2011-01-26 What Would You Do With 90 A380s

Equity | Europe
26 January 2011
Produced by: The Royal Bank of Scotland N.V.
Airlines
Overweight What would you do with 90 A380s?
Gulf carrier growth is a key strategic issue for European network airlines. We model Emirates' fleet to 2020 and have developed hypothetical networks in 2015 and 2020, identifying markets, surprisingly easily, for 90 A380s. The implied interregional growth rates are broadly consistent with Airbus and Boeing forecasts.
Key recommendations & forecasts
Reuters Year end Mar 2011 Dec 2010 Recom Buy Buy Price 13.65 15.83 Target price 17.50 19.00 EPS 1fcst -0.08 1.06 PE 1fcst n/a 14.90
Sector performance
(1M) Absolute Absolute (%) Rel market (%) 6.7 4.0 3.7 (3M) 5.7 3.4 -2.2 (12M) 27.8 19.0 5.9
Air France-KLM Deutsche Lufthansa
AIRF.PA LHAG.DE
British Airways and Iberia have merged to form IAG. We do not yet have a recommendation on the merged company. Source: Company data, RBS forecasts
FTSE Eurotop 300 Index: 1151.18 Europe Transport: 174.30 Source: Bloomberg
The growth plans of Gulf carriers are a key strategic issue for European flag carriers The greatest medium-term strategic challenge facing incumbent network carriers, in our view, comes from the growth aspirations of the Gulf airlines Emirates, Etihad and Qatar Airways (all NR) as well as Turkish Airlines (NR), which is pursuing a growth strategy with some similar features. These carriers have been expanding rapidly over the past five years and have placed significant orders to maintain that growth over the coming decade. We do not think it is hard to find a set of viable routes to utilise 90 A380s Dubai is located at the intersection of traffic flows to and from developing markets, including India, Africa, Russia and China. Over the coming 10 years, we expect Emirates to retire a significant share of its existing fleet. The Emirates route system is predominantly long haul, and many of the routes use a large amount of aircraft time. The implied growth rates from our network are consistent with OEM forecasts Across most intra-regional markets, the growth rates implied by our hypothetical network are in line with the aircraft manufacturers growth rates, thus implying a generally stable market share development for Emirates in many route areas. There are four significant exceptions to this: South Asia to North America, North Asia to the Mid East, North Asia to Africa and Eastern Europe to the Mid East. These are all relatively high-growth developing market routes, which thus implies an increase in total global market share for Emirates. For these traffic flows, we think Dubai is optimally located as a hub. We think this geographic location conveys material competitive advantage to Emirates, meaning share gains in these specific markets are not implausible. So we see Gulf carriers only a moderate challenge to European flag carriers Gulf carriers remain a material strategic challenge to the European legacy industry. But we do not see their growth creating an inevitable structural crisis in the industry. We would expect European carriers to continue to lobby against the advantages of the Gulf carriers and to develop defensive strategies using alliances. The most successful strategy, however, in our view, will be to focus their development on routes where they have structural geographic advantage over Gulf carriers, rather than chasing those markets where Dubais location and Emirates strong network, notably to India, give it a major advantage.
Analysts
Andrew Lobbenberg
+44 20 7678 1488 andrew.lobbenberg@rbs.com
Julia Winarso
+44 20 7678 1813
Joe Spooner
+44 20 7678 0280
Sector sales
Mitesh Kotecha
+44 20 7678 7752
250 Bishopsgate, London, EC2M 4AA, United Kingdom http://research.rbsm.com
Important disclosures can be found in the Disclosures Appendix.
Contents
Examining the scale of the Gulf threat We examine the challenge to European network airlines posed by the growth plans of Gulf carriers. Our conclusion is that this threat is surprisingly benign. Our Gulf growth forecasts are consistent with Airbus and Boeing global forecasts, in the relevant markets.
We are Buyers of European network airlines There are significant medium term threats We think fears around Gulf carriers are overstated The Gulf threat examined Growth plans consistent with Boeing and Airbus estimates What confidence can we have in this benign conclusion? Where we might be wrong
4 4
4 4 4 5 6 6 7
Consequences for European network airlines Some European carriers are seeking to flag the unfair advantages enjoyed by the Gulf carriers and limit the traffic rights available. Lobbying against export credit has been partly successful. Alliance and network planning can also offer some protection.
How are European airlines threatened by Gulf carriers? European network airlines will keep up the pressure Current European strategies Future strategies
9 9
9 11 12 12
A hypothetical fleet plan This section of the report presents a summary of Emirates current fleet and orders and our estimated fleet plan for Emirates to 2020.
Key findings from fleet modelling Emirates 2010 fleet Our estimated fleet development plan
15 15
15 15 16
A review of the 2010 network This section of the report reviews the Emirates network as it was in September 2010.
Key network findings Emirates 2010 network
18 18
18 18
A hypothetical network plan This section of the report uses our estimated fleet plan to develop hypothetical network model in 2015 and 2020.
Key network findings Our estimated network development plan The hypothetical 2015 schedule The hypothetical 2020 schedule
21 21
21 21 22 25
Origin and destination traffic analysis In this section of the report, we take our hypothetical networks in 2015 and 2020, and estimate how the traffic might divide between point-to-point and intra-regional connections. We can thus derive intra-regional traffic forecasts.
Key conclusions of intra-regional traffic analysis Dubai is a hub estimating flows is important Estimated traffic allocation Origin and destination traffic estimates
31 31
31 31 32 33
Airlines | Table of Contents | 26 January 2011
Implied growth rates analysis This section of the report takes our hypothetical intra-regional traffic flows and compares the implied growth rates with Airbuss and Boeings regional growth estimates.
Key conclusions of the implied growth rates analysis Implied growth rates Regional growth estimates in context
35 35
35 35 37
Implied market share analysis This section of the report takes our hypothetical intra-regional traffic flows and estimates Emirates regional market shares in 2010 and then using the manufacturer forecasts for regional growth, estimates Emirates market shares in 2020.
Key conclusions of the implied growth rates analysis Implied growth rates
39 39
39 39
Appendix We present our detailed fleet plan and network plans.
41 41
Airlines | Table of Contents | 26 January 2011
Examining the scale of the Gulf threat

We examine the challenge to European network airlines posed by the growth plans of Gulf carriers. Our conclusion is that this threat is surprisingly benign. Our Gulf growth forecasts are consistent with Airbus and Boeing global forecasts, in the relevant markets.
We are Buyers of European network airlines

We recommending Buying European network airlines
British Airways and Iberia have merged to form IAG. We do not yet have a recommendation on the merged entity. We have Buy recommendations on the other major European network airlines. This is principally based on our view of the cycle. European network airlines have rallied an average of 107% from their March 2009 trough (vs a FTSE increase of 69%), but we do not think the cyclical upswing is over. Airline cycles typically last six to eight years. The network carriers have been rising for 22 months. We recognise that there are material challenges for network airlines in the year ahead from rising fuel prices, increased capacity and macro economic uncertainty, notably in Europe. Our position remains that we think we can continue to see a decent revenue environment in the year ahead on key long-haul routes. Demand for long-haul travel, and particularly premium long-haul, is driven in our view by international trade flows and global economic growth, not on European consumer confidence. As such we are optimistic about the trading environment that European network airlines will face on key long-haul markets to developing regions of the world, including China, Africa and Latin America. On North Atlantic, we have some concerns over capacity growth, but think the introduction of the Joint Business Agreement between British Airways, Iberia and American Airlines will leave the market substantially in the hands of the three immunised alliances; this should provide some support for the revenue environment for all market participants, in our view. We also argue that the strategic position of the European major airlines is strengthening within the industry, as secondary network airlines reduce their exposure to long-haul operations and as consolidation and alliances create a more predictable environment. Tighter financial conditions are also making it tougher than in the past for new entrants to de-stabilise the industry.
We remain optimistic for long haul premium demand
Our recommendation is focussed on trading the cycle
We are keen to stress that we are not so optimistic as to predict the airline business becoming a consistently value creating industry. We think it is getting slightly better over time and that there is a cyclical trading opportunity for equity investors.
There are significant medium term threats

Medium term issues are not overly relevant to our investment thesis But if we can reassure on mid term threats it might help
In the context of recommending network airline stocks as a cyclical trade we argue that medium or long-term challenges to the European network airlines industry, such as the environment of Gulf carrier growth plans, are not necessarily material to our investment thesis. That does not stop them being interesting to explore and, to the extent that we can offer some reassurance about such threats, we think it might add some reassurance to investors willing to consider trading network airlines at this time. In this note we explore the challenge posed to European network airlines by the growth plans of the Gulf carriers Emirates, Etihad and Qatar. Emirates is the largest of the three Gulf carriers and we undertake a detailed study of its fleet plans and its potential route development, as a way of understanding the potential market impact of this growth.
We think fears around Gulf carriers are overstated

Gulf carrier growth plans are widely seen as a major threat
Whilst there is a range of opinion, there is one view (certainly being pushed by Lufthansa amongst others publically at the moment) that the growth plans of Gulf carriers might be excessive. It is a common concern that the very substantial aircraft orders of the Gulf carriers will take significant market share from European, Asian and US network carriers and will threaten to upset the longhaul airline market in a way that low cost carriers have destabilised the short-haul markets. 4
Airlines | Executive Summary | 26 January 2011
We understand why incumbent flag carriers are lobbying against Gulf airlines given they have significant growth plans, benefit from lower costs and operate with very supportive governments and high quality infrastructure.
We think Gulf growth capacity will be deployed to take advantage of the Gulf's position at the crossroads of key developing markets
However, on the basis of our fleet and network modelling, we think the growth plans of Emirates appear broadly consistent with our Airbus and Boeing forecasts for regional growth. We would expect the Gulf carriers to leverage their geographic advantage and focus their growth on traffic flows linking India, China, Africa and the Mid East. We would consequently expect Gulf carriers to gain material market share on traffic flows such as India-US and China-Africa, but we would not expect them to focus disproportionately on slower growth markets such as Europe-Australia or Europe-South East Asia. We would be surprised to see them launch fifth freedom services from Europe on the North or South Atlantic and we do not see Gulf carriers as well placed to compete in the China-Europe market. We do not think the Gulf carriers will necessarily destabilise the whole long-haul industry. From the perspective of European carriers, we think the major strategic issue will be that Gulf carriers are likely to gain very significant market share on traffic flows from India to the US and Canada. This is forecast by Boeing and Airbus to become a major growth market and it is a market that European carriers would like to take advantage of in the future. We would expect the Gulf carriers to also gain share, probably more modestly between India and Europe. We thus think the real price of Gulf growth will not be an industry meltdown, but will be a cap on European carriers ability to leverage the potential growth form the Indian market
We do not foresee industry destabilisation
Just growth opportunities to India constrained
The Gulf threat examined

Gulf carrier growth plans are a major challenge to European carriers
The greatest medium-term strategic challenge facing incumbent network carriers, in our view, comes from the growth aspirations of the Gulf airlines Emirates, Etihad and Qatar Airways as well as Turkish Airlines, which is pursuing a growth strategy with some similar features. These carriers have been expanding rapidly over the past five years and have placed significant orders to maintain that growth over the coming decade. The largest aircraft orders have been made by Emirates, which has ordered 90 A380s (of which 75 remain to be delivered), the largest passenger aircraft ever built, as well as 70 A350s, some 50 B77s and 15 B747-800 freighters. Table 1 : Growth carrier passenger fleet and orders
Emirates Wide body current passenger fleet of which A380 Narrow body current fleet Wide body firm passenger orders of which A380 Narrow body firm orders Wide body passenger options of which A380 Narrow body options
Source: ATI, January 2011
Etihad 36 0 15 82 10 20
Qatar 54 31 120 5 16 17 6
Turkish 31 99 14 40
148 15 0 193 75
117 10
12
25
There is a wide range of views over the merits of Gulf carrier plans
Emirates, like the other Gulf carriers, is a private company. Consequently there is relatively limited information about the business in the public domain, notwithstanding the regular publication of a complete annual report. This partial information vacuum allows an extremely wide range of views to develop about the growth aspirations of the Gulf carriers, with some commentators suggesting the growth plans are excessive, while others argue that the Gulf growth plans are a rational exercise of geographic advantage that will have only a limited impact on other industry participants. Our interest in preparing this note is not to make judgement on the Gulf carriers themselves, but to understand how Emirates fleet and network might develop and thus judge the scale of the challenge posed by Emirates on the major European networkairlines. We have therefore not done any financial modelling of Emirates, but have prepared a model of the potential fleet and network development of Emirates. It would clearly be instructive to replicate the analysis on the fleet plans and network options for Qatar and Etihad, but doing this work on one airline alone was already a challenging task. We thus focus our attention on Emirates, as the largest Gulf carrier, as a proxy for the overall Gulf-based airline industry. 5
We model Emirates fleet and network plans in detail
We build a hypothetical fleet plan and route network
We have no non-public information about the company and have not discussed this report with the company. The hypothetical fleet plan is based on published aircraft orders, our assumptions over the timing of deliveries and an assumed continuation of the current practice of retiring aircraft at around 12 years. We have then constructed hypothetical network plans for the estimated fleet in 2015 and 2020. We then take the 2010 actual schedule together with our assumed schedules in 2015 and 2020 and estimate how the traffic flows on these services might be split between point-to-point traffic to Dubai and connecting flows to different regions. We thus develop snapshot estimates of Emirates intra-regional traffic flows in 2010, 2015 and 2020. We then compare the growth rates implied in this analysis with the intra-regional growth rates published by Airbus and Boeing in their most recent market outlooks. Using the aircraft manufacturers regional traffic forecasts, we can also then examine estimates of Emirates market shares within these regional over the period.
We derive intra-regional traffic forecasts from the hypothetical network
... and consider the implied growth rates to Airbus and Boeing estimates
Growth plans consistent with Boeing and Airbus estimates

The key conclusion we draw from this analysis is that the Emirates fleet plan we have modelled does not look to add excess capacity to the markets in which we think it could be deployed.
It is not hard to imagine viable routes for Emirates
In developing a hypothetical network, it was remarkably unchallenging to imagine potential routes to use up the growth capacity, notwithstanding the many A380s due for delivery. This reflects three factors. Dubai is located at the intersection of traffic flows to and from developing markets, including India, Africa, Russia and China. Over the coming 10 years, we expect Emirates to retire a significant share of its existing fleet. The Emirates route system is predominantly long haul, with quite a lot of multi-sector routes and a growing share of ultra-long-haul services. Many of the routes thus constitute very long round trips that use a large amount of aircraft time. Across most intra-regional markets, the implied Emirates growth rates are in line with the aircraft manufacturers growth rates, implying a generally stable market share development for Emirates. There are four significant exceptions to this, for which we model Emirates gaining material market share. These markets are between South Asia and North America, between North Asia and the Mid East, between North Asia and Africa, and finally, between Eastern Europe and the Mid East. These are all relatively high-growth developing market routes, where we judge Dubai to be optimally located as a hub. For these traffic flows we think the geographic location of Dubai conveys material competitive advantage to Emirates, which suggests market share gains are not implausible.
What confidence can we have in this benign conclusion?

Our conclusion is clearly surprisingly benign for legacy carriers in Europe, North America and Asia. Overall, we expect Emirates to gain market share on growth markets to and from India, which will constrain the opportunities for incumbent legacy carriers, but we do not foresee very significant excess capacity for the industry. We suggest that Emirates existing fleet orders could be absorbed by a network plan that sees Emirates growing in line with the market across most route areas notably those to and from Western Europe and gaining material market share in route areas involving selected developing markets.
Might Emirates be tempted to dump capacity in Europe?

This invites the question of how confident we can be that Emirates would not chose to deploy very significant capacity into the affluent markets of Europe if it could get traffic rights weakening European competitors and seeking to grow market share from Europe to the Mid East, South Asia, South East Asia and Australia. We think Emirates will seek market share gains in the markets we identify (India-US, China-Mid East, China-Africa) because we think it would be rational for Emirates to deploy its capacity in markets where it has the maximum competitive advantage. Airlines | Executive Summary | 26 January 2011 6
Emirates has significant competitive advantage in the growth markets we identify
In each of these markets, we think the Dubai hub is optimally located to offer connections. While it will face competition from Doha, Abu Dhabi and Istanbul, we think the larger scale of the hub will offer Emirates scale economies also. Dubai is optimally located to serve these markets. At present, the competitor carriers are financially weak (India), relatively small (Africa) or offer lower standards of service (Chinese carriers). Each of these markets is forecast by Airbus and Boeing to be high-growth market and is thus an attractive market per se, and Emirates has high competitive advantage. By contrast, if we consider traffic flows from Europe to South Asia or South East Asia, Europe is a developed market and as such, Boeing and Airbus forecast more modest growth trends from Europe. As the markets grow, however, we would expect to see new non-stop services overlying hubs. The network positions of the European majors are relatively strong and the networks, cost structures and services levels of the Asian operators are relatively good. Traffic flows to Australia are quite widely dispersed around multiple carriers, since this traffic flow can be served by a wide range of carriers.
European markets are lower growth and offer less competitive advantage
Should Emirates be tempted to chase fifth freedom routes from Europe?

Our panglossian view of the future also invites the question of why Emirates again, if it can get traffic rights might not deploy material capacity into fifth freedom markets from Europe. It does, after all, have a track record of deploying significant capacity between Australia and New Zealand, where it has 14% capacity share (OAG Max, September 2010). It is possible that Emirates might look to add some fifth freedom operations through European points to North or South America. However, we would be surprised to see Emirates launch a major capacity expansion in these markets.
The three global alliances are strong on the Atlantic, in our view Emirates aircraft have the range to overfly Europe
In the transatlantic market, the three major European airlines are entrenched in global alliances and have strong market positions and strong networks. They are strong competitors with highfrequency operations on trunk routes. Emirates does not need to operate with technical stops in Europe to reach the US or Latin America. With its Australian services, Emirates typically offers a mix of non-stops from Dubai to Australia and a one-stop service through Asia. We imagine Emirates can do reasonably well as a fifth freedom operator between South East Asian points and Australia. Clearly the carrier has toyed with a similar concept to the US, trying a Dubai-Hamburg-New York route alongside its direct Dubai-New York service. It has cancelled the Hamburg-New York sector.
Stopping in Europe offers poor service to high-growth India-US market
Where Emirates offers service to the Americas via points in Europe, it ends up offering a weak two-stop service proposition in the India-US market and non-Dubai Mid East markets. These are the attractive high-growth markets, where Emirates would be discarding a competitive advantage over competing airlines, for the benefit of a few fifth freedom passengers from Hamburg to New York. This does not look like an attractive proposition to us. We also note that any major fifth freedom expansion of service from Europe would see Emirates increasingly exposed to the costs and service levels associated with European infrastructure. This would be not taking advantage of one of its major competitive advantages high-quality, costefficient infrastructure. Were it to operate fifth freedom services from Europe, it could well have to employ more staff locally in Europe, which would expose Emirates to higher-cost labour. We therefore think the rational strategic plan for Emirates should be to maximise its use of its competitive advantages from the strategic location of Dubai, at the crossroads of several key developing markets, its high-quality infrastructure and flexible labour environment.
Operating fifth freedom services would waste the competitive advantages of infrastructure and labour, in our view
Where we might be wrong

There are myriad risks to our somewhat benign conclusion. Our analysis is based on a traffic estimate built off estimated origin and destination breakdowns applied to a hypothetical network and schedule operated by an estimated fleet. It does not take a sleuth the calibre of Sherlock Holmes to spot a potential flaw in the modelling. In defence of the work, we would argue that at each stage we have put together a fleet, network and traffic allocation plan that seem sensible. The fleet and network plan is reasonably balanced
and produces growth rates that are broadly consistent with the regional forecasts of Airbus and Boeing.
What could produce a less benign outcome for European carriers?

