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.