View Poll Results: Is Emirates A Financial Scam?
Yes
27
15.52%
No
106
60.92%
Dont care
35
20.11%
Undecided
6
3.45%
Voters: 174. You may not vote on this poll
Is Emirates a financial scam?
Nov 20, 2014, 12:45 pm
#196
FlyerTalk Evangelist
Join Date: Jan 2005
Location: VCE
Posts: 14,165
Of course - I don't put it into this thread because I want to show that even with no cargo and a full fuel tank, you can still make ULH work with sufficient and realistic yields and load factors on pax revenue alone. I am trying to lean things to the OPs favor as much as possible!
In some of my previous posts (after post 50 or so) I did mention that these worst case cost numbers and potential revenue are in the real world not going to occur because you don't fill a plane's fuel tanks full if it isn't full in pax and cargo compartment, revenue managers aren't going to sell all the seats at the cheapest fare bucket if they want to keep their jobs and of course, cargo revenue - something I am not too familiar with seeing as revenue there isn't purely based on volume and weight of course!
In some of my previous posts (after post 50 or so) I did mention that these worst case cost numbers and potential revenue are in the real world not going to occur because you don't fill a plane's fuel tanks full if it isn't full in pax and cargo compartment, revenue managers aren't going to sell all the seats at the cheapest fare bucket if they want to keep their jobs and of course, cargo revenue - something I am not too familiar with seeing as revenue there isn't purely based on volume and weight of course!
Passengers carried per aircraft per day 548
That is really outstanding and way outside industry averages.
Nov 20, 2014, 1:02 pm
#197
Join Date: May 2009
Location: SIN (with a bit of ZRH sprinkled in)
Posts: 9,456
This thread is even more fun when read drunk! You should try it.. (of course in true FT spirit in a airport lounge)
Seriously OP, the whole board tells you that you are wrong yet you insist on being "right".. are you related to KJU? :-P
Seriously OP, the whole board tells you that you are wrong yet you insist on being "right".. are you related to KJU? :-P
Nov 20, 2014, 1:16 pm
#198
Join Date: Jun 2014
Programs: EY
Posts: 852
This thread is both hilarious and infuriating to read, as OP just does not want to pay any mind to any of the facts and models presented to him that go against his hypothesis. The CAPA analysis, for one, still has yet to be refuted (or even mentioned) by OP.
Last edited by xobile; Nov 20, 2014 at 2:56 pm
Nov 20, 2014, 1:36 pm
#199
A FlyerTalk Posting Legend
Join Date: Jan 2002
Posts: 44,624
Hey, who took the last of the popcorn and didn't refill
It seems to me that the one person who is insisting it is a scam will continue to claim it as such regardless if anything to the contrary
It seems to me that the one person who is insisting it is a scam will continue to claim it as such regardless if anything to the contrary
Nov 20, 2014, 1:45 pm
#200
Join Date: May 2009
Location: SIN (with a bit of ZRH sprinkled in)
Posts: 9,456
Dave, no worries, just refield the popcorn and beer (obviously on Airlines cost)
I am really sure at this point that OP from the start was working for EK to make the arguments of its enemies so laughable that EK will profit from them. I mean, seriously, no other excuse exists for that much ignorance, is it?
I am really sure at this point that OP from the start was working for EK to make the arguments of its enemies so laughable that EK will profit from them. I mean, seriously, no other excuse exists for that much ignorance, is it?
Nov 20, 2014, 3:20 pm
#201
Join Date: Nov 2007
Location: KYE
Posts: 4,156
AA CEO Doug Parker -- who is now the most talented and experienced airline CEO in the world, and who built up tiny America West airlines into the largest airline in the world, while at the same time transforming the entire USA airline industry -- has recently said the same thing as DL's CEO. The math doesn't add up.
http://atwonline.com/blog/gulf-airli...-subsidy-claim
Now if you want to believe you can make money connecting pax between Europe and Asia on giant aircraft at a low cost Middle Eastern airport, I could believe you (not a strategy I'd invest in, but believable). But when you start flying A380s on long thin routes to the USA where 787s would be an incredible financial risk, there's more going on here than "a great product at low cost." No one can establish how this can be profitable. As previously noted, the fuel burn alone is too much -- even if you sold every seat.
http://atwonline.com/blog/gulf-airli...-subsidy-claim
Now if you want to believe you can make money connecting pax between Europe and Asia on giant aircraft at a low cost Middle Eastern airport, I could believe you (not a strategy I'd invest in, but believable). But when you start flying A380s on long thin routes to the USA where 787s would be an incredible financial risk, there's more going on here than "a great product at low cost." No one can establish how this can be profitable. As previously noted, the fuel burn alone is too much -- even if you sold every seat.
