“STRATEGY PAPER DEVELOPMENT OF

A NEW SERVICE PORTFOLIO FOR

EMIRATES”

Emirates Opportunity to shake up the world order in the skies

By Saurabh Gupta
eEPSM- 02-043
Vashi Center
 OVERVIEW

The Emirates Story

Just over twenty years ago, Emirates was born as the official international
airline of the United Arab Emirates

On 25th October 1985, Emirates flew its first routes out of Dubai with just two aircraft—a leased Boeing 737 and
Airbus 300 B4. Then as now, the goal was quality, not quantity, and in the years since taking those first small steps
onto the regional travel scene, Emirates has evolved into a globally influential travel and tourism conglomerate known
the world over for commitment to the highest standards of quality in every aspect of the business.

Though wholly owned by the Government of Dubai, Emirates has grown in scale and stature not through
protectionism but through competition—competition with the ever-growing number of international carriers that take
advantage of Dubai’s open-skies policy. Not only does it support that policy, but also see it as vital to maintaining
their identity and competitiveness. After making its initial start-up investment, the Government of Dubai saw fit to treat
Emirates as a wholly independent business entity. Growth has never been lower than 20 per cent annually, and the
airline has recorded an annual profit in every year since its third in operation.

Continuing the explosive growth, while continually striving to provide the best service in the industry is the secret of
Emirates’ success. The airline’s business includes:

An award winning international cargo division

A full-fledged destination management and leisure division
An international ground-handler
An airline IT developer.

Facts & Figures (2009 – 10)

1. Aircraft Fleet : 142

2. Million Passengers Carried : 27.5
3. Percentage seat factor : 78.1%
4. Networked destinations : 102
The Emirates Business Model

Emirates Airline (or rather the Emirates Group as a whole) is a crucial element of Dubai’s growth and development
strategy. Currently based on the Dubai Strategic Plan 2015 (Dubai Government 2006), its objective is to prepare the
emirate for the post-oil era by firmly establishing it as a leading tourist destination (including trade fairs and
conferences), as a center for financial, IT and professional services, as a location for corporate headquarters and
light manufacturing, and, last but not least, as a regional transportation logistics and distribution hub (―regional‖ refers
to the area between Singapore, Europe, Southern Africa).

Obviously, Dubai’s (and, as a result, Emirates’) spectacular growth in recent years – on average, GDP increased by
13.4 percent per year since 2000, and its population is set to grow from today’s 1.45 million to around 5.4 mil-
lion by 2015 (1968: 6,000!) –, has been helped by two complementary factors: sound politics and its very favorable
geographical location. The former include its uniquely liberal (by regional standards), cosmopolitan environment,
political stability, free-trade agreements with most of the booming Asian economies, world-class infrastructure,
efficient public services, and very low to non-existent corporate and income taxes. The latter point reflects the fact
no major agglomeration on the globe is further than 8,000 nautical miles away from DXB. As a result, any two major
cities on earth can be connected via Dubai with only one stop.

It is against this backdrop that Emirates’ business model must be analyzed. First and foremost, the airline –
plus the next to 140 carriers which serve DXB – provides excellent air links worldwide, not only for the benefit of
Dubai’s thriving tourist industry, but also of its rapidly expanding local business community (including the thousands
of foreign companies that have set up their regional presence there). To be more specific, Emirates’ business model
is built on the following features:
A well-balanced mix of O&D- and transfer traffic in its passenger business (currently 50:50, although the
introduction of the A380 fleet is likely to increase the transfer passenger share to 60 percent);
A very strong focus on cargo traffic, which generates 20 percent of Emirates’ revenues – one of the highest
percentages in the airline industry
Strong presence in those secondary markets that are underserved by Emirates’ competitors such as BA,
LH, and AF which focus on their own hubs (London, Frankfurt, Munich, Paris) for long-distance flights.
Typical destinations in this category include Newcastle, Manchester, Birmingham, Glasgow, Düsseldorf, and
Hamburg in its European network as well as Kochin, Kolkata, Thiruvananthapuram, and Ahmedabad in
India, to name just a few.

Emirates’ competitive advantage in these markets is enhanced by the fact that it, unlike the competition, does not
have to deploy a fleet of rather small and, hence, inefficient short-haul and even regional aircrafts for feeder flights to
its hub, but can offer long-haul service standards instead (moreover, given its much longer average stage length,
Emirates is not subject to competition from low-cost carriers either); strong presence in markets that have been
largely unconnected to the global air transport network, and especially to the Middle East, to India, Southeast Asia
and/or Africa, for lack of a (potent) local flag carrier. This holds not only true for the vast majority of Emirates’ 15
destinations in North and Sub-Sahara Africa (Emirates’ CEO Tim Clark recently observed in an interview with the
online edition of German weekly magazine SPIEGEL, that ―Africa is a ripe fruit which only needs to be picked‖). It
also includes cities like Moscow, Brisbane, Perth, São Paulo, New York, and Houston.

