bstract

Middle Eastern airlines are changing the dynamics of international aviation as

Emirates, Qatar Airways and Etihad Airways are quickly emerging as the new global
challengers. The regions airports are also undergoing a rapid transformation to
remain in line with the exponential traffic growth that is forecast. This paper examines
the relentless growth of Emirates, and investigates the various strategies that
underpin its core competencies, which are responsible for its 20 years of consecutive
profitability. The paper establishes that the underlying formula for Emirates success
is largely attributed to its hub and spoke operation, competitive cost structure and the
strong leverage of its brand.

Keywords

Middle East;
Emirates;
Core competencies;
Hub and spoke;
Competitive cost structure

1. Introduction
Over recent years, there has been a major shift in the global air transport market as
the Middle Easts carriers, and in particular Arabian Gulf based airlines, have altered
the way traffic flows are being routed. In 2008, passenger growth rates (in terms of
RPKs) for the Middle East were 7% more than four times the global average. The
Gulf based carriers are largely responsible for this growth and have capitalised on
their geographical centricity by cannibalising the traditional traffic flows between
Asian and European hubs, and by connecting secondary cities as a result of
exercising their sixth freedom traffic rights. It is estimated that around 4.5 billion
people reside within an 8-hour flight of the Middle East, providing the potential for a
large part of the worlds population to connect through a single stop. Emirates Airline
is the dominant carrier, although Qatar Airways and Etihad Airways, combined, are
roughly 70% of its size.

2. The rise of the Gulf carriers and the regions airports

Emirates, Etihad Airways and Qatar Airways are three of the fastest growing full
service airlines in the world. Fig. 1 shows the meteoric increase in seat capacity
across the different regions of the world for these three carriers. It shows that the
seat capacity that has been deployed by the big three Middle East carriers to Europe,

Asia and Australasia has increased four fold over the period 2002 to 2008, despite
many of these markets having restrictive bilateral air service agreements constraining
an airlines ability to grow. Within the Middle East alone, they have extended their
capacity from 4.7 million seats in 2002 to 13 million in 2008. Collectively, Emirates,
Etihad Airways and Qatar Airways transported around 44% of the traffic carried by
the 24 members of the Arab Air Carriers Organization in 2007. They show no signs of
cutting back on their services and are forecast to increase capacity by more than
15% per annum over the next five years. The Gulf based carriers have formulated
their success on the following attributes: moving sixth freedom traffic through their
respective hubs; by offering high quality in-flight products; and by stimulating
passengers to travel with them because of their continuous brand awareness
campaigns. They are beginning to set the new benchmark for airline standards.

Fig. 1.
Regional distribution of seat capacity departing from the Middle East for Emirates, Etihad
Airways and Qatar Airways.
Source: Analysis from Official Airline Guide Airline Schedule for 2002 and 2008.
Figure options

The Arabian Gulf has formulated a master plan to prepare for the post-oil era by
diversifying the regions industrial base, with aviation being an important contributor.
The development of a mega-hub in the Gulf is seen as affecting: industrial
development; the positioning of corporate headquarters; growth of light
manufacturing; hosting of international conferences and trade shows; increased
tourism receipts; and growth of a logistics and distribution hub. 1 Emirates turnover is

almost 20% of Dubais GDP, and the airline is regarded as the embodiment of
Dubais rapid rise to international prominence.
The Arabian Gulf airlines forecast that traffic will continue to grow at their hubs over
the next few decades and, in anticipation, they have invested heavily by procuring
large numbers of aircraft while the local governments are synchronously developing
the regions airports. Fig. 2 compares the number of wide-body aircraft seats on order
in mid 2008, illustrating Emirates, Etihad Airways and Qatar Airways potential
dominance in offering long-haul seat capacity by Middle East based carriers. The big
three have 57% more long-haul seat capacity on order than the 35 member carriers
of the Association of European Airlines (AEA) and 27% more than the 17 member
airlines of the Association of Asia Pacific Airlines (AAPA).

