What is the role of Dubai in Emirate’s success?
The Dubai International Airport (DXB) has recently been declared the world’s busiest airport in terms of international passenger traffic and it is estimated that 90.3 million people will use DXB this year. However, this wasn’t always the case. In the early days of Emirates (1980s-1990s), many potential customers in foreign markets were largely unfamiliar with Dubai, and it certainly was not the major tourist destination it is today. The success of Emirates can be largely attributed to its strategically placed hub in Dubai and the government of Dubai’s efforts to change the global view of the city. The government has continually invested large amounts of capital in several high-profile projects (such as the Burj Khalifa), major tourism events (such as Expo 2020) and the improvement of infrastructure (such as the Burj Al Arab) to establish itself as a leading tourism and logistics hub where the majority of passengers arrive and depart via Emirates.
Firstly, Dubai’s location has contributed to Emirate’s success. Dubai’s position on the Arabian Peninsula has placed it at a strategic location between Europe, Asia and Africa. As it’s Europe’s most easterly hub and Asia’s most westerly hub, over one-third of the planet’s seven billion citizen live within a four-hour flight of the city, and over two-thirds of the planet within an eight-hour flight. Emirate’s strategically placed hub has allowed itself to exploit a large passenger base.
In addition, its distance from congested European airspace meant that aviation traffic was minimal. This allowed flights to connect at almost any time of the day which meant that it could engage in twenty- four hour operations. This allowed customers the flexibility to fly at their most preferable time. Whereas, several of their competitors, such as Heathrow, are subject to a number of night-time operation restrictions.
Dubai’s climate also plays a role in Emirate’s success. Dubai’s relatively good weather conditions; aside from occasional fog, means that airport operations are subjected to lesser delay factors than European and American airspaces who often experience heavy rain and snowstorms.
The support Emirates has received from the Dubai government is central to its success. The government maintained an arms-length financial relationship with the airline through the Investment Corporation of Dubai. The ICD supported Emirate’s growth as it fostered co-operation between the city, airport and airline. While their competitors, such as Heathrow and JFK, where faced with space constraints and NIMBYism, Emirates close coordination with government authorities allowed for the rapid expansion of DXB, including the Emirates dedicated terminal 3, to accommodate for the airline’s rapid growth. In addition to this, the ICD helped Emirates in receiving regulatory approval to fly to new destinations by negotiation bilateral aviation agreements with foreign states who Emirates wished to enter.
Finally, Emirates also receives generous government subsidies, very little airport charges and minimal fuel tax at its hub in Dubai which greatly aids its success. Due to lower relative operation costs, Emirates is able to offer lower prices at a profit to its customers while many of its competitors are unable to afford to do so.
Is Emirates’ strategy sustainable? Why?
Emirates, at the moment, is one of the fastest growing and most consistently profitable airlines in history. However, I cannot help but feel skeptical with respect to the long-term sustainability of Emirates’ business model.
Firstly, I believe that Etihad Airways (2003) is a major threat to Emirates (1985) sustainability in the future. For many years, Emirates had solely enjoyed the benefits of doing operations in the UAE without any competition from in house competitors. Benefits, such as subsidized fuel and no income tax, meant that Emirates had been able to work at much lower operating costs than any of its competition. In turn, these lower operating costs allowed Emirates to offer its customer with lower prices at a profit. Etihad also receives such benefits but also has a much younger fleet and has made a name for itself as a provider of a high-quality service by receiving many prestigious Skytrax awards. As a result of this, Etihad has become a major competitor to Emirates. Etihad has witnessed a decade of strong growth, including some of the highest rates of passenger growth in the region. There is uncertainty as to whether Emirates will be able to keep up with Etihad who is renowned for offering a premium service at a lower cost.
Secondly, Emirates had benefited for many years from lower air traffic than its competitors which helped its customers to reach their hub in time for their connecting flight. However, this competitive advantage may not be sustainable in the future as the company has been continuously increasing its capacity by adding extra flights and extra seat capacity to meet exceptional customer demands. Not only that, it’s in house competition, such as Etihad, will also further contribute to the increasing air traffic levels. It is debatable whether the airline will be able to manage the increasing air traffic in the future and maintain its current time efficiency for its customers.
Finally, the instability of the region is another major threat to the sustainability of Emirates’ strategy. The ongoing political situation in Yemen, Syria, Iraq and Libya could affect the airlines ability to serve some flights routes and the number of travelers to and from these destinations and even neighboring countries may decline significantly.
Although Emirates currently is operating with a very good business strategy, there are a number of external threats that are difficult to anticipate or manage directly could affect its future sustainability of operations.