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The story of Emirates begins during the mid-1980s, when Dubai flights were scaled back by Gulf Air. As a result Dubai's royal family decided to form a small airline, and in 1985 used two ancient Boeing 727s from the Dubai Royal Air Wing to provide two of the airline's first aircraft. It acquired much of its $10m start up capital from the Dubai government, which allowed it to lease a Boeing 737 from Pakistan Airline. First flights were from Dubai to Karachi, but within a year it was adding new destinations such as Colombo, Dhaka, Amman and Cairo to its route
Citation preview
AERO 2410 AIRLINE OPERATIONS
A group analytic report on a topic related to airline operations and
management.
Ahmed Al Jelali
Brian Yung
Dave Petrovski
JeanPierre Kabangu
Kenneth Nguyen
Mohamed Farah
RMIT University 6th of October
2011
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Executive Summary
The study of airline business structures is fascinating. Although many airlines
can be classed as either network or low cost carriers, within these categories
there exists so much contrast and how airlines run their business differs
remarkably.
For the purpose of this report, Emirates Airlines was chosen as the subject to
be analysed. Areas covered within this report examine the amazing
performance of the company since it began flying in 1985.
Within this report the Emirates Airlines business model is discussed in great
depth outlining the business strategies and government influence over the
business.
Furthermore the report importantly outlines how Emirates Airlines is part of
the picture for a corporation known as The Emirates Group. Behind the
success of the airline is the unique and world class product on offer. This
paper outlines and describes the contributing factors that drive this business
on a consistently upward. The airline is also subject to challenges and how it
has been affected or may be are covered deeper into the report as well as how
Emirates measures its performance. Finally the report discusses
recommendations that may be considered to further develop the business
through times of world wide economic hardship. Something that may seem
ludicrous considering Emirates Airlines success for almost thirty years.
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Table of Contents
Introduction 3
Literature Review 3
Emirates Airlines Business Model 3
Emirates Airlines Business Structure 3
•The Emirates Group 3
•Emirates Airlines 3
Emirates Airlines Business Performance Drivers 3
•Products and services 3
•Route network 3
•Schedules 3
•Fleet Selection 3
Emirates Airlines Challenges Facing its Business Model 3
Emirates Airlines Performance Measures 3
•Emirates Performance Indicators 3
•Emirates traffic results 3
•Emirates Expenditure 3
•Emirates market situation 3
•Emirates Productivity – RPK per employee and ASK per employee 3
•Emirates revenue structure 3
Investigating Factors Influencing the Running of Emirates Airlines Business 3
•Fleet selection 3
•Aircraft types 33
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•Aircraft configuration 4
•Aircraft productivity 4
•Aircraft comfortability 4
•Scheduling 4
•Financing 4
•Pricing and distribution 4
•Revenue management 4
•Cost management 4
Recommendations and Improvements Analysis 4
Conclusion 4
References 4
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AERO 2410 AIRLINE OPERATIONS
Introduction
Within this report you will be witness to the operations and business structure
of one of the worlds finest and undoubtedly most successful airlines; Emirates
Airlines. Part of the Emirates Group, the airline, which was launched in 1985,
has become one of the most recognisable brands worldwide, not only for its
outstanding product but also for its branding and support of major world
events and locations. Since its third year of operations, Emirates Airlines has
maintained annual profitability throughout tumultuous economic downturns
and severe global events that have derailed and even bankrupt many airlines
across the globe. This report dissects the structures and models within the
company. The report also details how these structures and models have
influenced profitability, market share and overall brand position. Through
economic hardship worldwide, Emirates has prospered and taken commercial
and even cargo aviation to the upper echelon. They never settle for second
best and failure is not even part of their vocabulary. Under government
ownership, backed by a mountain of natural resources and a still seemingly
untapped market, Emirates Airlines has all the tools necessary to succeed into
the future. This paper will analyse the current position of the business as well
as give recommendations into the future happenings of the airline.
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Literature Review
In order to analyze the extent of previous research focusing on business
models, structures and studies related to Emirates Airlines, a literature review
was undertaken. This ensured that the topic was well researched and in turn
the paper was written using the most appropriate data. The review is also an
attempt to find gaps in the existing research which this paper can attempt to
fill.
According to Osterwalder (2005) ‘A business model is a representation of
firm’s underlying core logic and strategic choices for creating and capturing
value within a value network’. Doganis adds to this by saying that airline
business models can be traditional that are exemplified by Air France,
Emirates, BA and the Virtual airlines such as Ryanair, Southwest and the
aviation business groups such as Lufthansa or Singapore Airlines. Doganis
goes on to say that other business models that follow the firm within the firm
approach such as Jetstar with Qantas and Tiger with Singapore.
However in today’s economic times McGrath & McMillan (2009) argue
that as uncertainty increases, companies are finding themselves facing a high
ratio of uncertainty to knowledge as decisions are based on old assumptions
leading to unfortunate outcomes. Furthermore, Eisenkopf and Knorr n.d look
at Emirates Airlines business model as it prepares for the post-oil era by firmly
establishing Dubai; as the world’s leading tourism destination, as a centre for
financial business, IT and professional services, as a prime location for
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corporate headquarters and manufacturers, and finally the world’s biggest
logistics and distribution hub.
Research for this report was primarily conducted sifting through
Emirates Airlines annual reports and data provided online. It is difficult to
right a literature on the actual structure of the business and model that the
company is using because it has not really been covered by journal articles or
text books available. In saying this when Emirates airlines is used as a case
study the details provided are factual and therefore it is difficult to obtain
readings to extensively complete a literature review on that behalf. Most
research conducted for this paper was statistical data that represents the
performance of the airline. This type of research was carried out due to the
requirements of the report.
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Emirates Airlines Business Model
‘A business model is a representation of firm’s underlying core logic and
strategic choices for creating and capturing value within a value network’
(Osterwalder 2005).
