The business model
Emirates Airlines (Emirates) sits at the epitome of success when it comes to effectively aligning one’s business and operational models. The alignment of the business and operational models at Emirates has resulted in the airline’s astounding growth over the last 30 years. Emirates has doubled in size every three or four years since its formation 30 years ago .
At the core of the Emirates operations, is the long haul to long haul business model, or what can be loosely translated as a long distance passenger crossdocking operation. Passengers are flown in “bulk” (just as a truckload of products from one manufacturer is delivered to a cross docking warehouse) from different corners of the globe into a central hub. They are then reallocated into different planes according to their destinations and flown out in “bulk” to their final destination (just as product pallets from different manufacturers are broken into smaller units and mixed with other manufacturers’ products to form a truckload for final delivery to a retailer). Two operational factors that play a pivotal role in supporting this business model are the location of Emirates’ hub, and its fleet of aircraft.
The operational model – location
While the hub type of operation is not new in the airline industry, Emirates has successfully capitalized on its location, Dubai, a small state strategically located to reach 75% of the world’s population in a flight of less than eight hours, to build a fast growing and profitable hub based business model . The model works best on long-haul routes requiring refueling, such that by basing itself in a location that is central to Asia, the West and Sub Saharan Africa, Emirates doesn’t lose out to competitors by stopping in Dubai. Whether the choice of having the hub in Dubai is a function of strategy, luck or necessity is irrelevant to this analysis.
Being based in Dubai comes with other perks for the airliner. Dubai’s liberal work immigration policy, and proximity to Asia provides a constant supply of low cost labor. This is a key source of competitiveness. Emirates’ labor cost per passenger mile is half that of a typical European career . Most of this advantage comes from having a lower labor cost per employee. For instance, AIG’s average labor cost per employee, at $94,000, is more than 80% higher than the figure of $51, 500 for Emirates . Of course, Emirates also benefits enormously in this area from the absence of income tax in Dubai as gross wages do not have to be as high as the European rates to deliver similar net salaries. In addition to the tax benefits, Emirates operates in a union-free environment and does not have significant legacy pension costs .
Landing, parking, catering and handling costs are generally lower at Dubai International Airport  . Although pricing is nondiscriminatory, Emirates benefits the most from these lower rates as its aircraft spend the most time at Dubai International Airport.
Operational Model- Aircraft fleet
Another key to Emirates’ success is its decision to fly young, fuel efficient, super-sized planes. This allows emirates to reduce the expenses per passenger. For instance, Emirates has a 16% lower fuel cost per passenger mile compared to Virgin, a prominent international career . These savings allow Emirates to undercut fares of established rivals while still making money. Underscoring its incredible growth, Emirates is currently the world’s largest operator of both the Airbus A380 and Boeing 777 aircraft .
From 2016 going forward, Emirates plans to operate only the Airbus A380 and Boeing 777 aircraft in its fleet of over 300 aircraft. This level of standardization will also help Emirates keep maintenance costs and inventory low. With lower maintenance costs, Emirates’ modern fleet provides a cost advantage. This is enhanced by the use of large aircraft with high seat density . Taking aircraft ownership and maintenance costs together, Emirates has on average 17% lower cost per passenger mile than a typical traditional European international career .
A business model such as Emirates’ largely depends on an open skies policy, and bilateral agreements with destination governments. Being such a valuable customer of entire aircraft production lines has given Emirates some bargaining clout that has been useful in helping negotiate bilateral agreements with American and European governments who’s aviation policies have been protectionist historically .
The alignment and efficacy of the Emirates business and operational models cannot be overstated. Emirates ranked only 24th among international airlines as recently as 2000. Since then it’s achieved a six-fold increase in traffic, defined as passengers carried multiplied by the distance flown. The Dubai carrier zoomed ahead last year to join Lufthansa and Air France-KLM Group as the biggest operators of international flights .