Our analysis suggests that it is possible to see a scenario in which Emirates takes delivery of all its ordered aircraft without gravely damaging European carriers. How might this conclusion be wrong?
Our fleet plan could be wrong
Our fleet plan could be wrong. Emirates might be planning a slower retirement programme for its older aircraft, it might have earlier delivery dates for its existing aircraft on order and it might make additional aircraft orders that grow its fleet more quickly than anticipated. We think that the recent operational challenges of the manufacturers mean that Emirates is unlikely to take faster delivery of aircraft than we model, but we do not have any great visibility on their delivery schedule. The growth plans of Middle Eastern and Indian low-cost carriers might take market share from Emirates in the India-Gulf market, weakening Emirates position on traffic flows from India to the world and leaving aircraft that we assume Emirates would deploy in the India-Dubai market to be deployed elsewhere. Our hypothetical network development assumes that the UAE is able to negotiate sufficient traffic rights to leverage the potential from the hub location. If traffic rights are restricted in certain key markets, then growth capacity might be redeployed, sub-optimally, into alternative markets, bringing greater competitive challenges on the carriers active in those markets. This could see greater capacity deployed into Europe or, indeed, capacity deployed into fifth freedom markets from Europe. Our hypothetical network development produces a benign outcome for European carriers, but we have not modelled the plans of the three other carriers, which are pursuing somewhat similar strategies, albeit on a slightly smaller scale: Turkish, Qatar and Etihad. The viability of Emirates expansion plans and the impact on legacy carriers outside the Gulf will also be significantly affected by how these carriers develop. Even if Emirates does maintain a policy of maximising competitive advantage, focusing on the developing markets we discuss, we cannot be certain that these other carriers do not destabilise the key markets for European airlines. Our analysis assumes that Emirates is able to gain very significant market share in the South Asia-North America market and also see solid growth from other traffic flows to and from South Asia, including to East and West Europe and the Mid East. Should we see a rapid and successful restructuring of the Indian airline industry and the emergence of one or more significant global players from India, then this outcome would be threatened. We take reassurance that the regional traffic flows we have developed are consistent with the regional traffic forecasts of Airbus and Boeing. The comparison with these data sources drives our conclusion that Emirates will not see significant market share gains in many markets. However, it needs to be recognised that Airbus and Boeing, in developing their traffic forecasts, are not disinterested parties: they are trying to sell aircraft. If their forecasts prove materially inaccurate, then our conclusion that Emirates can absorb its orders without materially damaging the interests of European carriers would no longer be valid.
India-Dubai could become predominantly a low-cost carrier market
Inability to gain traffic rights could drive more capacity to Europe
The Emirates copycats could destabilise the market
The development of a successful Indian airline industry would challenge our thesis
If Boeing and Airbus forecasts prove to be nonsense, then our market share projections will be, too
What could produce problems for Emirates?

There are also several factors that could lead to material problems for Emirates, that mean it might be unable to develop its business or see the traffic growth that we envision. The two key risk areas we see in this context are based around geopolitical instability and the A380.
A geopolitical crisis in Dubai would threaten the Emirates project ... as would problems with the A380
Should there be significant geopolitical instability in Dubai or the broader UAE, then the whole prospect of Dubais development as a tourist and business hub will fail. Origin and destination traffic will drop and we do not think the Emirates fleet plan could be absorbed purely with a connecting traffic model. Should there be technical or operational flaws with the A380, Emirates business plan would be materially challenged. If the Emirates vision were challenged in one of these two ways, this would be a long-term positive development for European carriers. The short-term consequences would be less predictable, as the Gulf carriers work through whatever shock event might have brought about such a material change in prospects.
Consequences for European network airlines

Some European carriers are seeking to flag the unfair advantages enjoyed by the Gulf carriers and limit the traffic rights available. Lobbying against export credit has been partly successful. Alliance and network planning can also offer some protection.
How are European airlines threatened by Gulf carriers?

Currently the growth plans of Gulf carriers are a potential challenge to all three of the European majors. However, since the European carriers are all exposed to this challenge in different ways, we are reluctant to spell out their relative exposures. Looked at geographically and we think that is the best way to think about airline networks, since neither unpredictable regulators nor aberrant managers can mess with it Gulf carriers are major competitors to European network carriers on traffic flows form Europe to the Mid East, India (and broader South Asia), South East Asia and Australia/New Zealand. They are also emerging challengers on traffic flows from North America to the Middle East and India. Chart 1 : Emirates share of seats deployed in European flag carrier home markets
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% BA/Iberia United Kingdom Source: OAG MAx Germany Lufthansa France Switzerland Austria AF-KLM Netherlands
Chart 2 : European carrier capacity by seat

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% LH DOM Source: OAG Max BA EUR AFR SATL IB NATL ME ASIA AF-KL
Chart 3 : European carrier exposure to Emirates relvant markets

14% 12% 10% 8% 6% 4% 2% 0% LH BA ME Source: OAG Max ASIA IB AF-KL
If we consider the markets in which Emirates currently deploys its capacity, there is greater capacity deployed in BAs home market than Lufthansas, which in turn faces more Emirates capacity than Air France and KLM in their home markets.
BA/Iberia current key markets not threatened

If we consider how much seat capacity of the European carriers is deployed into the Mid East and Asia, we find that the exposures of the three major flags are not significantly different BA has slightly higher exposure, but Iberia has very little, implying the three groups overall are similarly exposed.
North and South Atalntic less threatened
For BA/Iberia, we note that India and Australia are important markets for BA and these are contested by Gulf carriers. Emirates also has a lot of capacity deployed in the UK. On the other hand, the most important market for BA is North Atlantic and the most important for Iberia is South Atlantic neither of these markets is relevant to Emirates and as such we think BA/Iberia have certain strategic advantages relative to their peers. However, India is a potential strategic growth market for BA and we think Gulf carrier plans will cap BAs ability to leverage historic and business links and the UKs decent geographic location midway between India and the US.
Indian growth aspirations challenged
Lufthansa suffers from a decentralised home market

Lufthansa has quite a diversified network overall, with the notable weakness to Latin America. This is slightly unfortunate, since the Europe-Latin America market is not, in our view, threatened by the Gulf carrier growth plans.
Decentralised home market is tough to defend
Lufthansa also faces a particular challenge in its home market of Germany, which as a decentralised market is particularly hard for Lufthansa to control. Lufthansa naturally offers the strongest network and frequencies out of its hubs in Frankfurt, Munich, Zurich and Vienna, but there is a swathe of significant German provincial cities, such as Hamburg, Dusseldorf, Stuttgart and Berlin, where it appears vulnerable to long-haul services by Gulf carriers.
Air France a balanced network

A well diversified network
Air France-KLM has the most balanced network of the European majors, with meaningful exposure on the North Atlantic and South Atlantic markets, which are not threatened by Gulf carriers. Air France-KLM has a very important network in terms of profitability (in our view) to Africa, which is only marginally threatened by Gulf carriers, since routings through the Gulf are circuitous. Air France-KLM is similarly growing aggressively to China and is very well placed with Chinese alliance partners. Again, Gulf carriers offer only a circuitous offering in the China-Europe market. The French air travel market is also highly centralised on Paris, which means that Air France is less threatened in our view by Gulf carrier growth in provincial France than Lufthansa is by growth in provincial Germany.
And a centralised home market
10
Threats to both Air France and Lufthansa

More broadly, we believe the hub functions of both Air France and Lufthansa are threatened by Gulf carrier growth into secondary cities throughout Europe. Gulf carriers can offer less circuitous routings to Asia from points in Europe to the south and east of the Lufthansa hubs. For example a Venice-Dubai-Bangkok would compare favourably against Venice-Munich-Bangkok. Lufthansa and Air France are also notably disadvantaged on routings linking secondary European points with secondary Asian points. Emirates can offer a one stop service from say Birmingham to Cochin India, whereas Lufthansa and Air France would offer a double connect through their European hub and Bombay or Delhi.
European network airlines will keep up the pressure

Our analysis suggests that Emirates might not be a major destabilising force on the industry
We think the conclusion of our detailed network analysis is actually broadly positive for the European flags. We think the Emirates growth plan can be absorbed by the market, with Emirates gaining market share on selected developing market traffic flows for which Dubai is particularly well located. We thus think the Gulf carriers will not necessarily be the major destabilising force on the network carrier industry that some commentators fear. They could, however, have a good chance of taking a disproportionate share of selected high-growth traffic flows. That said, we would expect European and indeed US and Asian carriers to maintain their efforts to challenge the expansion plans of the Gulf carriers. The Gulf carriers are tough competitors. They offer highly regarded customer service that is generally a match for the European network carriers, and operate with lower costs than European network carriers, although Emirates long stage length is responsible, in our view, for a significant part of that difference.
Gulf carriers have high service levels and low costs
Table 2 : Airline quality rankings: Gulf carriers are a match for European flag carriers
Overall Emirates Etihad Qatar Turkish British Airways Air France Lufthansa American Delta SIA Cathay
Source: Skytrax
Long-haul first class **** **** ***** **** **** **** *** ****
Long-haul business class **** **** ***** **** **** **** **** *** ****
Long-haul economy class *** **** ***** **** *** *** *** *** *** **** ****
**** **** ***** **** **** **** **** *** *** ***** *****
***** *****
***** ****
Chart 4 : Emirates has low unit costs, but long sector length
10 LH YE Dec09 Passenger CASK (Euro cents) 8 AF YE Mar10 6 BA YE Mar09
EK YE Mar10
0 2,000
2,500
3,000
3,500 Passenger Length of Haul (km)
4,000
4,500
5,000
Note: Passenger division data for Lufthansa; non-passenger revenues excluded from cost base of other carriers Source: Company data
11
Our network model shows Emirates making only moderate market share gains from Europe to South Asia and maintaining stable market share from Europe to the Mid East and Australia. We believe European carriers would sooner see themselves gain market share and Emirates lose share.
On India-US, we model Emirates taking share in a market where European majors would like to grow
Our network model shows Emirates gaining material share on South Asia to North America routes. This will be a fast growth market, for which Europe is well located to function as a hub European carriers would like to take meaningful share in this market our modelling suggests they will lose out to Gulf carriers in this market.
Current European strategies

The European major network airlines (Air France-KLM, Lufthansa and British Airways/Iberia) all seem to recognise the threat posed by the Gulf carriers expansion plans. The Gulf carriers benefit from lower unit costs, offer high service levels and competitive prices, and are growing faster than the European incumbents.
European carriers are seeking, where possible, to reduce Gulf carrier cost advantages
The current strategic plans of European carriers focus on attacking certain aspects of the Gulf carriers cost advantages. A prime example is export credit agency financing, which provides advantageous financing to Gulf carriers, which at present is not available to US airlines or carriers from Airbus home countries. The US carriers and main European flag carriers have lobbied to change the rules governing Export Credit Agency financing and the issue was discussed before Christmas at an OECD meeting in Paris. European carriers have also questioned the costs of Gulf infrastructure, flagging that airport and handling costs are substantially lower in the Gulf than in Europe, despite the high investment undertaken at these airports. Some European carriers are also keen to restrict Gulf carriers access to markets: Lufthansa is currently lobbying to refuse Emirates access to a fifth German departure point. Emirates is keen to add service to Berlin in addition to its existing services to Frankfurt, Munich, Dusseldorf and Hamburg. This is a rational move by Lufthansa, in our view. A Gulf connection from Berlin would offer relatively attractive routings for long-haul traffic between Berlin and Asia compared with Lufthansas routings, which involve a circuitous backtrack to Frankfurt or Munich. However, it is indisputable that the strategic expansion plans of the European majors are highly reliant on increased airline liberalisation, both to facilitate their consolidation activities and to generate new long-haul service opportunities to expand their strong long-haul operations. As such, arguing for the restriction of route rights for other carriers is a delicate task. Politically, we judge the European carriers as being unsure of how to portray the Gulf carriers. The European majors do not know whether they should portray the Gulf carrier growth plans as excessive expansion that is doomed to failure. One argument is that the growth plans may even be illusory, and that the carriers will reduce the scale of A380 orders in due course after incremental traffic rights are earned. Alternatively, they might want to portray the Gulf carriers as having genuine business plans that threaten European businesses and jobs, and benefit from certain advantages that they would be seen to characterise as unfair. Meanwhile, the government relations teams of the Gulf carriers are becoming increasingly proactive, seeking to rebut accusations of subsidy and unfair advantage.
Some European carriers are trying to restrict access to markets
Seeking to limit liberalisation of the industry is a delicate matter
Future strategies
Looking to the future, we would expect the defence strategies to become somewhat more sophisticated than the accusations of unfair advantage and calls for protectionism that are dominating the debate over Gulf carrier growth. Although the lobbying will likely continue, too.
Secure partners in the hinterland of the hubs

Building alliance partners in the hinterland of Gulf hubs seems sensible
European carriers are also building up alliance partnerships in the shadow of the Gulf hubs, in an effort to compete effectively on a network basis. From a network standpoint, we see good sense in European airlines seeking alliance partners in the hinterland of Gulf hubs, such as Kenya (Skyteam) and Ethiopia (Star). We also think it will be particularly important for each alliance to have an alliance partner in India to try to strengthen their network penetration in this fast-growing market, where the Gulf carriers
12
have such a strong position. Star already has an agreement in principle to welcome Air India, while Kingfisher is joining oneworld. It will thus be very important for Skyteam to win Jet Airways into the alliance. Conversely, it would strategically be very beneficial for Star or oneworld if they could secure the partnership of Jet Airways, thus leaving Skyteam in a very weak position in India. Securing alliance partners around the Gulf hubs should allow the European carriers to use these local carriers to access secondary points in the region that act as feeder points for the Gulf carriers. In selling in these markets, the network carriers would have home-country advantage, in contrast to the Gulf carriers, which have to sell on price and product, with less network advantage.
If you cant beat them?

Drawing Qatar or Etihad into a global alliance could be useful
One option that might build on the hinterland alliance strategy could be to contemplate allying with either Etihad or Qatar. Emirates has publically stated it does not plan to join a global alliance, but Qatar and Etihad have been somewhat open to bilateral partnerships. Qatar currently has codeshare partnerships with predominantly Star alliance carriers including Lufthansa, United and Asiana. Etihad has codeshare partnerships with a range of carriers across all three global alliances, including American, Alitalia, Asiana, Malaysian and a significant strategic partnership with Virgin Blue. For European majors, partnering with Qatar or Etihad could bring similar network strengths to those enjoyed by Emirates; it could offer a particularly effective alliance strategy for India, which could be of particular interest to oneworld and Skyteam given that Star looks to have Air India on board. Partnering with Qatar or Etihad could however make it tougher to politically lobby against Emirates and seek to restrict route rights for Gulf carriers. That said, given the importance of the Indian market in the context of the global industry and the relative weakness of oneworlds Kingfisher and Skyteams potential Indian partner Jet, losing the right to politically challenge Emirates might be a price worth paying. After all, we believe the industry is on a clear path towards liberalisation. Efforts to limit traffic rights may have some effectiveness in the short term, but ultimately will only prove a delaying tactic.
The move would strengthen the alliance position in India
This would make it tricky to lobby against Emirates But perhaps a price worth paying
Understand which traffic flows are defensible

We think it is important for European flag carriers to look to defend and grow their strategic positions in markets where they have natural competitive advantage over other carriers generally and over Gulf carriers in particular.
The Atlantic looks relatively unthreatened
We thus see good strategic logic in BA/Iberia seeking to build on its transatlantic fortress through partnerships with American and potentially LAN/TAM. The Atlantic is not contested by Gulf carriers today and we would be surprised to see material fifth freedom operations developed even if traffic rights become available. On the flip side, we imagine BA might be looking to build capacity to and from India, given business and cultural links between India and the UK and given Londons position as a decent transit point between India and North America. We think BA will find Gulf carriers very challenging in this context. We see sense in Air France-KLM looking to build a strength market to China, particularly to offset the increasing competition it faces in Africa. Gulf carriers offer a circuitous routing between Europe and China. Lufthansa has already secured its position in Eastern Europe through its partnership with Austrian.
... as does Europe-China
Lobbying efforts will also continue

We would expect European carriers to continue to devote considerable political energies towards the Gulf carriers.
Protectionism is a short-term beggar thy neighbour strategy
We do not think efforts to limit Gulf carriers traffic rights will prove successful on a long-term basis the industry trend has been one of consistent gradual liberalisation. However, efforts to delay the granting of traffic rights will delay the impact of incremental competition in specific markets, which can be to the advantage of the home carriers in markets where market access is delayed. Protectionism can be a viable short-term beggar thy neighbour strategy.
13
This being the case, we would expect European network carriers to continue to highlight advantages enjoyed by Gulf carriers, in an effort to both even out those disadvantages and delay the granting of traffic rights. Lobbying by European and US network carriers looks to have achieved moderate changes in the OECD agreement covering EXIM financing, which will make export credit funding of new aircraft less advantageous. The European and US carriers are continuing their efforts to further balance this playing field, arguing that airlines based in countries where aircraft are built should also have access to this financing. We would expect European carriers to continue to campaign about the user charges associated with the new infrastructure being developed in the Gulf. We would expect European carriers to emphasise competition against Gulf carriers in their lobbying efforts regarding national aviation taxation and the imposition of the forthcoming emissions trading scheme.
14
A hypothetical fleet plan

This section of the report presents a summary of Emirates current fleet and orders and our estimated fleet plan for Emirates to 2020.
Key findings from fleet modelling

The existing Emirates fleet is all wide-bodied, reflecting the predominantly long-haul nature of the network. Among the shorter sectors, many are very high-density routes, such as to India. We would expect the A330s, A340s and older B777s to be replaced by the A380s, A350s and B777s on order. As such, we would expect the average aircraft size to continue to grow. Large aircraft deliver low unit costs. On Emirates long-haul routes, frequency is a less critical factor than it is on high-density, short-haul sectors. Our fleet model assumes the aircraft numbers record a 4.9% CAGR to 2020, growing 6.1% pa to 2015 and 3.7% pa from 2015 to 2020. Taking into account the increasing average aircraft size, our fleet model assumes the seat capacity of the Emirates fleet records a 6.6% CAGR to 2020, growing 9.4% pa to 2015 and 3.9% pa from 2015 to 2020. Our model foresees the Emirates fleet growing from 155 aircraft in 2010 to 249 aircraft in 2020. This is notably more modest than one might expect, given the media discussion around Emirates high-growth plans. This fleet of 249 aircraft in 2020 compares with the current fleet at the Lufthansa Group of 722, Air France-KLM of 593, United Continental of 1,261 and Delta of 821. These figures are boosted by large portfolios of regional aircraft, but the scale of the Emirates fleet, on our modelling, would be modest. We would not be surprised to see the company announce further orders for the second half of the decade and into the next decade. Our fleet model has Emirates ending 2020 with no replacement or growth aircraft on order.
Emirates 2010 fleet

An all-wide-bodied fleet
At September 2010, the Emirates fleet comprised 151 aircraft in service, of which 143 were passenger aircraft. All aircraft are relatively large-capacity, wide-bodied aircraft. The passenger fleet was dominated by 777s, which, in various guises, accounted for 86 aircraft, nearly 60% of the passenger fleet. The Emirates 777 is far from homogeneous. It includes 10 777200LR aircraft, which are the ultra-long-haul aircraft with low seating capacity. It contains a growing fleet of modern 777-300ER aircraft, which are modern high-capacity aircraft, which we see being used by European flag carriers such as BA and Air France to replace aging 747s. The fleet also contains some older 777-200s and 777-300s. The 777s come in a wide variety of two and three class configurations, ranging from the sparse 176 seats on the ultra-long-haul 777LR to 442 seats on the 777-300 in a two-class, high-capacity configuration. The second major type was the smaller A330, of which Emirates has 37 in service. These aircraft operate in both two- and three-class configuration, with capacity ranging from 237 to 278 seats. The third mainstream fleet at Emirates is the A340, with eight of the relatively old A340-300s operated in three-class, 267-seat configuration, and 10 younger ultra-long-haul A340-500s that are configured with 258 seats. This types function overlaps with the 777LR and at the moment the 340-500 does not seem to be typically used on sectors that maximise its range capability.
Currently dominated by the B777
12 A380s in operation at the end of 2010
In September 2010, Emirates had 12 A380s, which are configured in three classes with 489 seats. The aircraft are configured with Engine Alliance engines, so the fleet has not suffered from the recent operational disruption that RollsRoyce*-powered aircraft suffered following the incident with the failure of an engine on a Qantas A380 in late 2010. *RBS Hoare Govett Ltd is broker to this company.
Airlines | Industry Dynamics | 26 January 2011
15
Table 3 : Emirates September 2010 fleet