1- AA CEO...most talented: This is an opinion.
2- math doesn't add up: To the contrary, evidenced by statements made by EK executives, reports, as well as other airlines that fly ULH to/from the US further proving that such concept could work.
3- The referenced article: it actually contradicts what you think is true.
4- I could believe you: You're putting carriage before horse with this statement. Almost everyone apart from you has presented valid arguments based on analyst reports, macro and micro analysis, and numerous counter examples.
5- The 787...incredible financial risk ...(making using the) A380 (plain nuts): These aren't long thin routes. These routes shout VOLUME. If an airline was to deploy a 787 on M.E. - US it would be like shooting themselves in the foot for restraining capacity.
6- No one can establish how this can be profitable: Are you blind? like seriously? EK flies 4x A380s to Australia EVERY day and they're packed both ways (and 7 other flights on 77W). They depart with the A380 at way under MTOW to SYD/MEL/BNE allowing them to utilise the full capacity in seats AND cargo. EY is deploying the A380 next year because they can't wait to rid of the A346 that has to operate at MTOW. If these routes weren't profitable EK would be out of their minds to send the A380, and EY would be even crazier for contemplating the move. Then there's QF that go to DXB/LHR twice daily from SYD/MEL. And QF is known to chop off routes (FRA, SFO for example) that albeit profitable/high yielding because they find better profits of using the frames and capacity elsewhere.
7- As previously noted, the fuel burn alone is too much -- even if you sold every seat: noted where? fuel burn is only a single variable, and it's expected to be high.
Again and again you mumble nonsense without any regard to basic logic.
Nov 20, 2014, 5:59 pm
#202
A FlyerTalk Posting Legend
Join Date: Dec 2000
Location: Shanghai
Posts: 42,055
In post number 68 I go over the profitability feasibility of an A380 on an ULH route. To recap, the A380 max fuel load is 85472 US Gallons which is a max fuel cost of 260,000USD if you burnt every last gallon of fuel in the tank. If EKs fuel cost represents 38% of their total costs (including finance, depreciation, etc. etc. - from their audited accounts), that makes the breakeven revenue for a flight that burns all the fuel, aka a ULH, 684,210USD. If you sold every seat you would make: 14 F at 10000 USD, 76 J at 6000 USD and 399 Y at 900 USD - 955,100 USD. This is profitable. Breakeven load is 73%.
I have just demonstrated that flying an A380 to Texas is profitable if you fill up 73% of the seats across all cabins, have I not? Or do you disagree with my mathematics?
I have just demonstrated that flying an A380 to Texas is profitable if you fill up 73% of the seats across all cabins, have I not? Or do you disagree with my mathematics?
On a semi-related note, I don't think it's necessary for IAH-DXB to be a smashing success standalone as long as it benefits the rest of the network. Having 380s coming in from all over the world provides passengers to fill up 380s that go to other places all over the world (including the most profitable mid-haul routes).
Nov 20, 2014, 10:09 pm
#203
Join Date: Jan 2012
Location: Durban, South Africa | LHR
Programs: Emirates Skywards Gold | South African Airways Voyager Gold
Posts: 863
My gut tells me that your fare estimates are a bit on the high side in part because most fares get spread across two flights.
On a semi-related note, I don't think it's necessary for IAH-DXB to be a smashing success standalone as long as it benefits the rest of the network. Having 380s coming in from all over the world provides passengers to fill up 380s that go to other places all over the world (including the most profitable mid-haul routes).
On a semi-related note, I don't think it's necessary for IAH-DXB to be a smashing success standalone as long as it benefits the rest of the network. Having 380s coming in from all over the world provides passengers to fill up 380s that go to other places all over the world (including the most profitable mid-haul routes).
I can do a dummy booking for F JNB-JFK return for R63,728 (USD 5,824).
Last edited by Ahmed777; Nov 20, 2014 at 10:15 pm Reason: Correcting figures.
Nov 20, 2014, 11:12 pm
#204
Join Date: Nov 2013
Posts: 5,454
My gut tells me that your fare estimates are a bit on the high side in part because most fares get spread across two flights.