Doganis (2006), states that airline business models are categorised into
three main business models. The traditional airline business model
exemplified by Air France, Emirates, BA and the Virtual airlines such as
Ryanair, Southwest and the aviation business groups such as Lufthansa or
Singapore Airlines. Also there are other business models that follow the firm
within the firm approach such as Jetstar with Qantas and Tiger with
Singapore. It has been argued that as uncertainty increases, companies are
finding themselves facing a high ratio of uncertainty to knowledge as
decisions are based on old assumptions leading to unfortunate outcomes
(Mcgrath & MacMilan 2009).
Emirates Airlines business model is an example of carrier that has the
flexibility to adapt to these unfortunate outcomes and strategically formulate
its business plan along with its regional home base. Emirates Airlines has
been a crucial element in the growth of Dubai’s economical development,
tourism growth and overall development strategy. It has been widely accepted
that successful airline business model, is that the business model activities
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could be divided into four categories: strategic choices, the value network,
creating value and capturing value (Emirates 2011).
‘The concept behind the three A´s Accept, Asses and Augment to deal
with taking decisions in an uncertain environment is also useful for a business
model point of view’ (Makridakis, Hogarth & Gaba 2010). But they also
suggest for an evolving business model to deal with uncertainty. Flexibility
and adaptability is the necessary condition to validate the use of options to
mitigate an uncertainty (GFC) (Brautigam, Esche & Bicher 2003). Thus the
identification of options and new concepts, inherited in a strategy could be
driven by the identification of those uncertainties towards which a quicker and
efficient reaction is possible.
As Emirates Airlines is a crucial developer of Dubai’s tourism and
economic growth, Dubai has strategically developed a plan to prepare for the
next five years, to counter any ad-hoc instability of the airline industry. The
plan’s objective is to prepare Emirates Airlines for the post-oil era by firmly
establishing Dubai; as the world’s leading tourism destination, as a centre for
financial business, IT and professional services, as a prime location for
corporate headquarters and manufacturers, and finally the world’s biggest
logistics and distribution hub (Eisenkopf and Knorr n.d).
Emirates business model is based on the following premises:
· Labour Cost Economies: A mix of Emirates lean workforce and young
fleet account for its remarkable low cost and a strong cost-baesd
competitive profile. The labour-triggered low cost is created by a very
lean workforce, comparable to the leading low costs ‘no frills’ airlines
rather than other traditional flag carriers. This along with a simpler
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organisational structure, allows EK to minimise overheads (El Namaki
2007a).
· Government blithe support: Emirates received and continue to receive
direct and indirect financial and non-financial support from the Dubai
government
· Strong presence in markets that have been largely unconnected to the
global air transport network, and especially to the Middle East, India,
Southeast Asia and Africa (El Namaki 2007b).
· Operational strategies: High frequency for mid-term objectives, serve
most destinations across the globe at least twice daily. The airlines
strategic behaviour can best be described as a proactive and
opportunistic at times (El Namaki 2007c).
· A well positioned hub: Dubai airport is an excellent hub that allows
Emirates Airlines to profitably serve secondary destinations that are
underserved by its competitors (BA, LH and AF who focus only on their
own hubs) as well as connect such places via its global Dubai hub (The
Economist 2006). A well balanced mix of Origin and Destinations- and
transfer traffic in its passenger business (Eisenkopf and Knorr n.d).
· Strategic distance: Emirates has refused to join any major global airline
alliance. Questioning the advantages and custom benefits that come
from alliances.
· High quality of services onboard and on-ground including 600
entertainment channels onboard each flight. Limousine services for first
and business class passengers (Eisenkopf and Knorr n.d).
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Emirates Airlines Business Structure
•The Emirates Group
The Emirates group is a global enterprise ini the tourism and travel market. It
is spearheaded by the ultra successful Emirates Airlines. The Group has
expanded its operations to all corners of the earth. The Airlines sector in
particular remains as one of the very few profitable airlines worldwide even in
times of crisis amongst many of the players within the aviation industry.
Employing more than 55,000 people across its 50 business units and
associated firms, it is one of the biggest employers in the region and offers
specialist services spanning almost every aspect of the market (Emirates
Group 2011). At the very heart of the Emirates Group business structure
Emirates airline and dnata. These are the two core divisions of the group. The
amazing success of the two sectors has led to the development and further
success of ancillary businesses. Emirates Airlines has achieved outstanding
success in the airline industry. It is renowned for its incomparable product,
service and quality and to justify this they have received over 400 awards for
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excellence in the industry worldwide. The other core division of the Emirates
Group is dnata. dnata specializes in the provision of ground handling, cargo,
travel, IT solutions and flight catering.
The following is a list of businesses that are operated under The Emirates
Group banner.
1 7he Sevens
2 Al Maha, a Luxury Collection Desert Resort & Spa
3 Alpha Flight Group Ltd.
4 Arabian Adventures
5 Arsenal Soccer Schools Dubai
6 Calogi
7 Cargo Partners
8 Changi International Airport Services
9 Congress Solutions International
10 dnata
11 dnata Airport Operations
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12 dnata Cargo
13 dnata Contact Centres
14 dnata Corporate Travel – Hogg Robinson Group (HRG)
15 dnata for Airport Services
16 dnata Government Travel
17 dnata Hajj & Umrah
18 dnata Holidays
19 dnata Inc.
20 dnata International
21 dnata Network Air Products
22 dnata Offshore & Marine Services
23 dnata Switzerland
24 dnata Travel
25 dnata Travel Services
26 dnata-PWC Airport Logistics LLC (DPAL)
27 Dubai Marriott Harbour Hotel & Suites
28 Emirates
29 Emirates Aviation College
30 Emirates CAE Flight Training
31 Emirates Engineering
32 Emirates Flight Catering
33 Emirates Group Security
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34 Emirates High Street
35 Emirates Holidays
36 Emirates Leisure Retail (ELR)
37 Emirates Loyalty Services
38 Emirates SkyCargo
39 Emirates Tours UK
40 EmQuest
41 Freightworks
42 Gerry’s dnata
43 Gulf Ventures
44 Hogg Robinson Group (HRG) MEWA
45 Le Meridien Al Aqah Beach Resort
46 Luxury Air Travel by dnata
47 Luxury Hotels by dnata
48 Marhaba
49 Mercator
50 mmi
51 mmi travel
52 Plane Handling Ltd
53 Premier Inn
54 SDV-UAE LLC
55 Sirocco
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56 Skywards
57 The Holiday Lounge by dnata
58 Toll dnata Airport Services
59 Transguard
60 Transguard Group
61 Wolgan Valley Resort & Spa
62 Xi’an dnata Aviation Services Co. Ltd (Emirates Group 2011)
•Emirates Airlines
The purpose of this report is to identify the relevant information in regards to
the airline operations of such a business structure. Therefore it is important
that we focus on the main business operation of The Emirates Group, Emirates
Airlines.
