At last, Emirates will be offering premium economy

Courtesy EPA

Emirates Airlines is the latest of the few remaining major airlines to jump on the premium economy bandwagon. The Gulf carrier is launching the service in 2020. And as one of the world’s best airlines according to several surveys, it promises a product as one to beat.

Emirates CEO Tim Clark said, “We’re aiming to make it a quiet zone, a comfortable zone.”

It will be an exclusive cabin. Besides more legroom, better food and beverages, and other perks, the seat will be a “sleeperette”, but it will not be a lie-flat bed as in Business Class. The idea is to attract economy class passengers to upgrade. And Mr Clark has said the prices will be “well below business class fares.”

Emirates’ entry into this segment of the business will certainly heighten the competition among rival airlines that are already offering premium economy. A noted rival is Singapore Airlines (SIA). Interestingly, Emirates seems to be following in the footsteps of SIA which held out for quite a while before it decided to fly premium economy behind several other major carriers such as Cathay Pacific and Qantas. Both SIA and Emirates are known for their excellent service in the upper classes, but they cannot ignore the growing appeal of that in-between class that their close rivals ride on.

Closer home, it may not be a question now as to whether Qatar Airways and Etihad Airways will also come on board but when

US airlines cap capacity: Economics or collusion?

A marketing proposition discussed at a recent IATA (International Air Transport Association) conference in Miami has opened a can of worms. It seems that airlines are recognizing that it is in their joint interest to cap capacity so as to maintain airfares if not keep them high. It is a lesson learnt from the global financial meltdown that led to a reduction of capacity and cancellation of unprofitable routes, a lesson that many of the airlines are stretching into recovery, and antitrust observers have expressed concern that this may become permanent.

In more justifiable business parlance perhaps, airline executives are calling it “capacity discipline”. That, however, implemented jointly across the industry suggests possible collusion to limit competitive pricing which the Justice Department is investigating.

The suspicion is not helped by US airlines turning in record profits as the economy recovers, unmitigated by the fact that while jet fuel prices are falling, airfares are not moving in the same direction. In the past two years, US carriers together close to US$20 billion, and higher profits are expected this year as fuel prices remain at their low levels, having already dipped by some 35 per cent compared with last year’s prices. On the other hand, airfares are at a record decade high.delta

American<a Justice Department spokesperson Emily Pierce confirmed the probe to look into “possible unlawful coordination by some airlines.” The four major airlines in the US – American Airlines, United Airlines, Delta Air Lines and Southwest Airlines – also confirmed they have been contacted to provide information and would comply. You bet these airlines were not picked randomly. If there were any collusion, they would be the ones in the strongest position to jointly impact the market. Together, they fly about 80 per cent of the nation’s domestic passengers.southwest logo

united logoExcluding Southwest, the US Big 3 are making the authorities reflect on the wisdom of approving the mergers of their erstwhile entities, creating mega carriers that as a consequence results in reduced competition as the merged airlines rationalize their operations to reduce routes and capacity. US politicians are not falling short in criticism of the new reality. US senator Richard Blumenthal warned of widespread “anti-competitive, anti-consumer conduct.” The issue is that airlines are not matching the increased demand for seats in an improved economy, and that can only lead to increased prices. Mr Blumenthal said: “Consumers are suffering rising fares and other added charges that seem to be the result of excessive market power concentrated in too few hands and potential misuse of that power.”

Indeed, as another senator, Charles E Schumer, pointed out, “It’s hard to understand, with jet fuel prices dropping by 40 per cent since last year, why ticket prices haven’t followed.” While some airlines outside the US have bowed to pressure to adjust airfares or reduce fuel surcharge, US airlines have stuck to their guns to not do so but instead return millions to their shareholders. It is a clear indication of where their priorities lie. Yet what could be wrong with that but for the alleged collusion to foster an oligopoly where the customer is deprived of choice, the very situation decried by the airlines themselves and the authorities alike?

Not surprisingly, the US situation in the light of falling fuel prices may suggest the tacit support that the major airlines give each other to not return the savings or part of it to their passengers, that no airline should be disadvantaged by a competitor cutting airfares. The mega conglomeration seems to have made that easier, so Mr Schumer said: “We know that when airlines merge, there’s less price competition. What we need now is a top-to-bottom review to ensure consumers aren’t being hurt by industry changes.”