Fig. 2.
Wide-body seats on order for Middle East, Europe and Asia Pacific (July 2008 data).
Source: Analysis from ACAS data.
Figure options

The rapid increase in airline seat capacity will be synchronously catered for by a
similar growth in airport capacity, as Governments in the region are also developing
the airport infrastructure (Table 1) which will eliminate any air traffic bottlenecks over
the coming years. Much of the investment is earmarked for expanding existing
facilities, but six new airports are also being built; one, known as Dubai World
Central, is set to become the worlds largest airport, comparable in passenger
numbers to the combined size of Chicago OHare, New York JFK and Los Angeles
International, handling 160 million passengers per year when fully operational. It will
have five parallel runways, allowing four aircraft to land simultaneously, 24 hours a
day. The cargo facility is intended to handle 12 million tons per year three times that
of Memphis International Airport, todays largest cargo hub. Dubai has also invested
$4.5 billion in a new terminal at Dubai International, which is earmarked exclusively
for Emirates, where the incumbent currently has almost 58% of the seat capacity,
followed by the Air India conglomerate of Air India/Indian Airlines/Air India Express

with 3.3%. Some 80 km along the coast, Abu Dhabi is investing $6.8 billion in the
expansion of its airport to meet the growing demand generated by Etihad Airways,
whose passenger numbers reached around 6 million passengers in 2008, and it
accounts for almost 70% of the airports seat capacity. In Qatar, a new airport is being
built, designed specifically to accommodate the A380, suggesting that Qatar Airways
may order additional units in the future. The incumbent presently provides 77% of the
seat capacity at Doha airport, followed by Emirates with just 5%.
Table 1.
Airport development plans for the Arabian Gulf states (2007 data).
Airline
Cost ($
Passenger
operating
billions)
throughput
base
(millions)
Dubai
Emirates
$4.5
28.7
(Expansion)
Dubai (New)
Emirates
$10.0
nab
Doha
Qatar
$0.3
11
(Expansion)
Airways
Dohaa (New)
Qatar
$11
na
Airways
Abu Dhabi
Etihad
$6.8
5.4
(Expansion)
Airways

Passenger
capacity
(millions)
70
160
16

20

Saudi
Arabian

$4.8

13.3

25

Saudi Arabia
(Other Airports)
Ajman, UAE
(New)
Kuwait

Saudi
Arabian
na

$5.3

na

na

$3.3

na

na

Kuwait
Airways
Oman Air

$2.1

6.0

12

$2.0

na

na

Oman Air

$1.0

4.7

12

Bahrain

Gulf Air

$0.5

7.2

12

Sharjah, UAE

Air Arabia

$0.2

3.2

Baghdad

Iraqi Airways

$2.0

na

na

Amman

Royal
Jordanian
MEA

$0.7

3.8

10

$0.6

3.0

Beirut

Terminal 3,
Runway, Cargo
Upgrades

50

Jeddah
(Expansion)

Oman (3 New
Airports)
Muscat, Oman

Details

Runway, New
Terminal, ATC,
Cargo
2 New
Terminals,
Upgrade Hajj
Terminal
5 New Regional
Airports

Double Current
Capacity
Dedicated to
Tourism
Upgrades and
New Terminal
Upgrades and
Expansion
Upgrades and
Expansion
3 Terminals and
Upgrades
Upgrades and
Expansion
Upgrades and
Expansion

a
The cost of Dohas new airport has been revised from $5.5 billion because of the escalating
cost of reclaiming land from the sea.

b
na = data not available.
Sources: Airports Council International, AACO, Centre for Asia Pacific Aviation, Air Transport
Intelligence.
Table options