Emirates Airlines is the largest airline in the Middle East, flying to over 115
destinations spanning 6 continents. Based at Dubai International Airport,
Emirates Airlines operates over 2,300 flights every week and boasts more
than 400 awards for excellence worldwide. In the financial year 2010/2011,
Emirates carried 31.4 million passengers and 1.8 million tonnes of cargo.
Emirates flew its first route out of Dubai on the 25th of October 1985. Since
then it has conquered the domestic market as well as expanded far and
beyond to all corners of the earth, offering an outstanding product and most of
all safe and reputable product. According to Emirates (2011), Emirates has
evolved into a globally influential travel and tourism conglomerate known the
world over for our commitment to the highest standards of quality in every
aspect of our business. The business is wholly owned by the Government of 15
AERO 2410 AIRLINE OPERATIONS
Dubai. With vast resource reserves, as well as a previously untried market,
and a globally central location, the potential for growth was always there and
as is evident today, finally realized. This success is justified by the financial
performance of the carrier, as every year from its third in operation, the
airline has returned a profit.
The airline boasts a fleet of 153 aircraft and flies to over 100 destinations in
66 countries (Emirates 2011). Furthermore over 100 flights depart Dubai
every week making their way to six different continents. To further reiterate
the scope that Emirates has and is seeking to achieve, the company is known
for its news headlining investments, in particular the ordering of aircraft.
Emirates’ current order-book stands at 199 aircraft, with a total value of
approximately USD 66 billion (Emirates 2011). This is a mix of Boeing and
Airbus aircraft and is represented by the company’s position as the world
leading operator of Airbus A380 and Boeing 777 aircraft.
At the core of its insurmountable success, Emirates Airlines offers a
product that is first class and most of all unique from its competitors. Offering
three classes of cabin seating, economy, business and first class, the airline
also offers both mobile and web check-in. Furthermore, Emirates is renowned
for its two world class loyalty programs. Business rewards that is tailored to
small and medium-sized business, allowing organizations to earn points which
can be redeemed for further business travel by any staff member, and
Skywards, that allows members to earn points when they fly with Emirates or
shop with their affiliated partners. Emirates also offer its passengers 26
dedicated lounges located across the UK, Europe, the Middle East, Africa,
Asia and the Pacific. Lounges include a range of services and facilities
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including large plasma screens, shower facilities, Business Centers and free
wireless internet access (Emirates 2011).
Emirates Airlines Business Performance Drivers
•Products and services
Emirates Airlines offer a unique level of services and products on broad and
on the ground and also ranging from in- flight entertainment to lounges.
a. In-flight Entertainment
There are 3 types of in- flight entertainment and they are as follow:
Information: Follow the progress of your flight, or take in the view from the
aircraft’s external cameras. Keep in touch with live business, news and sport
headlines from BBC News, and read up on Dubai and the Emirates.
Communications: Phone, SMS and email from your seat, or call friends and
family seated elsewhere on the aircraft.
Entertainment: Over 1,200 channels of premium entertainment to keep you
busy during the flight. The latest and best movies, television, audio and games
from around the world.
b. Seating
As we know there are the first class, business class and the economy class and
the level of service can varies from one to the other.
First class: If you value privacy and personalised service above all else,
you’ll love our First Class Private Suites. Each suite comes fully equipped with
a sliding door, a personal mini-bar, adjustable ambient lighting, and its own
vanity table, mirror and wardrobe. If you want to stretch out and sleep, our
crew will convert your seat to a fully flat bed with a mattress, so you can
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arrive at your destination totally refreshed. And if you're travelling with a
companion, the privacy divider separating the adjoining suites can be
lowered, allowing you to share your experience together.
Business class: The Flat-bed seats also include several features tailored to
the way you like to travel, from personal storage area and in-seat massage
functionality to a privacy divider. An in-seat power supply for laptops, dual
port USB and extra-large table provide a comfortable workspace, and over
1,200 channels of entertainment are available on our ice Digital Widescreen
TV. And there is even a built-in mini-bar in every seat.
Economy class: to create more space and comfort. Personal seatback
monitors provide up to 1,200 channels of news and entertainment
programming. And to ensure that you're able to stay in touch while in transit,
we offer SMS, telephone and email service at every seat.
c. Dining
Experience cuisine and service worthy of the world’s finest restaurants
in Emirates classes, with a range of dishes, carefully selected and prepared,
available on demand throughout your flight. Presented on Royal Doulton fine
bone china with exclusive Robert Welsh cutlery, alongside the finest wines in
the air. Enjoy multiple courses and complimentary champagne and vintage
wines, along with other cocktails and beverages. Beside the food they provide
on broad they also offer a range of wine, drawing from a variety of wine-
producing regions around the globe, our chief sommelier carefully selects
wines that best complement our gourmet cuisine. Each wine is especially
chosen to withstand the rigors of flight.
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d. Lounges
Emirates Airlines also offer a great range of lounges at Emirates
Lounges and as a First Class traveller, Business Class traveller or Skywards
Gold member, you’re invited to unwind in our world-class Emirates Lounges at
select destinations across the globe. On other hand you have the alternative of
having a delicious meal, take a shower, or catch up on business. Beside the
Emirates Lounges there are also the Dubai airport lounges which features
gourmet buffets, a la carte meals, and fresh juice bars, these luxury lounges
offer comfort, convenience and nourishment. Or delight in the moment with a
spa, massage or beauty treatment. Nevertheless they also have 60 partner
lounges located around the world and providing same services.
