View Poll Results: Is Emirates A Financial Scam?
Yes
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15.52%
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60.92%
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20.11%
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Is Emirates a financial scam?

Old Nov 11, 2014, 11:12 am
  #46  
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Originally Posted by Emirates202
He keeps telling us that we don't understand airline finance, but he can't seem to comprehend how EK works. I think almost everyone has told him that EK relies on connecting passengers, which is true (anyone that has flown EK or through DXB would know this) but he just doesn't listen or doesn't want to believe it for some odd reason.
If you are telling me that Emirates makes money on low yielding connecting pax, I am telling you that you are living in a fantasy world. There is not an airline in the world that makes "real" money doing this. It is not possible -- and it would be completely impossible on long-haul routes. The fuel cost alone of flying one pax roundtrip from Texas to Dubai on an A380 IF EVERY SEAT WERE FULL would be about $550. And that's before you pay the fuel for their connecting flight! This is, btw, why ultra long haul markets are so tough to make profitable (ask Qantas).

This is why every successful hub airport in the world -- except these Middle East hubs -- are in major cities with lots of high-yielding business traffic. You need the high yielding O/D traffic to sustain a hub. Arguing that these Middle Eastern airlines have invented some sort of business model that works around this reality -- and that there's enough business to sustain several airlines in the region all doing the same thing -- is like arguing that the rules of physics don't apply to them. It's crazy stuff.
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Old Nov 11, 2014, 11:43 am
  #47  
 
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Originally Posted by DYKWIA
Wow, some of you guys have a lot of patience

There's no point trying to rationalise with somebody that refuses to listen.
What can I say, it's a slow day at work...
Also the Internet is Serious Business. Serious. Business.
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Old Nov 11, 2014, 11:46 am
  #48  
 
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I think one opinion against the whole world facts won't bother.. Will it?

Let the guy to say what he thinks is right For him.. Despite all these replies still seems no fact can change his mind..

In my own humble opinion, BA does not do its job perfectly, from experience and people I know.. Many of (people I know including myself) changed to fly with EK from LONDON to HKG every month despite longer flying and connection times.. Something fishy, ha!

Regards
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Old Nov 11, 2014, 12:07 pm
  #49  
 
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Originally Posted by iahphx
If you are telling me that Emirates makes money on low yielding connecting pax, I am telling you that you are living in a fantasy world. There is not an airline in the world that makes "real" money doing this. It is not possible -- and it would be completely impossible on long-haul routes. The fuel cost alone of flying one pax roundtrip from Texas to Dubai on an A380 IF EVERY SEAT WERE FULL would be about $550. And that's before you pay the fuel for their connecting flight! This is, btw, why ultra long haul markets are so tough to make profitable (ask Qantas).

This is why every successful hub airport in the world -- except these Middle East hubs -- are in major cities with lots of high-yielding business traffic. You need the high yielding O/D traffic to sustain a hub. Arguing that these Middle Eastern airlines have invented some sort of business model that works around this reality -- and that there's enough business to sustain several airlines in the region all doing the same thing -- is like arguing that the rules of physics don't apply to them. It's crazy stuff.
It's not completely impossible - but it depends on an owner's requirement for margin/satisfaction with return on assets/equity of course.

Let's try a worked example:
On the long, thin, IAH-DXB route, an ULH configured A380 must be used so there is sufficient crew rest. That's 489 pax.

An A380 has a fuel capacity of 323,546l or 85,472 US gallons which I think you will find more familiar. Let's ignore the current low price of oil and therefore Jet-A. In 2012 and 2013 the average price of Jet-A was approximately 3.1 USD/US gal. At the moment I think options are pricing in 2.45 on exchanges so let's say 2.7/2.8 for now. But let's take the higher one for the sake of argument.

The maximum fuel cost for an A380 on a non-stop is 264963.20 USD. Shall we say 280,000 USD to give us some leeway.

So, on the ULH routes, the max cost of fuel per pax is 572.60 USD which is in line with your analysis.

So let's take prices. We'll take connecting traffic to BKK as that is likely to have the lowest yields. That's pricing out at 915 USD. Connect to BOM and it's working out at an outrageous 821.17 USD.

Let's strip out the taxes and airport charges which are 87.17 USD (to BOM) - that's 734 USD to EK. This leaves 161.40 USD to play with and spend on EKs cost structure.

I think many posters above, myself included, have made the point that this wafer thin gross margin is still enough for EK to remain sustainably profitable because of its low salary, catering and financing costs.

As we step up to premium classes we see fares of J: 6750 USD and F: 19250 USD. Taxes remain the same at 87.17 USD. These are not even the full fare prices - they increase of course, they go to 9k+/22k+. With 76 in J and 14 in F, I think you could see that the route could still be profitable with good loads (which they are). Your point that high value business fares make all the money still stands here - but the converse that the absence of high value business travellers means you lose big I think is not true.

You have discounted connecting traffic though, so let us check the fares for terminating in DXB.
Y: 957.30 - after tax that is 873 USD, J: 9311 USD, F: 26288.30 USD

I think you can agree that is a lot of scope there for profits with capacity of 14/76/399 in F/J/Y.