3. Emirates growth
Emirates Airline is completely owned by the government of Dubai and operates in a
tax free environment with no legacy costs. It has been profitable for the last 20 years,
and by 2007/08, had become the worlds fifth most profitable airline with net profits of
$843 million. It had one of the highest operating margins of full service airlines,
earning 11.6% in 2007/08 (Emirates Financial Statistics, 2007/08). In 2008, its traffic
increased faster than its ability to add capacity, which resulted in its passenger load
factor rising by 3.6% to an impressive 80%. By mid 2008, Emirates was operating an
all wide-body fleet of 109 aircraft with a further 195 on order. It buys large blocks of
capacity from both Boeing and Airbus to leverage the list price of aircraft when
purchasing. It was also an early buyer of new generation aircraft, whose new
technology and unproven economics creates risk, but as Bloomberg (2007) pointed
out, early buyers of the A380 received as much as a 40% discount, with additional
discounts being given for bulk orders.
Emirates push to expand its territorial advantage is evident from Table 2.
International liberalisation across global markets is increasing, and Emirates will be
well positioned to take full advantage because of the large number of aircraft that will
be joining its fleet into the future. The UAE and the US, for example, initiated an
Open Skies agreement in 1999, and the airline has quickly sought to capitalise on
this opportunity. It was serving four US destinations by early 2008, with a triple daily
service to New York, including one via Hamburg, impacting Lufthansas capacity on
the lucrative North Atlantic market.2 In the fast growing markets of India and China,
Emirates increased its weekly frequencies by 238% and 444% between 2004 and
2009.
Table 2.
Emirates weekly departures from each listed country in 2000, 2004, 2009.
2000
2004
2009
% Increase 20002004
India
25
45
152
80
UK
35
64
98
83
a
Australia
0
28
49

Germany
14
35
49
150
Chinab
7
9
49
28
Pakistan
32
32
39
0
c
Thailand
14
21
35
50

% Increase 20042009
238
53
75
40
444
22
67

Singapore
South Africa
Qatar
New Zealande
Italy
US
Kuwait
Bahrain
Sri Lankaf
France
Iran
Saudi Arabia
Switzerland
Lebanon
Oman
Bangladesh
Japan
Kenya
d

2000
22
7
18
0
2
0
10
0
15
3
9
9
7
5
12
13
0
7

2004
39
14
28
21
7
0
11
14
17
7
14
15
7
11
14
13
8
14

2009
35
28
28
28
28
27
26
21
21
19
19
17
14
14
14
14
14
12

% Increase 20002004
77
100
56

250

10

13
133
56
67
0
120
17
0

100

% Increase 20042009
10
100
0
33
300

136
50
24
171
36
13
100
27
0
8
75
14

Traffic data taken for January 1st to 7th 2000, 2004 and 2009 and includes all fifth freedom.
a
Emirates also operates from Australia to Singapore, Thailand and New Zealand.
b
Emirates also operates from Thailand to China.
c
Emirates also operates from Thailand to Australia and China.
d
Emirates also operates from Singapore to Sri Lanka and Australia.
e
Emirates also operates exclusively from Australia to New Zealand.
f
Emirates also operates from Sri Lanka to Singapore.
Source: OAG Max.
Table options

There has, however, been concern over the dumping of capacity. Forbes
(2005)reported that Qantas had strongly objected to Emirates bid to double its flights
to Australia in 2005. Meanwhile, Lufthansa appealed to its government to restrain the
further liberalisation between Germany and the UAE, as the competition between the
two nations has been severely imbalanced because the German carriers performed
just 18 weekly flights to the Gulf region against 91 services to Germany by Gulf

based airlines (Air Transport Intelligence, 2007b). There have also been numerous
concerns raised about Emirates receiving direct subsidies. Pilling (2006) reported
that Qatar Airways loans are fully backed by government sovereign guarantees,
while Gulf Air acknowledged that it has received financial support from its
government. Emirates, while confirming that it received an injection of around $90
million, has paid this back through dividends and it continues to pay annual dividends
to its government (Pilling, 2005).
Emirates growth is also attributable to the fact that it has a balanced dispersion of
sales across many key continents. As Table 3 shows, it generates almost 36% of its
ticket sales in Europe and the Americas, while Asia Pacific and Australia/NZ are
responsible for 30%, whereas Africa and the Middle East account for over 25%, with
the Indian subcontinent producing almost 9%. In contrast, British Airways and Air
France/KLM generate a large proportion of their sales in Europe, while Singapore
Airlines demonstrates a similar approach in Asia. This sales concentration limits the
ability of European and Asian incumbents to pull traffic from multiple geographical
markets. Emirates has tactically engineered a well balanced global geographical
distribution of sales, creating a platform for it to develop a strong mega-hub and to
collect and redistribute large volumes of traffic over it.
Table 3.
Group revenue by geographical region, originating point of sale for 2007/08.
Europe
The
Africa and
Indian sub(%)
Americas
Middle East
Continent (%)
(%)
(%)
British
63.7
19.3
9.4
Included in Africa
Airways
& Middle East
a
Lufthansa
47.2
26.0
6.7
Included in Asia
Pacific
Air France
68.6b
15.5
5.7
Included in Asia
KLM
Pacific
c
d
Emirates
35.9
Included in
25.4%
8.9
Europe
Singapore
17.3
8.3
Included in
7.8
Airlines
Indian sube