The problem is magnified when you consider the rising trend of cross border mergers and acquisitions not excluding mega alliances that can wield as much power to jointly ensure that prices are kept high even as oil prices dip, and by their size are able to erect entry barriers to new competitors. Fortunately the environment outside the US is less homogeneous and the market too diverse. There are also socio-political differences, if not often conflicting. US carriers have derided as unfair competition the apparent non-conformity to US standards and other operating situations such as low wages that make it possible for foreign carriers to charge lower fares.

Courtesy Emirates Airlines

Courtesy Emirates Airlines

Interestingly, the Justice Department’s investigation of alleged collusion among US carriers comes at a time when the US airlines (with exceptions) are seeking to block the expansion of Gulf carriers into the US citing unfair competition as they believe those airlines – namely Emirates Airlines, Etihad Airways and Qatar Airways – are advantaged by state subsidies. Emirates CEO Tim Clark has rebutted the accusation by the US Big 3, calling their move “repugnant” while insisting that Emirates is “absolutely not subsidized, and our operations do not harm these legacy carriers, but instead benefit consumers, communities and America’s national economy.” He aptly touched on the goals of Open Skies, which include among other things “greater competition, increased flight frequency (and) consumer choice”, the very issues that the US Big 3 may be guilty of flouting domestically if allegations of collusion were true.

Sir Tim stated in his rebuttal that Emirates is “offering US consumers, communities and exporting companies direct flights to more than 50 cities not directly served by any American carrier… connecting America to some of the fastest growing economies in the world, in Africa, Asia and the Middle East.” And he pointedly asked where the US carriers were. Yet could US carriers be faulted for not operating to destinations of poor demand? But should they then begrudge another airline filling avoid and envy its success in growing the traffic? So much about being the dog in the manger, while not denying it is an intricate issue.

Without competition to differentiate the carriers by product, service, fare, schedule convenience and network, reputation and frills, airlines have a tendency to move towards uniformity. Fuel surcharge is an example. All it took was one airline raising the surcharge in the days of spiralling fuel prices, and others followed quickly. Unfortunately, it is not quite the same when the oil price dips, so US carriers have taken what appears to be a collective decision not to pass on the savings to their customers.
Ever since the introduction of the fuel surcharge as a separate fee from the airfare, airlines learn very quickly to unbundle charges to be levied separately. What appears to be in the interest of the consumer who will pay for only what he or she needs, such as a checked baggage fee, has turned out to be a big money spinner for the carriers. Today, there are charges levied by some airlines for not only checked baggage but also seat requests and physical check-in at the airport. Passengers are often not any wiser about the real cost of their ticket, an issue that authorities in the European Union, US and Canada are taking airlines to task for misleading representation. Checked baggage fee and no meals on domestic flights are the norm in the US. However, US carriers may be disadvantaged internationally by foreign carriers that provide free checked baggage carriage and even meals for the short-haul. It is the competition that will make the airlines work for their money by being more productive and less wasteful, more innovative and more customer-oriented.

As the Justice Department investigates US carriers for alleged collusion, the corollary is whether real competition still thrives in the US. While shareholders’ pockets are loaded up, collusion can have many damaging effects, resulting in bloated, inefficient and costly operations. Or do they even matter considering the speckled history of US airlines seeking Chapter 11 protection and teetering on the brink of bankruptcy?

This article was first published in Aspire Aviation.

US airlines vs Gulf carriers: Redefining Open Skies

THE new American mantra for aviation is fair skies, not open skies. With the rise of the Gulf carriers and their increased presence in the US, home carriers are banding to press the Department of Transportation (DOT) to review the long-standing Open Skies policy and the agreements executed thus far. Their grouse: Unfair competition because of large government subsidies received by Emirates Airlines, Etihad Airways and Qatar Airways that place US carriers at a disadvantage.

This is not a new argument presented by opposing airlines; even in the days of restrictive bilateral negotiations, it was a hurdle many airlines from the less developed countries in Asia faced as they expanded into the more lucrative markets of the western hemisphere. Their successes from delivering a product reputed for excellent customer service and operated on high productivity had been clouded by accusations of payouts by their home governments that enabled them to compete on cost.

Courtesy Airbus

Courtesy Airbus

Emirates president and CEO Tim Clark warned: “If you go down this minefield, you must ask yourself to what extent all the foreign carriers serving the US are subsidised. Take China, take Thailand, take Malaysia, take Japan, take New Zealand. I could go on forever.”