Manufacturer Airbus Airbus Airbus Airbus Airbus Airbus Boeing Boeing Boeing Boeing Boeing Total passenger Boeing Boeing Boeing Boeing Total cargo Total
Source: ATI, Airbus, Boeing, JPFleets
Model A330-200 A340-300 A340-500 A350-1000 A350-900 A380-800 777-200 777-200ER 777-200LR 777-300 777-300ER
Average age 8 13 6.5 N/A N/A 1 14 13 2 9 3
Seats 237-278 267 258 350 314 489 346 290 176 374-380 358-442
Range 5930 13700 16700 14800 15000 15200 9700 14300 17400 11100 14700
Emirates configurations C27Y251, F12C42Y183 F12 C42Y213 F12C42Y204 N/A N/A F14C76Y399 C42Y304 F12C42Y236 F8C42Y126 F18C42Y320 F12C42Y310 C42Y400, C42Y386, F12C42Y304 F12C42Y310
In service 29 8 10 12 3 6 10 12 53 143
On order 20 50 78 48 196 6 15 21 217
On option 3 10 50 10 5 39 117 0 117
747-400ERF 747-400F 777-200LRF 747-8F
3 10 1 N/A
N/A N/A N/A N/A
9200 8200 9100 14800
N/A N/A N/A N/A
3 3 2 8 151
Our estimated fleet development plan

We work using the published orders We assume old planes are retired at 12 years
Our forecast for Emirates fleet is based on the existing published orders for 90 A380s in total, for 70 A350s and for a further 48 B777s. In terms of retirements, we have broadly assumed that Emirates retires aircraft after around roughly 12 years, which appears to be the current Emirates policy. We have assumed that the A380 fleet is phased in relatively evenly over the period to 2020. We assume that A350 deliveries start in 2014, are somewhat heavy in 2015 with 18 deliveries as the last A330s and A340s exit the fleet and then are relatively stable to 2020. We assume that 777 deliveries are weighted to 2013 and 2014, backfilling the retirement of old 777s and A330s. On the cargo side, we assume the 777 freighter aircraft are phased in to 2013, with the 747-800 freighter aircraft being phased in from 2013. However, the cargo aircraft do not form an integral part of the modelling elsewhere in this note, which focuses purely on the passenger business. Overall, this fleet development plan delivers only a 4.9% CAGR in the number of aircraft in the fleet over the 10-year period 6.1% pa from 2010 to 2015 and 3.7% pa from 2015 to 2020. We recognise that Emirates may well buy more aircraft to maintain a higher growth rate in the second part of the current decade and to position itself with orders into the next decade. The current fleet model leaves Emirates with no aircraft on order at 2020, which is likely to be unrealistic. The complete fleet plan is illustrated fully in the Appendix.
Table 4 : Estimated fleet plan summary

2010F Passenger total Cargo total Total
Source: RBS forecasts
2011F 155 10 165
2012F 164 11 175
2013F 171 13 184
2014F 182 14 196
2015F 192 16 208
2016F 201 19 220
2017F 208 22 230
2018F 216 23 239
2019F 222 23 245
2020F 226 23 249
146 9 155
16
Chart 5 : Estimated year-end fleet plan by aircraft type

250 19 16 200 9 150 109 86 88 93 100 113 84 78 72 50 17 29 0 2010F 2011F 2012F 14 66 24 14 29 27 34 10 17 2013F A330 2014F A340 44 10 60 52 5 5 7 23 2015F A350 A380 33 2016F B777 42 55 66 70 90 10 11 14 13 83 94 102 72 66 22 23 23 23
100
2017F Cargo
2018F
2019F
2020F
17
A review of the 2010 network

This section of the report reviews the Emirates network as it was in September 2010.
Key network findings

Western Europe and Southern Asia are the key regions for Emirates at the moment. The most significant countries in terms of capacity allocation are India, the UK and Australia. Emirates operates quite a lot of fifth freedom services, some of which are a function of immature routes (eg Africa), some of which optimise aircraft utilisation (eg Trans Tasman) and some of which appear excessively complex to us (eg Sri Lankan operating patterns). The Emirates network is almost entirely operated on a daily or multiple of daily basis. This would be positive for operational simplicity and marketing connections. Many Emirates routes are operated by a mix of aircraft through the week. This would be suboptimal operationally and from a marketing perspective.
Emirates 2010 network

Figure 1 : 2010 Emirates network
Toronto New York JFK San Francisco Los Angeles Houston
Paris CDG London Gatwick Manchester Newcastle Amsterdam Moscow Domodedovo Glasgow Dusseldorf Birmingham Hamburg London Heathrow Frankfurt Malta Prague Vienna Athens Islamabad Venice Lahore Zurich Delhi Beijing Rome Karachi Nice Ahmedabad Istanbul Madrid Munich Seoul Kolkata Milan Malpensa Damascus Tokyo Larnaca Dhaka Tunis Casablanca Beirut Kuwait Osaka Tripoli Cairo Amman Dammam Guangzhou Shanghai Riyadh Hong Kong Jeddah Peshawar Muscat Sanaa Tehran Manila Dakar Chennai Dubai Bangkok Lagos Khartoum Bahrain Kochi Doha Mumbai Colombo Kuala Lumpur Addis Ababa Hyderabad Abidjan Singapore Entebbe Bengaluru Accra Nairobi Kozhikode Luanda Dar es Salaam Male Jakarta Mahe Island Thiruvananthapuram Johannesburg Mauritius Durban Cape Town Brisbane Perth Melbourne Sydney Auckland Christchurch
Sao Paulo
Source: OAG Max
Network analysis by region

Existing network weighted to Western Europe and South Asia
The Emirates network in September 2010 was weighted towards Western Europe and South Asia. We see this reflecting the current network flows being dominated by leisure and business flows between Europe and Dubai, immigrant worker flows between South Asia and Dubai, and strong visiting friend and relations (VFR) traffic flows between Europe and both South Asia and Australia. 18
Table 5 : Seat departures by region

Departure region Europe : Western Europe Asia : South Asia Middle East Asia : South East Asia Southwest Pacific Asia : North East Asia Africa : Eastern Africa North America Africa : Southern Africa Africa : North Africa Africa : Central/Western Africa Europe : Eastern/Central Europe Latin America : Lower South America Daily Ssats 12,838 11,635 7,652 5,221 4,832 3,494 2,160 1,834 1,795 1,551 1,356 859 266 Share 23.1% 21.0% 13.8% 9.4% 8.7% 6.3% 3.9% 3.3% 3.2% 2.8% 2.4% 1.5% 0.5%
Note: This segmentation divides Emirates departures by region, excluding Dubai departures. The Southwest Pacific seat departures include Trans-Tasman routes. Source: Seat departure by region, excluding Dubai departures, OAG Max, September 2010
Network analysis by country

By country, the most important destination is India, followed by the UK and Australia. The network is diversified, covering 60 different destination countries. The importance of India in the network reflects the immigrant worker flow to Dubai and the Mid East as well as VFR flows to Europe. The UKs importance to the network reflects the attraction of Dubais tourist product to UK consumers and Dubais position as a transit point to India and Australia, both important markets for the UK. Table 6 : Seat departures by country
Departure country India UK Australia Germany Thailand China South Africa Pakistan US New Zealand Italy Qatar Saudi Arabia Sri Lanka Malaysia France Kuwait Maldives Iran, Islamic Republic of Bangladesh Indonesia Philippines Singapore Bahrain Lebanon Nigeria Hong Kong (sar) China Japan Russian Federation Switzerland Jordan Other Daily seats 6,917 5,246 3,357 2,294 1,945 1,751 1,693 1,650 1,624 1,475 1,372 1,240 1,238 1,196 1,092 1,076 1,050 988 972 884 728 728 728 715 647 631 630 624 622 607 581 9192 Share 12.5% 9.5% 6.0% 4.1% 3.5% 3.2% 3.1% 3.0% 2.9% 2.7% 2.5% 2.2% 2.2% 2.2% 2.0% 1.9% 1.9% 1.8% 1.8% 1.6% 1.3% 1.3% 1.3% 1.3% 1.2% 1.1% 1.1% 1.1% 1.1% 1.1% 1.0% 16.6%
Note: This segmentation divides Emirates departures by country, excluding Dubai departures. The Australian seat departures include Trans-Tasman routes, as well as services to Asia and Dubai. Source: Seat departure by region, excluding Dubai departures, OAG Max, September 2010
19
Network analysis by airport

The leading destination airport in 2010, outside of Dubai, was Heathrow, followed by Bangkok, Mumbai and Doha. Table 7 : Seat departures by airport
Departure airport LHR BKK BOM DOH CMB KHI SYD DEL AKL JNB KUL MEL KWI LGW Name London Heathrow Apt Bangkok Mumbai Doha Colombo Bandaranaike Apt Karachi Sydney Kingsford Smith Apt Delhi Auckland International Apt Johannesburg O.r. Tambo International Kuala Lumpur International Airport Melbourne Airport Kuwait London Gatwick Apt Daily seats 2,070 1,945 1,482 1,240 1,196 1,142 1,119 1,118 1,111 1,092 1,092 1,092 1,050 994 Share of total 3.7% 3.5% 2.7% 2.2% 2.2% 2.1% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 1.9% 1.8%
Note: This segmentation divides Emirates departures by country, excluding Dubai departures. The Bangkok, Colombo, Sydney and Male seat departures include fifth freedom routes as well as services to Asia and Dubai. Source: Seat departure by region, excluding Dubai departures, OAG Max, September 2010
Fifth freedom operations add complexity

A notable feature of the current Emirates network is that there are quite a lot of multi-sector routes, with Emirates selling fifth freedom services between two non-home countries.
Multi sector routes are common where routes are developing
It is common for airlines to operate multi-sector services in particularly thin routes, which require a combination of destinations to generate sufficient volume. Emirates operates a couple of typical tag services in Africa (Abidjan/Accra and Addis Ababa./ Entebbe), as well as one in Europe combining Malta and Cyprus. On Australian routes, Emirates typically operates a mix of non-stop flights to Australian destinations and a service operating via points in South East Asia, including Singapore, Kuala Lumpur and Bangkok. Emirates operates a similar combination of direct flights to Hong Kong in combination with a stopping service via Bangkok.
Emirates is a major player in the trans-Tasman market
Emirates also operates very significant capacity between Australia and New Zealand, with daily services between Auckland and Sydney, Brisbane and Melbourne, as well as between Christchurch and Sydney. Finally, Emirates has a mesmerisingly complex operating pattern serving Colombo Sri Lanka, which we suspect is a legacy of the companys past stake in Sri Lankan Airways. Emirates serves Colombo non-stop from Dubai, as a tag beyond Male, as a triangle routing with Male and as an intermediate point on the way to Singapore.
Frequencies consistent; aircraft allocation less so

Most routes flown daily or multiples of daily
Across the system, most operations are flown daily or multiples of daily, thus offering consistent connections through the week. There are some rare exceptions that are flown less than daily, including Lahore (four/week) and Dakar (five/week). From a marketing perspective, this is a positive feature of the network. Looking around the network, the allocation of aircraft types to routes is notably less consistent. Many routes are serviced by a mix of aircraft types, with Zurich, for example, being served by A330, A340 and B777 aircraft across its double-daily schedule. Obviously the A330 and A340 aircraft have common cockpits, but mixing 777 and 330/340 operations would be inefficient for crew scheduling, and would add operational complexity at the station. It will likely also be suboptimal for marketing, given the differing aircraft types will have varying product specifications.
Aircraft allocation is far less tidy
20
A hypothetical network plan

This section of the report uses our estimated fleet plan to develop hypothetical network model in 2015 and 2020.
Key network findings

Our hypothetical 2015 schedule adds 21 new destinations to the Emirates network relative to 2010, with the new points weighted towards China, Japan and Europe. Our 2015 schedule for 60 A380s is weighted towards truck routes to Australia, Europe, the US, China and Japan. We assume a small high-density subfleet deployed to India, Jeddah and Nairobi. Our hypothetical 2020 schedule adds a further 25 new destinations, weighted rather more towards Africa, with a buildout of service in North America and Latin America, provincial India and China, as well as Eastern Europe. Our 2020 schedule for 90 A380s deployed the A380s more intensively to North America and deploys them to Latin America (which would depend on range enhancement relative to early models). The deployment is increased on Western European and Australian routes. The deployment of the high-density version is extended to some major South East Asian points and additional Indian services.
Our estimated network development plan

Always wanted to be a network planner
Colleagues who worked with me when I was in the industry will know very well that I always was a frustrated network planner. Lacking both the attention to detail and the political skills to ever acquire a proper job in network planning, it is with great pleasure that in preparing this note I am using the key economists skill, simply assuming that I am head of network planning at Emirates. We do not have access to the detailed databases that proper network managers have and have not developed traffic and financial estimates for each and every route. What we have done is put together a set of routes that seem plausible developments of the Emirates network today. These are our hypotheses Emirates does not disclose publically what its 10-year network development strategy is, which would be politically and commercially unwise. But Emiratess public comments do emphasise the companys plan to leverage the position of Dubai and its proximity to developing markets. We think our hypothetical network is consistent with this. We have looked to simplify the network, reducing the multi-sector operations and have maintained single aircraft types on each route. We have added some incremental destinations in Western Europe and Australia, but most come in the developing worlds of Africa, China and India. We have also grown the companys ultra-long-haul services to the US and Latin America. We have modelled the rotation times for each of the routes, assuming a four-hour layover in Dubai at the end of each rotation. We have not scheduled the fleet to operate, but have allowed a 12% margin to account for heavy maintenance a figure consistent with the 2010 schedule and fleet.
Not all traffic rights may be obtainable
Our network modelling assumes that Emirates is able to negotiate additional traffic rights. We appreciate very well that these negotiations will in many cases prove challenging and that the rights to deliver our assumed network may not be available in the appropriate time. However, should certain routes be unavailable due to traffic rights issues, we would expect Emirates to able to open alternatives. Moreover, we note that the aviation industry has made massive strides towards liberalisation over the past 10 years. While there may be occasions when the liberalisation process takes a step backwards, we are firmly of the conviction that the industry will continue to liberalise over the coming 10 years.
Progress will not be linear, but we expect the industry to liberalise
21
The hypothetical 2015 schedule

Our hypothetical 2015 schedule is fully illustrated in the appendix. Figure 2 : New route additions in our hypothetical 2015 network
S t Pete rsbu rg Ed inbu rgh Be rlin Gen eva Ch ica go Bosto n Barce lona Ba ku B agh dad Katm an du M exico C ity D UB AI Goa Ad dis Aba ba Abidja n A ccra En tebb e M ale C olom bo H o C hi M in h T aipe i Na go ya C he ngd u Alma ty S app oro To kyo Ha ned a
D enp assar
W ellin gton Ne w N on -sto p de stin ation Fo rm er tag f ligh t replaced by n on-stop
For 2015, our fleet plan assumes 23 A350s (20 scheduled, after taking into account maintenance needs), 109 B777s (97 operating) and 60 A380s (53 operating). In our modelling, we assume seven A380s are configured in a high-density configuration service predominantly India. The growth to 2015 is weighted towards South Asia and the Middle East, followed by Europe, North Asia and East Africa. Chart 6 : 2015 schedule by region
S AFR NA 3% 5% E AFR 4%
W AFR E EURO LATAM N AFR 2% 3% 2% 2%
W EUR 19%
N ASIA 9% AUS/NZ 4% SE ASIA 6% ME 15% S ASIA 26%
22
What can you do with 60 A380s in 2015?

Our modelling of the A380 fleet allocation in 2015 is shown in the following table. At present, some airports listed may not have the capability to handle A380s (eg Lagos, Nairobi), but we do not consider it unreasonable that they might become ready by 2015. Some of the routes shown are beyond the operational commercial range of the early A380s (Los Angeles, Houston). This modelling assumes that improvements to later models will increase the range for these routes. For 2015, we have generally allocated the A380s to trunk European, US, Australian, Chinese and Japanese routes, as well as deploying a high-density version on key Indian, Saudi and East African routes. Table 8 : A380 network allocation in 2015
Route Kuala Lumpur-Melbourne Sydney Sydney-Auckland Moscow Cairo Guangzhou Tokyo Haneda Hong Kong Osaka Seoul Shanghai Tokyo Narita Houston Los Angeles New York JFK Johannesburg Bangkok Singapore Lagos Frankfurt Gatwick Heathrow Madrid Manchester Munich Paris Bombay Delhi Jeddah Nairobi Total scheduled Total fleet
Source: Company data, RBS forecasts
Region AUS/NZ AUS/NZ AUS/NZ E EUR N AFR N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA NA NA NA S AFR SE ASIA SE ASIA W AFR W EUR W EUR W EUR W EUR W EUR W EUR W EUR S ASIA S ASIA ME E AFR
Aircraft 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 38H 38H 38H 38H
Weekly frequency 7 7 7 21 14 14 7 14 7 7 14 7 7 7 14 21 14 7 14 14 21 35 7 14 14 14 35 35 14 7
Rotation time 01 10 00 01 11 50 01 20 15 00 13 20 00 08 40 00 17 15 01 01 35 00 18 55 01 01 35 01 01 25 01 01 30 01 00 55 01 09 40 01 11 15 01 04 05 00 18 50 00 14 50 00 22 15 00 18 40 00 15 10 00 16 05 00 16 20 00 16 40 00 16 20 00 15 05 00 15 55 00 07 20 00 08 10 00 07 55 00 14 10
Including DXB ground time 01 14 00 01 15 50 02 00 15 00 17 20 00 12 40 00 21 15 01 05 35 00 22 55 01 05 35 01 05 25 01 05 30 01 04 55 01 13 40 01 15 15 01 08 05 00 22 50 00 18 50 01 02 15 00 22 40 00 19 10 00 20 05 00 20 20 00 20 40 00 20 20 00 19 05 00 19 55 00 11 20 00 12 10 00 11 55 00 18 10 54
Aircraft days used 1.58 1.66 2.01 2.17 1.06 1.77 1.23 1.91 1.23 1.23 2.46 1.20 1.57 1.64 2.67 2.85 1.57 1.09 1.89 1.60 2.51 4.24 0.86 1.69 1.59 1.66 2.36 2.53 0.99 0.76
60
23
Key network developments from 2010 to 2015

The new routes, frequency upgrades and aircraft size upgrades are summarised in the following table. Table 9 : 2015 network developments over 2010
New routes W EUR Barcelona, Edinburgh, Geneva, Berlin Frequency increase Athens, Birmingham, Istanbul Aircraft size increase Paris CDG, Dusseldorf, Rome, Frankfurt, Gatwick, Heathrow, Madrid, Manchester, Munich, Milan, Nice, Newcastle, Venice, Zurich Unchanged Amsterdam, Glasgow, Larnaca/Malta, Vienna
S ASIA
Goa, Katmandu, Colombo and Male delinked
Ahmedabad, Bangalore, Mumbai, Hyderabad, Karachi Kozhikode, Kolkata, Cochin, Dhaka, Delhi, Islamabad, Lahore, Madras, Peshawar, Thiruvananthapuram Amman, Bahrain, Beirut, Damman, Damascus, Tehran, Jeddah, Muscat, Medina, Riyadh, Sanaa Brisbane Hong Kong, Guangzhou, Beijing Mauritius Toronto Cape Town Luanda Cairo Kuwait
ME
Baghdad
SE ASIA AUS/NZ N ASIA E AFR NA S AFR N AFR W AFR E EURO LATAM
Denpassar, Ho Chi Minh Wellington Sapporo, Chengdu, Tokyo Haneda, Nagoya, Taipei Addis Ababa and Entebbe delinked Boston, Chicago
Bangkok, Singapore Sydney, Melbourne, Perth Osaka, Tokyo Narita, Shanghai Dar es Salaam, Khartoum Houston, JFK, Los Angeles Durban, Johannesburg Casablanca, Tripoli, Tunis Lagos Prague
Jakarta, Kual Lumpur, Manila Seoul
Abidjan and Accra delinked Almaty, Baku, St Petersburg Mexico City
Dakar Moscow
Sao Paulo
New destinations for 2015

