When Emirates announced its latest purchase of 30+ more A380 aircraft, a lot of carriers took notice, particularly in Europe.  The planned capacity increases that Emirates has put into place for the next 7 years is nothing short of baffling to most and it has made many airline CEOs wonder what they’re missing. 

Emirates operates on a model of being “hubbed” in the perfect place from traffic between Europe and India, Asia and Australia.  They compete with other international carriers on service and they compete with everyone with frequency and convenience.  Currently, many of those flights from Europe to those destinations require a fuel stop and Emirates uses Dubai for that fuel stop which allows them a big advantage on X things:  fuel is cheap, landing and taking off is cheap, Dubai is “on the way” to most of those destinations and isn’t much of a diversion for them, and they’re able to utilize their aircraft much more than some on a per day basis. 

That’s a powerful advantage.  Emirates has also kept many of the largest European governments (economies) from protesting much at all by being a huge customer of Airbus.  It’s very difficult for those governments to bite the hand that feeds their aerospace industry.  It’s notable that neither Canada nor the US have felt nearly as accomodating towards Emirates (and other UAE carriers) when it comes to access to their markets and in the case of the US, this is despite the fact that Emirates has also been a pretty good customer of Boeing’s. 

All of that scares the hell out of European international carriers.  Emirates also claims that these carriers are discovering that it takes an A380 to compete with an A380.   And then they went all in with their latest A380 order.   It’s very tough for those airlines to sit at the table and wonder if they can afford to go all in. 

I don’t think it takes an A380 to compete with an A380.  I think it takes an A380 to compete with an A380 on a few trunk routes and I think Emirates’ model crumbles with the 777LR, 787 and A350 for much of the destinations it serves.  

Right now, I think there is an attraction to the A380 on those routes for 2 reasons.  First, it’s the latest and greatest in long range aircraft.  Second, it has the freshest service product installed as a function of it being introduced by airlines for only the past 2 years.  Over time, the “newness” of the aircraft will go away (just as it did with other new aircraft introduced) and the service product will be matched by others on other aircraft. 

Right now, a lot of those legacy international carriers that are so worried are trying to compete with Emirates using 20 year old 747-400 aircraft with a service product that is, in many cases, a generation out of date.   If it isn’t a 747-400, it’s a 777-200/300 with a service product that was “copied” from the 747.  See where I’m going here?

Since we don’t have much visibility into the real financial picture of Emirates, a lot of analysis of them is speculative.  We don’t know where their financing comes from and at what terms.  We don’t know what their fuel prices are and we don’t know what their labor costs are either. 

That said, I don’t believe it is impossible to compete effectively with Emirates now and particularly in the future.   I believe those long, high capacity trunk routes that Emirates works so well are going to fracture with the next generation of jets. 

It’s already possible to use a 777LR to reach all of Asia from Europe and the 777-300ER will serve 90+% of Asia and do it point to point.  While Europe has traditionally been the transit point between Africa and the Americas, that’s already changing.  US airlines are now serving Africa more and more with smaller equipment that fits those long, thin routes pretty well.  South American airlines are initiating services to several parts of Africa with similar equipment.    and it only gets better as the 787 comes on line. 

So Emirates may capture some traffic for a while from the US but it is unlikely to dominate particularly in the future.  The magic routes to Singapore, Indonesia, Australia and New Zealand are likely to remain an Emirates strength but take note that those same international carriers in Europe who are freaked out right now are also now taking delivery of their own A380s.  Air France has them, Lufthansa just took delivery of its first and British Airways has them on order.   They will have the aircraft to compete with Emirates.

Frankly, I don’t understand why someone such as British Airways doesn’t explore setting up a Dubai base to compete directly with Emirates.  Or any of the others, for that matter. 

Regardless, this belief that huge trunk routes will remain is, in my opinion, false.  Those trunk routes will fracture into more and more “point to point” routes that are longer and thinner than ever before and the airlines serving those will be the preferred airlines for that travel.  People just don’t like connections when they can go non-stop.  If they can’t go non-stop, they still prefer the fewest connections.  It’s the time saver and saving time is why we fly.

Frankly, I can see Emirates becoming a bigger player in its region of the Middle East/India/Northern Africa/South East Asia but I see them contracting over the next 15 to 20 years on those trunk routes provided those other international carriers step up and get to work on their fleet and service planning.

There isn’t anything magical about Emirates  and despite their potential advantages from being Dubai owned and based, that doesn’t make them the carrier that can’t be beat.  It takes work, investment and planning but it can be done.

The last thing those airlines want is their own governments becoming more restrictive of access to markets.  It’s a world where that game is tit for tat and that works to no one’s advantage.  They can all survive and prosper with the right combination of leadership, management, planning and investment.

Filed under: Airline Fleets, Airline Service by ajax