Asia Pacific and

Australia (%)
7.6
20.1
10.1
29.8
66.6

a
Lufthansas financials include Swiss and are for the financial year ending December 2007,
while the all the other carriers have their financial accounts ending March 31, 2008.
b
Includes North Africa.
c
Includes Europe and the Americas.
d

14.8% of Emirates revenues comes from its Middle East operations and 10.6% comes from
Africa.
e
Singapore Airline includes Africa, Middle East and Indian sub-Continent as West Asia.
Table options

4. The core competencies of Emirates

4.1. The hub and spoke operation of Emirates
The hub and spoke mechanism allows a number of cities to be linked to a central
hub, with each additional spoke having the potential to magnify linkage benefits and
through services. Hub and spoke networks generally consolidate short-haul traffic
into long-haul operations; however, one of Emirates core competencies is to
concentrate mainly on the long-haul to long-haul traffic flows between Europe, Asia,
India and Australasia, via its hub at Dubai. Franke (2004) argues that passengers
accept transfers on intercontinental rather than continental trips, and that most
airlines that use an intercontinental hub and spoke operation are profitable. Emirates
strategy is to serve both primary and regional airports. The 6th freedom network of
Emirates offers 22 European gateways from Dubai, giving it a competitive advantage
with passengers who wish to travel to secondary cities in Europe. In the UK, for
example, Emirates carried around a million passengers from the UK regional airports
at Manchester, Birmingham and Glasgow in 2006, up 4400% from a decade earlier,
and it is now the largest foreign carrier serving these airports. Around 70% of
passengers travelling on Emirates from Birmingham to Dubai, connected for onward
journeys, while the number transferring from flights originating in Glasgow and
Manchester were 72% and 79% respectively in 2005/06 (UK Civil Aviation Authority,
2006). Clarke (2007) finds that 50% of Emirates traffic is transiting through Dubai,
down from 75% a decade earlier, as more passengers are terminating at the base
airport as tourism, conference and business industries develop.
Fig. 3 shows Emirates hub configuration at Dubai, highlighting the co-ordination of
aircraft arrivals and departures over a 24-hour day for one week. Two major waves
are evident, and the timings of these are influenced by curfews and flight restrictions
at destination airports. There are also a number of smaller waves, but these are
influenced by the meteorological conditions at Dubai as high daytime temperatures,
40 Celsius and 82% humidity in the summer, impact the takeoff and climb
performance of aircraft between noon and 15:00. The wave configuration maximizes
the number of destination permutations and gives passengers more flexibility when
choosing departure times because of the wider range of frequencies to each
destination. The first large wave of arrivals mostly come from Europe, Africa and the

Middle East and land between 23:00 and 02:00, and this is immediately followed by a
wave of departures towards Asia and Australia between 02:00 and 04:00. The next
large wave of arrivals from Asia, Australia and Africa occurs between 04:00 and
07:00, which is followed by a wave of departures, mainly towards Europe, the Middle
East and the Americas, until late morning.

Fig. 3.
Hub configuration for Emirates at Dubai in December 2008 (modelled on data for one week).
Source: Official Airline Guide.
Figure options