On a semi-related note, I don't think it's necessary for IAH-DXB to be a smashing success standalone as long as it benefits the rest of the network. Having 380s coming in from all over the world provides passengers to fill up 380s that go to other places all over the world (including the most profitable mid-haul routes).
On a semi-related note, I don't think it's necessary for IAH-DXB to be a smashing success standalone as long as it benefits the rest of the network. Having 380s coming in from all over the world provides passengers to fill up 380s that go to other places all over the world (including the most profitable mid-haul routes).
Looking at EK fares to and from the USA, it seems that their revenue managers have aggressive targeting of the source markets. For instance if you originate in the USA and terminate in DXB, which our thesis says is not going to be much of the pax traffic the fares range from:
Y:250-6442 (not a YY fare/endorsable fare!)
J:11823-15514
F:24759-29104
Obviously you'd allocate half the revenue from the fare to a one way sector giving reasonable revenue of F:13k,J:6k,Y:1k - but I know, I know, it's not the full story as this is probably not most pax yield! Most pax are connecting so...:
If we add one of our infamous connecting routes such as BOM or BKK where EK flies an A380 (let's stack up lots of costs for EK!) - on a rough calculation where you allocate the revenue for an outbound/inbound at 3:1 for BOM or 2:1 for BKK based on a sector length (comparable aircraft etc., so not such a mad allocation) and then check fares ex-USA:
Y:320-7387,J:4120-11774,F:21588-25632
So EK are playing a dangerous game here on their connecting routes by compressing yields and increasing costs. Does it stack up on the longer, more costly sector - if it does for that, then I think it would follow that the cheaper sector would also be viable (depending on revenue allocation). On the 2:1 revenue allocated BKK route:
Y:800,J:4k,F:11000 gives 777k, allocated 2:1 so that means 512k for the ULH sector. This might or might not be a loss - depending on the fuel cost % for the ULH flight and other revenue streams.
This is where I have to stop being so generous to the OP and start working on real world numbers, so more realistic fuel costs at 2.7/2.8USD per gal, and the fact the plane may only be fuelled 90%, and that there might be non-zero cargo revenue. This is also where real world revenue gets more realistic and therefore much more in line with net margins of the 1-4% range instead of the 10% earlier. So EK has a risky business model sure, flying to the US with A380s, but that risk is mitigated by testing demand with 777s before.
These revenue is based on ex-USA fares. Many posters, myself included, say that EK doesn't depend so much USA originating traffic but actually on their connecting source markets like BOM or even JNB! This is where it gets rather dangerous for EK and on the face of it gives OP a credible case:
BOM-JFK/IAH etc. fare ex-BOM comes out at:
Y:502-1971,J:2476-6335,F:6999-11047
ex-JNB:
Y:215-2803,J:1835-5879,F:4674-5168. (OT: for a mileage run ex-South Africa that looks quite good in F!)
ex-BKK:
Y:945-1769,J:2356-5184,F:11282-12807
On our rough allocations BOM-USA would be 1:3, BKK-USA 1:2 and JNB-USA 1:1.5, you can see that the margins here are much, much thinner. Do they work out?
BOM:399*550+76*1700+14*5000=418,650 allocated to the USA portion:313,987
BKK:399*1000+76*1500+14*5500=442,500 allocated to the USA portion:389,400
JNB:399*550+76*1400+14*3000=367,850 allocated to the USA portion:220,710
Now, you can see that EK are probably not going to happy if their entire connecting traffic to the USA is coming from JNB. But I would argue fares are so low there because there isn't that much demand from that market. Also look at BKK's F prices - local market who would buy F have the $$$ to spend.BOM's J prices - tighter band reflecting corporate travel setting a nice high floor to fares, but lower prices on promotional Y and F travel. So I think EK are certainly targeting their source markets carefully to make sure that the effective yields work out profitably.
So enough to cover fuel burn on the ULH, but enough to cover costs? This is where I have to stop being so generous to the OP and start putting more real world numbers in.
Firstly fuel. Assume 95% fill at 2.7USD/US Gal. Fuel cost is 0.95*84572*2.7 = 216,972.18.
Assume that on ULH fuel burn comprises 43% of cost - total cost based on this fuel is: 504,586USD.