Our network model assumes 21 new destinations over the five-year period to 2015, with five in North Asia, four in Europe, three in Eastern Europe, two each in South Asia, South East Asia and North America, and single destinations in South Asia, Australasia and Latin America. Without looking to justify each route development, we offer a brief comment on each of the new destinations we have used in our hypothetical network: Barcelona: is relatively underserved by network carriers and the local government has stated that expanding long-haul operations is a strategic goal. Qatar currently services Barcelona from Doha. Edinburgh: Emirates currently serves Glasgow, which has a stronger South Asian community than Edinburgh, but Edinburgh is wealthier. We would expect Emirates to increase capacity to Scotland by adding Edinburgh rather than expanding Glasgow. Geneva: Emirates has already announced plans to open Geneva in 2011. As home to several multinational organisations and a financial services hub, it should generate decent inbound flows from the Mid East. Berlin: Emirates has been campaigning with the German government for several years to get traffic rights to Berlin. Goa: is currently served by Qatar from Doha and Air Arabia from Sharjah. Katmandu: is currently served by both Qatar and Etihad, but not Emirates. There is no European flag carrier service into Kathmandu. Baghdad: If the geopolitical situation improves, then Iraq could offer several potential destinations. Emirates has recently announced low-frequency service to Basra for 2011, which is not factored into our network plan. Denpassar: We think leisure traffic flows from Europe and the Mid East should sustain a route to Bali. Ho Chi Minh: We think leisure traffic flows from Europe and the Mid East and business traffic from this fast-growing economy should sustain a route to the commercial capital of Vietnam.
24
Wellington: We think Emirates might be interested in diversifying its New Zealand network with a third destination tagged from Australia. Sapporo and Nagoya: We model two new Japanese cities joining the network. Tokyo Haneda: Now that this airport closer to downtown Tokyo is open to international traffic, we anticipate that growth capacity to Tokyo would be deployed here, rather than at Narita. Slots are tough to obtain, but patience and cheque books seem a remarkably successful combination to build slot portfolios around the world. Taipei: Currently cargo services are the main links to the Mid East from Taipei. Boston and Chicago: both have significant populations of South Asian origin. Almaty and Baku: could generate business traffic associated with resources traffic. Mexico City: This would seem to be the second obvious destination in Latin America.
The hypothetical 2020 schedule

Our hypothetical 2015 schedule is also fully illustrated in the appendix. Figure 3 : New route additions in our hypothetical 2020 network
Stockholm Dublin Stansted Brussels Warsaw Kiev Budapest Urumqi Amritsar DUBAI Abuja Phuket Nanjing Xiamen Hanoi
Newark
Washington
Pune
Lusaka Rio de Janeiro Harare
Antananarivo Reunion
Cairns
Santiago
Buenos Aires
New Non-stop destination New destination served by tag flight
For 2020, our fleet plan assumes 70 A350s (63 scheduled, after taking into account maintenance needs), 67 B777s (60 operating) and 90 A380s (80 operating). In our modelling, we assume 10 A380s are configured in a high-density configuration service, predominantly India. The growth to 2020 is weighted towards South Asia and North America, followed by North Asia Europe and South East Asia.
25
Chart 7 : 2020 Schedule by region
S AFR NA 3% 5% E AFR 4%
W AFR E EURO LATAM N AFR 2% 3% 2% 2%
W EUR 19%
N ASIA 9% AUS/NZ 4% SE ASIA 6% ME 15% S ASIA 26%
What can you do with 90 A380s in 2020?

And so to the headline question of this note what could an airline do with 90 A380s? Our modelling of the A380 fleet allocation in 2020 is shown in the following table. Again, some airports listed may not have the capability to handle A380s (eg Lagos, Nairobi), but we do not consider it unreasonable that they might become ready by 2020. Further routes shown in the 2020 network model are beyond the operational commercial range of the early A380s (US West Coast, Latin America). This modelling assumes that improvements to later models will increase the range for these routes. For 2020, we have more aggressively deployed the A380s onto long-haul sectors to the US, as well as Latin America. They are more broadly deployed in China, to which we have also added a handful of new European, Australian and South East Asian routes. We have added a further Indian destination to the network for the high-density 380s and added some South East Asian routes to the high-density version.
26
Table 10 : What to do with 90 A380s?

Route Melbourne-Auckland Singapore-Melbourne Sydney Sydney-Auckland Moscow Mexico City Sao Paulo Riyadh Cairo Bangkok Hong Kong Beijing Guangzhou Tokyo Haneda Hong Kong Osaka Seoul Shanghai Tokyo Narita Chicago Houston Los Angeles New York JFK San Francisco Toronto Johannesburg Hyderabad Singapore Lagos Dusseldorf Frankfurt Gatwick Heathrow Istanbul Manchester Munich Paris Rome Zurich Nairobi Jeddah Bombay Delhi Bangkok Hong Kong Kuala Lumpur Total scheduled Total fleet
Region AUS/NZ AUS/NZ AUS/NZ AUS/NZ E EUR LATAM LATAM ME N AFR N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA NA NA NA NA NA NA S AFR S ASIA SE ASIA W AFR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR E AFR ME S ASIA S ASIA SE ASIA SE ASIA
Aircraft 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 380 38H 38H 38H 38H 38H 38H
Weekly frequency 7 7 14 7 14 7 7 14 14 7 28 14 7 14 7 7 14 7 7 7 14 21 7 7 21 14 7 14 14 14 21 35 14 14 14 14 14 7 7 14 35 35 14 7
Rotation time 01 19 00 01 19 15 01 11 50 01 20 15 00 13 20 01 05 00 01 11 00 00 05 10 00 08 40 01 01 15 01 00 10 00 17 15 01 01 35 00 18 55 01 01 35 01 01 25 01 01 30 01 00 55 01 08 40 01 09 40 01 11 15 01 04 05 01 10 25 01 08 40 00 18 50 00 08 45 00 22 15 00 18 40 00 15 15 00 15 10 00 16 05 00 16 20 00 10 25 00 16 20 00 15 05 00 15 55 00 13 50 00 14 15 00 14 10 00 07 55 00 07 20 00 08 10 00 14 50 00 17 05
Including DXB ground time 01 23 00 01 23 15 01 15 50 02 00 15 00 17 20 01 09 00 01 15 00 00 09 10 00 12 40 01 05 15 01 04 10 00 21 15 01 05 35 00 22 55 01 05 35 01 05 25 01 05 30 01 04 55 01 12 40 01 13 40 01 15 15 01 08 05 01 14 25 01 12 40 00 22 50 00 12 45 01 02 15 00 22 40 00 19 15 00 19 10 00 20 05 00 20 20 00 14 25 00 20 20 00 19 05 00 19 55 00 17 50 00 18 15 00 18 10 00 11 55 00 11 20 00 12 10 00 18 50 00 21 05
Aircraft days used 1.96 1.97 3.32 2.01 1.44 1.38 1.63 0.76 1.06 1.22 4.69 1.77 1.23 1.91 1.23 1.23 2.46 1.20 1.53 1.57 3.27 4.01 1.60 1.53 2.85 1.06 1.09 1.89 1.60 1.60 2.51 4.24 1.20 1.69 1.59 1.66 1.49 0.76 0.76 0.99 2.36 2.53 1.57 0.88 80 90
27
Key network developments from 2015 to 2020

The new routes, frequency upgrades and aircraft size upgrades are summarised in the following table. Table 11 : Network summary, 2015 to 2020
New routes W EUR Stockholm, Dublin, Brussels, Stansted Frequency increase Aircraft size increase Amsterdam, Dusseldorf, Rome, Zurich Unchanged Athens, Barcelona, Birmingham, Paris, Edinburgh, Frankfurt, Glasgow, Geneva, Hamburg, Istanbul, Larnaca/Malta, Gatwick, Heathrow, Madid, Manchester, Munich, Milan, Nice, Newcastle, Berlin, Venice, Vienna Ahmedabad, Bangalore, Mumbai, Dhaka, Goa, Hyderabad, Islamabad, Karachi, Katmandu, Madras, Lahore, Peshewar, Trivandurum Riyadh Bangkok, Kuala Lumpur, Singapore Melbourne Hong Kong, Beijing Guangzhou, Sapporo, Chengdu, Haneda, Seoul, Osaka, Nagoya, Narita, Shanghai, Taipei Addis Ababa, Dar es Salaam, Entebbe, Khartoum, Mauritius, Nairobi, Mahe New York, Los Angeles Chicago, San Francisco, Toronto Boston, Houston Cape Town, Durban. Luanda, Johannesburg Cairo, Tripoli, Tunis, Casablanca Abuja Kiev, Warsaw, Budapest Buenos Aires, Rio de Janeiro/Santiago Moscow, Prague, Ste Petersburg, Baku, Almaty Mexico City, Sao Paulo Abidjan, Accra, Dakar,Lagos Amman, Bahrain, Beirut, Damascus, Damman, Tehran, Jeddah, Kuwait, Muscat, Medina, Sanaa Denpassar, Jakarta. Manila, Ho Chi Minh Sydney, Brisbane, Perth
S ASIA
Amritsar, Pune
Cochin, Colombo, Calcutta, Kozhikode. Male Baghdad
ME SE ASIA AUS/NZ N ASIA Hanoi, Phuket Cairns Nanjing, Urumqi, Xiamen Reunion, Antananarivo Newark, Washington Harare/Lusaka
E AFR NA S AFR N AFR W AFR E EURO LATAM
New destinations for 2020

Our network model assumes 25 new destinations over 2016-20, with four in Europe, three in North Asia, Eastern Europe and Latin America, two each in East Africa, South Asia, South East Asia, Southern Africa and North America, and single destinations in Australasia and East Africa. Without looking to justify each route development, we offer a brief comment on each of the new destinations we have used in our hypothetical network: Stockholm: Emirates currently does not serve Scandinavia and this is the first market we model it entering. Norwegian and SAS both serve Dubai, and Qatar serves Doha from Stockholm. Dublin: Aer Lingus served Dubai previously, but has since withdrawn. Etihad currently serves Abu Dhabi, but Dublin is poorly served by long-haul with the exception of the North Atlantic. Brussels: currently served by Etihad, but not Emirates. Stansted: the South Asian community is widely spread across the UK. A third departure point in the London catchment area would not seem unreasonable in this timeframe. Amritsar: currently served by Qatar but not Etihad or Emirates. Pune: Air India serves Dubai but no Gulf carriers operate. Hanoi: Emirates has no destinations in Indo-China at the moment, but we model the addition of Ho Chi Minh by 2015 and Hanoi by 2020. Given the strong economic growth of Vietnam and growing tourist inflows, these assumptions may be conservative. Phuket: This is primarily an inbound leisure destination. Dubai looks well placed to funnel traffic from the Mid East and Europe. Phuket is currently served by Qatar Airways from Doha. Cairns: This is principally an inbound tourist market; currently tourist inflows are weighted towards the Japanese market, but by 2020 it would not seem unreasonable to think the market could sustain service from Dubai, with European and Middle Eastern tourist flows.
28
Nanjing: Nanjing is not served by any Gulf carrier, but does have non-stop service to Frankfurt with Lufthansa. Nanjing has an urban population of over 5m and is the second-largest commercial center in the East China region, after Shanghai. Urumqi: Urumqi has an urban population of over 2.5m and is the largest city in China's western interior. Since the 1990s, the city has developed economically and now serves as a regional transport node and commercial centre. Xiamen: Xiamen is not served by any Gulf carrier, but KLM is launching non-stop service to Amsterdam. Xiamen has a population of 3.6m. Reunion: The Gulf looks well located as a hub for traffic from West Europe, East Europe and the Mid East to the islands of the Indian Ocean. At present, tourism to Reunion is very heavily concentrated from France. Should the island diversify its tourism base, looking towards Russia, for example, we believe Dubai would be the ideal transit point. Antananarivo: The capital of Madagascar is poorly served today, with international links principally through Kenya and Paris. Tourism and potential resources could see increasing travel demand. Newark: This could offer an alternative service into the New York catchment area. Washington: It does not seem impossible to us that the US FlyAmerica legislation, which restricts US government travel to US airlines, might be repealed by 2020. There is a strong South Asian community in the Washington area as well. Harare/Lusaka: We think service from Dubai to Zimbabwe and Zambia might serve resources and tourist interest from the Mid East, eastern Europe and China. Abuja: We see potential for an additional Nigerian destination in addition to Lagos, given resources links and the high population of Nigeria. Kiev, Warsaw, Budapest: We see potential for further growth by Emirates into Eastern Europe markets, and by 2020 we imagine the economic environments should be strong enough to support incremental services. Dubai should serve as an attractive hub from these destinations to points in East and South Africa, South Asia, South East Asia, Australia and the Indian Ocean. Routings via Western European hubs would involve significantly more circuitous routes.
There is no shortage of additional potential routes

Some of our hypothetical routes will face operational, regulatory or economic challenges But we see a range of potential alternatives
It is clearly plausible that some of the routes we have suggested in our draft network will be unsuitable, due to adverse economic developments, competitor activity or regulatory limitations. We can, however, think of a wide range of alternative routes that might be served by Emirates and would benefit from the connecting opportunities in Dubai. We would suggest that it is even easier to have confidence in the companies ability to deploy its draft 2020 fleet, if we can find a range of alternative destinations to those proposed here. In Canada, we can imagine more than one daily flight to Toronto being supported by the Dubai hub. In the US, the oil industry might support further capacity to Texas, with Dallas a possible destination. The strong economy of the Southeast and considerable South Asian population might make Atlanta a possibility. Miami could also be a possible destination. Latin America might support more service than the four daily flights we have modelled by 2020. Service might initially be developed with an intermediate stop in Africa or Europe.
There are several alternative North American destinations
More African growth could be plausible
In sub-Saharan Africa, our model does add incremental destinations, but if Africas political and commercial environment strengthens and links with the resources hungry economies of China and India develop, then we see considerable potential for further growth destinations in countries such as Malawi, Mozambique, Botswana, Namibia and the Congo. In North Africa, we do not model any new destinations, but we can easily imagine service to Algiers and to secondary points in Egypt. In Western Europe, a single destination in Scandinavia by 2020 looks conservative. We could imagine additional service to provincial UK (eg Bristol, Leeds), France (eg Lyon, Bordeaux, Toulouse) or Spain (eg Malaga, Valencia). In Eastern Europe, we could imagine service being launched into the Balkans (Zagreb or Belgrade), possibly tagged with secondary points in Greece (Thessaloniki) or Turkey (Ankara). We could foresee more service into Russia above and beyond our assumed Moscow and St Petersburg routes (eg Novosibirsk, Yekaterinburg, Nizhny Novgorod).
No shortage of alternative West and East Europe points
29
Favourable geopolitical outcomes could open up more points
In the Mid East, we could see further route development into Iran or Iraq, should political conditions normalise. Similarly, under benign geopolitical conditions, there could be potential for greater capacity to Pakistan and new services to Afghanistan. In both India and China, by 2020 we can imagine further provincial cities than those identified here being able to support service. Again, depending on political developments, Burma, Laos and Cambodia could all be potential destinations. In Australia, we could imagine service to Adelaide.
30
Origin and destination traffic analysis

In this section of the report, we take our hypothetical networks in 2015 and 2020, and estimate how the traffic might divide between point-to-point and intra-regional connections. We can thus derive intra-regional traffic forecasts.
Key conclusions of intra-regional traffic analysis

It is important to appreciate how regional capacity divides between point-to-point and connecting flows. We estimate that in 2010, the point-to-point share of traffic varied from quite low levels (2030%) on ultra-long sectors to 50-60% on sectors to South Asia, where immigrant worker flows are high and around 50% on European sectors, where inbound tourism is well developed.
Dubai is a hub estimating flows is important

Emirates flies plenty of routes that appear unlikely at first glance
To understand the viability of the capacity buildout by Emirates, it is critical to understand how the traffic flows through the system. If we look at the Emirates network today, many routes appear particularly strange at first glance: it is hard to understand how there is sufficient traffic to support a daily wide-bodied flight from, say, Newcastle to Dubai, or Venice, Hamburg, Nice or Casablanca. It is equally hard to see why Emirates chose to deploy an early A380 onto one of its double daily Manchester services. Underpinning each of these operations is cumulated traffic demand from the point-to-point Dubai market, connections to the Mid East, South Asia, South East Asia and Australia, as well as some circuitous, and hence price-sensitive travel to Africa and North Asia. As we look to understand the dynamics of the growth plans for Emirates, we think it is particularly important to understand the intra-regional flows. We are comfortable with the robust growth forecasts from Boeing and Airbus for traffic flows to and from Middle Eastern points and Dubai in particular. However, the key to understanding the growth opportunity comes from appreciating how the intra-regional traffic flows in the Emirates network might develop. There are several intraregional flows that we think will become increasingly important to the traffic system: South Asia to Europe, South Asia to North America and China to Africa. The table below illustrates the connecting flows on Emirates services from the UK according to UK CAA survey data.
Flow traffic is critical
Table 12 : Origin and Destination Flows

Heathrow Dubai Perth Islamabad Johannesburg Cape Town Melbourne Singapore Bangkok Bombay Brisbane Cochin Number of connecting points
Source: UK CAA Survey data
Gatwick 34.8% Dubai 4.4% Johannesburg 3.5% Perth 3.5% Bangkok 3.3% Cape Town 3.3% Sydney 2.7% Melbourne 2.5% Brisbane 2.5% Cochin 2.1% Singapore 2.1% Auckland 70 24.7% 6.7% 6.7% 6.0% 3.8% 3.2% 3.0% 2.9% 2.6% 2.5% 2.4% 102
Manchester Dubai Perth Bangkok Sydney Melbourne Brisbane Auckland Cape Town Singapore Bombay Delhi 19.9% 8.5% 7.4% 6.5% 5.4% 5.3% 4.4% 3.0% 2.6% 2.1% 2.1% 88
Birmingham Dubai Perth Bangkok Melbourne Sydney Bombay Brisbane Auckland Christchurch Johannesburg Colombo 27.0% 13.1% 7.9% 5.4% 5.0% 3.7% 3.0% 2.5% 2.5% 2.5% 2.0% 22
Glasgow Dubai Perth Melbourne Bangkok Sydney Brisbane Auckland Johannesburg Christchurch KUL Cochin 19.7% 11.0% 9.1% 7.1% 6.1% 5.4% 3.9% 3.7% 2.1% 2.1% 2.0% 85
31
Estimated traffic allocation

