NOIR

I would add to that they are flying the A380 to DOH just because they basically can.

The way things are going I wouldn't be surprised if they start a SJ service to MCT. Now that would be an untouchable world's record for years to come.

Or even if there's a few SJ air frames laying around why not a DXB-DWC tourist tour with a flyby of the Burj al Arab, and Palm.

msm2000uk

One thing I must add here, is that the word 'announcement' does not necessarily mean that aircraft have been rostered.

QR have history with this, and I would never say a new route is confirmed, until the fourth flight leaves DOH to its destination.

M

eternaltransit

I agree - there's no way to replace lost revenue due to lower than planned for passenger numbers and yields, all across the world as well as a collapse in yields given their major target market and source of high yielding O&D traffic apart from DXB captives, the UK, has seen its currency drop 15%-20% against AED.

Given their 4 highest costs are fuel, employees, leases and marketing, cuts to deliveries would drop fuel and lease costs, there's 1.6 billion USD in the marketing budget and as you say, restructuring of DXB based EK staff costs.

They've run out of assets to sale and leaseback meaningfully, so without a restructuring of cash outlays I see EK having to struggle until then, or a sharp economic recovery which is highly unlikely imho.

avcritic

This seems to be the biggest mystery of all. Of the 80K(104K-24K) non-front line workforce, Engineering 3K, dnata remote stations 16K EK remote stations 5K leaves 54K at DXB.

54,000 ground staff at ONE hub, really. If they really need that many, they failed to look at automation opportunities.

I think while joyfully comparing with EU/US legacies on labor cost EK lost its way and hired way too many ground staff. Even if they are paid USD 600/pm, that is three times more than what same workers get paid in subcontinent ie., USD 200. Not sure about China pay structure.

NOIR

Some interesting news coming out of the Trump camp in the United States.

It looks like President elect Trump has chosen Elaine Chao as his transportation secretary.

Let's see which direction she will take regarding the subsidy dispute.

Here is what they say about her in a USAToday article,

“We look forward to working with Secretary Chao on federal transportation policies that are pro-connectivity, pro-growth and pro-traveler, which will hopefully include proposals to address the dire condition of U.S. airports within the first 100 days.”

http://www.usatoday.com/story/news/p...tary/94599810/

Now her husband Senator Mitch McConnell on the other hand seems very against Ex-Im Bank helping foreign airlines outside of the United States. He also seems to be very close to Delta Airlines.

Any insight people on how this could all pan out come January? Could this help the ME3 against their subsidy disagreement with the US3, or not?

I'm sure we have senior people in EK looking at this matter as we speak.

eternaltransit

Without getting this thread about DWC and DXB too sidetracked, I think you're right in that they had a large ramp up with poor financial discipline - then the bet backfired on multiple fronts.

I think the employees for core airline operations are inflated slightly though as they include EK's other operating businesses such as the hotels, Costa Coffee and alcohol import/export - which would be a good candidate to spin off imho.

Still doesn't explain why they need 10-20k staff in DXB excluding dnata and core flight operations (flight, cabin, maintenance)...

NoY

EK have got "fat & happy” (=complacent) - which might be fine when things are going really well - but that’s precisely when management need to get a firm grip on costs (amongst many other things, of course) & indeed prepare for when things aren’t quite so great. It would appear that they have not done this @:-).

Witness their woeful 2-3-2 slopey Business Class seat “refresh” on the B777 aircraft. That seat (& no doubt the cost) will be laughable against any major carrier’s product very quickly, if it isn’t already Plus their inflexible fleet strategy of soley B777/A380

The times they are a-changing fast but can EK? I don’t think so.

CaptainEKAirbus

I probably should have clarified what I meant by short-term, but in my opinion I could envision this being a problem for the next three or four years.

As already mentioned by several people on this forum, oil prices for Emirates have been a double-edged sword; on the one side it produces a lower cost operating environment, but it also reduces the premium traffic and more specifically, premium yields. Unfortunately even a lower cost operating environment is terrible for Emirates, because it makes many other airlines' non-stop routes just viable, taking away the need for Emirates' hub-and-spoke hub concept. I personally see oil prices rising and maintaining somewhere around $75 a barrel in the next three to four years. As a consequence, I could see Emirates regaining a lot of lost premium traffic and yields with the higher oil costs, as well as other airlines ceasing routes that were just viable under the lowered oil cost operating environment.

Without going into too much detail, I think Emirates' currency problem might also become resolved within the next three or four years, especially once some uncertainties concerning not just factors like Brexit, but the EU as a whole, become more certain. (Just on a side note, if my oil prediction is incorrect, it sure would be interesting to see whether the AED would remain pegged to the USD.)

I don't quite believe that it was certain that Emirates was not going to receive any supplemental frequencies in some of the aforementioned countries. Even looking at Canada's bilateral, the original bilateral was signed some 15 years ago. Similar story in China, the only modification that took place last year was allowing Emirates to expand to some secondary cities with no restrictions. India is a reoccurring story which was hoped to be changed with politics a few years ago. The last change to the bilateral agreement with France occurred five years ago. The bilateral with Germany hasn't be modified in years. In these countries alone, I could have seen the usefulness of at least 12 aircraft without counting the additional feed into the network that might increase demand for other destinations. With the variety of factors at play, I think it was a fair assumption that those in network planning had anticipated at least seeing a modest increase in some of these markets.

Costs and culture are two other huge issues for Emirates. There are tremendous inefficiencies in the company, somewhat attributed to the company being a state-owned venture, but also just general inefficient use of resources. The culture unfortunately has degraded in the company, and caused many staff to be less motivated; ultimately increasing the attrition, and impacting the airline's product.