For these flights to be profitable, there needs to be a little J/F demand yes, but Y alone is not going to make these flights require a subsidy. And if EK can sustain low margin routes like the USA on their cost base - and I assume that the USA routes for the reasons you mentioned are the most expensive to operate, then the rest of their route network clearly can clearly support the USA expansion plans without resorting to anything like direct cash injections from owners.

Last edited by eternaltransit; Nov 11, 2014 at 12:19 pm Reason: grammar
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Old Nov 11, 2014, 12:10 pm
  #50  
 
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I would agree though that for US routes to work sustainably over the longer term, you would need to have at least some J/F traffic - but not to the extent that you need 100% load factors. There clearly exists at least some J/F traffic if anyone looks at the loads on EK flights to the USA. However, the Y prices I used above are for the cheap saver fares, which clearly not everyone on the plane will be buying - there will be at least some more expensive fare buckets purchased. For comparison, the flex Y tickets ex-USA price out at about 1900/2000 USD and flex J 9000/10000 USD. I believe there are some unfortunate forum members who have to pay those kind of prices

It may be that some people on ultra-cheap fares going from IAH-BOM are causing EK to take a small loss - but that cost would be more than made up for having just 1 J pax doing a rt. You can hardly sell J/F only on some routes and not Y - pax won't be having that...at the moment...

In fact 1 or 2 premium pax would more than make up for multiple super cheap Y pax on the same route. But here we are merging two models of airline operations - a per airframe revenue model and a per sector kind of thing. I think we should keep it simple and look at per airframe as that was your original point (A380s going to the USA).

And of course, no captain and flight or load dispatcher who wants to keep his or her job will allow a plane which is scheduled to leave with full loads take off with a full fuel tank - the art of dispatch is to put only the minimum amount of fuel into a plane (taking into account reserve and emergency of course!). So that saves on fuel costs as well. But for the sake of argument it's easier to illustrate with maximum fuel costs.

Last edited by eternaltransit; Nov 11, 2014 at 12:27 pm Reason: additional points
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Old Nov 11, 2014, 12:33 pm
  #51  
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Originally Posted by eternaltransit
So, on the ULH routes, the max cost of fuel per pax is 572.60 USD which is in line with your analysis.

So let's take prices. We'll take connecting traffic to BKK as that is likely to have the lowest yields. That's pricing out at 915 USD. Connect to BOM and it's working out at an outrageous 821.17 USD.

Let's strip out the taxes and airport charges which are 87.17 USD (to BOM) - that's 734 USD to EK. This leaves 161.40 USD to play with and spend on EKs cost structure.
But, remember that $161 -- which would have to cover EVERY SINGLE EXPENSE other than fuel -- only applies if the aircraft is full! What are the odds? The vast majority of customers choosing to fly to the fairly obscure places Emirates can take them too (India isn't the world's largest travel market from the USA, and that's the most important one Emirates serves from the USA) will likely choose airlines OTHER than Emirates. I would, given my high status in the major airline alliances. And I'm sure most other travelers would find a reason, too -- like better schedules, faster travel times, better known brands, avoidance of Middle East airlines, etc.

Again, if this was a "real business," you'd operate a Texas-Dubai route with a 787. I guarantee you that every other airline executive in the world would say that's your best shot (they probably still wouldn't do it, because the route sucks, but that's the best shot). NOBODY running a real business would fly an A380. Nobody. This is a fantasy (subsidized) airline.
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Old Nov 11, 2014, 12:37 pm
  #52  
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You are welcome to believe what you want to believe regardless of its validity

This really seems like just an anti Emirates trolling activity and that there is something against Emirates
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Old Nov 11, 2014, 12:42 pm
  #53  
 
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If the aircraft is not full, the fuel costs decrease correspondingly. We have also not taken into account cargo capacity on the route.

Load factor information is available from the US Department of Transport is it not? 90%+ to DFW for EK. 80-85% for LAX,IAH,SEA etc. DFW is also served by an A380 by LH. However, I think we have reached the difference in opinion: that the residual profit available to cover other costs is in your view not sufficient - whereas other posters argue that since the cost structure of EK is significantly lower than other mainline carriers, the residual profit is enough to sustain the routes even with lower (Y) yields.

Here is some information regarding connections:
http://centreforaviation.com/analysi...revenue-191919
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Old Nov 11, 2014, 12:46 pm
  #54  
 
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Originally Posted by Dave Noble
You are welcome to believe what you want to believe regardless of its validity

This really seems like just an anti Emirates trolling activity and that there is something against Emirates
Livens up the forum though! Good for my post count... Also could be an ingenious attempt by the OP to find counterpoints to his analyst reports for work!
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Old Nov 11, 2014, 1:10 pm
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I did some more sums for you, iahphx and I can certainly see your point even if others have been rather, shall we say, dismissive!

Worst case scenario is a fuel cost of 280,000USD. If we go by EKs own report which states that fuel in 2013/14 was 39.2% of expenses, let's call that 40%. So total expenses per flight will be 700,000USD.