•Route network
Emirates is one of the fastest growing airlines in the world, now serving
over 100 destinations and every day, over six continents, Emirates helps its
passengers discover the world in award-winning safety and comfort. Emirates
airways operate over 2,300 flights every week across its network of 103
destinations in 65 countries on six continents from its hub in Dubai. In
2011/12 Emirates airways will launch flights to new destinations including
Argentina, Brazil, Iraq, Ireland and Russia (Kozhikode, 2010).
Emirates routes network map.
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Source: boardingarea (2011)
•Schedules
The official website of Emirates has a complete schedule available for its
passengers, which can be downloaded. The schedule has been designed
accordingly, by taking care of the passenger’s comfortable travelling
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experience. It is recommended to view the entire schedule, before booking
your seat. Having a complete knowledge of the flight will help you make up
your mind about the journey. Download the schedule on your personal
computer, and take your time to make the right decision. The Emirates
schedule makes your travelling experience fun and memorable. You can book
a seat online from the official website of the airline. Booking your ticket
online, rather than going to the local airline office, is beneficial. Online
booking gives you many advantages, like booking your seat, and take
advantage of the deals being offered. Also, the price charged will be
guaranteed company price. The risk of extra charges will be minimized
(Kozhikode, 2010). Having said that with over 1000 flights a week you are
able to travel anywhere in the world at any time you want, it doesn’t matter if
you are first class, business class and economy class. They also have missive
flexibility when it comes down to passenger travel of any class or time.
•Fleet Selection
Emirates Airlines operate one of the youngest fleets in the world. And
regular upgrades mean they will continue to provide their passengers with a
superior flight experience. Emirate’s fleet features purely wide-body aircraft
from three aircraft families: the Airbus A330/A340, Airbus A380 and the
Boeing 777. In keeping with its policy of maintaining a young fleet, which
stands at an average of 6.4 years in as of 21 December 2010. Also Emirates
aircraft utilization remained one of the highest in the industry at 18 hours per
day. Emirates have firm orders for 212 aircraft, and options for 50 more. In
July 2010 its orders comprise of 212 aircraft from Airbus, including 80 Airbus
A380-800s (15 delivered as of March 2011), and 63 Boeing aircraft. As of
February 2009, the company had an order book of over $70 billion,
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comprising 212 firm orders, and 50 unconfirmed orders Hofmann, Kurt
( 2009). Emirates Airlines also operate cargo fleet aircrafts which include
Boeing 747-400s with capacity for 120 tones and a Boeing 747-200 with
capacity for 110 tones.
Emirates Airlines Challenges Facing its Business Model
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SWOT Analysis: A review of strengths, weaknesses, opportunities, and
threats, is a core requirement of any organization, and essential to
understand any industry. The volatile airline industry is no exception.
While individual airlines each analyze and make decisions based on their
own situations, there are overall industry similarities that all airlines
face, with each endeavouring to maximize strengths and opportunities
while minimizing weaknesses and threats. Using SWOT analysis will help
identifying Emirates Airlines’ Strength, Weakness, Opportunities and
Threats.
1. Strengths: Firstly, flexible family organisation, Emirates’ success has
emerged from taking a non-traditional management approach,
rather than relying on the industry’s conventional wisdom. This is
the great thing that Emirates has done to manage the company.
Emirates Airlines has multi-culture management board which is
making them pretty rich about the strength, the skill of
individuals. Developing those strengths in the peace agreement
brings the new and strange breath to the airlines and makes it
totally different from others (Emirates Airlines, 2008).
Secondly, Emirates is one of the fastest growing and most
profitable airlines in the world. The airlines now serves 115 destinations in 66
countries in the Middle East, Far East, Europe, Africa, Indian subcontinent,
Pacific Rim, Australia. According to Abdulaziz Al Ali, Executive vice President
Human Resources said that, the most important thing make the airlines like
Emirates become the best airlines in the world is their employees as all of
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employees are made to feel that they are family of Emirates Airlines. They are
treated very farewell under the same roof (Emirates Airlines, 2011).
Emirates’ young and vast fleet is the next strategically strength of the
airlines. Emirates Airlines’ fleet consists of 153 new advanced technologies
and fuel efficient aircrafts. Their aircraft type ranges include B777-200ER,
B777-300ER, A380s and ordering more 32 A380s and 30 B777-300ERs
(Emirates Airlines, 2011). The airlines’ network is expanding constantly and
dominating the international air travel market itself. Youngest fleet and big
markets are the dream of other airlines, because the airlines could reduce the
operating cost by taking advantage from new fuel and noise efficient aircrafts.
In the mean time, cost is reduced, the airlines could easily adjust the prices
offering on its routes. This leads to Emirates definitely keep and attract more
customers around the world.
In addition, with many awards received, Emirates could be proud of
what it has achieved and developed. These awards such as: World's Best
Airline Inflight Entertainment, Treasury team of the year, Gold Annual Air
Cargo Excellence Awards help Emirates easily to confirm its position and
attract more passengers in the domestic market in particular and all over the
world in general (Dinar Standard, 2010).
Finally, with the highly confidence about quality and quantity that the
company is serving and providing to people using air transport around the
world, Emirates does not want to join in any alliances or buy codeshares with
any airlines. This is very controversial, because some people think alliances
and codeshares would help expand the routes and gain more market shares as
well as somehow minimising costs. To Emirates, they have their own business
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strategies and they are very successful so far. Not doing thing like any other
airlines makes Emirates Airlines become unique in the market. Clearly, saying
anything needs to have evidence and the financial result of them are showing
that. In the financial year 2010/2011, Emirates Airlines has carried 31.4
million passengers and 1.8 million tonnes of cargo. A bright future is waiting
for them in which they will carry many millions more across a growing
network of international destinations (Emirates Airlines, 2011).
2. Weakness: As one of the world’s fastest growing airlines, Emirates’
biggest challenge is ensuring that its brand continues to be
relevant and is consistently adopted throughout the organisation.