Regarding the present overcapacity issue, one of the solutions I would have thought could have been imposed was to cancel or convert the remaining 777s on order, possibly converting them to 777xs. Retire the older 777-300/300ERs as they come off lease, replacing them solely on a 1 for 1 basis with 380s. Try and slow down the delivery rate of the 380 as much as Airbus is willing to do so, in order to defer some of the impending deliveries. That way, when a more regular operating environment returns in the next few years, Emirates hasn't bitten its foot off by drastically cancelling aircraft on order. Ultimately an order for the 787/350 should be made to coincide with Emirates' move to DWC.

Culture and costs can only be rectified by some internal management reorganization. Rightly I think Christoph Mueller has been hired to help clear up many of the inefficiencies, though I would not be surprised if the hiring of Mueller was ultimately intended to be a replacement for Tim Clark upon his retirement. In a video interview with Clark I watched several years ago, Clark mentioned he didn't envision any internal candidates succeeding him, and that Emirates would ultimately have to look externally. Perhaps Mueller and his way of doing things will prevail to help clean up inefficiencies and cut costs within the company.

Though it might seem like my suggestions are anything revelational for the company, shedding some costs to ride the current business environment until things improve in several years time, is about all I can see helping at the present moment. Would enjoy your thoughts on this matter.

Monarch man

CaptEK

I have one query with respect to your previous post, are you honestly suggesting that in the face of over capacity...replacing a 365 seat airframe with a 496 seat airframe? Replacing older 777's with 380's must surely be the road to ruin? Far better to replace older 380's with newer ones, and reduce the 380 fleet through natural attrition, replacing those airframes on all but the most premium specific sectors, along the way defer or delay further deliveries as much as possible whilst introducing the 350/787.
My impression is that TC is already looking to reduce his 380 exposure given his comments regarding RR engines and their fuel burn. The 380 is a fine aeroplane when you can fill it, increasingly it looks as though EK are struggling to achieve this.

avcritic

MonarchMan raised a good point.

If it is just one (or) two issues it can be fixed.

Replacing B77W with B777X (or) A380 will tank LFs further.

Slowing A380 and B77W deliveries is also difficult because both are at lowest possible production rates, ie., without manufacturers taking bigger hit. Airbus may be in a position to accept to speed up line shutdown, but without many other B77W orders and B777X EIS(If ever happens) in 2020, Boeing is in a bad shape.

If ET's analysis is correct, swapping old frames with new ones will be difficult, because lessors are not lined up to close new SLB deals, not knowing the future of existing lease returns.

They have to retain FC/CC/ENG and cull others. At this point layoffs, workforce reduction or redundancy elimination terms are too diplomatic.

BTW, can we have a EK restructuring thread now that it is happening.

CaptainEKAirbus

Definitely good points you two are making. At this point, I don't believe there is much Emirates can do to save LFs, I simply proposed keeping the number of aircraft frames the same, to try and wait-out the low demand. I also agree, replacing 777s with 380s on a 1 for 1 basis will not only make LFs even worse, but also profits/losses in the short-term, however this slump in demand might only be for the next several years.

Emirates is really stuck between a rock and a hard place with the aircraft on order. Their 380s are all on 12 year leases, I don't have any specifics on what it would cost Emirates to terminate the contract early, but I would imagine there wouldn't be much of a cost saving to retiring the early aircraft. That makes the first retirement for the A380 occur in July 2020. Potentially one proposal that could be considered would be to (sub)let/sell future aircraft deliveries to those considering the 380. An airline like BA comes to mind; they have a fleet of existing RR 380s, of which Emirates has on order, with Emirates' price of $234m per aircraft, potentially this would become an attractive option to BA?

As we've discussed with the 350/787 option, even if ordered today, it would still be most likely three of four years down the road. One other possibility that we haven't considered was the possibility of ordering the 330-8/9, which would most likely have production slots available starting in 2018. If the requirement was to find an aircraft for short-haul operations, and take back many of the routes from the 777 that don't require the capacity, the 330-8/9 are both contenders.

NOIR

I would also like to add to the difficulty is if EK differ/cancel/stall the remaining A380 order they would be terminating any potential for a future NEO version, and the CEO to be frank.

In all honesty if you ask me it's the Super Jumbo that still gives EK that "WOW" factor. With out it it's just another airline unfortunately.

Will discuss in detail my view when I have more time.

NOIR

US airlines have welcomed President-elect Donald Trump’s nomination of Elaine Chao as the next transportation secretary.

If confirmed, Chao will take over the reins at the DOT as major US carriers continue to lobby the agency on issues involving foreign airlines. US mainline carriers and labour unions are lobbying their government to take action against three Gulf carriers for alleged subsidies.

https://www.flightglobal.com/news/ar...tation-431968/

DYKWIA

On the same day the rumours about a big Boeing 787 order arise. Funny that

nocturne14

Its not as straight-forward as it seems to up-gauge an aircraft from 777 to 380s. Aside from the economics on higher running costs for the A380 and the need to fill more seats, there is also an issue of approval by the respective airports.

They currently deploy 5 daily flights to SIN. 3 are 777s; 2 are 380s. They have been wanting to up-gauge all five flights to 380 for a while, but approval has not been given and unlikely to given in near future. You would expect that other major airports might do the same as well. Also, the infrastructure to handle 380s are not available in many airports worldwide for which EK will be the only carrier they serve with 380s. This will be a big challenge.

It will be interesting to see how this will pan out.