The following tables show our estimates of traffic allocation on sectors aggregated, for simplicity, by region. We show different estimates for 2010, 2015 and 2020. In each row, we show the daily seats offered each way, taken from the September 2010 schedule and our estimated schedules for 2015 and 2020. Since the focus of this analysis is understanding the development of the Dubai hub, we ignore the impact of fifth freedom operations. In allocating the capacity of a multi-sector service touching two regions (eg Dubai-Bangkok-Sydney), we allocate 30% of the capacity to the intermediate region (SE Asia in this case) and 70% to the end point (Australia/New Zealand). To understand the table, in each row, we show the seats offered in each direction between the region and Dubai (eg 12,513 seats per day to/from Western Europe in 2010). We then show in the third column the percentage of traffic that we estimate will be point-to-point passengers, travelling to Dubai as their final destination (eg 51% from Western Europe in 2010). In the subsequent columns, we show how we expect the traffic to spread across region-to-region connections. As different regions have different scale operations, the tables are not symmetrical. We estimate, for example, that 0.75% of the traffic on services from Western Europe connect to East Africa. However, since East Africa has around one-sixth of the capacity there is to Western Europe, we estimate Western European connections account for 4.4% of the capacity on East African routes. We also model a small share of connections from within the Mid East connecting to other Mid East destinations, but we do not model this being the case for other regions. We think it unlikely, for example, that passengers will connect from one East African point to another in Dubai. Table 13 : 2010 estimated origin and destination
Region W EUR S ASIA ME SE ASIA AUS/NZ N ASIA E AFR NA S AFR N AFR W AFR E EURO LATAM
Source: RBS estimates
Daily seats each way 12,513 11,189 7,953 3,710 3,044 3,399 2,114 1,960 1,739 1,295 1,061 849 350
Pt Pt DXB 51% 57% 46% 40% 24% 54% 50% 20% 40% 45% 52% 62% 25%
W EUR 0 25% 4% 24% 45% 11% 4% 0% 14% 0% 0% 0% 0%
S ASIA 22% 0% 4% 0% 0% 0% 5% 49% 16% 13% 11% 11% 24%
ME 3% 3% 11% 16% 18% 16% 11% 20% 11% 9% 7% 9% 34%
SE ASIA 7% 0% 6% 0% 0% 0% 9% 9% 6% 11% 7% 4% 6%
AUS/ NZ 11% 0% 7% 0% 0% 0% 7% 0% 0% 7% 9% 5% 0%
N ASIA 3% 0% 7% 0% 0% 0% 10% 0% 8% 11% 13% 0% 8%
E AFR 1% 1% 3% 5% 5% 6% 0% 1% 0% 1% 1% 1% 3%
E NA S AFR N AFR W AFR EURO LATAM 0% 9% 5% 5% 0% 0% 1% 0% 0% 2% 0% 0% 0% 2% 3% 3% 3% 0% 4% 0% 0% 0% 1% 0% 7% 0% 0% 2% 2% 4% 3% 4% 1% 1% 1% 0% 0% 0% 0% 0% 1% 1% 2% 3% 4% 1% 0% 0% 0% 0% 1% 0% 0% 1% 1% 1% 2% 0% 0% 0% 3% 0% 1% 0% 0% 0% 1% 2% 1% 0% 1% 1% 0% 0% 0% 0% 0% 0%
Table 14 : 2015 estimated origin and destination

Daily seats each way 17,620 22,560 15,140 4,290 3,455 7,945 3,720 3,360 2,870 1,910 1,910 2,830 700
Pt Pt DXB 51% 57% 49% 38% 22% 58% 46% 19% 34% 35% 42% 49% 17%
W EUR 0 21% 3% 23% 48% 4% 3% 0% 11% 0% 0% 0% 0%
S ASIA 27% 0% 4% 0% 0% 0% 9% 60% 20% 18% 18% 24% 24%
ME 3% 3% 11% 20% 18% 15% 14% 14% 13% 12% 8% 16% 43%
SE ASIA 6% 0% 5% 0% 0% 0% 6% 6% 4% 8% 4% 2% 3%
AUS/ NZ 10% 0% 4% 0% 0% 0% 5% 0% 0% 5% 5% 2% 0%
N ASIA 2% 0% 8% 0% 0% 0% 14% 0% 14% 19% 21% 3% 9%
E AFR 1% 2% 4% 5% 5% 7% 0% 1% 0% 2% 1% 1% 3%
32
Table 15 : 2020 estimated origin and destination

Daily seats each way 19,200 25,640 15,690 5,758 4,439 9,653 3,834 5,460 3,100 1,910 2,220 3,460 1,600
Pt Pt DXB 51% 51% 46% 45% 31% 59% 42% 18% 33% 32% 42% 54% 31%
W EUR 0 20% 3% 18% 41% 4% 3% 0% 11% 0% 0% 0% 0%
S ASIA 27% 0% 5% 0% 0% 0% 11% 66% 19% 16% 16% 20% 32%
ME 3% 3% 11% 16% 16% 15% 12% 9% 13% 12% 7% 14% 27%
SE ASIA 6% 0% 5% 0% 0% 0% 7% 6% 6% 8% 5% 3% 3%
AUS/ NZ 10% 0% 5% 0% 0% 0% 6% 0% 0% 6% 6% 2% 0%
N ASIA 2% 0% 9% 0% 0% 0% 15% 0% 16% 22% 22% 3% 5%
E AFR 1% 2% 3% 5% 5% 6% 0% 0% 0% 1% 1% 0% 2%
Origin and destination traffic estimates

It is now a simple step to take our estimated intra-regional splits, apply these to the scheduled capacity from our model to derive intra-regional capacity. If we then assume a 78% load factor, consistent with recent Emirates performance, we derive intra-regional traffic estimates. These traffic estimates, shown on the basis of passengers per day each way, are shown in the following tables. The total number of passengers per day shown in the bottom right does not represent the straightforward sum of the regional totals above, since passengers travelling between, say Western Europe and South Asia are double counted, in the West Europe connecting to South Asia figure and the South Asia connecting to West Europe figure. Table 16 : 2010 intra-regional traffic estimates
Pax per day each way W EUR S ASIA ME SE ASIA AUS/NZ N ASIA E AFR NA S AFR N AFR W AFR E EURO LATAM Total
DXB W EUR S ASIA 5,021 4,961 2,827 1,162 570 1,426 826 300 545 456 427 408 69 2,147 273 683 1,074 293 73 195 2,147 218 87 742 218 131 87 70 65
ME SE ASIA AUS/NZ N ASIA 273 218 682 454 434 434 186 310 155 93 62 62 93 683 372 145 145 87 116 58 29 16 1,074 434 119 71 71 36 293 434 159 106 106 106 21
E AFR 73 87 186 145 119 159 16 15 8 7 8
NA 742 310 145 16 15 -
S AFR 195 218 155 87 106 7 43 -
N AFR W AFR E EURO LATAM TOTAL 131 93 116 71 106 15 15 7 87 62 58 71 106 8 8 70 62 29 36 7 43 8 65 93 16 21 8 9,760 8,727 6,203 2,894 2,374 2,651 1,649 1,529 1,356 1,010 828 662 273 29,798
33
Table 17 : 2015 intra-regional traffic forecasts

DXB W EUR 6,982 9,971 5,788 1,260 580 3,565 1,345 498 770 519 621 1,074 95 3,711 385 756 1,306 275 89 241 -
S ASIA 3,711 440 264 1,584 440 264 264 528 132
ME SE ASIA AUS/NZ N ASIA 385 440 1,299 660 472 945 413 354 295 177 118 354 236 756 531 167 151 100 117 67 50 18 1,306 472 135 81 81 40 275 945 403 310 279 310 62 50
E AFR 89 264 413 167 135 403 19 26 15 12 15
NA 1,584 354 151 19 16 -
S AFR 241 440 295 100 310 11 72 -
N AFR W AFR E EURO LATAM TOTAL 264 177 117 81 279 26 16 11 264 118 67 81 310 15 15 528 354 50 40 62 12 72 15 132 236 18 50 15 13,744 17,597 11,809 3,346 2,695 6,197 2,902 2,621 2,239 1,490 1,490 2,207 546 51,624
Table 18 : 2020 intra-regional traffic forecasts

DXB W EUR 7,608 10,296 5,632 2,015 1,067 4,464 1,267 784 799 475 727 1,458 381 4,044 419 824 1,423 300 97 262 -
S ASIA 4,044 600 340 2,800 450 240 280 550 400
ME SE ASIA AUS/NZ N ASIA 419 600 1,346 714 551 1,101 367 367 306 171 122 367 337 824 551 202 269 135 121 90 90 31 1,423 551 173 93 104 52 300 1,101 452 376 324 376 75 60
E AFR 97 340 367 202 173 452 21 21 15 12 24
NA 2,800 367 269 21 17 -
S AFR 262 450 306 135 376 12 77 -
N AFR W AFR E EURO LATAM TOTAL 240 171 121 93 324 21 17 12 15 280 122 90 104 376 15 17 550 367 90 52 75 12 77 17 400 337 31 60 24 15 14,976 19,999 12,238 4,491 3,462 7,529 2,991 4,259 2,418 1,490 1,732 2,699 1,248 58,925
34
Implied growth rates analysis

This section of the report takes our hypothetical intra-regional traffic flows and compares the implied growth rates with Airbuss and Boeings regional growth estimates.
Key conclusions of the implied growth rates analysis

Our hypothetical network produces a passenger CAGR from 2010 to 2020 of 7.1%. The point-to-point markets with the highest-growth CAGRs are from Dubai to Latin America, Eastern Europe, North America and North Asia. The growth rates forecast for connecting markets vary widely. We forecast very low growth rates in markets that will be increasingly overflown by new nonstop services (eg Europe-North Asia) and in relatively mature markets (eg Western EuropeAustralia). We forecast notably high CAGRs in markets linking two developing markets, such as between South Asia and Eastern Europe and between South Asia and Latin America. When we compare the implicit intra-regional CAGRs produced by our network model for Emirates with those forecast by Boeing and Airbus, the Emirates growth rates are broadly in line with or slightly lower than the manufacturer forecasts in most cases. Two point-to-point markets are exceptions. Our network model implies that Emirates point-topoint traffic between Dubai and North Asia will grow more quickly than the overall North AsiaMid East market and that Emirates point-to-point traffic between Dubai and Eastern Europe will grow more quickly than the overall Eastern Europe-Mid East market. We think none of these are implausible. There are three connecting markets in which our network model implies Emirates will gain share. These are between South Asia and North America, between South Asia and the Middle East and between South Asia and Eastern Europe. We think none of these are implausible.
Implied growth rates

We model wide variations in CAGRs across different traffic flows
Taking the traffic estimates illustrated in the previous section of this report, we can calculate the hypothetical traffic CAGRs from our network model by regional traffic flow. These CAGRs vary from as low as 0.2% to as high as 22.9%. The low CAGRs include regional flows that are circuitous via Dubai (eg 0.2% on Western EuropeNorth Asia). We would not expect these flows to grow materially for Emirates, as Gulf routings will likely lose market share to new direct routings. We similarly have low CAGRs on some quite well established markets, which are widely contested (2.9% on Europe-Australia) or markets that would lose share to new non-stop services (1.9% CAGR on Europe-Southeast Asia). We see some very high CAGRs in regional flows between developing markets, such as between South Asia and Latin America (19.8%) and between South Asia and Eastern Europe (22.9%).
35
Table 19 : Implied pax CAGRs, 2010-20

Pax CAGR W EUR S ASIA ME SE ASIA AUS/NZ N ASIA E AFR NA S AFR N AFR W AFR E EURO LATAM DXB 4.2% 7.6% 7.1% 5.7% 6.5% 12.1% 4.4% 10.1% 3.9% 0.4% 5.5% 13.6% 18.6% W EUR NA 6.5% 4.4% 1.9% 2.9% 0.2% 2.9% NA 3.0% NA NA NA NA S ASIA 6.5% 10.6% NA NA NA 14.6% 14.2% 7.5% 6.2% 12.4% ME SE ASIA AUS/NZ 4.4% 7.0% 4.6% 2.4% 9.8% 7.0% 1.7% 7.0% 6.3% 7.0% 1.9% NA 4.0% NA NA NA 3.4% 6.4% 4.5% 0.5% 4.5% 12.0% 7.0% 2.9% NA 2.4% NA NA NA 3.8% NA NA 2.8% 3.8% 3.8% NA N ASIA 0.2% NA 9.8% NA NA NA 11.0% NA 13.5% 11.8% 13.5% NA 11.0% E AFR 2.9% 7.0% 3.4% 3.8% 11.0% NA 2.4% NA 3.5% 6.1% 6.1% 11.2% NA NA 1.7% 6.4% NA NA 2.4% NA NA 1.1% NA NA NA S AFR 3.0% 7.5% 7.0% 4.5% NA 13.5% NA NA NA 6.0% NA 6.0% NA N AFR W AFR E EURO LATAM TOTAL NA 6.2% 6.3% 0.5% 2.8% 11.8% 3.5% 1.1% 6.0% NA NA NA NA NA 12.4% 7.0% 4.5% 3.8% 13.5% 6.1% NA NA NA NA 7.7% NA NA 22.9% 19.5% 12.0% 3.8% NA 6.1% NA 6.0% NA 7.7% NA NA NA 19.8% 13.7% 7.0% NA 11.0% 11.2% NA NA NA NA NA NA 4.4% 8.6% 7.0% 4.5% 3.8% 11.0% 6.1% 10.8% 6.0% 4.0% 7.7% 15.1% 16.4% 7.1%
NA 10.6%
14.6% 14.2%
22.9% 19.5% 19.8% 13.7%
The very high CAGRs are generally based on very low 2010 estimated traffic flows. It is thus perhaps more useful to look at the absolute increase in passengers implied by our network model, illustrated in the following table. Table 20 : Implied absolute traffic growth in passengers per day each way, 2010-20
Absolute PDEW growth W EUR S ASIA ME SE ASIA AUS/NZ N ASIA E AFR NA S AFR N AFR W AFR E EURO LATAM
DXB 2,586 5,335 2,805 852 497 3,039 441 484 255 19 300 1,050 312
W EUR 1,896 146 140 349 7 24 67 -
S ASIA 1,896 382 253 2,058 232 109 193 480 335
ME SE ASIA AUS/NZ 146 382 664 261 116 667 181 57 151 78 60 305 244 140 179 57 125 48 6 32 61 16 349 116 54 22 33 16 -
N ASIA 7 667 293 270 218 270 75 39
E AFR 24 253 181 57 54 293 4 6 7 5 16
NA 2,058 57 125 4 2 -
S AFR 67 232 151 48 270 5 34 -
N AFR W AFR E EURO LATAM TOTAL 109 78 6 22 218 6 2 5 15 193 60 32 33 270 7 9 480 305 61 16 75 5 34 9 335 244 16 39 16 15 5,216 11,272 6,035 1,597 1,088 4,878 1,342 2,730 1,062 480 904 2,037 975
The following table takes the absolute increases in passengers per day by region and looks at these flows as a percentage of the total traffic growth in the system. Apart from point-to-point growth to Dubai, the table clearly shows that the key regional flows supporting the capacity growth are from South Asia to Europe, from South Asia to North America (7% of total growth each) and from North Asia to Africa (4% of the total traffic growth). Table 21 : Distribution of traffic growth by region, 2010-20
Distribution of pax growth W EUR S ASIA ME SE ASIA AUS/NZ N ASIA E AFR NA S AFR N AFR W AFR E EURO LATAM
DXB W EUR S ASIA 9% 18% 10% 3% 2% 10% 2% 2% 1% 0% 1% 4% 1% 0% 7% 1% 0% 1% 0% 0% 0% 0% 0% 0% 0% 0% 7% 0% 1% 0% 0% 0% 1% 7% 1% 0% 1% 2% 1%
ME 1% 1% 2% 1% 0% 2% 1% 0% 1% 0% 0% 1% 1%
SE ASIA AUS/NZ N ASIA 0% 0% 1% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 1% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 2% 0% 0% 0% 1% 0% 1% 1% 1% 0% 0%
E AFR 0% 1% 1% 0% 0% 1% 0% 0% 0% 0% 0% 0% 0%
NA 0% 7% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
S AFR 0% 1% 1% 0% 0% 1% 0% 0% 0% 0% 0% 0% 0%
N AFR W AFR E EURO LATAM TOTAL 0% 0% 0% 0% 0% 1% 0% 0% 0% 0% 0% 0% 0% 0% 1% 0% 0% 0% 1% 0% 0% 0% 0% 0% 0% 0% 0% 2% 1% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 1% 1% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 18% 39% 21% 5% 4% 17% 5% 9% 4% 2% 3% 7% 3%
36
Regional growth estimates in context

We compare our modelled regional growth rates with the forecasts from Airbus and Boeing
To sanity check these hypothetical growth rates, we have compared our estimated intra-regional growth rates with the intra-regional growth forecasts published by Airbus and Boeing into their main forecast documents (Global Market Forecast for Airbus, Current Market Outlook for Boeing). In looking at the regional growth rates published by Airbus and Boeing, we treat our point-to-point traffic flows to Dubai and traffic flows connecting to the Mid East as Middle east as defined in their forecasts. On some smaller markets, Airbus and Boeing do not publish specific intra-regional forecasts, but we have interpolated their forecasts from the regions to derive an estimate for the traffic area. The first table that follows illustrates the largest 18 intra-regional traffic flows in our 2020 model (accounting for 81% of total traffic) and compares the implied growth CAGRs in our model with the Airbus and Boeing estimates. The second table that follows illustrates the same for the highestgrowth markets in our model in terms of absolute passengers per day.
Growth rates broadly in line with manufacturer estimates

Looking across the two tables, we can see that in the majority of markets, the intra-regional growth rates from our hypothetical network are very closely aligned with the Boeing and Airbus market growth forecasts, sometimes even below the manufacturer estimates. There are five notable exceptions: North Asia point-to-point traffic to Dubai South Asia to North America Eastern Europe point-to-point traffic to Dubai South Asia to Middle East South Asia to Eastern Europe Table 22 : Implied growth estimates in major markets compared with Airbus and Boeing growth estimates
2020 largest PDEW markets S ASIA W EUR ME N ASIA W EUR S ASIA SE ASIA E EURO W EUR ME E AFR ME AUS/NZ W EUR S ASIA ME ME S ASIA
Source: Source: RBS forecasts, Airbus, Boeing
2020 passengers per day each way DXB DXB DXB DXB S ASIA NA DXB DXB AUS/NZ ME DXB N ASIA DXB SE ASIA ME SE ASIA AUS/NZ E EUR 10,296 7,608 5,632 4,464 4,044 2,800 2,015 1,458 1,423 1,346 1,267 1,101 1,067 824 600 551 551 550
2010-20 growth CAGR 7.6% 4.2% 7.1% 12.1% 6.5% 14.2% 5.7% 13.6% 2.9% 7.0% 4.4% 9.8% 6.5% 1.9% 10.6% 4.0% 2.4% 22.9%
Boeing CMO growth 7.3% 6.0% 7.6% 6.0% 7.1% 7.4% 7.4% 4.7% 6.0% 6.0% 6.5% 7.6% 6.0% 5.5% 7.3% 7.4% 6.0% 4.7%
Airbus GMF growth 6.3% 5.8% 7.4% 7.4% 5.8% 8.0% 4.4% 5.2% 3.5% 6.0% 7.5% 7.4% 7.3% 4.4% 6.3% 4.4% 7.3% 6.0%
37
Table 23 : Implied growth estimates in major growth markets compared with Airbus and Boeing growth estimates
Largest PDEW growth markets, 2010-20 S ASIA N ASIA W EUR ME S ASIA W EUR S ASIA E EURO SE ASIA ME ME AUS/NZ S ASIA W AFR E AFR W EUR S ASIA LATAM ME
* PDEW = passengers per day each way Source: RBS forecasts, Airbus, Boeing
PDEW* 2020 DXB DXB DXB DXB NA S ASIA ME DXB DXB N ASIA ME DXB E EUR DXB DXB AUS/NZ LATAM DXB E EUR 5,335 3,039 2,586 2,805 2,058 1,896 382 1,050 852 667 664 497 480 300 441 349 335 312 305
Passenger growth 7.6% 12.1% 4.2% 7.1% 14.2% 6.5% 10.6% 13.6% 5.7% 9.8% 7.0% 6.5% 22.9% 5.5% 4.4% 2.9% 19.8% 18.6% 19.5%
Boeing CMO growth 7.3% 7.6% 6.0% 6.0% 7.4% 7.1% 7.3% 4.7% 7.4% 7.6% 6.0% 6.0% 4.7% 6.5% 6.5% 6.0% 7.2% 7.0% 6.0%
Airbus GMF growth 6.3% 7.4% 5.8% 6.0% 8.0% 5.8% 6.3% 5.2% 4.4% 7.4% 6.0% 7.3% 6.0% 7.5% 7.5% 3.5% 9.0% 15.2% 5.2%
In the context of the point-to-point markets, our hypothetical network model implies that Emirates traffic to and from Dubai from North Asia (principally China) and East Europe (principally Russia) is going to grow more quickly than traffic from China and Russia to the overall Mid East. This is not a given, but we do not think it is implausible. In the context of the connecting markets, our hypothetical network model implies that Emirates can gain market share traffic to and from South Asia (principally India) to North America (US and Canada), from South Asia to the Middle East and from India to Eastern Europe (principally Russia). Once again, we would not want to take any of this for granted, but we do not think market share gain in these markets is implausible. We would recognise that traffic between India and the Middle East will face low-cost-carrier competition. We explore the development of Emirates regional market shares from 2010 to 2020 in the following section of this report.
38
Implied market share analysis

This section of the report takes our hypothetical intra-regional traffic flows and estimates Emirates regional market shares in 2010 and then using the manufacturer forecasts for regional growth, estimates Emirates market shares in 2020.
Key conclusions of the implied growth rates analysis

Our analysis suggests Emirates, if it were to execute our hypothetical network plan, would be likely to maintain relatively stable markets shares in many intra-regional markets. Our network model implies Emirates gaining market share in North Asia-Africa. We think this is very plausible given the optimal location of Dubai to function as a hub in this market. Our network model implies Emirates gaining market share in the South Asia-North America market. We think this is plausible given the broad range of destinations in India, the low operating costs of the A380s, the challenges facing Indian carriers and the tax challenges facing European carriers. Our network model implies Emirates gaining market share in the North Asia-Middle East market. We think this is reasonably given the strength of the Dubai hub, which will support direct service to more Chinese provincial destinations than other Mid East hubs.
Implied growth rates

Working off the traffic estimates produced from our hypothetical network, we have grossed up the passengers per day each way traffic data to annualised passenger traffic. We have then taken an average sector length for each regional market to produce a regional RPK figure for Emirates. We then estimate total market RPKs in each regional market, using the actual 2009 regional RPKs, sourced from the manufacturer market outlooks, grossed up to 2010 and 2020 using the average of Airbus and Boeing CAGRs for each flow. In this analysis, we combine Emirates point-to-point traffic to Dubai with its Middle East connecting flows, since the manufacturers do not disaggregate Dubai from the Mid East in their estimates. We also aggregate Western Europe with Eastern Europe and we aggregate Western, Eastern and Southern Africa into one Sub-Saharan Africa market. Our analysis suggests Emirates, if it were to execute our hypothetical network plan, would be likely to maintain relatively stable markets shares in many intra-regional markets with the key exceptions of: North Asia-Africa; South Asia-North America; and North Asia-Mid East. Table 24 : Estimated intra regional market shares
Intra-regional market South Asia Europe North Asia South Asia South Asia South East Asia Europe Intra middle East Sub-Saharan Africa Australia LatAm North Asia
Source: RBS forecasts, Airbus, Boeing
Estimated 2010 market share Middle East Middle East Middle East Europe North America Middle East Australia Middle East Middle East Middle East Sub-Saharan Africa 12.4% 14.1% 32.3% 21.7% 29.3% 11.6% 22.0% 5.4% 29.2% 33.3% 24.9% 35.2%
Estimated 2020 market share 13.6% 13.3% 46.7% 23.6% 52.7% 10.9% 19.4% 6.0% 24.4% 28.1% 26.6% 48.2%
39
How plausible are the region-specific market share gains?