4.1.1. UK India
Over two million passengers travel annually between India and the UK. The most
recent bilateral air service agreement between the countries capped the number of
weekly services for UK registered airlines operating from London Heathrow to Indias
two major gateways of Mumbai and New Delhi at 112, which is restrictive considering
around 70% of Indias domestic and international passenger traffic goes through
these two major cities. In addition, there are double daily frequencies available for
British carriers from the UK to Chennai and Bangalore, and a daily service is allowed
to any other city within India, while Indian carriers can operate on any route and have
no capacity limitations to the UK. However, Indian carriers are unable to fill their
bilateral quotas to the UK market besides facing other challenges, including an
inadequate aviation infrastructure, high aviation taxes, tight restrictions on foreign
ownership, and consolidation among carriers, as they face losses totalling $1.5 billion

for 2008 (Bisignani, 2009). This provides opportunities for the Gulf based carriers to
capitalise on their 6th freedom traffic rights and move Indian traffic through their hubs
to the UK market. Marketing Information Data Transfer (MIDT) shows that 62% of the
traffic departing from India towards the UK is carried on direct flights shared between
Jet Airways, British Airways, Air India and Virgin Atlantic. Emirates has, though, been
growing its share of the UK India market, and now has 13% as it connects ten cities
in India and five in the UK via its Dubai hub. India is, however, gradually liberalising
its bilaterals, which is likely to lead to its own airlines offering more frequencies and
additional direct routings, which could adversely impact Emirates ambition to gain
additional 6th freedom traffic.
4.1.2. Africa rest of the world
The Association of European Airlines (2007) reported that the Sub Saharan African
market was the second most profitable region for its members after the North Atlantic
in 2006, recording net returns of 486 million. Many African carriers are banned from
operating to the EU (Regulation No. 2111/2005) because of safety concerns, and this
provides Emirates with opportunity as it serves 14 African destinations from where it
derived 10.6% of its revenues in 2007/08 (Emirates Annual Report, 2007
2008).OConnell (2006) showed that almost 11% of the European traffic that is
transiting through Dubai on Emirates is connecting onwards to Africa, and the airline
is increasingly pulling more traffic from the former colonial powers of Britain and
France. Gebremariam (2008) explained that Ethiopian Airlines and Kenya Airways
have developed strong East African to West African links at their hubs of Addis Ababa
and Nairobi, with around 50% of their traffic from West Africa connecting onwards to
international destinations such as the Far East and Asia. This long-haul international
network is now under threat from Gulf based carriers; e.g. MIDT data shows that
Emirates has captured 20% of the NigeriaChina and 40% of the NigeriaIndia
traffics.
4.1.3. Australia Europe
Knibb (2008) finds that 75% of Emirates passengers on flights to/from Australia are
transiting through its hub at Dubai. On the Australia - UK route, Emirates increased
its market share from 9% in 2003 to 19% by 2007, while Qantas retained its one-third
share over the period, but both British Airways and Singapore Airlines lost ground
(Tourism Australia, 2008). The Australian Government decided to further loosen its
regulatory framework to boost tourism and international trade, and this opportunity
has been seized by Emirates which intended to operate up to 70 flights a week by
2009 (Air Transport Intelligence, 2007a). Emirates has invested $37 million to
promote Australia in Europe and in the Middle East, which inevitably will attract

tourism - but ultimately carried by the Arab carrier (Thomas, 2008). OAG data for
2008 shows that Emirates was the 4th largest carrier serving Australia with around
8% of the market as against 30% for Qantas/Jetstar, down from 41% ten years
earlier.
4.2. The competitive cost structure of Emirates
Table 4 compares Emirates cost structure to British Airways and Singapore Airlines,
which are also very dependent on a hub airport.
Table 4.
Emirates cost comparison against British Airways and Singapore Airlines ( Eurocents). a,b
Emirates British
Singapore
Emirates vs
Emirates vs
Airways
Airlines
British
Singapore
Airways (%)
Airlines (%)
c
Fuel/ATK
8.12
11.40
9.71
29
16
Labour/ATK
4.36
12.01
5.89
64
26
Landing and
1.45
2.93
1.28
51
+13
Navigation/ATK
Handling/ATK
1.69
5.42
1.13
69
+50
Aircraft
0.50
2.50
0.83
80
40
Maintenance/ATK
Depreciation and
1.34
3.84
2.96
65
55
Amortisation/ATK
Distribution and
2.80
1.99
1.34
+41
+109
Sales/ATK
Operating Leases/ATK 2.83
0.38
0.74
+645
+282
Total Cost/ATK
26.56
43.69
26.75
39
0.7
Total Revenue/ATK
28.78
48.55
30.86
41
6.7
a
All data is year ending March 2008.
b
All currencies were converted to s on April 1, 2008 through bank of Canadas currency
converter, accessed at http://www.bankofcanada.ca/en/rates/exchform.
c
Available tonne kilometres (ATK) is the overall capacity, measured in tonnes available for the
carriage of passengers, excess baggage, cargo and mail on each sector multiplied by the
sector distance.
Source: Analysis from Emirates Annual Report (2007/08); British Airways Annual Report and
Accounts (2007/08) and Singapore Airlines Annual Report (2007/08).
Table options

