iahphx

No global airline has ever made money on their economy cabin. This is why Freddie Laker went out of business, and everyone else who's tried has also failed. I guess Norwegian is trying now. Wish them luck -- they'll need it.

There is wide consensus in aviation circles that the vast majority of customers flying Emirates from Texas are foreigners travelling to India (and similar markets like the Philippines) on cheap fares. This obviously makes sense, because it's hard to imagine how else you'd fill 500+ seats to the Middle East. The fact that nobody else in the history of aviation has managed to make money offering such cheap long haul premium service should give great pause to all the cheerleaders on this board. As should the obvious paucity of demand for biz travel to the Middle East sufficient to fill gargantuan aircraft with high-paying customers. I mean, just use your noggin for a second: isn't it more than a bit weird that most of the A380s in the world are being flown on low density routes by Middle Eastern airlines? If that doesn't make you suspicious, nothing will.

Check this thread in 5 years and we'll see how well your theories pan out. There are hundreds of millions of dollars of funny money floating around this effort, and this reality will eventually be apparent to even the cheerleaders.

eternaltransit

I don't disagree with your first or last point: Etihad has interest free loans from its ruling family of 3 billion USD - how else is it acquiring all these equity stakes in all the world's broken airlines. Rumors have swirled around QR for years. I just don't see the case for Emirates though - its owner has had its fair of financial problems, its government is not that wealthy. Dubai needs Emirates to be profitable to pump money back into the economy, not the other way around. As any visitor to the ME will tell you, Dubai doesn't have much in the way of natural resources to rely on.

Here is a pdf from EK stating their position. Obviously if you distrust them it will not sway you but they do highlight assistance that other airlines have also received.
http://www.emirates.com/english/imag...233-845771.pdf

And yes, I would agree with you that no network/legacy carrier previously has made any money (enough to cover cost of capital) relying on Y revenue. I disagree with you that there is no premium demand ex-USA and that the Y cabin makes massive unsustainable losses across the entire network or ex-USA. I will concede that EK is definitely losing money on super cheap Y fares ex-USA though, but luckily for EK that's not the entirety of their business. I sense you disagree on that point though

eternaltransit

However on the point of Freddie Laker and Laker Airways - the model he pioneered has been extremely successful: AirAsia, Southwest Airlines, Ryanair, easyJet, Westjet. I mean, if your competition has to resort to massive and blatant cartel predatory pricing to win, then you're probably doing something right...

edy4eva

Yet another baseless and misguided reply. You still think that DXB-XYZ are low density routes despite the hard evidence to the contrary on load factors. On top of that you seem to think those passengers are heading to the M.E. where in fact it's the other way around, passengers originating from a whole heap of markets going to/from the US.

And can you please for the love of God (or any super entity) explain to us in layman's terms what funny money exactly means?

I'm starting to think that your theories may be grounded on domestic travel in the US, perhaps relating to a very narrow market that of IAH-PHX with passengers choosing to pay a premium to go non stop instead of having to transit via TUL/DAL/SAN/ABQ/LAX/OKC/LAS

ukdoctor

I wonder if the OP has ever travelled on EK and transited via DXB?

DYKWIA

Ha, you wouldn't catch a Texan like him mixing with all those terrorists from Iraqistan! Our wherever the hell Dubai is.

Emirates202

Based on his claims and ideas, I wouldn't be surprised if he's never been out of the United States.

edy4eva

Revenue for a service does not have to correlate strongly with the cost to render that service, not when the business is the size of EK. Not sure about the fixation with 'losing money on cheap fares' either.

From an airline perspective revenue must be generated on a daily basis to sustain operations. Now, a way to keep part of the money coming is to make a product so attractive at a price point that guarantees continuous revenue. These are the fundamental reasons why airlines run promotions an discounts while at the same time keeping a close eye and a well thought-out yield management algorithm.

But EK don't just generate revenue from airfares, it also comes from a heap of streams including ancillary services (such as penalties/fees/surcharges on baggage), cargo contracts, and even fuel hedging.