We think Emirates is very likely to gain market share in the China-Africa market
We think the probability of Emirates gaining significant market share in the North Asia to Africa market is very high. The strong economic interest being taken by China in the resources-rich economies of Africa means that there will likely be strong traffic growth in this market. However, we think the traffic demand will be highly dispersed across multiple markets in Africa. From China, we would expect demand to be relatively concentrated from the major markets of Shanghai, Beijing and Guangzhou, but with meaningful demand from provincial points also. We would thus expect there to be very few viable point to point routes between China and Africa, necessitating connections through a hub. The Gulf looks optimally located to function as a hub between China and Africa. There are few fast-growing financially strong airlines in Africa. That said, Kenya Airways and Ethiopian Airlines are two of the stronger airlines in Africa that would seek to participate in this traffic flow. However, the scale and strength of the Dubai hub is today and is likely to remain in future stronger than the connection complexes in Nairobi and Addis Ababa. We think the probability of Emirates gaining significant market share in the South Asia to North America market is high. We foresee strong traffic growth in this market. Indian, European and US carriers will be interested in this market. Indian carriers could be inhibited in their ability to take full advantage of this market by limited fleets and constrained infrastructure. The strong growth of low-cost carriers in the domestic market is also weakening the major carriers short-haul feed markets, as has happened to European carriers. European carriers efforts to take advantage of the growth market between India and the US and Canada will be constrained by limited departure points in India and by ETS charges and aviation taxation. US carriers have limited ultra-long-haul capacity. Emirates has a very broad network in India and will have low operating costs on the sectors to the US, thanks to the deployment of A380s. We think the probability of Emirates gaining market share on traffic flows from North Asia to the Middle is reasonable. The size and scale of the Emirates hub will support a wider range of destinations in China than other Middle East carriers.
We think Emirates is likely to gain market share in the IndiaNorth America market
40
Appendix
We present our detailed fleet plan and network plans. Table 25 : September 2010 network
Block time plus turn time at base 01 23 00 01 23 00 02 00 15 02 00 55 02 02 00 01 14 00 01 06 35 01 06 55 01 23 15 01 15 50 00 20 20 00 16 30 00 13 30 01 06 25 00 18 40 00 15 55 00 18 10 00 14 35 00 17 20 00 16 00 00 17 40 01 15 00 00 11 10 00 11 10 00 07 30 00 07 30 00 11 40 00 11 40 00 11 35 00 11 35 00 07 30 00 07 30 00 07 15 00 07 15 00 09 25 00 09 25 00 11 55 00 08 30 00 08 30 00 06 55 00 06 55 00 11 00 00 09 10 00 09 10 00 10 35 00 12 40 00 12 40 00 21 35 00 17 50 00 17 50 Aircraft days 1.96 1.96 2.01 2.04 2.08 1.58 1.27 1.29 1.97 1.66 0.85 0.69 0.56 1.27 0.22 0.66 0.76 0.52 0.72 0.67 0.74 1.63 0.33 0.47 0.89 0.04 0.69 0.49 0.62 0.34 0.18 0.13 1.08 0.30 1.06 0.11 0.50 0.56 0.86 0.54 0.04 0.26 0.22 0.38 0.44 0.75 0.08 0.90 0.74 0.74 Seats per day each way 262 350 490 350 350 350 262 350 350 350 350 262 262 350 100 237 350 203 262 350 237 350 169 350 677 50 339 350 305 250 135 150 846 350 950 68 490 550 576 440 50 135 135 350 237 500 34 262 262 237
Route DXB BNE AKL DXB MEL AKL DXB SYD AKL DXB BKK SYD CHC DXB SIN BNE DXB KUL MEL DXB PER DXB PER DXB SIN MEL DXB SYD DXB ADD EBB DXB DAR DXB KRT DXB MRU DXB MRU DXB NBO DXB NBO DXB SEZ DXB DME DXB DME DXB PRG DXB GRU DXB AMM DXB AMM DXB BAH DXB BAH DXB BEY DXB BEY DXB DAM DXB DAM DXB DMM DXB DMM DXB DOH DXB DOH DXB IKA DXB IKA DXB JED DXB KWI DXB KWI DXB MCT DXB MCT DXB MED DXB RUH DXB RUH DXB SAH DXB CAI DXB CAI DXB CMN DXB TIP DXB TUN
Source: OAG Max, ATI
Route area AUS/NZ AUS/NZ AUS/NZ AUS/NZ AUS/NZ AUS/NZ AUS/NZ AUS/NZ AUS/NZ AUS/NZ E AFR E AFR E AFR E AFR E AFR E AFR E AFR E AFR E EUR E EUR E EUR LATAM ME ME ME ME ME ME ME ME ME ME ME ME ME ME ME ME ME ME ME ME ME ME ME N AFR N AFR N AFR N AFR N AFR
Aircraft 340 777 380 777 777 777 340 777 777 777 777 340 340 777 777 330 777 330 340 777 330 777 330 777 330 777 330 777 330 777 330 777 330 777 777 330 380 777 330 330 777 330 330 777 330 777 330 340 340 330
Block time 01 19 00 01 19 00 01 20 15 01 20 55 01 22 00 01 10 00 01 02 35 01 02 55 01 19 15 01 11 50 00 16 20 00 12 30 00 09 30 01 02 25 00 14 40 00 11 55 00 14 10 00 10 35 00 13 20 00 12 00 00 13 40 01 11 00 00 07 10 00 07 10 00 03 30 00 03 30 00 07 40 00 07 40 00 07 35 00 07 35 00 03 30 00 03 30 00 03 15 00 03 15 00 05 25 00 05 25 00 07 55 00 04 30 00 04 30 00 02 55 00 02 55 00 07 00 00 05 10 00 05 10 00 06 35 00 08 40 00 08 40 00 17 35 00 13 50 00 13 50
Per week 7 7 7 7 7 7 7 7 7 7 7 7 7 7 2 7 7 6 7 7 7 7 5 7 20 1 10 7 9 5 4 3 25 7 19 2 7 11 17 13 1 4 4 7 7 10 1 7 7 7
Seats 262 350 490 350 350 350 262 350 350 350 350 262 262 350 350 237 350 237 262 350 237 350 237 350 237 350 237 350 237 350 237 350 237 350 350 237 490 350 237 237 350 237 237 350 237 350 237 262 262 237
Airlines | Appendix | 26 January 2011
41
Table 25 : September 2010 network (contd)

Block time plus turn time at base 01 05 15 00 21 15 00 22 55 01 05 25 01 05 35 01 04 55 01 04 10 01 05 00 01 05 30 01 05 30 01 13 40 01 08 05 01 15 05 01 15 15 01 14 25 01 12 40 01 00 25 00 22 55 00 22 50 00 23 10 00 11 00 00 13 35 00 13 35 00 11 20 00 11 20 00 13 15 00 15 45 00 21 15 00 17 20 00 13 35 00 14 05 00 13 10 00 13 10 00 15 05 00 12 10 00 12 10 00 12 45 00 12 45 00 11 45 00 09 15 00 09 15 00 11 45 00 13 30 00 13 30 00 11 50 00 13 20 00 18 50 00 18 00 00 22 35 01 02 15 00 23 05 00 23 05 01 02 20 01 01 20 00 22 40 00 22 40 00 19 35 00 16 00 Aircraft days 1.22 0.89 0.95 1.23 1.23 0.86 1.17 1.21 1.23 1.23 1.57 1.34 1.63 1.64 1.60 0.65 1.02 0.95 2.85 0.41 0.65 1.54 0.08 1.42 0.94 0.87 1.13 0.63 0.21 0.57 0.59 0.39 0.71 1.53 1.01 1.01 1.29 0.30 0.49 0.83 0.72 0.28 0.64 1.04 0.14 0.95 0.78 0.75 1.88 1.09 1.92 1.92 1.10 0.75 0.94 0.94 0.82 0.95 Seats per day each way 350 350 350 490 350 250 490 262 350 262 350 350 350 350 350 210 350 237 1,050 102 339 643 50 1,050 474 550 406 250 100 350 350 169 450 850 700 474 576 200 350 508 650 200 271 650 68 406 490 350 700 350 700 700 262 187 350 262 350 339
Route DXB BKK HKG DXB CAN DXB HKG DXB ICN DXB KIX DXB NRT DXB PEK DXB PEK DXB PVG DXB PVG DXB IAH DXB JFK DXB JFK DXB LAX DXB SFO DXB YYZ DXB CPT DXB DUR DXB JNB DXB LAD DXB AMD DXB BLR DXB BLR DXB BOM DXB BOM DXB CCJ DXB CCU DXB MLE CMB tag DXB MLE CMB triangle DXB MLE DXB CMB DXB COK DXB COK DXB DAC DXB DEL DXB DEL DXB HYD DXB HYD DXB ISB DXB KHI DXB KHI DXB LHE DXB MAA DXB MAA DXB PEW DXB TRV DXB BKK DXB BKK DXB JKT DXB CMB SIN DXB KUL DXB MNL DXB ACC ABJ DXB DKR DXB LOS DXB LOS DXB AMS DXB ATH
Route area N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA NA NA NA NA NA NA S AFR S AFR S AFR S AFR S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA SE ASIA SE ASIA SE ASIA SE ASIA SE ASIA SE ASIA W AFR W AFR W AFR W AFR W EUR W EUR
Aircraft 777 777 777 380 777 777 380 340 777 340 777 777 777 777 777 380 777 330 777 330 330 330 777 777 330 777 330 777 777 777 777 330 777 777 777 330 330 777 777 330 777 777 330 777 330 330 380 777 777 777 777 777 340 340 777 340 777 330
Block time 01 01 15 00 17 15 00 18 55 01 01 25 01 01 35 01 00 55 01 00 10 01 01 00 01 01 30 01 01 30 01 09 40 01 04 05 01 11 05 01 11 15 01 10 25 01 08 40 00 20 25 00 18 55 00 18 50 00 19 10 00 07 00 00 09 35 00 09 35 00 07 20 00 07 20 00 09 15 00 11 45 00 17 15 00 13 20 00 09 35 00 10 05 00 09 10 00 09 10 00 11 05 00 08 10 00 08 10 00 08 45 00 08 45 00 07 45 00 05 15 00 05 15 00 07 45 00 09 30 00 09 30 00 07 50 00 09 20 00 14 50 00 14 00 00 18 35 00 22 15 00 19 05 00 19 05 00 22 20 00 21 20 00 18 40 00 18 40 00 15 35 00 12 00
Per week 7 7 7 7 7 5 7 7 7 7 7 7 7 7 7 3 7 7 21 3 10 19 1 21 14 11 12 5 2 7 7 5 9 17 14 14 17 4 7 15 13 4 8 13 2 12 7 7 14 7 14 14 7 5 7 7 7 10
Seats 350 350 350 490 350 350 490 262 350 262 350 350 350 350 350 490 350 237 350 237 237 237 350 350 237 350 237 350 350 350 350 237 350 350 350 237 237 350 350 237 350 350 237 350 237 237 490 350 350 350 350 350 262 262 350 262 350 237
42
Table 25 : September 2010 network (contd)

Block time plus turn time at base 00 20 10 00 19 55 00 19 20 00 19 15 00 19 15 00 17 50 00 17 50 00 19 10 00 20 40 00 18 40 00 14 25 00 20 05 00 20 05 00 20 20 00 20 20 00 20 40 00 20 20 00 20 20 00 19 05 00 18 00 00 18 30 00 19 05 00 20 30 00 17 45 00 17 00 00 18 15 00 18 15 00 19 00 Aircraft days 1.68 0.83 0.81 0.80 0.80 0.74 0.74 1.60 0.86 0.78 0.94 0.84 2.51 1.69 2.54 0.86 0.85 0.85 0.80 0.75 1.54 0.80 0.85 0.74 0.71 0.54 0.22 0.79 Seats per day each way 700 490 350 237 350 237 350 700 350 350 550 237 1,050 980 1,050 237 490 350 350 237 524 237 237 237 350 169 75 350
Route DXB BHX DXB CDG DXB CDG DXB DUS DXB DUS DXB FCO DXB FCO DXB FRA DXB GLA DXB HAM DXB IST DXB LCA MLA DXB LGW DXB LHR DXB LHR DXB MAD DXB MAN DXB MAN DXB MUC DXB MUC DXB MXP DXB NCE DXB NCL DXB VCE DXB VIE DXB ZRH DXB ZRH DXB ZRH
Route area W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR
Aircraft 777 380 777 330 777 330 777 777 777 777 777 330 777 380 777 330 380 777 777 330 340 330 330 330 777 330 340 777
Block time 00 16 10 00 15 55 00 15 20 00 15 15 00 15 15 00 13 50 00 13 50 00 15 10 00 16 40 00 14 40 00 10 25 00 16 05 00 16 05 00 16 20 00 16 20 00 16 40 00 16 20 00 16 20 00 15 05 00 14 00 00 14 30 00 15 05 00 16 30 00 13 45 00 13 00 00 14 15 00 14 15 00 15 00
Per week 14 7 7 7 7 7 7 14 7 7 11 7 21 14 21 7 7 7 7 7 14 7 7 7 7 5 2 7
Seats 350 490 350 237 350 237 350 350 350 350 350 237 350 490 350 237 490 350 350 237 262 237 237 237 350 237 262 350
Table 26 : 2015 network

Block time plus turn time at base Aircraft days 02 00 55 01 23 00 01 23 00 01 14 00 01 23 00 01 06 35 01 23 15 01 15 50 02 00 15 00 13 30 00 16 30 00 18 10 00 13 30 00 18 40 00 18 10 00 15 55 00 14 35 00 16 00 00 16 00 00 15 00 2.04 1.96 1.96 1.58 1.96 2.55 1.97 1.66 2.01 0.56 0.69 0.76 0.56 1.56 0.76 0.66 1.22 0.67 2.00 0.63 Seats per day each way 310 310 310 490 350 700 350 490 490 350 350 350 350 700 650 350 620 310 1470 350
Route DXB BKK SYD CHC DXB BNE AKL DXB BNE WEL DXB KUL MEL DXB MEL AKL DXB PER DXB SIN MEL DXB SYD DXB SYD AKL DXB ADD DXB DAR DXB EBB DXB KRT DXB MRU DXB NBO DXB NBO DXB SEZ DXB ALA DXB DME DXB GYD
Route area AUS/NZ AUS/NZ AUS/NZ AUS/NZ AUS/NZ AUS/NZ AUS/NZ AUS/NZ AUS/NZ E AFR E AFR E AFR E AFR E AFR E AFR E AFR E AFR E EUR E EUR E EUR
Aircraft 350 350 350 380 777 777 777 380 380 777 777 777 777 777 38H 777 350 350 380 777
Block time 01 20 55 01 19 00 01 19 00 01 10 00 01 19 00 01 02 35 01 19 15 01 11 50 01 20 15 00 09 30 00 12 30 00 14 10 00 09 30 00 14 40 00 14 10 00 11 55 00 10 35 00 12 00 00 12 00 00 11 00
Per week 7 7 7 7 7 14 7 7 7 7 7 7 7 14 7 7 14 7 21 7
Seats 310 310 310 490 350 350 350 490 490 350 350 350 350 350 650 350 310 310 490 350
43
Table 26 : 2015 network (contd)