Mr Clark may have unwittingly in his defence roped in other carriers into the contentious ring. But the US is unlikely to be interested in the reference, at least not for now. Broad brush strokes do not work; just because one person is not censured does not guarantee immunity for another person in a similar situation. Having said that, this does not necessarily mean the US has a case. The issue is much more complex than that. For one thing, the success of the Gulf carriers makes them more noticeable.

Note, however, Mr Clark is not saying Emirates is similarly subsidised by the UAE government. On the contrary, he insisted the airline did not receive any, rejecting the report produced by the American carriers that the three named Gulf carriers received US$42 billion in subsidies. Mr Clark said: “The requirement from the government of Dubai has been and remains the same. There will be no support for your operations, you will be required to make money.”

All the arguments for and against in the debate – depending on which side of the wall you stand – seem to centre on the issue of government subsidies, complicated by political affiliation and extending beyond support for the airlines to other related businesses including the funding of home airport development that is viewed as directly benefitting them. Where do you draw the line when ownership of several projects is traced to a common designator? In many countries, airport development is undertaken by the government as a national project and the facilities are viewed as common to all users.

Refuting the American accusation, Gulf carriers are pointing out how American carriers have also received government support. All the major airlines have sought refuge in the bankruptcy laws at some point. There were government bailouts after the 911 attacks. In some ways the US aviation policy is protectionist: The domestic market is not widely open to foreign carriers, and the government’s approval of consolidation to create mega entities only serve to limit competition. Etihad chief executive James Hogan countered that American carriers have been granted antitrust immunity (ATI) to protect lucrative transatlantic routes operated jointly with European carriers: American Airlines with British Airways, Delta Airlines with Air France, and United Airlines with Lufthansa. Mr Hogan said: “I think this is a protectionist move to protect the ATI routes across the Atlantic; that’s the irony.
Etihad courtesy etihad

The debate must bring us back to the genesis of Open Skies. For more than twenty years, the US has been championing open and greater competition that has resulted in lower airfares and more choices for travellers of airlines and destinations. US airlines themselves have supported the push, benefitting from new markets outside the US. Since 1992, the US has signed more than 100 open skies agreements. But the playing field is changing as global competition intensifies with the growth of more successful foreign carriers reaching into the heart of the US. It is fair to expect a customary review when circumstances change, but any compromise on the principle of competition may be a step back.

Mr Clark warned that the agenda of the American carriers is threatening “the bedrock of the modern day aviation system. By challenging open skies, you are not just challenging the aero-political situation, you are challenging the very essence of economic liberalization the US has championed for decades.” He expressed hope that the US administration “will not stand for this nonsense.” The American carriers on the other hand insisted that they “welcome robust competition provided the playing field is level. A reopening of those open-skies agreements is the first step and the right step to ensure competition is preserved and enhanced.”

The crux of the matter appears to be what constitutes a level playing field. Will a revised Open Skies policy be qualified by an attempt to box it in? The thrust of the policy has been competition, but makes true competition? Is the US being anti-competition in opposing the entry of Norwegian Air Shuttle, even with nary a hint of government subsidy? As Mr Clark warned, “Once you talk about fair skies, you enter into a quagmire of definition, and you have to be very careful how you go.” Indeed, is there such a thing as truly fair skies? Even as more countries have declared their support of liberalisation, many of them are still protective of their turf, rightly or wrongly. A case in point: Singapore Airlines (SIA) has tried and failed to gain access across the Pacific from London Heathrow to the US east coast, and across the Pacific from Sydney to the US west coast. Yet other airlines that came lately were granted those rights, which is anomalous to the often cited fear of overcapacity that would hurt the industry.

In 2011, Emirates tussled with Canada which rejected its application to operate more flights to Toronto. The Canadian government was concerned that UAE carriers (including Etihad which was also applying for access to Canada) would enjoy an unfair advantage over Air Canada in tapping into its international traffic, the outcome of which would be the loss of Canadian jobs; the unfair advantage was similarly pinned down to subsidies Emirates received from the UAE government. In apparent retaliation, the UAE evicted Canada from its military base near Dubai and imposed a hefty visa fee for visiting Canadians. It is so easy for what is a commercial matter to be politicised, adding to its complexity.

