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 16, 2014, 2:29 am
#121
Join Date: Nov 2006
Posts: 665
Um, this is the airline business. There is a whole history of insanely dumb egotistical business decisions. Many of these have been made by airlines owned by their governments.
All I know is that if a USA airline decided to fly an A380 from Texas to the Middle East, the top management of that airline wouldn't last a month. The board of directors, shareholders and (maybe) the employee groups would riot. That is because words could not begin to describe the financial foolishness of such a decision.
All I know is that if a USA airline decided to fly an A380 from Texas to the Middle East, the top management of that airline wouldn't last a month. The board of directors, shareholders and (maybe) the employee groups would riot. That is because words could not begin to describe the financial foolishness of such a decision.
It's interesting the that 747 had limited success with US carriers, yet many international airlines profitably operated (and continue to operate) them to the US. I presume all those airlines were operating a scam too.
* Counted as 200,000 in airport stats as each gets counted as both an arrival and departure.
Nov 16, 2014, 2:39 am
#122
Join Date: Nov 2007
Location: KYE
Posts: 4,156
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!").
- Firstly, PER/SIN/India/Thailand/Africa/M.E. ALL have lucrative markets for travel to the US with the route via the Middle East with minimal extra flying, believe it or not. Try it yourself on gc. http://bit.ly/1EQRzdQ
- Secondly, if you really couldn't discuss the matter further with us then why keep on posting replies? You're making a fool of yourself, if you haven't realised.
Nov 16, 2014, 3:29 am
#123
A FlyerTalk Posting Legend
Join Date: Jan 2002
Posts: 44,624
Airlines should apparantly aspire to be like US ones
Nov 16, 2014, 12:46 pm
#124
FlyerTalk Evangelist
Original Poster
Join Date: Mar 2000
Posts: 17,425
Financially, yes. They have become, by far, the most profitable airlines in the world. Of course, as a customer, you are likely to be far better off flying an airline like Emirates, which will we give you more for your money than a "greedy" American carrier seeking to maximize profits for its shareholders.
Nov 16, 2014, 1:40 pm
#125
Ambassador: Emirates Airlines
Join Date: Sep 2004
Location: Manchester, UK
Posts: 18,619
Financially, yes. They have become, by far, the most profitable airlines in the world. Of course, as a customer, you are likely to be far better off flying an airline like Emirates, which will we give you more for your money than a "greedy" American carrier seeking to maximize profits for its shareholders.
Nov 16, 2014, 2:29 pm
#126
Join Date: Nov 2006
Posts: 665
Financially, yes. They have become, by far, the most profitable airlines in the world. Of course, as a customer, you are likely to be far better off flying an airline like Emirates, which will we give you more for your money than a "greedy" American carrier seeking to maximize profits for its shareholders.
Nov 16, 2014, 2:37 pm
#127
Join Date: Nov 2000
Posts: 1,941
Financially, yes. They have become, by far, the most profitable airlines in the world. Of course, as a customer, you are likely to be far better off flying an airline like Emirates, which will we give you more for your money than a "greedy" American carrier seeking to maximize profits for its shareholders.
Nov 16, 2014, 2:38 pm
#128
Join Date: Nov 2013
Posts: 5,454
Your employees could work for free and you could still lose plenty of money flying A380s between Dubai and Texas. I'm sure all the US airlines would lose buckets of money provide such service even with free labor. Everyone has to pay for fuel and aircraft expense, and (unless those are subsidized) they pay the same. Saving a few bucks on labor would make a difference on your P&L, but certainly could never allow you to do something that no other airline in the world could do (aka, make money operating premium ultra long haul service on enormous planes and then rely on connecting traffic).
I know you Emirates loyalists don't "get it," and that's fine, but you should understand that the economics that these Middle Eastern airlines operate under are so much different than what exists anywhere else in the world that it "reeks" of fishiness. Which is why the USA airline CEOs say what they say. They know the math doesn't work.
I know you Emirates loyalists don't "get it," and that's fine, but you should understand that the economics that these Middle Eastern airlines operate under are so much different than what exists anywhere else in the world that it "reeks" of fishiness. Which is why the USA airline CEOs say what they say. They know the math doesn't work.
As to whether I "get it" or not - I believe I did earlier in the thread lay out my understanding of your argument and by your lack of direct response to it, I assume that I was correct in my understanding. So, I "get" what you're saying. I also offer up some counter points to the various assumptions underlying the logical chain of your argument - assumptions which if turn out to be incorrect lead to the conclusion that Emirates is not in fact a "financial scam".
Your point about the economics that ME airlines work under, vis a vis US airlines (or other places in the world) - yes, the economics are different and that's mainly because of the demographics of the area. You have 1 billion people living within 3 hours of the hubs. You have 2 billion people within 6 hours. For a significant proportion of this population, if they want to make a long haul trip anywhere, they must connect somewhere. That can be in the ME, Europe, NE Asia, even US gateways. It doesn't matter. What matters to them is the connectivity, schedule and most importantly price. EK have to accept lower yields on mass Y traffic - not enough people earn enough money to not be price sensitive. Out of this pool of 1.5 billion people - or even 1 billion people who want to travel to the US - there's enough demand, scattered across the entire catchment area of the hubs in the ME there to sustain both the outbound and inbound routes - US carriers only have the continental United States, a population of only 300 million to play with.
I don't think I really need to go over again the mathematics of the feasibility of ULH A380 routes do I? I would have thought that taking public data on fuel tank capacity, fuel costs and cost structures would be enough to demonstrate sustainably profitable operations.
Now let's take your point about the financial success of the current incarnation of US airlines. There is a subtext to your posts that if a carrier isn't achieving profitability on the likes of the US airlines and isn't publicly traded then there's "something fishy" about it.