So on a total traffic originating in ex-ME/SE Asia basis you're looking at a revenue gap of 110-190kUSD. This is where we can bring in cargo demand - as another poster said, potentially 200kUSD. But I think you can bridge the gap by looking at a more realistic distribution of fare yields across the true source markets - which are likely to be a combination of some ex-USA/ex-DXB pax (who seem to be almost subsidising the rest of the pax) and higher yielding connecting pax from major source markets like India and ME region.
I think we can conclude that it only takes a little bit of ex-DXB and ex-USA demand and some cargo, and you get these flights into the 1-4% net margin territory which is considered an acceptable industry result. The rest of the pax can be these low margin travellers - and I think part of the strategy there is to shift enough people to EK so that eventually it becomes their carrier of choice - and then premium carrier of choice later on.
Nov 20, 2014, 11:14 pm
#205
Join Date: Nov 2013
Posts: 5,454
Still, EKs utilisation rate is very high for the industry and that adds to profits!
Nov 21, 2014, 12:09 am
#206
Moderator, Hilton Honors
Join Date: Nov 2003
Location: on a short leash
Programs: some
Posts: 71,422
More helpfully would be a financial explanation of how, reportedly without gov't subsidy, you could run a business model that has shown repeated failure everywhere else in the world. And then "double down" by flying enormous aircraft to several USA cities without any obvious way of making those routes profitable. While there are plenty of Emirates believers here, there's also 65 years of jet-age transatlantic business history. Nobody has ever made this work. Nobody. The first airline to do it, profitably, will not be from in a mid-sized Middle Eastern city.
Nov 21, 2014, 12:33 am
#207
Moderator, Hilton Honors
Join Date: Nov 2003
Location: on a short leash
Programs: some
Posts: 71,422
It's a little bit of a skewed statistic though because EK have an entirely wide body fleet which they fly on short haul. I mean, take an A380 that flies to JED - 100% full both directions and that airframe has, in a 8 hour window, already flown 1000 pax!
Still, EKs utilisation rate is very high for the industry and that adds to profits!
Still, EKs utilisation rate is very high for the industry and that adds to profits!
Nov 21, 2014, 9:20 am
#208
Join Date: Aug 2006
Programs: BA Blue
Posts: 361
More helpfully would be a financial explanation of how, reportedly without gov't subsidy, you could run a business model that has shown repeated failure everywhere else in the world. And then "double down" by flying enormous aircraft to several USA cities without any obvious way of making those routes profitable. While there are plenty of Emirates believers here, there's also 65 years of jet-age transatlantic business history. Nobody has ever made this work. Nobody. The first airline to do it, profitably, will not be from in a mid-sized Middle Eastern city.
Why you will ask because I will say limousine pick up included meaning they can go via Heathrow or Gatwick whichever gives the best value flight and the same on arrival in New Zealand meaning less stress after a long journey, nice new planes all the way your best loved plane the A380 at the moment, yes with a short stop in Australia but maybe by the time they go direct flights from Dubai.
Good lounges if they have time to use them and keen prices from the UK, rather than them having to start from Europe to get better prices on BA.
All in all a better well connected, did you see what I did there, journey with a better experience overall.
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A scorpion in Swened?
Last edited by eightblack; Nov 21, 2014 at 10:59 am Reason: Removed personal attack
Nov 21, 2014, 4:07 pm
#209
Join Date: Nov 2007
Programs: BA Emirates
Posts: 73
My experience is similar to that described by DeadManFlying. On 4 holidays to India, 1 to Australia and 1 to New Zealand from the UK, my wife and I have flown Business Class from MAN - chauffeur drive for the 1 hour trip to and from home - and on each holiday we have flown in to one airport in our destination country and back from a different one, again with a chauffeur drive to and from the hotel. Each case involved one change of plane in Dubai. No other airline offers us this flexibility without having an internal flight at each end of the journey. We also manage to avoid the hell that is LHR. The only long haul destinations that we have visited in recent years where EK are not the best option are in South America and we find that using KLM from our local airport, Leeds Bradford, gives us similar easy routings.
Life looks a bit different outside the USA. Perhaps iahphx should try planning routes from Yorkshire.
Life looks a bit different outside the USA. Perhaps iahphx should try planning routes from Yorkshire.
Nov 21, 2014, 4:31 pm
#210
Join Date: Oct 2009
Posts: 281
I think this guy hasn't travelled much outside the usa.