The industry is divided. An organization known as Americans for Fair Skies is campaigning in support of the US government. It says: “This is an important first step towards restoring fairness to our skies and stopping the largest trade violation in history.” Outside the US, not surprisingly, Lufthansa had openly stated its support of the US carriers. When Carsten Spohr assumed appointment to helm the German carrier, he expressed concerns about encroachment by Gulf carriers in Europe and set himself the task of tackling that issue. Interestingly even Etihad, an affected party to the dispute, actually “applauds” the US government “for setting up a transparent process to deal fairly and responsibly with the claims. Etihad Airways is committed to setting the record straight regarding these unsubstantiated allegations.” While Emirates argues in defence, Etihad is issuing DOT a challenge.

Conversely, not everyone in the US is supporting the US carriers’ pressure on its administration to review its Open Skies policy, if not specifically the agreements executed with the Gulf carriers. US airlines may feel the pinch of competition by foreign carriers, but US airports are welcoming of the increased traffic that those carriers bring. Then there are consumer groups who are benefitting from lower airfares, better service and wider consumer choice. Business Travel Coalition chairman Kevin Mitchell wrote in a letter to the government: “Now that US airlines have secured antitrust immunity, industry consolidation and concomitantly rising airfares and ancillary fees, and are achieving record unprecedented profits, some carriers shamelessly seek to close off US markets to competition from foreign carriers.” JetBlue chief executive Robin Hayes for one is not joining the protesters.

Mr Clark would remind the US government how Gulf carriers have contributed to not only the growth of traffic but also providing access to markets not previously served by any US carrier. An example was the connection between Seattle and Hyderabab in India via Dubai. He said: “Look at where these people are going and ask yourself where was Delta, where was Untied, where was American when the world was becoming more globalized?”

While DOT said it would address the concerns raised by the US carriers, its spokesman Brian Farber qualified that the administration “remains committed to the open skies policy which has greatly benefitted the travelling public, the US aviation industry, American cities and the broader US economy through increased travel and trade, and job growth.” There will be wide ramifications, no doubt. Open Skies is not just about a specific airline’s bottom line. In defending the case for Gulf carriers, Mr Hogan had said: “We make no apologies for offering new competitive choice for travellers. Open skies should be about customer choice.” But is it really, one wonders, in practice?

It is unlikely that the US government will turn the Open Skies policy topsy turvy and go for a clean slate, renegotiating the agreements with the Gulf carriers. One can anticipate new restrictions in the road ahead, and tweaks where ambiguity permits. Its impact will be global. Some European parties are already watching closely moves by Gulf carriers to gain a bigger slice of the European pie, not just the competition in offering seats but also in the bold acquisition of stakes in European carriers. In Australia, Etihad is a co-owner of Virgin Australia. Emirates operates a mega alliance with Qantas. It would be interesting if the Australian government grants Emirates, but not SIA, rights to fly transpacific from its ports.

Unbeknownst to many, there may be a price to pay for success. The Gulf carriers may have become victims of their own successes, in the same way that it is once said of SIA in its heyday.

This article was first published in Aspire Aviation.

Competing to be the best: How reliable are survey readings?

Courtesy Cathay Pacific

Courtesy Cathay Pacific


SKYTRAX has named Cathay Pacific as the world’s best airline in 2014, displacing last year’s winner, Emirates. In second and third place are Qatar Airways and Singapore Airlines (SIA) respectively. Asian and Middle East carriers dominated the ranks of the top ten: Emirates (4th), Turkish Airlines (5th), All Nippon Airways (6th), Garuda Indonesia (7th), Asiana Airlines (8th), Etihad Airways (9th) and Lufthansa (10th). No American carrier was placed.

Are those really the world’s best airlines?

The winning airlines are unlikely to question the validity of any survey, as you can see how many of them are listing awards from all and sundry like a laundry list as endorsement of their good reputation. The corollary must be that if you accept the accolade willy nilly, so must you recognize one and all sideswipes.

Which leads to the next question: Is Skytrax the standard?

Skytrax claims its World Airline Awards to be “the global benchmarks of airline excellence”. The winners are decided by 18.85 million travellers from over 160 countries, and that should take care of any misgiving about the survey having an inadequate population and most importantly, the bias factor or its susceptibility to political influence.

Cathay CEO Ivan Chiu said: “The World’s Best Airline award is particularly important to us because it was decided by the votes of close to 19 million travellers from around the world.” Cathay was placed sixth last year and has won the award four times, previously in 2003, 2005 and 2009.

Emirates president Tim Clark said: “These awards are widely regarded as the industry’s benchmark for excellence. To be voted ‘World’s Best Airline’ by millions of discerning travellers is something… to be proud of.”