However, their high levels of brand recall concurrently raise the
expectation levels of customers. Once customers are satisfied at a
certain level, their expectations will rise and Emirates has to keep
up with new developments and innovations otherwise a competitor
will notice this and fill the gap (Shikoh 2005).
Ground handling is other difficulty for the airlines when operating in
other airport. Instead of using human source of its owned ground handling
staff at Dubai, Emirates Airlines is costed half of the operating costs at Changi
Singapore Airport for an example, because the Emirates’ ground handling
agent at Singapore prefer using intensive technology to manage processes in
real time (O’Connell in press).
Opportunities: The implementation of Open Skies policy in Middle East will
have a very positive impact on the region's overall growth, and will boost civil
aviation and tourism in the region, so that Emirates will be able to attract
more passengers, also they can use their positional advantage to maximise the
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market for them. Dubai has a big population that would be potential for
leisure and business passengers flying with Emirates. Moreover, there are a
lot of UAE people living around the world especially in developed country like
American, United Kingdom, Australia, countries in Asia and Europe lead to
Dubai be the most efficient connection point to visit relatives every year
(Knorr & Eisenkopf 2007).
Furthermore, Dubai now becomes a gate for connecting trade between
India with Asia, US, EU countries. In order to keep many important trades
moving fast between countries, Dubai facilitates fast export and import and
Emirates will be able to carry more cargo (Aerlines Magazine, vol27).
There are many neighbour countries now try to follow Dubai’s footsteps
by progressively liberalizing their air transport markets. On the one hand, this
will surely increase competition for Emirates; however it also brings new
opportunities for growth to establish routes in this regional area (Knorr &
Eisenkopf 2007).
3. Threats: First of all, there are many airlines in the world which are
significant threats to Emirates and potential to take over its
market shares. However, the greatest threat that Emirates Airlines
faces are its local competitors carriers such as Qatar and Etihad
Airways try to offer similar products and services to Emirates with
a much competitive low prices (Emirates, 2010).
Furthermore, the governments in some countries like Germany and
Canada try to protect their nation flag carriers by make the bilateral very hard
to Emirates. Like Canada, the government refused the proposal for
negotiating additional flights to Toronto, Calgary and Vancouver. Similarity, in
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Germany, the government forced Emirates increase its business class fares on
routes to Germany with the justification that these were too low to allow for
fair competition. However, fares of several other EU and non-EU airlines are
even lower than Emirates’ and yet these have not been asked to be adjusted
Competitors from the same operating country (Knorr & Eisenkopf 2007).
Nominating the largest market is also a threat to the Emirates. Due to
the out of balance competition with Emirates, some countries will resist
further liberalization to them such as Germany, Australia, and France…(Knorr
& Eisenkopf 2007).
Fuel prices increase: High fuel prices is a problem for every airline in
the industry, with oil now exceeding US$120 per barrel, up from US$86
per barrel a year earlier according to figures below from the
International Air Transport Association (IATA). Although volatility of fuel
price is the most impact to the airlines industry over the world, however
to Emirates, this is a new advantage. The hub Dubai Airport and the
airline are owned by Government of oil rich country. This leads to
Emirates has more advantage in fuel price than other airlines in Europe
or US (Manisha, 2011).
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IATA Jet Fuel and Crude Oil Prices.
Source: IATA (2011)
Airline operating costs (Fuel)
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Source: IATA (2011)
Furthermore, the increase in fuel price recently has cost other airlines
40 per cent of the operation cost so that some airlines like Lufthansa have to
offer higher fares than Emirates leads to them losing customers. Have been
saying this to help understand more why Lufthansa and its alliances always
blame to Emirates by allegations of an unfair playing field without any
evidences til now (Manisha, 2011).
Finally, although Emirates could get a lower fuel price compared to
other airlines, due to the price up of fuel, the airline still had to raise ticket
prices, but the increase would differ by markets and routes. Also, like every
other airlines, Emirates regularly reviews its fares to reflect market dynamics
including demand and rising fuel prices. According to the spokesperson of
Emirates, the airline has a programme which is very active in managing fuel
risk but with such market volatility it is impossible to fully absorb the impact
of soaring oil prices (Emirates, 2011).
Research on competitors (Eithad, Qatar…ect) who are trying to apply
the same business model of Emirates in the UAE:
Emirates Airlines is building the fleet to establish Dubai as an inter-
continental hub and win passengers from Air France- KLM Group, British
Airways and Lufthansa while fending off Qatar Air and Etihad Airways. It will
resist cutting flights as oil prices threaten the profitability of some
destinations and instead aims to stir up demand with cheaper tickets,
President Tim Clark said in an interview on June 20.
Qatar Air, the second-biggest Middle Eastern airline, has 91 jetliners in
its fleet, 56 of them wide bodies, with 172 on order, of which 160 are twin-29
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aisle. Including retirements, it may operate 190 planes by 2020 (Qatar
Airways, 2011). Qatar Airways’ catch-up strategy with Emirates seems to rely
largely on undercutting its competitor while offering similar product quality.
By that, Qatar Air chose Doha International Airport as its hub to fly to Middle
East, Far East, Europe, Africa, Indian subcontinent, Pacific Rim, Australia.
Like what Emirates Airlines did, Qatar Airways has ordered the range of new
aircrafts consist of B777s, A380s, B787s to expand their routes to the
destinations that Emirates Airlines flying to and to make Doha Airport become
the centre hub in Middle East instead of Dubai. A clear example is China, it
used to be Emirates big market but now Qatar Airlines is taking a part of the
market in here from Emirates (Arabian Business, 2008).
Etihad, the regional No.3, is pursuing a less expansive growth plan,
according to CEO James Hogan. The carrier has 57 wide-body planes, with
103 jets due for delivery in the coming decade, including 10 A380s, 25 Airbus
A350s and 35 Boeing 787s (Etihad Airways, 2011). As the way Qatar Airways
cut down Emirates Airlines market shares in China, Etihad Airways tried to
operate flights on the same routes like Emirates Airlines . An example for this
is route from Singapore-Abu Dhabi, it took down the market shares of
Emirates Airlines from these routes since 2008 (Arabian Business, 2008).