Fuel cost has generally replaced labour as the largest expense of running an airline,
and it constituted 30.6% of Emirates costs in 2007/08, up $745 million over the
previous year. The carrier has saved over $1 billion in fuel cost since the start of the

millennium through hedging policies, with $242 million in savings in the financial year
2007/08 (Jain, 2008 and Emirates Annual Report, 2007). It closely monitors its yield
and its unit cost on a route by route basis and, for example, suspended its Dubai to
Alexandria service in 2008 because high fuel costs rendered it unprofitable. The
regions aviation fuel is cheaper because of its proximity to oil production and refining
facilities, which have reduced the supply chain costs. Emirates competitive
advantage for its lower fuel costs is primarily due to its young fleet whose average
age was 5.5 years in 2007/08, compared to 6.5 years for Singapore Airlines and 11.4
for their British counterpart.
Labour is a major cost for British Airways because it operates out of one of the most
expensive cities in the world, which mandates high salaries. Labour represented
27.5% of British Airways costs in 2007/08, and International Civil Aviation
Organisation data for 2007 indicated that the average salary per employee was
$73,082. The legacy carrier has to make large payments to its pension scheme, as
well as servicing its existing pension deficit that had stretched to 1.7 billion by 2008
(Daily Telegraph, 2008). Emirates has a two-tier tax free salary system. Labour
intensive tasks such as ground handling, maintenance, catering, and call centres, are
sourced from the cheap labour markets of India, Pakistan, Sri Lanka, Bangladesh
and Nepal.3 Meanwhile, the majority of its revenue accounting and IT requirements
are outsourced to India. Professionals, on the other hand, are generously rewarded
and provided with free housing, but such costs are offset through high productivity.
Emirates has the advantage that labour laws in the UAE forbid strikes and there are
no trade unions, thus ensuring smooth flight operations and continuous services.
Emirates labour costs are on average 64% lower than British Airways and 26% less
than Singapore Airlines.
Airport charges and navigation expenses are another major cost element. In the UK,
the Civil Aviation Authority has allowed landing charges to rise by 23.5% at London
Heathrow during 2008/09, while 39% of the departures at London Heathrow involved
delays of around 32 min, and over a third of the arrivals involved delays of over
35 min (BBC News, 2008 and DG TREN, 2007). These difficult operating
circumstances drive up costs for British Airways that are 50% more expensive than
their Middle East rival. To unbundle the airport and navigation cost, an outline of
airport charges is illustrated in Table 5. It shows that it is considerably cheaper to
land a large wide-body at Dubai than at Singapore or at London Heathrow. In the UK,
British Airways, the Civil Aviation Authority and British Airports Authority are all
independent organisations, whereas in the UAE, Sheikh Ahmed bin Saeed Al
Maktoum controls Emirates, the airport authority and the regions aviation policy, as
he is the Chairman of the airline and the minister in charge of the civil aviation
department. This multifaceted management role allows for cost synergies and

pressurises airports to act in the interests of airlines. The strategy of joint airlineairport ownership has forced the partnership to co-support each others activities. In
addition, Dubai airport has developed an extensive duty-free facility with sales of over
$1.1 billion in 2008, which is used to cross subsidise landing and passenger charges.
Table 5.
Airport charges () for an A340-300 aircrafta at London Heathrow, Singapore Changi and
Dubai International in 2008.