Qatar CEO Akbar Al Baker said: “These awards are highly rewarding as they are judiciously voted by passengers a true account of the overall experience felt by customers who have travelled with the airline.” Qatar won in 2011 and 2012.

Courtesy Etihad Airways

Courtesy Etihad Airways


However, Etihad’s withdrawal from participation apparently over differences in the methodology may tell a different story. Although it had never won, Etihad was consistently placed in the top ten in the past five years, ahead of Emirates in some years. Despite its withdrawal, Etihad was still ranked in this year’s survey because according to Skytrax, “an airline cannot be withdrawn from the World Airline Awards since these results are directly decided by customers.” That statement should add to the survey’s credibility, yet without taking sides and arguing the toss about fairness, one can only suspect and understand that the subjective nature of the survey (and of any survey) is naturally exposed to dissatisfaction, whether baseless or with reasons which may well be valid, the way that the Oscars results do not sit as squarely with a lot of people. Now and then you get an outstanding actor declaring his or her disinterest in the awards.

The issue is usually one of weightage and relevance of selection. However designed, the respondents may to some degree be steered by what is being asked. Take, as matter of curiosity, the 2014 Skytrax survey readings for the top ten. SIA is ranked ahead of Cathay for inflight entertainment, cabin cleanliness, First Class amenities, First Class cabin overall, seats in First, Business and Economy, and First Class meals; but close behind Cathay in other areas except for its noted absence for airport services, Business Class amenities and Business Class meals. Yet Cathay takes the cake.

It is encouraging to see breakthroughs by airlines such as Turkish and Garuda in a game dominated by the familiar big names. Interestingly, Turkish ranks above everyone else except Emirates and SIA for inflight entertainment. It is no surprise that Garuda tops for cabin crew, the epitome of Asian service culture, in a category swept by Qatar (6th) and nine other Asian carriers: Cathay (2nd), SIA (3rd), Asiana (4th), Malaysia Airlines (5th), EVA Air (7th), ANA (8th), Thai Airways (9th) and Hainan Airlines (10th). In like fashion, with the exception of KLM (8th) and Qantas (9th), the airport services category belonged to Asian carriers: ANA (1st), EVA (2nd), Thai (3rd), Asiana (4th), Cathay (5th), Korean Air (6th), Garuda (7th) and Dragonair (10th).

Yet, giving credit where it is due, one may question the appropriateness of comparing a carrier having limited global presence with others that are more exposed in the global arena, and how a population of largely local respondents compares with the wider global population. Hence it may be more meaningful to look at niche rankings, but we all love the sweeping titles of the best overall, don’t we? Even regionalized readings must be viewed in their proper context. The Qantas Group went ga-ga over Jetstar Airways’ win as best low-cost airlines in Australia/Pacific over AirAsia X (2nd), Scoot (3rd) and Tiger Airways (4th), but the world’s best is AirAsia followed by AirAsia X in second place ahead of Jetstar Airways (4th). Note how the preferences change when the population mix changes.

Who then really is the best overall? It may be difficult to say for sure one definite airline, and under the circumstances a wider reading of the top three or five or up to ten may be a more sensible assessment. The contest is to get into that magic circle of the elite.

Courtesy TODAY

Courtesy TODAY


Equally significant is the consistency over time. Airlines such as Cathay, Emirates, Qatar and SIA may pat themselves on the back for being there long enough to deserve their stripes. Narrow that down further, and you will see that only two airlines – Qatar and SIA – have been consistently placed in the top three in the past five years. Asiana had a good run from 2010 to 2012. Cathay was just outside in 4th place until it tumbled to 6th last year and bounced back to be this year’s winner. The wider reading should lead some airlines such as Qantas to ask why it has dropped out of the respectable club.

One survey alone cannot be definitive, hence winning across notable surveys may strengthen the reading. Compare the Skytrax results with Conde Nast Traveler’s assessment by its readers – based on the same principle of uninfluenced feedback – and you will begin to understand why. In its ranking for foreign carriers (outside America), Etihad is placed 4th behind Emirates (2nd) and ahead of Qatar (7th). Cathay is 7th, and the winner is SIA. Korean Air (8th) did better than rival Asiana (18th), and so did Japan Airlines (16th) over ANA (21st). The Conde Nast top ten includes Virgin Atlantic (3rd), Air New Zealand (5th) and Swiss International (10th).