Furthermore, people could easily see that Etihad Airways and Emirates
Airlines are two airlines in United Arab Emirates and doing business under
similar model. There is a question “Does Etihad Airways copy business model
of Emirates Ailrines or not?” asked in the wolrd. Why is that? Because when
we look at aircraft painting is similar, the uniform’s style of flight attendant is
similar only different colour. Also, inflight entertainments are similar too. This
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is very easy found out and compared how much Etihad Airways is the same
Emirates Airlines when looking at their advertisements or their websites.
Emirates will need to carefully plan their business strategy to protect
their market shares from those two big rivals in region. Emirates’ success has
put themselves in the higher local competition. Air Arabia, the first low-cost
carrier in the Middle East started operations in the UAE in October 2003. Not
long after, Etihad Airways started to offer flights from Abu Dhabi, just 60
miles from Dubai. Emirates have to keep fighting back. Furthermore, Emirates
wants to be a global hub and spoke system with passengers able to fly from
any major city in the world to any large destination through Dubai. But
Emirates is not alone in spotting this opportunity. Well-respected rivals such
as Singapore Airlines are also poised to emerge as serious rivals in the global
hub and spoke competition (Emirates, 2005).
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Emirates Airlines Performance Measures
•Emirates Performance Indicators
EMIRATES IS RANKED 5th BEST INTERNATIONAL AIRLINE COMPANY
IN TERM OF SCHEDULED PASSENGERS CARRIED
Rank Airline Thousands
1 Ryanair 71,229
2 Lufthansa 44,460
3 easyJet 37,665
4 Air France 30,882
5 Emirates 30,848
6 British Airways 26,320
7 KLM 22,787
8 Delta Air Lines 21,029
9 American Airlines 20,356
10 Cathay Pacific airways 19,723
EMIRATES IS RANKED 3rd BEST INTERNATIONAL AIRLINES COMPANY IN
TERM OF SCHEDULED FREIGHT KILOMETRES CARRIED
Rank Airline Millions
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1 Cathay Pacific Airways 9,587
2 Korean Air 9,487
3 Emirates 7,913
4 Lufthansa 7,422
5 FedEx 7,421
6 Singapore Airlines 7,001
7 China Airlines 6,410
8 UPS Airlines 5,215
WORLD AIRLINES REVENUES AND OPERATING PROFIT
MARGIN
Source: Centre of Aviation (2011)
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WORLD AIRLINES REVENUES AND OPERATING PROFIT
Source: Centre of Aviation (2011)
Negative net profit margin in the airline industry worldwide (+0.2%)
with profit of around 15 billion USD in the period 2001 to 2009 clearly
indicates route profitability improvements of Emirates.
Carlos Martin and Roman (2011, p.29) argue that airlines’ operational
performance is based on a set of indicators which can be characterized by
three different aspects of their operations, namely: resource input (labour;
capital; fuel; materials), service output (aircraft-hours; aircraft-km; seat-km),
and service consumption (passengers emplacements; cargo; passenger-km;
operating revenue), which constitute the three corners of an operational
triangle. These three sides represent different efficiency concepts: resource-
efficiency (measuring service output against input), and service-effectiveness
(measuring service consumed against service output), respectively. The key
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elements intervening in performance indicators of airlines include Available
Seat Kilometres (ASKs), Revenue Passenger Kilometres (RPKs), Seat Factor
(SF%) (Or load factor LF %), Yield (both per RPK and per ASK), Expenditure
per ASK, market share and productivity – RPK per employee and ASK per
employee. Several airlines now use EBITDAR (Earnings before interest, tax,
depreciation, amortization and rent) as a measure of performance (RMIT
blackboard, 2011).
•Emirates traffic results
Emirates Available Seat Kilometres (ASKs) in millions
Source: Emirates (2011)
Emirates Capacity, traffic and load factor
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Source: Emirates (2011)
Emirates Overall and breakeven load factor in %
Source: Emirates (2011)
Emirates Available tonne kilometers (ATKM) in million and
number of aircraft
Source: Emirates (2011)
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Emirates Passengers carried in 000
Source: Emirates (2011)
Emirates Cargo handled carried in tones 000
Source: Emirates (2011)
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Emirates Seat Factor in % (or Load Factor) (a measure of capacity
usage)
Source: Emirates (2011)
Emirates Yield (both per RPK and per ASK)
Source: Emirates (2011)
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•Emirates Expenditure
Emirates Operating costs
Source: Emirates (2011)
Emirates Jet fuel cost in %
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Source: Emirates (2011)
•Emirates market situation
Emirates Market share
Source: Emirates (2011)
Emirates Codeshare Partners
Air Malta
Air Mauritius
Japan Airlines
Jet Airways
Korean Air Lines
Oman Air
Philippine Airlines
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South African Airways
Thai Airways International
Source: Center of Aviation (2011)
•Emirates Productivity – RPK per employee and ASK per employee
Emirates EBITDAR (Earnings before interest, tax, depreciation,
amortization and rent) in million
Source: Emirates (2011)
Emirates Capacity per airline employee in ATKM ‘000
Source: Emirates (2011)
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Emirates Employee productivity
Source: Emirates (2011)
•Emirates revenue structure
Emirates Revenue by line business in %
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Source: Emirates (2011)
Emirates Geographical revenue in %
Source: Emirates (2011)
Emirates Development revenue in AED bn %
Source: Centre of Aviation (2011)
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Investigating Factors Influencing the Running of Emirates Airlines
Business
•Fleet selection
Fleet selection is one of the most important factors of an airline’s planning
because it is an expensive asset to an airline but also determine its flight
route, payload and range therefore, basically its whole operation (Belebaba et
al., 2009). Therefore choosing the correct aircraft enables an airline to earn
profit otherwise, it could go bankrupt in term of the operating cost of the
aircraft.