Aircraft related

Passenger
related

Runway
Environmental
Charge
Terminal Navigation
Parking
Air Bridge
Terminal Facilities
Security
Total

London
Heathrow

Singapore
Changi

Dubai
International

494
35

1070

720

110
1587
635
3402

75
1277

298
493
4434
5754

2072

a
Assumes the following criteria: 1) MTOW of 257 tonnes with a capacity of 294 seats in a
typical three class cabin configuration; 2) 80% load factor with 212 passengers terminating at
the destination airport and a further 24 passengers transiting through the terminal and
transferring onto another aircraft.
Source: ICAO.
Table options

Ground handling represents the interface between an airline and airport, and is a
complex logistical process. It is labour intensive, with staffing costs accounting for
some 66% of the costs, followed by infrastructural costs estimated at 22% (Serpen,
2008). British Airways ground handling costs rose by 6% between 2005 and 2008,
indicating the difficulty that carriers experience in controlling such costs. At Dubai
airport, Emirates leverages its position because all ground handling operations are
conducted through an Emirates owned monopoly, Dnata, which creates revenuegenerating opportunities and potential cost advantages. However, the Singaporean
incumbent has it own subsidiary, known as Singapore Airport Terminal Services
(SATS), but competes for business against three other ground service providers at
Changi - but even so, its ground costs are 50% lower than Emirates because of its
technological advantages, e.g., 11 interfaces, including the flight information
processing, ULD management and resource management systems, are interlinked in
real time to manage logistical processes, while Emirates ground handling uses more
labour intensive methods.

Maintenance repair and overhaul costs represent around 10% of an airlines costs,
depending on the age of the fleet. New generation aircraft operate for longer periods
between maintenance cycles than their predecessors, and are less prone to
maintenance related delays. Boeing estimates the cost of a maintenance related
delay for a wide-body aircraft to be as much as $20,000 per hour (Airlines
International, 2009). Emirates reported that maintenance was responsible for just
1.8% of its costs, or $1.5 million per aircraft, while British Airways costs were almost
five times more as its ageing fleet is composed of 33 737 classics, 57 747-400s and
34 757/767 aircraft. Depreciation follows the same general trend as maintenance
costs.
Distribution is one cost element that airlines have managed to significantly curtail, as
the Internet now allows passengers to purchase directly from the airline, thus
bypassing the traditional travel agent. British Airways, for example, was paying 1.3
billion for distribution in 2001, but by 2008, this had fallen to 359 million. Emirates
costs, however, are 41% higher than British Airways and 108% more than Singapore
Airlines because of their reliance on travel agents. While most carriers have stopped
incentifying agents, Emirates still offers 7% commission in Australia and 5% in India.
In addition, it has been steadfast in refusing to join a global alliance, which has
stopped it from leveraging its wide ranging network to partner airlines. Emirates high
distribution costs are also attributable to the emerging markets that it serves, as it
derives over a third of its revenues from the Middle East, Africa and West Asia, which
have low internet penetration rates coupled with low credit card usage.
Emirates financing costs are causing concerning. Repayments for its existing fleet of
96 aircraft and for the financing of an additional 195 aircraft are a significant
burden.Airfinance Journal (2008) reports that all pre-delivery payments are financed
from its $3.1 billion cash reserve, while it purchases 1520% equity in each aircraft
and finances the remainder through operating leases, Exim loans, European export
credits, and Islamic and finance leases. There has been speculation about the
financial condition of Emirates, with the Economist (2009) finding that various
corporations owned by the government of Dubai amassed $70 billion worth of
liabilities, which closely matches the Citys 2008 GDP of $82 billion. The central bank
for the UAE, in oil rich Abu Dhabi, purchased $10 billion worth of Dubais five-year
bonds in February 2009. Media attention also speculates on a potential merger
between Emirates and Etihad to relieve the formers $3.7 billion debt. A core
weakness of the Emirates business model is the aggregated debt which is
intrinsically interlinked in a tripartite relationship of economics, finance and politics.
4.3. The strengthening brand of Emirates

Emirates spends around 4% of its revenues on marketing around $380 million in

2008, split evenly between sports sponsorship and advertising (Airline Business,
2006). Emirates is one of the worlds most proactive airlines in sports sponsorship,
and will sponsor a sport depending on its popularity and on its level of coverage
(Stockhaus, 2008). The Chairman of Emirates, Al-Maktoum (2009) maintains that
sponsorship is a vital part of the airlines marketing strategy and that Sponsorships
are one of the best ways to connect with our passengers. Sports sponsorship is an
integral component of Emirates brand strategy and is leveraged to develop brand
affiliation and loyalty. It allows them to take quantum leaps when promoting their
brand in new markets (Table 6).
Table 6.
Sponsorship activities of Emirates.
Football
Rugby
FIFA 2006, 2010 & 2014
World Cup 2011
World Cup
Arsenal FC & Emirates
IRB Referees &
Stadium London
Match Officials
AC Milan, Italy
Dubai Rugby
Sevens
The Emirates Cup
South African
Sevens
Paris Saint Germain
London Sevens