Then there is the annual Airline of the Year award given by the Air Transport World (ATW) magazine. The criteria take into consideration financial performance (which debunks the myth that the world’s favourite airline is not necessarily the most profitable or even profitable) and visible leaps forward in services. However, naming only one winner can often lead to suspicions of political influence (the way that some beauty pageants are said to be when a winner is crowned) and the tendency to pass the honour around although airlines such as ANA (2007 and 2013) and Air New Zealand (2010 and 2012) had been named twice. Cathay (2006), SIA (2008) and Asiana (2009) had all had their turns. Delta Air Lines is ATW’s Airline of the Year 2014.

Several other magazines also dish out their own annual awards, which may be based on their readers’ feedback, or assessed by a panel of judges or arrived at combining the two methods. Some of them target niche markets such as awards that recognize the best airline for business travel. That in a way avoids spillover or halo effects and sectarian prejudices as, for example, an airline that impresses in First and Business Class may pay scant attention to what happens in Economy.

Nevertheless, surveys are useful tools in maintaining competition. Everyone loves to win, unless you do not give a hoot about how the world sees it and how that may affect your bottom line. So too, everybody loves a winner; but that is no guarantee that the traveller will necessarily fly with the named best airline. Without downplaying their influence on the market, such awards probably mean more to the airlines than the travellers.

This article was first published in Aspire Aviation.

Emirates’ Airbus order cancellation raises questions

Courtesy Airbus

Courtesy Airbus


THE cancellation of an order for 70 Airbus A350 aircraft amounting to US$16 billion (based on 2007 list prices) by Emirates Airlines has turned the focus on the Airbus company. In an obvious attempt to play down the drama, Airbus chief operating officer (customers) John Leahy said: “It is not the world’s greatest news.” That did not check Airbus shares from falling 3.7 per cent and engine maker Rolls-Royce by 1.7 per cent on the back of Emirates’ decision. Mr Leahy even brushed it aside as if it was something to be expected, adding that Emirates president Tim Clark “does change his mind from time to time.”

In truth, airlines do change their mind about aircraft orders. In 2012, Qantas cancelled orders for 35 Boeing Dreamliner jets worth US$8 billion following a net loss of US$256 million – its first annual loss since 1995 when it was privatised – and expected lower growth requirements. The Australian flag carrier is keeping its fleet options open. Qantas CEO Alan Joyce said: “We will maintain complete flexibility over the fleet.” He explained: “In this business there is always potential for great headwinds and tailwinds… there is no intention that every aircraft is guaranteed to come or that it’s not going to come.”

Only very recently did budget carrier Tigerair – which is 40-per-cent owned by Singapore Airlines – also cancel orders for nine Airbus A320 aircraft in light of perceived overcapacity in the region of its operations.

But a decision by Emirates which is not in the same financial straits as Qantas and Tigerair must raise questions even as Mr Leahy insisted that he was “not particularly worried at all.” To suggest that it was a whim of Mr Clark was quite unwarranted. But Airbus did express its disappointment. Apparently, Emirates’ decision followed ongoing discussions between the two parties as the airline reviewed its fleet requirement. In fact, Emirates has ordered an additional 50 A380 aircraft.

Courtesy Airbus

Courtesy Airbus

So, naturally, we ask the big “Why?” and speculate on the ramifications of that decision.

Is Emirates dissatisfied with the aircraft model?

Allegedly Emirates is unhappy with particularly the performance of the A350-1000 model, which makes up 20 of the 70 aircraft orders, the others being the A350-900 model. Even as Airbus said Rolls-Royce was working on the upgrade, the writing was already on the wall when in November 2012, Mr Clark told Aviation Week that Emirates’ order for the aircraft was in limbo, and that the A350-900 “is starting to look a bit marginal to us because of its size.” That provided another perspective to the issue – one of suitability. Mr Clark explained: “Gauge is the way we grow, you cannot get any more aircraft into the Dubai hub.”

Has Emirates over-estimated its growth capacity?

The focus is so much on Airbus that it has become convenient to not ask any question that may suggest that Emirates’ decision is driven by more an internal than an external situation, or at least in part due to it. It is almost unthinkable in light of Emirates’ sterling performance when it posted a 43-per-cent increase in profit to Dh3.3 billion (US) for financial year 2013-14. According to Emirates chairman and chief executive officer Shaikh Ahmad Bin Saeed Al Maktoum, the airline’s profit margin was more than double that of the industry, the result of flying 44.5 million passengers – up 13 per cent – and close to a 80-per-cent load factor. It was a year of expansion as the airline increased its capacity for both passenger and cargo, and as it added new destinations across the globe.