Let's put aside for the moment US carriers domestic protections - aka foreign airlines can't operate domestically and just focus on raw numbers.
In the 9 months ended last quarter:
- UA had revenue of 29,588 million USD, and had pre-tax profit of 1,105 million USD
- DL had revenue of 30,715 million USD, and had pre-tax profit of 2,212 million USD
- In the 6 months to Q2 for AA, the combined US/AA group had revenue of 21,351 million USD and pre-tax profits of 1,696 million USD.
That's net pre-tax margins of: UA: 3.73%, DL: 7.2%, AA: 7.94%.
These a good, or even great results for airlines, the bankruptcy proceedings notwithstanding. Just goes to show that a better cost base actually makes various things quite sustainable.
Of course, let's not forget that those 3 airlines also have a relatively higher margin domestic route network which accounts for 50% of revenue.
Let's take EK:
In the full year ended March 2014, EK (the airline group, not including dnata) had revenue of 80,717 million AED and a profit of 3,464 million AED. That's a pre-tax margin of 4.29%.
So, better than UA, but not as much as DL and AA. Kind of middle of the road performance - but better than the industry average of 2.5% (post tax). Any analyst will tell you that direct comparisons between EK and say the big three US carriers is going to be difficult as EK doesn't have a higher margin domestic network contributing to good results - it relies on a fleet of wide bodies doing mainly medium and long haul routes, with source markets that aren't as wealthy and on the whole, lower yielding.
But, for the purposes of this thread, the question is: is Emirates a scam - and clearly these financial results show that EK works on a commercial basis and competes and compares quite favourably to the current darlings of the aviation industry with regards to profitability, the US ones. So. Not a scam.
I would like to concur with moondog and thank you for spawning this quite interesting and lively discussion however!
Nov 16, 2014, 11:53 pm
#130
Join Date: May 2010
Location: BOM
Programs: EK Plat, HHonors Gold
Posts: 2,883
Nov 17, 2014, 2:14 am
#131
Join Date: Oct 2009
Posts: 281
iahphx probably thinks his post count is what qualifies him as an expert. Thats the only thing I can gather from all his replies and answers. Reminds me of a time when on another forum someone tried to explain to a poster that Sky+ does now allow you to forward live tv but the poster refused to accept it. Good days lol.
Nov 17, 2014, 8:50 am
#132
FlyerTalk Evangelist
Original Poster
Join Date: Mar 2000
Posts: 17,425
Interesting history with Copa. Continental's Gordon Bethune (one of the USA CEO's most instrumental in making the industry profitable) bought a large stake in Copa several years ago and sent managers down there. They then transformed themselves into an extremely successful airline.
Are the profits "supernormal"? By airline standards maybe, by "normal" business standards certainly not. There are obviously barriers to entry and the players are acting rational: which mostly consists of keeping a tight lid on supply.
This is why the situation in the Middle East is so aberrational in terms of airline profitability. It's obvious that the market for Middle East connecting flights is not unlimited due to geography and population. Yet, several airlines are expanding service at break-neck pace. There's no way such activity could possibly be profitable anywhere else in the world, but plenty of people here think it's a good business plan.
If you had the USA airlines buying up A380s and flying them all over the world -- relying on this supposed connecting traffic and tapping into the enormous North American aviation market -- it would be a recipe for a financial failure of epic proportions. Indeed, if only one USA airline did it, the whole sector would be un-investable.
This is why the situation in the Middle East is so aberrational in terms of airline profitability. It's obvious that the market for Middle East connecting flights is not unlimited due to geography and population. Yet, several airlines are expanding service at break-neck pace. There's no way such activity could possibly be profitable anywhere else in the world, but plenty of people here think it's a good business plan.
If you had the USA airlines buying up A380s and flying them all over the world -- relying on this supposed connecting traffic and tapping into the enormous North American aviation market -- it would be a recipe for a financial failure of epic proportions. Indeed, if only one USA airline did it, the whole sector would be un-investable.
Nov 17, 2014, 8:52 am
#133
FlyerTalk Evangelist
Join Date: Jan 2005
Location: VCE
Posts: 14,165
What are your opinions on the data from the Economist which was posted in this thread?
Nov 17, 2014, 9:10 am
#134
Join Date: Feb 2011
Location: San Francisco, CA
Programs: Amex Platinum, Chase Sapphire Reserve
Posts: 811
Things that haven't been included in the numerical analysis so far:
1) Profit from commercial cargo carried on passenger jets
2) Savings from using one larger jet instead of two smaller ones (lowered airport fees, fewer crew, etc)
Also - the ULH configuration of the A380 (the type that Emirates flies to the US) has a capacity of around 480, not 600. 480 passengers is only about 1.5 times the 777-300.
FWIW all Emirates flights to or from the US that I've been on have been full (I fly ~2-3x a year between DXB and the US)
1) Profit from commercial cargo carried on passenger jets
2) Savings from using one larger jet instead of two smaller ones (lowered airport fees, fewer crew, etc)
Also - the ULH configuration of the A380 (the type that Emirates flies to the US) has a capacity of around 480, not 600. 480 passengers is only about 1.5 times the 777-300.
FWIW all Emirates flights to or from the US that I've been on have been full (I fly ~2-3x a year between DXB and the US)
Last edited by Xlr; Dec 22, 2014 at 8:10 am
Nov 17, 2014, 10:04 am
#135
A FlyerTalk Posting Legend
Join Date: Dec 2000
Location: Shanghai
Posts: 42,048
This is why the situation in the Middle East is so aberrational in terms of airline profitability. It's obvious that the market for Middle East connecting flights is not unlimited due to geography and population. Yet, several airlines are expanding service at break-neck pace. There's no way such activity could possibly be profitable anywhere else in the world, but plenty of people here think it's a good business plan.