•Aircraft types
Aircraft do not come to an airline on the next day they purchased it. It usually
arrive in a period of time usually few years later on therefore airlines need to
forecast their financial and demand in the future so that the aircraft can arrive
at the right time and serves its purpose (Belebaba et al., 2009). When looking
at Emirate aircraft types, there are mainly 4 types which include A330, A340,
A380 and B777 (Emirate, 2011a). Although some aircrafts are from different
manufacturer which can lead to high maintenance cost and flight crew salary
(Belebaba et al., 2009), they fly alternate routes and carry different capacity of
payload so in a long term perspective, the cost can be covered. According to
Mutzabaugh (2010), Emirate has now ordered ninety A380 which is
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impressive when you look at how much each A380 cost. This is due to its
capacity and the amount of passengers that can carry. In short term this could
be a huge cost but when you look into the long term perspective, the amount
of passengers and cargo being carry will reflect how much revenue the airline
has earn.
•Aircraft configuration
Aircraft configuration is an important factor in terms of amount of passengers
being carried, what service can be offered and where the interior are going to
be layout. As an example of looking at Emirate’s B777-300ER, they offer three
types of configuration which suits different type of routes and passengers
(Emirate, 2011). There are the three class seating with private suites in first
class, normal three class seating and two class seating. The first configuration
is very unusual because it only happens in Emirate. They are for people who
do not want to be disturbed by other passengers and enjoy their private space.
Another example from Emirate is their unique A380 shower bar and on
board lounge (Emirate, 2011b). The interior configuration would be very
unique since this is a breakthrough achievement in any model aircraft.
•Aircraft productivity
Since an aircraft is expensive, airlines would want to use their aircraft as
much as possible to make maximum profit. Therefore there are two things that
we can measure productivities; aircraft utilisation and ASK per aircraft per
day (RMIT, 2011). Belebaba et al (2009) has suggested three ways to increase
productivity; by increasing the frequency of flight with the certain aircraft,
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increase the flying distance and increasing the number of seats within the
aircraft. However, this could increase marginal cost from flying longer and
further or putting seats in the aircraft therefore marginal revenue on the
other hand must be equal to gain maximum profits.
•Aircraft comfortability
Safety is the most important thing to air travel and comfort comes second in
many cases (McDonough, 2010). Comfort is only considered when passengers
are travelling long haul or overseas, especially to those business and first
class passengers. This can be arranging by the seat pitch and width to provide
more legroom and seating area. However, this has a huge impact on the
number of seats can be store in an aircraft hence lower aircraft productivity
(Belebaba et al., 2009).
•Scheduling
The best schedule is the one that earns most profits for the airline. However,
there are many factors that we need to be considering when setting up a
schedule; location of crew and maintenance base, airport slots, bilateral
agreement and government restrictions (Belebaba et al., 2009). Therefore an
airline would need to decide what type of network they are flying, load factor
and frequency of each flight and create a short term schedule to meet the
demand in order to increase frequency (Bazargan, 2004, p.31-33). The
importance of scheduling is to maximize aircraft productivity but at the same
time dealing with the factors mention before so that the aircraft can still
operate as much as it can.
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•Financing
Airline finance looks into the source of internal and external funding and cost
of running the airline for example fix operating cost, variable operating cost
and in-direct operating cost (Baxter, 2011). It is vital to airlines to cut as many
cost as they can in order to maximum their profit because if the breakeven
point is too high for airlines, they cannot make any profits and only go
bankrupt (Belebaba et al., 2009). Also airlines must repay their shareholders
in order to get extra funds for further investments.
•Pricing and distribution
The Law of demand stated there is an inverted proportional relationship
between price and demand, as one rise, the other falls (RMIT, 2011a).
Therefore, the price of air ticket will determine the demand of passengers so
airlines are trying to set their price at a values the maximize demand at the
same time maximize their revenue. This is the reason why revenue
management is introduced. Belebaba (2009) suggested there are 3 types of
pricing; cost-based, demand-based and service- based. Depending on the route
an airline is flying, different price structure can apply.
Distribution looks into 4 Ps; place, promotion, price and product. Therefore
airlines must provide their service base on those Ps. Also airlines are looking
at how to sell their tickets for example by travel agents or online (RMIT,
2011a).
•Revenue management
Revenue management is trying to maximize revenue by filling as much seats
as possible at the optimal price (Belebaba et al., 2009). There are two
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AERO 2410 AIRLINE OPERATIONS
suggested way to maximize revenue; differential pricing and yield
management. By selling the same seats at a different price can stimulate
demand which helps to increase load factor of each flight. Other methods that
can help to increase load factor are CRS and overbooking (Belebaba et al.,
2009).
•Cost management
This is very similar to airline finance however; this only looks at the cost side
of the finance for example what are operating cost and capital cost, how to cut
down cost remaining at the same level of services and any type of investment
in facilities that increases total efficiency (Belebaba et al., 2009).
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Recommendations and Improvements Analysis
Clearly, it is possible to infer that the business model of Emirates Airlines is
a typical traditional business model. From the above research conducted an
accurate evaluation of Emirates Airlines business is if the airlines
performance is meeting the airlines current and future goals. Several key
elements will be analysed to conclude if the business model/structure
implemented by Emirates Airlines is of a profitable, cost effective, revenue
driven, product services level, destinations (route network), distribution and
pricing, aircraft productivity, performance drivers, performance measures,
labour productivity and market share and structure driven are meeting the
airlines future long term plan objectives. The idea behind this analysis is to be
able to recommend improvements or strengths of the airlines current
operational level (Nair, Palacios and Ruiz 2011).
Emirates Airlines Business Model and Business Structure,
recommendation of Improvements or Highlighting Strength?
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Emirates Airlines business model is the core and the foundations of the
airlines success. The airline industry, which plays a pivotal part in any
country’s economy, is one of the most volatile industries, plagued with
excessive losses, restructuring and bankruptcies. Four or five years of poor
performance precede five or six years of improved performance. Emirates
Airlines was conceived within this turbulent environment and has
demonstrated an unfailing ability to grow in these unstable conditions.