Block time plus turn time at base Aircraft days 00 19 20 00 17 40 01 15 00 01 09 00 00 11 10 00 07 30 00 11 40 00 09 25 00 11 35 00 07 30 00 07 15 00 09 25 00 11 55 00 08 30 00 06 55 00 11 00 00 09 10 00 10 35 00 12 40 00 21 35 00 17 50 00 17 50 01 05 15 00 21 15 00 22 55 01 05 30 00 22 55 01 05 35 01 05 25 01 05 35 01 05 35 01 04 55 01 04 10 01 05 30 01 05 30 01 06 05 01 13 40 01 08 05 01 15 15 01 12 40 01 14 25 01 12 40 01 00 25 00 22 55 00 22 50 00 23 10 00 11 00 00 13 35 00 11 20 00 13 15 00 15 45 00 14 05 00 13 10 00 15 05 00 12 10 00 12 10 00 12 45 00 12 45 00 11 45 00 09 15 0.81 0.74 1.63 1.38 1.40 1.56 1.94 0.39 1.45 0.63 1.51 1.57 0.99 1.42 1.15 0.46 0.76 0.88 1.06 0.90 0.74 0.74 1.22 1.77 0.95 1.23 1.91 1.23 1.23 1.23 1.23 1.20 4.69 2.46 1.23 1.25 1.57 2.67 1.64 1.53 1.60 1.53 2.03 0.95 2.85 0.97 1.38 2.26 2.36 1.66 1.97 1.76 1.65 2.51 2.53 0.51 1.06 0.53 0.98 1.54 Seats per day each way 350 350 350 350 1050 1750 1240 350 1050 700 1750 1400 1300 1400 1400 350 700 700 980 310 310 310 350 980 350 350 980 490 490 490 350 490 1400 980 350 350 490 980 490 350 350 350 700 350 1470 350 1050 1400 3250 1050 1050 1050 1050 1400 3250 350 700 350 700 1400
Route DXB LED DXB PRG DXB GRU DXB MEX DXB AMM DXB BAH DXB BEY DXB BGW DXB DAM DXB DMM DXB DOH DXB IKA DXB JED DXB KWI DXB MCT DXB MED DXB RUH DXB SAH DXB CAI DXB CMN DXB TIP DXB TUN DXB BKK HKG DXB CAN DXB CTS DXB CTU DXB HKG DXB HND DXB ICN DXB KIX DXB NGO DXB NRT DXB PEK DXB PVG DXB TPE DXB BOS DXB IAH DXB JFK DXB LAX DXB ORD DXB SFO DXB YYZ DXB CPT DXB DUR DXB JNB DXB LAD DXB AMD DXB BLR DXB BOM DXB CCJ DXB CCU DXB CMB DXB COK DXB DAC DXB DEL DXB GOI DXB HYD DXB HYD DXB ISB DXB KHI
Route area E EUR E EUR LATAM LATAM ME ME ME ME ME ME ME ME ME ME ME ME ME ME N AFR N AFR N AFR N AFR N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA NA NA NA NA NA NA NA S AFR S AFR S AFR S AFR S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA
Aircraft 777 777 777 777 777 777 350 777 777 777 777 777 38H 777 777 777 777 777 380 350 350 350 777 380 777 777 380 380 380 380 777 380 777 380 777 777 380 380 380 777 777 777 777 777 380 777 777 777 38H 777 777 777 777 777 38H 777 777 777 777 777
Block time 00 15 20 00 13 40 01 11 00 01 05 00 00 07 10 00 03 30 00 07 40 00 05 25 00 07 35 00 03 30 00 03 15 00 05 25 00 07 55 00 04 30 00 02 55 00 07 00 00 05 10 00 06 35 00 08 40 00 17 35 00 13 50 00 13 50 01 01 15 00 17 15 00 18 55 01 01 30 00 18 55 01 01 35 01 01 25 01 01 35 01 01 35 01 00 55 01 00 10 01 01 30 01 01 30 01 02 05 01 09 40 01 04 05 01 11 15 01 08 40 01 10 25 01 08 40 00 20 25 00 18 55 00 18 50 00 19 10 00 07 00 00 09 35 00 07 20 00 09 15 00 11 45 00 10 05 00 09 10 00 11 05 00 08 10 00 08 10 00 08 45 00 08 45 00 07 45 00 05 15
Per week 7 7 7 7 21 35 28 7 21 14 35 28 14 28 28 7 14 14 14 7 7 7 7 14 7 7 14 7 7 7 7 7 28 14 7 7 7 14 7 7 7 7 14 7 21 7 21 28 35 21 21 21 21 28 35 7 14 7 14 28
Seats 350 350 350 350 350 350 310 350 350 350 350 350 650 350 350 350 350 350 490 310 310 310 350 490 350 350 490 490 490 490 350 490 350 490 350 350 490 490 490 350 350 350 350 350 490 350 350 350 650 350 350 350 350 350 650 350 350 350 350 350
44

Block time plus turn time at base Aircraft days 00 15 45 00 11 45 00 13 30 00 13 35 00 11 50 00 13 20 00 18 50 00 23 05 00 22 35 00 21 05 00 23 05 00 22 10 01 02 15 00 22 40 00 23 40 01 01 20 00 22 40 00 19 35 00 16 00 00 19 35 00 20 10 00 19 55 00 19 15 00 20 40 00 17 50 00 19 10 00 20 40 00 20 40 00 18 40 00 14 25 00 20 05 00 20 05 00 20 20 00 20 40 00 20 20 00 19 05 00 18 30 00 19 05 00 20 30 00 19 05 00 17 45 00 17 00 00 19 00 0.66 0.98 2.25 1.70 0.49 1.11 1.57 0.96 1.88 0.88 1.92 0.92 1.09 0.94 0.99 1.06 1.89 0.82 1.33 0.82 2.52 1.66 1.60 0.86 1.49 1.60 0.86 0.86 0.78 1.20 0.84 2.51 4.24 0.86 1.69 1.59 1.54 0.80 0.85 0.80 0.74 0.71 1.58 Seats per day each way 310 700 1400 1050 310 700 980 310 700 350 700 310 490 310 310 310 980 350 620 310 1050 980 700 350 700 980 350 310 350 700 350 1470 2450 490 980 980 700 350 350 350 350 350 700
Route DXB KTM DXB LHE DXB MAA DXB MLE DXB PEW DXB TRV DXB BKK DXB DPS DXB JKT DXB KUL DXB MNL DXB SGN DXB SIN DXB ABV DXB ACC DXB DKR DXB LOS DXB AMS DXB ATH DXB BCN DXB BHX DXB CDG DXB DUS DXB EDI DXB FCO DXB FRA DXB GLA DXB GVA DXB HAM DXB IST DXB LCA MLA DXB LGW DXB LHR DXB MAD DXB MAN DXB MUC DXB MXP DXB NCE DXB NCL DXB SXF DXB VCE DXB VIE DXB ZRH
Route area S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA SE ASIA SE ASIA SE ASIA SE ASIA SE ASIA SE ASIA SE ASIA W AFR W AFR W AFR W AFR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR
Aircraft 350 777 777 777 350 777 380 350 777 777 777 350 380 350 350 350 380 777 350 350 777 380 777 777 777 380 777 350 777 777 777 380 380 380 380 380 777 777 777 777 777 777 777
Block time 00 11 45 00 07 45 00 09 30 00 09 35 00 07 50 00 09 20 00 14 50 00 19 05 00 18 35 00 17 05 00 19 05 00 18 10 00 22 15 00 18 40 00 19 40 00 21 20 00 18 40 00 15 35 00 12 00 00 15 35 00 16 10 00 15 55 00 15 15 00 16 40 00 13 50 00 15 10 00 16 40 00 16 40 00 14 40 00 10 25 00 16 05 00 16 05 00 16 20 00 16 40 00 16 20 00 15 05 00 14 30 00 15 05 00 16 30 00 15 05 00 13 45 00 13 00 00 15 00
Per week 7 14 28 21 7 14 14 7 14 7 14 7 7 7 7 7 14 7 14 7 21 14 14 7 14 14 7 7 7 14 7 21 35 7 14 14 14 7 7 7 7 7 14
Seats 310 350 350 350 310 350 490 310 350 350 350 310 490 310 310 310 490 350 310 310 350 490 350 350 350 490 350 310 350 350 350 490 490 490 490 490 350 350 350 350 350 350 350
Table 27 : 2020 network

Plus turn time at base 02 00 55 01 23 00 01 23 00 01 14 00 01 14 00 01 23 00 01 06 35 01 08 00 Aircraft days 2.04 1.96 1.96 1.58 1.58 1.96 2.55 1.33
Route DXB BKK SYD CHC DXB BNE AKL DXB BNE WEL DXB KUL ADL DXB KUL MEL DXB MEL AKL DXB PER DXB SIN CNS
Route area AUS/NZ AUS/NZ AUS/NZ AUS/NZ AUS/NZ AUS/NZ AUS/NZ AUS/NZ
Aircraft 350 350 350 350 777 380 350 350
Block time 01 20 55 01 19 00 01 19 00 01 10 00 01 10 00 01 19 00 01 02 35 01 04 00
Per week 7 7 7 7 7 7 14 7
Seats 310 310 310 310 350 490 310 310
SDEW 310 310 310 310 350 490 620 310
45

Plus turn time at base 01 23 15 01 15 50 02 00 15 00 13 30 00 16 30 00 18 10 00 13 30 00 18 40 00 15 55 00 18 10 00 18 40 00 14 35 00 19 10 00 16 00 00 17 30 00 16 00 00 17 20 00 15 00 00 16 00 00 19 20 00 17 40 00 18 30 01 18 00 02 00 00 01 15 00 01 09 00 00 11 10 00 07 30 00 11 40 00 09 25 00 11 35 00 07 30 00 07 15 00 09 25 00 11 55 00 08 30 00 06 55 00 11 00 00 09 10 00 10 35 00 12 40 00 21 35 00 17 50 00 17 50 01 05 15 00 21 15 00 22 55 01 05 30 00 22 55 01 05 35 01 05 25 01 05 35 01 05 35 01 05 30 01 04 55 01 04 10 01 05 30 01 05 30 00 18 30 00 22 55 Aircraft days 1.97 3.32 2.01 0.56 0.69 0.76 0.56 1.56 0.66 0.76 0.44 1.22 0.46 0.67 0.73 0.67 1.44 0.63 0.67 0.81 0.74 0.77 1.75 2.00 1.63 1.38 1.40 1.56 1.94 0.78 1.45 0.63 1.51 1.57 0.99 1.42 1.15 0.46 0.76 0.88 1.06 0.90 0.74 0.74 1.22 1.77 0.95 1.23 1.91 1.23 1.23 1.23 1.23 1.23 1.20 4.69 2.46 1.23 0.77 0.95
Route DXB SIN MEL DXB SYD DXB SYD AKL DXB ADD DXB DAR DXB EBB DXB KRT DXB MRU DXB NBO DXB NBO DXB RUN DXB SEZ DXB TNR DXB ALA DXB BUD DXB DME DXB DME DXB GYD DXB KBP DXB LED DXB PRG DXB WAW DXB EZE DXB GIG SCL DXB GRU DXB MEX DXB AMM DXB BAH DXB BEY DXB BGW DXB DAM DXB DMM DXB DOH DXB IKA DXB JED DXB KWI DXB MCT DXB MED DXB RUH DXB SAH DXB CAI DXB CMN DXB TIP DXB TUN DXB BKK HKG DXB CAN DXB CTS DXB CTU DXB HKG DXB HND DXB ICN DXB KIX DXB NGO DXB NKG DXB NRT DXB PEK DXB PVG DXB TPE DXB URC DXB XMN
Route area AUS/NZ AUS/NZ AUS/NZ E AFR E AFR E AFR E AFR E AFR E AFR E AFR E AFR E AFR E AFR E EUR E EUR E EUR E EUR E EUR E EUR E EUR E EUR E EUR LATAM LATAM LATAM LATAM ME ME ME ME ME ME ME ME ME ME ME ME ME ME N AFR N AFR N AFR N AFR N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA N ASIA
Aircraft 380 380 380 350 350 350 350 350 777 38H 350 350 350 350 350 350 380 350 350 350 350 350 350 350 380 380 777 777 350 350 777 777 777 777 38H 777 777 777 380 777 380 350 350 350 380 380 777 777 380 380 380 380 777 777 380 380 380 777 777 777
Block time 01 19 15 01 11 50 01 20 15 00 09 30 00 12 30 00 14 10 00 09 30 00 14 40 00 11 55 00 14 10 00 14 40 00 10 35 00 15 10 00 12 00 00 13 30 00 12 00 00 13 20 00 11 00 00 12 00 00 15 20 00 13 40 00 14 30 01 14 00 01 20 00 01 11 00 01 05 00 00 07 10 00 03 30 00 07 40 00 05 25 00 07 35 00 03 30 00 03 15 00 05 25 00 07 55 00 04 30 00 02 55 00 07 00 00 05 10 00 06 35 00 08 40 00 17 35 00 13 50 00 13 50 01 01 15 00 17 15 00 18 55 01 01 30 00 18 55 01 01 35 01 01 25 01 01 35 01 01 35 01 01 30 01 00 55 01 00 10 01 01 30 01 01 30 00 14 30 00 18 55
Per week 7 14 7 7 7 7 7 14 7 7 4 14 4 7 7 7 14 7 7 7 7 7 7 7 7 7 21 35 28 14 21 14 35 28 14 28 28 7 14 14 14 7 7 7 7 14 7 7 14 7 7 7 7 7 7 28 14 7 7 7
Seats 490 490 490 310 310 310 310 310 350 650 310 310 310 310 310 310 490 310 310 310 310 310 310 310 490 490 350 350 310 310 350 350 350 350 650 350 350 350 490 350 490 310 310 310 490 490 350 350 490 490 490 490 350 350 490 490 490 350 350 350
SDEW 490 980 490 310 310 310 310 620 350 650 177 620 177 310 310 310 980 310 310 310 310 310 310 310 490 490 1,050 1,750 1,240 620 1,050 700 1,750 1,400 1,300 1,400 1,400 350 980 700 980 310 310 310 490 980 350 350 980 490 490 490 350 350 490 1,960 980 350 350 350
46

Plus turn time at base 01 06 05 01 08 05 01 12 40 01 13 40 01 08 05 01 15 15 01 12 40 01 14 25 01 12 40 01 00 25 00 22 55 01 02 10 00 22 50 00 23 10 00 11 00 00 12 10 00 13 35 00 11 20 00 13 15 00 15 45 00 14 05 00 13 10 00 15 05 00 12 10 00 12 10 00 12 45 00 12 45 00 11 45 00 09 15 00 15 45 00 11 45 00 13 30 00 13 35 00 11 50 00 12 00 00 13 20 00 18 50 00 23 05 00 22 10 00 19 10 00 22 35 00 21 05 00 23 05 00 22 10 01 02 15 01 00 00 00 22 40 00 23 40 01 01 20 00 22 40 00 19 35 00 20 40 00 16 00 00 19 35 00 20 10 00 19 00 00 19 55 00 20 40 00 19 15 00 20 40 Aircraft days 1.25 1.34 1.53 1.57 4.01 3.27 1.53 1.60 1.53 2.03 0.95 1.09 2.85 0.97 1.38 0.51 2.26 2.36 2.21 2.63 2.35 2.19 2.51 2.53 0.51 1.06 0.53 0.98 1.54 0.66 0.98 2.25 2.26 0.49 1.00 1.11 1.57 0.96 0.92 0.80 1.88 0.88 1.92 0.92 1.09 1.00 0.94 0.99 1.06 1.89 0.82 0.86 1.33 0.82 2.52 0.79 1.66 0.86 1.60 0.86
Route DXB BOS DXB EWR DXB IAD DXB IAH DXB JFK DXB LAX DXB ORD DXB SFO DXB YYZ DXB CPT DXB DUR DXB HRE LUN DXB JNB DXB LAD DXB AMD DXB ATQ DXB BLR DXB BOM DXB CCJ DXB CCU DXB CMB DXB COK DXB DAC DXB DEL DXB GOI DXB HYD DXB HYD DXB ISB DXB KHI DXB KTM DXB LHE DXB MAA DXB MLE DXB PEW DXB PNQ DXB TRV DXB BKK DXB DPS DXB HAN DXB HKT DXB JKT DXB KUL DXB MNL DXB SGN DXB SIN DXB ABJ DXB ABV DXB ACC DXB DKR DXB LOS DXB AMS DXB ARN DXB ATH DXB BCN DXB BHX DXB BRU DXB CDG DXB DUB DXB DUS DXB EDI
Route area NA NA NA NA NA NA NA NA NA S AFR S AFR S AFR S AFR S AFR S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA S ASIA SE ASIA SE ASIA SE ASIA SE ASIA SE ASIA SE ASIA SE ASIA SE ASIA SE ASIA W AFR W AFR W AFR W AFR W AFR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR
Aircraft 777 777 777 380 380 380 380 380 380 777 350 350 380 350 777 777 777 38H 777 777 777 777 777 38H 777 380 777 777 777 777 777 777 777 350 777 777 38H 350 350 350 777 38H 777 350 380 350 350 350 350 380 380 350 350 350 350 350 380 350 380 350
Block time 01 02 05 01 04 05 01 08 40 01 09 40 01 04 05 01 11 15 01 08 40 01 10 25 01 08 40 00 20 25 00 18 55 00 22 10 00 18 50 00 19 10 00 07 00 00 08 10 00 09 35 00 07 20 00 09 15 00 11 45 00 10 05 00 09 10 00 11 05 00 08 10 00 08 10 00 08 45 00 08 45 00 07 45 00 05 15 00 11 45 00 07 45 00 09 30 00 09 35 00 07 50 00 08 00 00 09 20 00 14 50 00 19 05 00 18 10 00 15 10 00 18 35 00 17 05 00 19 05 00 18 10 00 22 15 00 20 00 00 18 40 00 19 40 00 21 20 00 18 40 00 15 35 00 16 40 00 12 00 00 15 35 00 16 10 00 15 00 00 15 55 00 16 40 00 15 15 00 16 40
Per week 7 7 7 7 21 14 7 7 7 14 7 7 21 7 21 7 28 35 28 28 28 28 28 35 7 14 7 14 28 7 14 28 28 7 14 14 14 7 7 7 14 7 14 7 7 7 7 7 7 14 7 7 14 7 21 7 14 7 14 7
Seats 350 350 350 490 490 490 490 490 490 350 310 310 490 310 350 350 350 650 350 350 350 350 350 650 350 490 350 350 350 350 350 350 350 310 350 350 650 310 310 310 350 650 350 310 490 310 310 310 310 490 490 310 310 310 310 310 490 310 490 310
SDEW 350 350 350 490 1,470 980 490 490 490 700 310 310 1,470 310 1,050 350 1,400 3,250 1,400 1,400 1,400 1,400 1,400 3,250 350 980 350 700 1,400 350 700 1,400 1,400 310 700 700 1,300 310 310 310 700 650 700 310 490 310 310 310 310 980 490 310 620 310 930 310 980 310 980 310
47

Plus turn time at base 00 17 50 00 19 10 00 20 40 00 19 00 00 18 40 00 14 25 00 20 05 00 20 05 00 20 20 00 20 40 00 20 20 00 19 05 00 18 30 00 19 05 00 20 30 00 20 05 00 19 05 00 17 45 00 17 00 00 19 00 00 18 15 Aircraft days 1.49 1.60 0.86 0.79 0.78 1.20 0.84 2.51 4.24 0.86 1.69 1.59 1.54 0.80 0.85 0.84 0.80 0.74 0.71 0.79 0.76
Route DXB FCO DXB FRA DXB GLA DXB GVA DXB HAM DXB IST DXB LCA MLA DXB LGW DXB LHR DXB MAD DXB MAN DXB MUC DXB MXP DXB NCE DXB NCL DXB STN DXB SXF DXB VCE DXB VIE DXB ZRH DXB ZRH
Route area W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR W EUR
Aircraft 380 380 350 350 350 380 350 380 380 350 380 380 350 350 350 350 350 350 350 350 380
Block time 00 13 50 00 15 10 00 16 40 00 15 00 00 14 40 00 10 25 00 16 05 00 16 05 00 16 20 00 16 40 00 16 20 00 15 05 00 14 30 00 15 05 00 16 30 00 16 05 00 15 05 00 13 45 00 13 00 00 15 00 00 14 15
Per week 14 14 7 7 7 14 7 21 35 7 14 14 14 7 7 7 7 7 7 7 7
Seats 490 490 310 310 310 490 310 490 490 310 490 490 310 310 310 310 310 310 310 310 490
SDEW 980 980 310 310 310 980 310 1,470 2,450 310 980 980 620 310 310 310 310 310 310 310 490
48
Airlines | Appendix | 26 January 2011 49
Table 28 : Detailed fleet model