By all accounts it does not look like Emirates is about to stop expanding, or even slowing down, despite the revised forecast by the International Air Transport Association (IATA) that showed astagnation in profitability for the industry in Africa and a dip for all the other regions with the exception of North America. Of course, the state of the industry does not necessarily reflect the fortune of Emirates, which in the past year has experienced healthy growth in all the regions that it operates. Still, the question must be asked: Has Emirates over-estimated its growth capacity, noting too the limitations of Dubai Airport? To be sure, the airline will continue to expand, having announced plans to add five new routes to Abuja, Brussels, Chicago, Kano and Oslo, but perhaps at a slower rate. It could be in this context that Shaikh Ahmad recognized the need for “efficient new aircraft” amongst other things to sustain profitability,

Will Emirates’ decision affect other airlines’ orders?

Courtesy Airbus

Courtesy Airbus

Emirates’ decision raises questions on the impact it may have on other airlines with similar orders, more notably the Gulf carriers namely Etihad Airways (with an order for 40 A350-900s + 22 A350-1000s) and Qatar Airways (43 + 37). Besides Etihad and Qatar, airlines that have placed orders include Air France-KLM (25 A350-900s), Aer Lingus (9 A350-900s + 9 A350-1000s), Aeroflot (14 + 22), Air China (10 + 10), AirAsia X (10 + 10), Asiana Airlines (12 +10), Cathay Pacific (20 + 26) and Japan Airlines (18 + 13). But Mr Leahy of Airbus was confident that other airlines would take up the slots vacated by Emirates. He maintained that there would “no hole in production” and therefore no impact financially since the first deliveries were only planned for 2019 and spanned out to 2034.

Is Emirates setting the stage for heightened competition between Airbus and Boeing?

This is not a new story about the rivalry between Airbus and Boeing, but more a reminder of it. It is all the more significant when Emirates is the world’s largest operator of the Boeing 777 and Airbus A380 in a fleet of 217 aircraft. In 2013-14, it received 24 new aircraft including 16 A380s, six Boeing 777-300ERs and two Boeing 777Fs. If there is a customer that both manufacturers want to please most, it has to be Emirates. Airbus is unlikely to let Emirates’ concerns go unattended even though the latter had cancelled its order; that will become history. For Airbus, it is more than just about losing an order. More importantly, it is about the competition with Boeing. Clearly, he who pays the piper calls the tune.

It was by the size of Emirates’ order a big deal after all, and Emirates is one of the world’s leading airlines. Mr Tim Clark may well have the last laugh.

Emirates Airlines flies high

Courtesy Emirates Airlines

WHILE many airlines are reporting declining profits, Emirates Airlines posted net profit of 1.7 billion UAE dirhams (US$462.9 million) for the first half (Apr to Sep) of Fiscal 2012/13, more than doubled last year’s 836 million dirhams.

Founded in 1985, Emirates has overtaken Singapore Airlines (SIA) which it set out to emulate; SIA reported first half net profit of US$137 million, down 30 per cent. Emirates is today the world’s largest carrier by passenger volume.

For all the woes that other airlines are facing – unstable fuel prices, competition from budget carriers and the continuing economic problems faced by Europe – Emirates appears to be unaffected. While is competitors, such as SIA and Qantas, are shifting focus to the budget market in view of the slow recovery of the premium market, Emirates continues to build on its premium strengths. It has also succeeded in promoting home base Dubai as the hub for connections between the continents, thus enhancing its own positioning in the business.

Emirates chief executive Tim Clark said: “Our trajectory is a continuum of where we’ve been going in the last two to three years.”

Perhaps that’s what underlies its success. The Middle-East airline has not stopped growing; it took delivery of 13 wide-body jets in the period under review. Mr Clark added: |We’ve taken on lots of new airplanes, we’ve got new routes which we’ve opened, and we’ve got more coming.”

Emirates must be doing something right. Mr Clark said: “We really haven’t let up whereas many of our peer groups and competitors have slowed down or contracted.” Something that is reminiscent of the SIA in its better days.

And it looks like Qantas has made the right bet in deciding to partner with Emirates to shore up its bottom-line. Not quite good news for SIA and others.