Emirates business model is clearly of unique management, in fact, the only
factor that is believed to have resulted from Emirates successful
penetration and rise in the airline industry is the geographical location and
outstanding management, embedded in an ambitious visionary business
development master plan. However, Eisenkopf and Knorr (n.d) believe that
even though with outstanding management and unique business model,
Emirates Airlines is not the only airline that in many respect has this
unique business model approach, Singapore Airlines rise from a small
regional player to a global powerhouse in the airline industry only within
few decades ago highlight that business models are only as affective as the
airlines core logic, strategic choices and value of its network (Osterwalder
2005).
The business structure of Emirates Airlines is of the same type of
Corporate owned business groups such as Qantas, KLM/Air France and
Lufthansa Group. One can argue that, within a corporate governed
business their can only be outcome of advantages. Corporately owned
airlines are heavily reliant on capital injections, often the only thing that
keeps an airline operating and not falling into bankruptcy are those
carriers who have capital corporate insurance, corporate who are willing to
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AERO 2410 AIRLINE OPERATIONS
inject billions into the carrier just to offset its operating costs and keeping
it at the forefront of competition within its market segment and market
share (Nair, Palacios and Ruiz 2011).
Emirates Airlines performance drivers and performance
measures, recommendation of Improvements or Highlighting
Strength?
The brand, the product and the services, are essential to Emirates Airlines
performance drivers in development, uniqueness and global dominance. In a
time of economic uncertainty, airline brands need to connect with both leisure
and business travellers. In difficult economic times, customers will only look to
carriers who offer product and services value. In the case of Emirates their
biggest asset is their brand, products and services, with the world’s most
technologically advanced entrainment system onboard and three class levels
at any given flight at varying prices (Ross 2011).
Passenger’s expectations and perceptions are among the factors driving
service decisions of airlines. Empirical evidence has indicated that success in
customer-focused service development requires a deep understating of
customers needs, expectations and preferences (Gustanfsson, Ekdahl &
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Edvardsson 1999) and that marketing strategies implemented by airlines must
take into consideration the different expectations and perceptions of
passengers (Sultan & Simpson 2000) . Emirates Airlines is well positioned in
the market and in the travellers mind such product and services levels offered
by Emirates will give the airline a better chance of survival in their strongly
competitive environment (Surovitskikh 2007).
Emirates Airlines is also one of the world’s fewest carriers who offer
flexible scheduling with any type of passenger at any time of the year. Their
growing network of destinations, economical scope, products and services and
array of wide-body aircrafts enabled them to control market shares and
manipulate prices. The airlines operational performance measures is nothing
short but a pure dominance (Emirates 2011). The airlines region (Middle East)
is labour effective, allowing the airline to mitigate its labour expenses and
increase productivity levels. The carrier’s key performance strength is the
resultant APK’s increasing to and in-between 20-30 thousand per kilometre
annually. Furthermore, the carrier ability to continuously generate revenue
and decrease its operating costs by 22 percent yearly, just shows how
affective the airline uses its geographical position to its ultimate advantage. It
can be safely said, that any future economical crisis that Emirates might face,
it will not affect the airlines operational performance simply because of its
dexterity and ability to adapt to changing market conditions quickly (Seristo
and Vepsalainen 1997).
Emirates Airlines Internal and External challenges and Factors
Influencing the Running of the Business
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Emirates Airlines strengths come from the right decisions taken at its
foundation, and from its unique organisational structure. Not only does the
carrier benefit from having been created from scratch only two decades ago,
the continuous development strategy also guarantees Emirates a very
favourable political environment. Furthermore, the overall expansion activities
related to Dubai’s airport and new projects ensure that the airline does not
decade face infrastructure bottlenecks (which increasingly stifle the growth
prospects of its principal European competitors) (Eisenkopf and Knorr n.d).
Secondly, Emirates major hub in Dubai is another strength factor, not only
that 140 airlines use Dubai because of its free additional charges (noise
charges, ATC charges and Security Charges) the airports generates
substantial profit for its home-base carrier and the open skies agreement
subject all carriers to and from Dubai to non-discriminatory treatment. It’s
weakens are almost impossible to count. Notoriously unreliable resources,
comment on the carriers inability or inefficiency to meet individual quality
services, although it is a common sense that it is impossible for a carrier to
meet every individual customers needs and services qualities (Eisenkopf and
Knorr n.d).
One of the key factors influencing Emirates airline performances is its
ability to manage revenue. Emirates Airlines revenue management is quite
complex in respect to the allocation of seats to every single passenger at its
wide network of destinations. Essentially revenue management is crucial for
Emirates due to their aircrafts fleet being wide-body. The Airbus A380
presents a quite challenge in regards of management being able to forecast
customer historical booking and overbooking practices (Cusano 2003).
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The airline increasing reputation and the support of its government
almost make Emirates; invulnerable to challenges and decrease in operational
performance. That being said as Emirates Airlines is a traditional legacy
carrier, aircraft productivity and fuel are the only challenging factors that can
be identified. With their wide-body aircraft, and their long-haul flights it is
almost impossible to increase the aircraft productivity to the level of low cost
carriers. Having the world’s largest aircraft in your fleet is not a cost effective
decision, but if cost is managed and channelled in affective manner
operational costs can be turned into operating revenue. It is the details in-
between the lines, that affect cost management plan. Reduction of costs
almost always comes with reduction of services if mitigated strategically costs
effectiveness can be achieved (Belobaba et al. 2009).
Conclusion
As you may have just witnessed, Emirates Airlines is one unique company. It
seems to be living and operating in a world of its own. Trapped in a timezone
that has protected them from all the economic troubles that most other
airlines have experienced around the world. Emirates Airlines has somehow
been annually profitable since 1988. It is heavily regarded as the best airline
in the world. The hundreds of awards it has won over the years represents this
and is testament to the unique and forever innovative business that the
airlines run. After pouring over many statistics and corporate documents, it is
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difficult to offer recommendations on such a successful and innovative
establishment. Does anyone actually think they could do it better? The airline
is backed by a government that is reaping the rewards of an excellent
geographical position as well as a huge demand for its natural resources
coupled with a surge in industry across the whole middle eastern region. All
factors considered, it is hard to foresee Emirates Airlines undergoing any
hardship during the not too distant future.
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