The mid-term objective is to serve most destinations at least twice daily. Currently Emirates’ operates three waves at
DXB, a fourth is being gradually phased in; high-quality service in all classes onboard and on the ground including

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up to 600 entertainment channels in all classes and limousine service (pick-up and drop-off) for first and business
class passengers; high labor productivity:

According to a recent study by UBS, a Swiss bank, Emirates’ unit costs are around 40 percent lower than KLM’s
(Horth/Alwyn 2005), a cost advantage that is likely to even increase after the introduction of its A380 fleet; and
no alliance membership: In the words of Tim Clark: ―If we take the long-term view, then alliances offer a sure-fire way
of achieving mediocrity and reduced profitability‖ (as quoted by Horth/Alwyn (2005)). However, select codesharing
agreements are in place.

Current Service Portfolio Strategies

Emirates Airlines has an extremely attractive business model, which has paved the way for them becoming the
fastest-growing international airline. The company is well renowned within the industry for excellent service around
the globe. This success is widely attributed to Emirates' attention to fundamental strategic detail, and has thrived
through competition, despite by being owned by the government of Dubai.

Quality Control

Quality control is the cornerstone of Emirates Airline's fundamental success. From the creating and maintaining a
state-of-the-art airline fleet to keen attention on how they treat their customers in each aspect of their business,
everything is done with the very highest standards being applied.

Extensive Aviation Training

The aviation education arm of the airline's business is a key fundamental strategy to the company's success. Not only
does it continue to add and keep key aviation talent within their employment, but it creates a huge footprint as it trains
other people within the industry. This image and brand recognition alone that is generated from this particular
business segment renders it a valuable strategy.

International Airline Information Technology Development

Emirates Airlines has leveraged their international airline domain knowledge into another key profit center, involving
the development of software for the industry. The strategy of using their knowledge and trained programmers to
create an IT development company for the international airline industry is an excellent addition to Emirates' portfolio
of business strategies.

Resort, Hotel and Tourism Strategy

One of the more unique fundamental level strategies is how the company has successfully moved into the resort and
tourism space: They have done so through the creation and acquisition of various resorts and spas, as well as by
placing a huge emphasis on quality control, all of which has drawn great praise and, at the same time, lots of
business. In addition, the company has built a tourism service around this area of the business, fueling more growth
from this particular fundamental level strategy.

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Future Development Options
A Premium Service Provider and Cost Leader

As the Airline industry is in the maturity stage, there is a strong competition between airline firms. Each firm should
use offensive strategies besides doing analysis for internal and external factors that may affect its position. The
research and analysis for Emirates airlines address following recommendations:

The operational cost is increasing due to huge investments of Emirates on aircrafts and services and increase in fuel
prices. Emirates should reduce the costs by making operational improvements, namely improving maintenance
processes, maintaining high aircraft utilization and making effective flight scheduling. It could also be reduced by
investing technology in distribution channels to reduce labor costs. For instance , it is recommended to install more
self service kiosks in airports of the destinations of Emirates airline since it has already install ones in Dubai airport.

In response to the threat of low cost airlines, Emirates should not lower its fares after years of offering advanced
services, instead it has to offer new low cost brand as a subsidiary of Emirates group serving economic travelers who
are now customers of new low cost airlines, thus expanding the market share.

Extending routes is recommended especially there is a growth in tourism UAE. There are main regions in the world
that Emirates do not have routes in, namely Canada, It has to extend destinations worldwide (especially attractive
areas). Joining a global alliance enables increasing its destinations, offering more fare options for customers helping
to solve problems of new low cost airline.

Investigating technology is recommended for improving customer service and Emirates has to sign contract with an
e-business company that offers airlines technology solutions. E-CRM strategy is a new technology that Emirates
should implement since internet users' number is increasing. It allows managing long term relationships with
customers (Jiang, 2003).

Emirates needs to manage its two main assets—planes and people—so that its service is better than rivals’ and its
costs are lower. The airline needs to invests heavily in areas of the business that touch the customer in order to
enhance it’s premium positioning. Everything behind the scenes is subject to rigorous cost control.

EK needs to spend more than its rivals in key areas:

Buying new aircraft - replaces its fleet more frequently than do competitors.
Depreciating aircraft- depreciate aircraft over 15 years compared with the industry standard of 25 years.
Training- invest heavily in inducting and retraining employees.
Labor costs on flight-staff each flight with more cabin crew members than do other airlines.
Innovation-invests in both radical and incremental innovations.
...And it spends less, partly as a consequence, on:
Price per aircraft-places large orders, and often pay in cash.
Fuel, maintenance, and repair-operating costs are lower because its fleet is young and energy efficient.
Salaries- keep salaries low by offering employees bonuses of up to 50% depending on profitability
Sales and administration-Customer loyalty, a lean headquarters, and constant cost cutting keep the
expenses low.
Back-office technologies-choose to lag behind rivals in areas that don’t affect the customer experience

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Conclusion

Emirates' Airlines recent announcement that it will buy 32 of the Airbus A-380 Super Jumbo Jets it looks to lead the
aviation industry recovery. Emirates' business model is based on carrying the world through Dubai. With the new fleet
of superjumbo jets, it appears the airline is ready to do exactly that.