is immensely important in this industry.
http://www.wsj.com/articles/pilot-workload-at-emirates-under-question-1428587945
Thanks,
Scott
Thanks for writing this Bass! It’s incredible what Emirates along with Qatar and Etihad have done to make the Middle East a global hub. However, I wonder if Emirates model may be threatened by a decrease in traffic leading to underutilized capacity on such huge planes, and if the relative “youth” of its fleet actually leads to higher costs in replacing airlines than cost savings with regards to fuel efficiency.
Nice article Bass!!
One thing I find truly fascinating is Emirate’s ability to (1) have an average age of 6 years for its fleet and (2) operate only wide-body aircraft as opposed to a mix of wide and narrow-body planes.
With respect to (1), the fuel efficiency gains achieved by operating newer (and therefore more efficient) aircraft can be offset by the massive investment it takes to update a company’s aircraft fleet. While most airlines would love to have brand new aircraft, they are limited by their ability to invest upfront in new aircraft. How does Emirates do it??
As for (2), most airlines use smaller aircraft for short-haul routes. Operating a 777 on the relatively short flight to “neighboring” countries like Jordan means either that Emirates offers less flexible schedules (all the passengers can fit on one flight!) or that Emirates’ true strategy is long-haul operations and that it uses large aircraft on smaller, less busy routes as a “side-gig”.
I wonder if they have a partnership with a smaller regional airline to serve short-haul routes..
Bass,
Thanks for a well-developed review of Emirates’ operating and business models. Emirates has long been an interest of mine, as I am impressed by the rapid growth they achieved on a global scale based on a combination of very high quality and exceptional customer service. I am actually going to fly in Emirates for the first time in January, and I am excited to experience this airline first-hand.
What struck me the most from your article was to learn how Emirates has been able to offer their premium services at an achievable cost. Going forward, how likely is it that Emirates will be able to sustain this offer, as they continue to expand their fleet? In my view, there is some potential pressure coming from the required investments on the capacity side of its operating model (~170 new airplanes before 2020). Do they have sufficient cash resources to fund this expansion, without reducing the value proposition they currently offer to their customers?
First off, I love Emirates Airlines. I think you did a great job highlighting the key differentiators in its operating model that have allowed it to enjoy a huge competitive advantage from a cost and passenger appeal perspective. However, I disagree on your point about the flight attendants. While it’s obviously beneficial to have multi-lingual speakers on board, Emirates does have a somewhat distasteful hiring practice akin to Abercrombie & Fitch’s. Emirates only hires younger, attractive attendants to serve on airplanes and it quietly pushes out attendants over 35. How do you consider this turnover and negative brand image? Will this impact their ability for future success? Or do you consider it part of their assets?