Dave Noble

Must stop feeding ....

When I get on Emirates's aeroplanes on most routes I have flown there is a decent load of passengers onboard; it is not running empty aeroplanes ( ok SYD-AKL can be a bit of a ghost town in 1st and business , but that is a strange anomolous route )

Emirates also has a product that is one I choose to purchase due to its quality whilst the US carriers seem to rely on giving away its premium products like candy and relying on people being addicted to FF mileage earning --- for a US carrier , haute cusine seems to be ice cream with sauce and creamlookalike

Actually selling 1st class seats to people prepared to pay 1st class prices and same for business class is a way to help have a profitable journey


Try producing facts and evidence rather than innuendo - it is not "obviously fishy"

CaptainEKAirbus

You do raise an excellent point. Before you dismiss that "connections in Dubai (are) nonsense", it's important to remember that a lot of destinations do not have direct flights to the US, but could be conveniently connected via Dubai. Look at the huge oil industry in Iraq, how would a businessman from Houston expect to get to Basra? For many years now, there's been no direct flights between Iraq and the US, let alone a flight from IAH/JFK - BSR. 'Businessmen' will use DXB as a connection point to get to BSR from the US.

Also very important to remember not to assume that all 'USA businessmen' passengers traveling on US flights ex Dubai are solely 'USA businessmen'. I can guarantee you EK is also an important airline for businessmen of other countries including India, Pakistan, Saudi Arabia which all have significant business relationships with the US. With this said, you are probably still wondering why these businessmen would fly EK then? Well in the MENA region/Indian subcontinent, the EK brand is huge, and a lot of Indians, Pakistanis, Saudis, all highly value the EK brand.

Don't forget that KL uses the exact same principle and has been very successful for a very long time! Using Canada as an example, KL has maintained flights to YYZ, YUL, YVR, YYC, and is now starting YEG. Do you know how many flights AC has per week to AMS? Currently 0. (Yes flights are starting in 2015). The O&D demand from Canada to AMS is very small relative to other countries, however KL has managed to serve all these Canadian destinations because of the onward connectivity it provides from AMS.

Perhaps, you're under the impression that businessmen are not price sensitive at all. I would tend to think this is false, as a lot of corporate policies stipulate business class travel, but will take more economically favourable routes to save travel expenditure too. EK maintains a lot of foreign corporate contracts.

The main reason why there are so many flights from the US to the Middle East than there is from the US to India, is largely because the Middle Eastern airlines will accept lower yields to fly passengers from the US to India than Indian/US airlines. This is largely based on their cost structures or their ability to generate revenue. Looking at EK's last annual report their RPKM was 0.302 DHS, which translates to a RPM of $0.113. In comparison the US average international RPM for September was $0.147. EK attracts lower yielding passengers.

Why is this? Well because EK goes on the concept of offering more seats at cheaper prices to increase quantity demanded. That's a basic economic principle; by doing so, it can attract the many price sensitive customers that other airlines couldn't.

So how do they attract lower yielding passengers, yet remain profitable? By achieving a lower cost structure than competing legacies. Also, it puts more physical seats in its aircraft than competitors, which generate the additional revenue. Look at how EK has been notorious for being one of the first airlines to use the 10-abreast configuration on the B777. Other airlines including AA and AC have all since adopted this configuration on their B777s because they know the majority of passengers are price sensitive, and don't care about the width of their seat.

The economics of EK make sense, and the principle of achieving lower cost per mile/KM than it's competitor is a fundamental component. Some airlines just aren't capable of doing it as well as the ME3 because of huge overhead cost structures that prevent it.

If all of this hasn't convinced you, have you ever considered the cost it would be to subsidize EK? Even if somehow the Dubai government was able to afford subsidizing 10% of EK's annual costs, that would amount to about $2.13 billion per year. Anyone who's followed the Dubai financial situation since 2008 knows that the Dubai government doesn't have this financial ability.

CaptainEKAirbus

British Airways CEO Willie Walsh:
"I just got a copy of its [financial] accounts the other day, and they look like a normal set of accounts to me. I have much more experience in dealing with Emirates, and have no doubt that they acted in a rational, commercial way in every way that I have seen."


United Airlines CEO Jeff Smisek:
"I would compare the policies of United Arab Emirates, which has done a terrific job recognising the value of transportation, of travel. They’re quite supportive. And by support, I don’t mean subsidies. I mean understanding the value and the jobs this industry drives."

http://centreforaviation.com/analysi...olitics-192138

edy4eva

While I don't have the evidence to counter your vague claim, which is 'something fishy about M.E. airlines in general, EK singled out', here's my take:

Claiming that these carriers are abnormal requires that you have some hard evidence to back it up. Simply establishing credibility to the opinion based on your experience, and pointing out a market for a single carrier and claiming the numbers can't add up is an invalid argument and a warped view to say the least.