Costs for EK include, fuel, aircraft lease/borrowing (include here cost of engines/seats/IFE), maintenance, personnel, catering, insurance, airport fees/costs throughout the network excluding DXB (including lounge space rental/fit out/maintenance) and navigation charges. There are limited situations where EK receive discount from a government or airport corp, such as waiver of certain fees for a year or two upon launching a route.

Now because revenue is generated from various sources to sustain operations, presenting an analysis of revenue/costs per flight is oversimplifying the way an airline works. They have daily operations, not a one off flight. Trends and route performance over a period are king.

If the numbers on a certain route aren't adding up to sustain it bet EK will chop it off. Something that happened a number of times in the past. It's very likely EK will do the same with any route, even if it's in the big US of A. As matter of fact didn't they cut off HAM many years ago en route to JFK? They also reduced capacity on certain routes after launch dropping from 77W to 77L. These guys know what they're doing. They're no such thing as funny money or funny business here.

m3red

Probably think I ride to work on a camel too

Some interesting points, and some quite frankly ridiculous ones on this thread. The cash is self invested from profits and aircraft financing.

The model is using dubai as a hub. I see this every time I fly when I get off in dxb and everyone else commutes through...it's very successful and down to a number of factors, dubais location, cheap labour and not as much regulation and access to cheaper fuel. Ek is also incredible at utilising planes and they tend to go out full hence the large number of op ups.

Anyone know what "funny" money is?!

Ahmed777

The counter girl at the Michael Kors shop at LAX asked me if they had roads in Dubai.

I'm not so surprised with this thread...

Dave Noble

And do they?

eternaltransit

I am totally in agreement with your analysis about the operation of the airline as whole and all its revenue streams: definitely EK pax revenue managers seem to be excellent at their jobs - and ruthless route cutting e.g. Clark and Kiev (although perhaps that was precipitated by other things) also bolsters your point. Ancillary revenue is also a nice little earner as seen in their latest accounts. I don't think we should take into account any fuel hedging, because if any airline could turn hedging into a profit center they would be oil traders, not airlines

Whilst I think that the OP has some fundamentally incorrect assumptions about quite a few things in the industry, I think even we have to concede that on the face of it a round trip fare on the order of 900USD with an onward 3/4 hour connection which would net EK 750USD after tax doesn't cover the entire cost base (if we work on EKs own cost analysis in their latest financial report ) nor indeed the fuel cost of the entire trip just for that pax. That's only 375USD each way! But of course as you know, looking at the cost per pax doesn't paint the whole picture - and all of my admittedly rough calculations with regards to costs are aimed at showing a worst case scenario in an attempt to show the OP that these planes can make money under even adverse demand conditions. If we work under the assumption that 38% of EKs costs are from fuel, then we can make a reasonable allocation of the total costs of the entire group on a per flight basis - and if USA operations can feasibly cover its share of total costs, then that puts another nail in the coffin of the "EK needs subsidies" rhetoric that floats around, which I think is unfair.

In reality how many of the seats are going to be sold at 900USD? Not that many, given that EKs revenue managers are good. How much are you going to fuel an A380 - on a LHR route, you're only going to fill it 1/3 full, right? For the purposes of illustrating whether a route is sustainable - and as most of us on here agree, USA routes are sustainable - if we can cover costs through passenger revenue alone, then everything else is a nice little bonus: and I think that has been shown to be feasible. After all, pax revenue at EK was 65.4 billion AED last year, whereas ancillary revenue was only 412 million AED. Cargo came in at 11.2 billion AED.

Still, I don't want it to seem like I am disagreeing with you, you are spot-on with your analysis, imho!

zhaobao

If Canadians still live in igloos, there is NO WAY they would have roads in Dubai !

NOIR

If I remember correctly EK earns about 8-9 USD per passenger.

FlyEK

According to April-Sept financials released yesterday, it's USD22.06 per passenger.