In the worst case, with the DoT figures showing an 80% load factor, say that is entirely in Y at the cheapest fares: that's 319 pax. That works out at total revenue for the flight, if we take the worst case (the cheapest ticket to BOM at 734 USD net to EK), of 234,146USD , which works out as a crashing loss of 465,854USD.

So yes, it is within the realms of possibility for EK to be eating massive losses on these routes - but only if quite specific criteria are met, that is:
- each plane is completely fuelled
- the only seats sold are the cheapest tickets

If that were the case, then I would certainly agree with you that "something fishy" would be going on.

However, distribute that 80% across all 3 cabins and you get: 11*20000 + 60*6750 + 319*734 which works out at a healthy: 220,000+405,000+234,146 = 859,146USD - enough to cover your costs and make some sustainable profit.

Of course you can vary the pricing - not everyone on an 80% load aircraft is going to be on the cheapest fares, as other posters have said, there is high J/F demand from stations. But it can be shown that these routes can be profitable: and I am even basing these numbers on inflated costs for EK - as jet fuel doesn't cost that much at the moment and planes aren't totally fuelled (unless it's totally full, which would automatically lead to profit) and there is cargo.

Last edited by eternaltransit; Nov 11, 2014 at 1:19 pm Reason: more grammar...
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Old Nov 11, 2014, 3:29 pm
  #56  
 
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You don't need to be making money on every flight every day.

When you are as big as EK, you can have loss making routes. Capacity is king.
Some days you lose... some days you win.

There's also cargo traffic that people don't consider.
Remember EVERYTHING in the ME is imported.
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Old Nov 11, 2014, 3:34 pm
  #57  
 
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There is, of course, potentially another consideration involved in EK sending its A380s to IAH, and that is the much-discussed "bling" factor that might play very, very well in IAH for high-yield J/F passengers. EK's chauffeured cars to/from the airport, and good food/drink at its airport lounges can be offered for any of its aircraft, but it's only the A380 that offers F passengers the showers, massive loos, and outstanding private suites (ime with no through foot traffic of any kind) and the spacious, well-stocked bars in J. Add to that the outstanding inflight service from FAs who are half, or a third, the age of their counterparts on legacy airlines, and arguably the best IFE of any airline currently, and the bling-loving Texan will never look back.

JFK is of course another "bling" loving market, and I predict that EK could completely dominate the northern Italian, southern Swiss J/F passenger market if only they could place an A380 on the JFK - MXP route.

btw, I've received two very interesting emails in the past few days re tie-ins between Emirates and SPG, and Emirates and Virgin America. The OP's concern re Emirates not belonging to one of the three major Alliances may be somewhat valid, but I'm not at all sure that it isn't being addressed.
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Old Nov 11, 2014, 3:48 pm
  #58  
 
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Originally Posted by jbalmuth
There is, of course, potentially another consideration involved in EK sending its A380s to IAH, and that is the much-discussed "bling" factor that might play very, very well in IAH for high-yield J/F passengers. EK's chauffeured cars to/from the airport, and good food/drink at its airport lounges can be offered for any of its aircraft, but it's only the A380 that offers F passengers the showers, massive loos, and outstanding private suites (ime with no through foot traffic of any kind) and the spacious, well-stocked bars in J. Add to that the outstanding inflight service from FAs who are half, or a third, the age of their counterparts on legacy airlines, and arguably the best IFE of any airline currently, and the bling-loving Texan will never look back.

JFK is of course another "bling" loving market, and I predict that EK could completely dominate the northern Italian, southern Swiss J/F passenger market if only they could place an A380 on the JFK - MXP route.

btw, I've received two very interesting emails in the past few days re tie-ins between Emirates and SPG, and Emirates and Virgin America. The OP's concern re Emirates not belonging to one of the three major Alliances may be somewhat valid, but I'm not at all sure that it isn't being addressed.
If you can fill up your planes with a 79% load factor without being in an alliance, and you have ambitions to service all continents and take advantage of as many fifth freedom rights as you can (JFK-MXP / BKK-HKG / SYD-AKL etc. etc.) I wouldn't join an alliance and I think that is Tim Clark's thinking as well. It's only added unnecessary costs and locks you into a system that's unnecessarily restrictive: your fellow alliance partners would look unfavourably on your encroachment in all their "backyards"! I think it's telling that EKs aviation partners are Easyjet, JetBlue and Alaska to name major ones - carriers that don't compete in the same segment/with the same business model as EK. Their deal with QF is an exception that I think works out very well for EK whilst allowing QF to focus on its domestic operations.
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Old Nov 11, 2014, 3:57 pm
  #59  
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Originally Posted by iahphx
(India isn't the world's largest travel market from the USA, and that's the most important one Emirates serves from the USA)
You seem to think the traffic is all about Americans flying to DXB. Do you realise there are countries outside the US? These flights will be full of Indian IT workers heading home for family visits.
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Old Nov 11, 2014, 8:53 pm
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Originally Posted by DYKWIA
These flights will be full of Indian IT workers heading home for family visits.
...n people like me who have to shuttle once a month between BOM n JFK...
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