But let's assume your claim is valid. At bare minimum you'd expect a culprit with a motive taking advantage out of this situation. One can't allude to the identity nor the motive simply because neither exist. That's because if they did exist we'd see EK running in the red for the past x number of years years with a bunch of old aircraft begging to be replaced, along with dozens of failed expansion/restructuring plans. And of course owners throwing cash at it -or borrowing in the hope it survives. But hey, you're the expert here, I bet you can name many airlines (some of them US based) that fit that description without them looking/sounding fishy.

If EK was in reality losing money, then how could they apply -successfully for credit for new aircraft? And how on earth would they be able to keep expanding their network as well as the number of passengers and cargo carried?

As for the mention about economics, if EK holds off from expansion they might save money from having to invest in new routes/aircraft/services, hence bolstering their short term profits but forgoing future potential profit. The folks at the Emirates Group are good at, and lucky to be able to continuously dig up market opportunities that other competitors don't have the resources or capability to snatch.

In short, you present a baseless opinion that has no merit.

Kiwi Flyer

Have you actually flown EK? Pretty much every EK flight I've taken there has been a very high proportion of passengers heading for transit security at DXB, not headed for immigration.

eternaltransit

With respect, stating that something is set in stone and immutable for eternity such as your thesis that the only way to run a hub operation is with solid O&D traffic: This is Airline Economics 101 is fairly reminiscent of the incredulous Facts that have been uttered in the past such as: "Buying music over the internet? That will never catch on" and "Streaming movies over the internet?" and "Social networks? What a fad", "What's the point of 140 characters?!". I sense your view of the airline industry is informed by the paradigm of how airlines have traditionally made money (high yield typically business routes with breakeven economy loads) but I am afraid that the world has moved on from there and that there are other viable business models. Ryanair for example, is the most profitable airline in Europe. I think that business hardly qualifies as high yielding. Of course, IAG hangs on because of its TATL product and skew towards high yield traffic, but as Willie Walsh has admitted, a large part of their current profitable state is down to their painful restructuring a few years back. AirAsia is solidly profitable.

What many posters above, myself included, have been trying to say is that high yield revenue pax based business models are not the only way to make money in the airline industry anymore - although in your specific example, I would argue EK does indeed attract these pax ex-USA. EK actually profits from Y whilst attracting lower yields and is only able to do this through their lower cost structure.

You are correct that the economics are unlike other airlines - that's because there aren't many airlines whose entire business models are based around transit. But a transit based model is viable under low cost per kilometer because you can afford to attract the price sensitive low yielding traffic and still make money.

What's changed the world since your initial understanding and idea of what "Airline Economics 101" was formed is that there are now an extra one or two billion people in the world who can now afford cheap air travel. They may only fly once a year, and go for the cheapest option they can, but they now do it. You have:
- Europeans who are now used to low cost travel in their home region and so look for cheap deals to SE Asia and don't care about the transit delay
- A billion people in the Indian subcontinent, of which perhaps 200 million can now afford a yearly flight to visit family or connect to their diaspora
- The rise of Asia's middle class - China and SE Asians who can now afford a yearly trip to Europe or the USA and don't care about loyalty programs, they just don't want an outdated product and poor service on legacy carriers (unfair or fair criticism)
- Africa, both its emerging wealth and inward investment from Asia and Europe opening up business opportunities
to name but a few trends. There's a reason that BKK has flights from Irkutsk and Novosibirsk as year round schedules with good loads!

Sure, all this additional demand is not "high value non stop travel" - which is why many airlines have not been able to take advantage of this and why many new entrants have - and why some legacies have gone to desperate measures to try and tap into it by establishing one or many "low cost" subsidiaries. But it is demand that can be profitable - if your cost structure can make it work. And I argue that EKs does make it work very well - especially with their hub designed for such things (not just the actual design which I think could be improved, but things like the government allowing 24 hour operation etc. etc.).

I'm afraid it strikes me that the tone of your posts in being entirely USA-centric in its economic perspective have perhaps blinded you to the explosion of new economic realities around the world which EK are a small part of. If you can be convinced that your view of "Airline Economics 101" can be changed, I think you would find these new business models viable and interesting. If "Airline Economics 101" is a fundamental principle of the universe that Cannot Be Violated, then I don't think there is anything anyone on this board can do to persuade you otherwise.

eternaltransit

Also as an aside to answer your question about why aren't there more direct flights USA-India:

1 - Indian aviation protectionism: they don't want to allow more direct competition to AI etc. EK has had to work very hard to even get the slots and aircraft that they have. They want more.
2 - As said before, the Indian market is price sensitive. A non-stop flight would command a premium, not just for additional fuel costs, but also because "Airline Economics 101". Perhaps US carriers have done the analysis and seen they can't compete on price with EK so would struggle to get share so they would rather deploy capital on a route that will get a better return, such as AAs JFK-LAX A321T service. But the competition isn't distorted by any subsidy on EKs part, but the fact that EK can literally offer a cheaper a fare and make money.

subject2load

For someone like myself who has had a fair amount of personal experience of EK (and, in the past, some business dealings too) this thread has been both interesting & instructive.