Golf
The Ryder Cup
Hong Kong Open

Cricket
ICC World Cup
2011
ICC Umpires

Malaysian Open

Cricket Australia

Austrian Open

Lords Taverners

Open de France

Pro Arch
Tournament
Kings XI Punjab
Durham County
Cricket

Hamburg SV
Olympiacos, Greece

Edinburgh Sevens
World Cup Sevens

Thailand Open
Australian Open

Asian Football
Confederation

England and
Somoa Sevens
Emirates Western
Force

Singapore Open
BMW Intl. Open
Avantha Masters WGCHSBC Championship
Ballantine's Championship
Dubai Ladies and Desert
championship

Horse Racing

Yacht Racing

Breeders Cup, USA

Team New
Zealand

Dubai World Cup

Melbourne Cup
Champion Stakes
Newmarket, UK
Yorkshire Cup
York, UK
Singapore Derby
Godolphin (India)

Powerboat
Racing
UIM Class 1
World
Powerboat Dubai

Tennis
Dubai Tennis
Championship
Rogers Cup (Canada)

Horse Racing

Yacht Racing

Powerboat
Racing

Tennis

Australian Jockey Club

Dubai International Racing
Carnival
Melbourne Carnival
Australian Jockey Carnival
Auto Racing
Dubai Grand
Racing

Australian Rules
Football
Collingwood

Arts and Culture

Shopping Festival

Australian Symphonies

Dubai Summer
Surprises

Dubai International Film

Festival
Dubai Jazz Festival
Emirates Airline Festive of
Literature
Table options

The diversity of these sporting events is reflective of the different segments of its
passenger profile. The events display the Fly Emirates logo on the athletes clothing,
seen via television transmissions by millions of people, stretching and strengthening
its brand awareness. The UK is Emirates most important market, accounting for 13%
of its seat capacity. Football is the nations most popular sport, as Mintel
(2004) calculated that around 44% of the adult population ranked soccer as their
favourite sport. Emirates sponsored a $143 million contract with London soccer team,
Arsenal, through which its stadium was renamed the Emirates Stadium for 15 years
the largest sponsorship agreement ever in British football. To strengthen its brand,
it engages over 120 agencies, comprising of consultancies, designers, publishers,
copywriters, advertising agencies and production houses, involving over 275 staff
dedicated to the Emirates advertising account. Over 1600 campaigns were
developed in 2008 in more than 100 countries.

5. Conclusion
Airlines from the Middle East are now an important component of the global air
transport market. The regions airlines are capitalising on its unique geographical
position, essentially half way between Asia and Europe, with some 4.5 billion people
residing within an 8-hour flight radius. However, it is the growth of Emirates Airline,
Qatar Airways and Etihad Airways that has been reshaping the competitive dynamics
of the industry. These carriers are growing traffic by cannibalising the traditional flows
between Asian and European hubs, and by connecting secondary cities as a result of
exercising their 6th freedom traffic rights. An airport master plan to create three
corresponding mega-hubs is also unfolding to handle the increases in traffic.
Emirates has been pushing into new markets while expanding its existing operations.
As liberalisation spreads its footprint across global markets, Emirates is in a position

to take full advantage and become a major threat to European and Asian
incumbents. An investigation into Emirates core competencies reveals three
underpinning strategies that are responsible for its continued success. Firstly, its
creation of a mega-hub at Dubai enables the domiciled carrier to collect traffic from
the six continents that it operates to and then redistribute this traffic over its hub.
Secondly, its low cost structure enables it to offer a low fare which in turn triggers
traffic. Thirdly, Emirates invests very heavily in developing its brand, and sports
sponsorship has become an integral component of its marketing mix.

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