Whilst not enjoying anything like the level of commercial insight shown by the likes of CaptEKAirbus, eternaltransit, edy4eva, I find their fact-based analysis and detailed knowledge of airline economics to be in stark contrast to the rather flaky arguments, vague assumptions, totally subjective opinion, and highly dubious conclusions put forward by the OP. The latter's comments come across as textbook theories (the phrase "watching too many movies" springs to mind ....!) versus the reality of what is actually happening out there in the real world, and the proven ability of Emirates to develop a fully-costed business plan AND have the courage to stick to it, regardless of the peaks & troughs of demand for air travel over a protracted period of time. It's well-known that EK were placing large orders for new aircraft when most other carriers were busy predicting doom & gloom. Many of the doom merchants have since paid the ultimate price for their lack of clear strategy, whilst the Emirates story continues to grow.

Emirates may not be setting the benchmark in quite the way they once did in terms of innovation and service standards, but without their pioneering approach to development of the Gulf region as a major hub, the other ME carriers who now compete with them might never have been created. And I dread to think exactly what sort of advances (if any .....?) we would be seeing today from US carriers if the Middle East & Asian airlines had not raised the bar for the modern, ever-demanding business traveller.

eshaq786

I don't claim to be an expert like you but even I know that Emirates model is based on transit traffic which is HUGE. Transiting isn't an issue with EK especially when spending time in the terminal. Business travellers have a huge lounge and first class have it even better. Transiting isn't the big obstacle you seem to think it is. Transit traffic is the main earner for EK. Not sure how much easier it could be explained to you as others have tried.

iahphx

There sure are a lot of supporters of Emirates here (not surprising because it's their message board!) who have very strange ideas about airline finance. Folks, if this business model worked in the real (unsubsidized) world, I can assure you that there would be lots of other airlines doing it in many other parts of the world. They don't because it's impossible. The model is theoretically possible at some level of scale to connect European markets with Asian and Pacific markets due to geography. But any rational person who looked at a globe would quickly realize that there is no theoretical possibility of making money connecting pax from N. America to Asia/Pacific in the Middle East using A380s. If this was a "real" business plan, you undoubtedly would use an aircraft like the 787 which was designed to be cost efficient on long thin routes. Not that this would actually be a business plan that works, but it would be theoretically possible. The fact the Emirates is using A380s to connect long thin routes with limited demand, tells any rational, knowledgable observer of the industry that this isn't about profits. If you're not willing to try to understand this fact, I can't really discuss the matter further with you. It would be like believing you could sell complete steak dinners profitably in NYC for 5 bucks ("oh, but their costs are lower!").

Glamette

I am not a supporter of Emirates and never flown them. If it is not about profits, what do you think their end goal is? To thrive on subsidies? I just stubbled upon this post and am curious

eternaltransit

Let me preface this by saying I have no vested interest in cheering for EK or any other airline - I fly them because they suit my needs for an acceptable price on the routes I take.

Before addressing your assertion that a non-subsidised transit-oriented operation is impossible to establish anywhere in the world and such their existence is a sign of state subsidy I hope I understand your argument correctly, that is:

- Airline profits are made through high yield business travellers who only use nonstop services
- Connecting traffic has negligible impact on profitability because high yield passengers do not choose services that transit/stop, therefore we can discount any profitability attributed to connections
- DXB is a small city with negligible O&D traffic with respect to the USA
- Therefore it follows that the revenue on routes to DXB served by EK from the USA must be low
- Any commercial operation would not deploy A380s, a large capacity plane which is designed for hub to hub operation on routes with low yield traffic (it would use something like a 787 Dreamliner specifically designed for point to point traffic)
- DXB is not a hub in your evaluation as it cannot sustain O&D traffic
- Therefore it makes no commercial sense to deploy A380s on USA routes
- Therefore it follows that EK is not operated on and subject to a normal commercial competitive environment
- Therefore it receives direct state subsidy/is a scam

Is this about right? I apologise if I haven't quite caught the gist of your argument.

As you can tell from my previous posts, my overall point is that the historical economic and business environment that the previous status quo of airline economics was based on is no longer quite as relevant to the markets that EK operates in - and previous unsustainable and unprofitable business models are now profitable, given various conditions are met. As you say, I am perfectly willing to understand your argument (and I hope my question above demonstrates this) but I would also ask you to see if you are willing to accept the possibility that perhaps that the assumptions underlying various models in the past (such as "no one who pays any money connects") could be out of date.

eternaltransit

Just an aside about the other airlines doing major transit operations in other places in the world: there are I think few locations in the world that sit between major population centers, have purpose built facilities and allow 24 hour operations - noise is not a concern to the authorities in the UAE and to an extent the wider Middle East region. Contrast this with LHR, curfews at FRA, ZRH, SYD etc.

Of course I understand that your point was made in the wider context of the apparent unsustainability of A380 flights TATL/ME.

DYKWIA

Wow, some of you guys have a lot of patience

There's no point trying to rationalise with somebody that refuses to listen.

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.