2010 Open Airbus Airbus Airbus Airbus Airbus Airbus Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Total Change Airbus Airbus Airbus Airbus Airbus Airbus Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Total Close Airbus Airbus Airbus Airbus Airbus Airbus Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Boeing Total A330-200 A340-300 A340-500 A350-1000 A350-900 A380-800 777-200 777-200ER 777-200LR 777-300 777-300ER 744ERF 744F 777LRF 747-8F 6.25 1.7 15 14 3 10 3.7 4 11 1.3 9 14 7.5 29 7 10 0 0 14 1 6 10 12 57 3 3 3 0 155 0 0 0 20 50 76 0 0 0 0 44 0 0 5 15 210 60 1.6 16 15 4 11 4.2 5 12 1.4 10 15 8.5 29 4 10 0 0 24 0 2 10 12 64 3 2 5 0 165 0 0 0 20 50 66 0 0 0 0 37 0 0 3 15 191 5.85 1.8 17 16 5 12 4.7 6 13 1.7 11 16 9.5 27 0 10 0 0 34 0 0 10 12 71 3 1 7 0 175 0 0 0 20 50 56 0 0 0 0 30 0 0 1 15 172 5.43 2.2 18 17 6 13 4.9 7 14 2.4 12 17 10.5 17 0 10 0 0 44 0 0 10 7 83 3 0 8 2 184 0 0 0 20 50 46 0 0 0 0 18 0 0 0 13 147 4.66 1 2.7 19 18 7 14 4.8 8 15 3.4 13 18 11.5 7 0 5 0 5 52 0 0 10 2 101 1 0 8 5 196 0 0 0 20 45 38 0 0 0 0 0 0 0 0 10 113 4.32 14 19 12.5 1 0.6 3.2 20 19 8 15 5.8 9 16 4.4 0 0 0 5 18 60 0 0 10 0 99 0 0 8 8 208 0 0 0 15 32 30 0 0 0 0 0 0 0 0 7 84 4.78 15 20 13.5 1 1.2 3.8 21 20 9 16 6.8 10 17 5.4 0 0 0 10 23 66 0 0 10 0 92 0 0 8 11 220 0 0 0 10 27 24 0 0 0 0 0 0 0 0 4 65 5.20 16 21 14.5 1.3 1.9 4.4 22 21 10 17 7.8 11 18 6.4 0 0 0 15 27 72 0 0 10 0 84 0 0 8 14 230 0 0 0 5 23 18 0 0 0 0 0 0 0 0 1 47 5.46 17 22 15.5 1.8 2.2 5 23 22 11 18 8.8 12 19 7.4 0 0 0 20 35 78 0 0 5 0 78 0 0 8 15 239 0 0 0 0 15 12 0 0 0 0 0 0 0 0 0 27 5.76 18 23 16.5 2.8 2.5 5.6 24 23 12 19 9.8 13 20 8.4 0 0 0 20 46 84 0 0 0 0 72 0 0 8 15 245 0 0 0 0 4 6 0 0 0 0 0 0 0 0 0 10 6.33 19 24 17.5 3.8 3.2 6.1 25 24 13 20 10.8 14 21 9.4 0 0 0 20 50 90 0 0 0 0 66 0 0 8 15 249 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 A330-200 A340-300 A340-500 A350-1000 A350-900 A380-800 777-200 777-200ER 777-200LR 777-300 777-300ER 744ERF 744F 777LRF 747-8F 1 -1 2 -1 2 4 7 7 -5 12 0 -1 1 2 3 3 3 3 1 -5 18 -2 -2 -2 -1 -7 -8 -6 -6 -6 2 -2 10 -1 -4 -2 -5 -5 10 10 5 8 -1 -3 -2 -4 -5 -5 5 13 8 5 5 6 5 4 6 5 8 6 11 6 4 6 -10 -10 -7 0 0 A330-200 A340-300 A340-500 A350-1000 A350-900 A380-800 777-200 777-200ER 777-200LR 777-300 777-300ER 744ERF 744F 777LRF 747-8F 5.70 1 14 13 2 9 3 3 10 1 Age In svc Order 8 13 6.5 29 8 10 0 0 12 3 6 10 12 53 3 3 2 0 151 0 0 0 20 50 78 0 0 0 0 48 0 0 6 15 217 2011 Age In svc Order 9 14 7.5 1.7 15 14 3 10 3.7 4 11 1.3 6.25 29 7 10 14 1 6 10 12 57 3 3 3 155 20 50 76 44 5 15 210 2012 Age In svc Order 10 15 8.5 1.6 16 15 4 11 4.2 5 12 1.4 60 29 4 10 24 2 10 12 64 3 2 5 165 20 50 66 37 3 15 191 2013 Age In svc Order 11 16 9.5 1.8 17 16 5 12 4.7 6 13 1.7 5.85 27 10 34 10 12 71 3 1 7 175 20 50 56 30 1 15 172 2014 Age In svc Order 12 17 10.5 2.2 18 17 6 13 4.9 7 14 2.4 5.43 17 10 44 10 7 83 3 8 2 184 20 50 46 18 13 147 2015 Age In svc Order 13 18 11.5 1 2.7 19 18 7 14 4.8 8 15 3.4 4.66 7 5 5 52 10 2 101. 1 8 5 196 20 45 38 10 113 2016 Age In svc Order 14 19 12.5 1 0.6 3.2 20 19 8 15 5.8 9 16 4.4 4.32 5 18 60 10 99 8 8 208 15 32 30 7 84 2017 Age In svc Order 15 20 13.5 1 1.2 3.8 21 20 9 16 6.8 10 17 5.4 4.78 10 23 66 10 92 8 11 220 10 27 24 4 65 2018 Age In svc Order 16 21 14.5 1.3 1.9 4.4 22 21 10 17 7.8 11 18 6.4 5.20 15 27 72 10 84 8 14 230 5 23 18 1 47 2019 Age In svc Order 17 22 15.5 1.8 2.2 5 23 22 11 18 8.8 12 19 7.4 5.46 20 35 78 5 78 8 15 239 15 12 27 2020 Age In svc Order 18 23 16.5 2.8 2.5 5.6 24 23 12 19 9.8 13 20 8.4 5.76 20 46 84 72 8 15 245 4 6 10
Recommendation structure
Absolute performance, short term (trading) recommendation: A Trading Buy recommendation implies upside of 5% or more and a Trading Sell indicates downside of 5% or more. The trading recommendation time horizon is 0-60 days. For Australian coverage, a Trading Buy recommendation implies upside of 5% or more from the suggested entry price range, and a Trading Sell recommendation implies downside of 5% or more from the suggested entry price range. The trading recommendation time horizon is 0-60 days. Absolute performance, long term (fundamental) recommendation: The recommendation is based on implied upside/downside for the stock from the target price and, except as follows, only reflects capital appreciation. A Buy/Sell implies upside/downside of 10% or more and a Hold less than 10%. For research produced by Nedbank Capital, a Buy implies upside in excess of 20%, A Sell implies an expected return less than 10%, and a Hold implies a return between 10% and 20%. For UK-based Investment Funds research, the recommendation structure is not based on upside/downside to the target price. Rather it is the subjective view of the analyst based on an assessment of the resources and track record of the fund management company. For research produced by Nedbank Capital and for research on Australian listed property trusts (LPT) or real estate investment trusts (REIT), the recommendation is based upon total return, ie, the estimated total return of capital gain, dividends and distributions received for any particular stock over the investment horizon. Performance parameters and horizon: Given the volatility of share prices and our pre-disposition not to change recommendations frequently, these performance parameters should be interpreted flexibly. Performance in this context only reflects capital appreciation and the horizon is 12 months. Market or sector view: This view is the responsibility of the strategy team and a relative call on the performance of the market/sector relative to the region. Overweight/Underweight implies upside/downside of 10% or more and Neutral implies less than 10% upside/downside. Target price: The target price is the level the stock should currently trade at if the market were to accept the analyst's view of the stock and if the necessary catalysts were in place to effect this change in perception within the performance horizon. In this way, therefore, the target price abstracts from the need to take a view on the market or sector. If it is felt that the catalysts are not fully in place to effect a re-rating of the stock to its warranted value, the target price will differ from 'fair' value.
Distribution of recommendations
The tables below show the distribution of recommendations (both long term and trading). The first column displays the distribution of recommendations globally and the second column shows the distribution for the region. Numbers in brackets show the percentage for each category where there is an investment banking relationship. These numbers include recommendations produced by third parties with which RBS has joint ventures or strategic alliances.
Long term recommendations (as at 25 Jan 2011)

Global total (IB%) Buy Hold Sell Total (IB%)
Source: RBS
Trading recommendations (as at 25 Jan 2011)

Global total (IB%) Trading Buy Trading Sell Total (IB%)
Source: RBS
Europe total (IB%) 243 (36) 172 (17) 34 (3) 449 (26)
Europe total (IB%) 0 (0) 0 (0) 0 (0)
733 (14) 444 (7) 114 (1) 1291 (10)
1 (0) 0 (0) 1 (0)
Valuation and risks to target price

British Airways (RIC: BAY.L, Rec: Buy, CP: 2.83, TP: 3.50): The risk of ifalling away from our DCF-based target price could arise from a weakening revenue environment, spiking fuel costs, further strike action or logistical problems in the Iberia merger. Air France-KLM (RIC: AIRF.PA, Rec: Buy, CP: 13.65, TP: 17.50): Downside risks to our DCF-based target price are most clearly macro, such as weakening global economies, rising oil prices, industrial unrest or new aviation taxation. Deutsche Lufthansa (RIC: LHAG.DE, Rec: Buy, CP: 15.83, TP: 19.00): The risk of Lufthansa falling below our DCF-based target price might arise from surprisingly weak monthly or quarterly results, or industrial unrest. Other industry risks include a double-dip recession, spiking fuel prices, and excessive return of capacity to the industry leading to a wilting yield recovery. The German avaition tax could weigh on the stock. Iberia (RIC: IBLA.MC, Rec: Buy, CP: 3.42, TP: 3.80): The risks of Iberia falling away from our DCF-based target price arise from any challenges to the merger, signs of industrial unrest, indications that LATAM is veering towards competing alliances, or the usual airline risks of deteriorating revenues, spiking fuel or geopolitical instability.
British Airways coverage data Stock performance, recommendations and coverage (as at 25 Jan 2011) Trading recommendation history (as at 25 Jan 2011)
Date Rec n/a
Source: RBS
Analyst
Andrew Lobbenberg started covering this stock on 29 Oct 02. Moved to new recommendation structure between 1 November 2005 and 31 January 2006. Source: RBS
Airlines | Disclosures Appendix | 26 January 2011
Air France-KLM coverage data Stock performance, recommendations and coverage (as at 25 Jan 2011) Trading recommendation history (as at 25 Jan 2011)
Date 14 Apr 2008
Source: RBS
Rec Trading Sell
Analyst CA CA
22 May 2008 n/a
Deutsche Lufthansa coverage data Stock performance, recommendations and coverage (as at 25 Jan 2011) Trading recommendation history (as at 25 Jan 2011)
Date Rec n/a
Source: RBS
Analyst
Iberia coverage data Stock performance, recommendations and coverage (as at 25 Jan 2011) Trading recommendation history (as at 25 Jan 2011)
Date Rec n/a
Source: RBS
Analyst
Regulatory disclosures
None
Global disclaimer
Copyright 2011 The Royal Bank of Scotland N.V. and affiliated companies ("RBS"). All rights reserved. This material was prepared by the legal entity named on the cover or inside cover page. It is provided for informational purposes only and does not constitute an offer to sell or a solicitation to buy any security or other financial instrument. While based on information believed to be reliable, no guarantee is given that it is accurate or complete. While we endeavour to update on a reasonable basis the information and opinions contained herein, there may be regulatory, compliance or other reasons that prevent us from doing so. The opinions, forecasts, assumptions, estimates, derived valuations and target price(s) contained in this material are as of the date indicated and are subject to change at any time without prior notice. The investments referred to may not be suitable for the specific investment objectives, financial situation or individual needs of recipients and should not be relied upon in substitution for the exercise of independent judgement. The stated price of any securities mentioned herein is as of the date indicated and is not a representation that any transaction can be effected at this price. Neither RBS nor other persons shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material. This material is for the use of intended recipients only and the contents may not be reproduced, redistributed, or copied in whole or in part for any purpose without RBS's prior express consent. In any jurisdiction in which distribution to private/retail customers would require registration or licensing of the distributor which the distributor does not currently have, this document is intended solely for distribution to professional and institutional investors. Australia: Any report referring to equity securities is distributed in Australia by RBS Equities (Australia) Limited (ABN 84 002 768 701, AFS Licence 240530), a participant of the ASX Group. Any report referring to fixed income securities is distributed in Australia by The Royal Bank of Scotland NV (Australia Branch) (ABN 84 079 478 612, AFS Licence 238266). Australian investors should note that this document was prepared for wholesale investors only. Canada: The securities mentioned in this material are available only in accordance with applicable securities laws and many not be eligible for sale in all jurisdictions. Persons in Canada requiring further information should contact their own advisors. EEA: This material constitutes "investment research" for the purposes of the Markets in Financial Instruments Directive and as such contains an objective or independent explanation of the matters contained in the material. Any recommendations contained in this document must not be relied upon as investment advice based on the recipient's personal circumstances. In the event that further clarification is required on the words or phrases used in this material, the recipient is strongly recommended to seek independent legal or financial advice. Denmark: Royal Bank of Scotland N.V. is authorised and regulated in the Netherlands by De Netherlandsche Bank. In addition, Royal Bank of Scotland N.V. Danish branch is subject to local supervision by Finanstilsynet, The Danish Financial Supervisory Authority. Hong Kong: This document is being distributed in Hong Kong by, and is attributable to, RBS Asia Limited which is regulated by the Securities and Futures Commission of Hong Kong. India: Shares traded on stock exchanges within the Republic of India may only be purchased by different categories of resident Indian investors, Foreign Institutional Investors registered with The Securities and Exchange Board of India ("SEBI") or individuals of Indian national origin resident outside India called Non Resident Indians ("NRIs"). Any recipient of this document wanting additional information or to effect any transaction in Indian securities or financial instrument mentioned herein must do so by contacting a representative of RBS Equities (India) Limited. RBS Equities (India) Limited is a subsidiary of The Royal Bank of Scotland N.V.. Italy: Persons in Italy requiring further information should contact The Royal Bank of Scotland N.V. Milan Branch. Japan: This report is being distributed in Japan by RBS Securities Japan Limited to institutional investors only. South Korea: This document is being distributed in South Korea by, and is attributable to, RBS Asia Limited (Seoul) Branch which is regulated by the Financial Supervisory Service of South Korea. Malaysia: RBS research, except for economics and FX research, is not for distribution or transmission into Malaysia. Netherlands: the Authority for the Financial Markets ("AFM") is the competent supervisor. Russia: This Material is distributed in the Russian Federation by RBS and "The Royal Bank of Scotland" ZAO (general banking license No. 2594 issued by the Central Bank of the Russian Federation, registered address: building 1, 17 Bolshaya Nikitskaya str., Moscow 125009, the Russian Federation), an affiliate of RBS, for information purposes only and is not an offer to buy or subscribe or otherwise to deal in securities or other financial instruments, or to enter into any legal relations, nor as investment advice or a recommendation with respect to such securities or other financial instruments. This Material does not have regard to the specific investment purposes, financial situation and the particular business needs of any particular recipient. The investments and services contained herein may not be available to persons other than 'qualified investors" as this term is defined in the Federal Law "On the Securities Market". Singapore: Any material in connection with equity securities is distributed in Singapore by The Royal Bank of Scotland Asia Securities (Singapore) Pte Limited ("RBS Asia Securities") (RCB Regn No. 198703346M). Without prejudice to any of the foregoing disclaimers, this material and the securities, investments or other financial instruments referred to herein are not in any way intended for, and will not be available to, investors in Singapore unless they are institutional investors (as defined in Section 4A(1) of the Securities and Futures Act (Cap. 289) of Singapore ("SFA") or relevant persons falling within Section 275 of the SFA and in accordance with the conditions specified therein or otherwise fall within the circumstances under Section 275 of the SFA. Further, without prejudice to any of the foregoing disclaimers, where this material is distributed to accredited investors or expert investors as defined in Regulation 2 of the Financial Advisers Regulations ("FAR") of the Financial Advisers Act (Cap. 110) of Singapore ("FAA"), RBS Asia Securities is exempted by Regulation 35 of the FAR from the requirements in Section 36 of the FAA mandating disclosure of any interest in securities referred to in this material, or in their acquisition or disposal. Recipients who do not fall within the description of persons under Regulation 49 of the Securities and Futures (Licensing and Conduct of Business) Regulations or Regulations 34 and 35 of the Financial Advisers Regulations should seek the advice of their independent financial advisor prior to taking any investment decision based on this document or for any necessary explanation of its contents. Thailand: Pursuant to an agreement with Asia Plus Securities Public Company Limited (APS), reports on Thai securities published out of Thailand are prepared by APS but distributed outside Thailand by RBS Bank NV and affiliated companies. Responsibility for the views and accuracy expressed in such documents belongs to APS. Turkey: The Royal Bank of Scotland N.V. is regulated by Banking Regulation and Supervision Authority (BRSA). UAE and Qatar: This report is produced by The Royal Bank of Scotland N.V and is being distributed to professional and institutional investors only in the United Arab Emirates and Qatar in accordance with the regulatory requirements governing the distribution of investment research in these jurisdictions. Dubai International Financial Centre: This material has been prepared by The Royal Bank of Scotland N.V. and is directed at "Professional Clients" as defined by the Dubai Financial Services Authority (DFSA). No other person should act upon it. The financial products and services to which the material relates will only be made available to customers who satisfy the requirements of a "Professional Client". This Document has not been reviewed or approved by the DFSA. Qatar Financial Centre: This material has been prepared by The Royal Bank of Scotland N.V. and is directed solely at persons who are not "Retail Customer" as defined by the Qatar Financial Centre Regulatory Authority. The financial products and services to which the material relates will only be made available to customers who satisfy the requirements of a "Business Customer" or "Market Counterparty". United States of America: This document is intended for distribution only to "major institutional investors" as defined in Rule 15a-6 under the U.S. Exchange Act of 1934 as amended (the "Exchange Act"), and may not be furnished to any other person in the United States. Each U.S. major institutional investor that receives these materials by its acceptance hereof represents and agrees that it shall not distribute or provide these materials to any other person. Any U.S. recipient of these materials that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this document, should contact and place orders solely through a registered representative of RBS Securities Inc., 600 Washington Boulevard, Stamford, CT, USA. Telephone: +1 203 897 2700. RBS Securities Inc. is an affiliated broker-dealer registered with the U.S. Securities and Exchange Commission under the Exchange Act, and a member of the Securities Investor Protection Corporation (SIPC) and the Financial Industry Regulatory Authority (FINRA). - Material means all research information contained in any form including but not limited to hard copy, electronic form, presentations, e-mail, SMS or WAP. ____________________________________________________________________________________________________________________________________________________ The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and attributed to the research analyst or analysts in the research report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and, (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this research report. On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts. ____________________________________________________________________________________________________________________________________________________ For a discussion of the valuation methodologies used to derive our price targets and the risks that could impede their achievement, please refer to our latest published research on those stocks at research.rbsm.com. Disclosures regarding companies covered by us can be found on our research website at research.rbsm.com. Our policy on managing research conflicts of interest can be found at https://research.rbsm.com/Disclosure/Disclosure.AspX?MI=2. Should you require additional information please contact the relevant research team or the author(s) of this report.

2011-01-26 What Would You Do With 90 A380s

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2011-01-26 What Would You Do With 90 A380s

Uploaded by

Copyright:

Available Formats

Equity | Europe

Produced by: The Royal Bank of Scotland N.V.

Air France-KLM Deutsche Lufthansa

250 Bishopsgate, London, EC2M 4AA, United Kingdom http://research.rbsm.com

Important disclosures can be found in the Disclosures Appendix.

Airlines | Table of Contents | 26 January 2011

Appendix We present our detailed fleet plan and network plans.

Airlines | Table of Contents | 26 January 2011

Examining the scale of the Gulf threat

We are Buyers of European network airlines

We remain optimistic for long haul premium demand

Our recommendation is focussed on trading the cycle

There are significant medium term threats

We think fears around Gulf carriers are overstated

Airlines | Executive Summary | 26 January 2011

We do not foresee industry destabilisation

Just growth opportunities to India constrained

The Gulf threat examined

We model Emirates fleet and network plans in detail

Airlines | Executive Summary | 26 January 2011

We build a hypothetical fleet plan and route network

We derive intra-regional traffic forecasts from the hypothetical network

Growth plans consistent with Boeing and Airbus estimates

What confidence can we have in this benign conclusion?

Might Emirates be tempted to dump capacity in Europe?

Emirates has significant competitive advantage in the growth markets we identify

Should Emirates be tempted to chase fifth freedom routes from Europe?

Stopping in Europe offers poor service to high-growth India-US market

Where we might be wrong

Airlines | Executive Summary | 26 January 2011

What could produce a less benign outcome for European carriers?

India-Dubai could become predominantly a low-cost carrier market

Inability to gain traffic rights could drive more capacity to Europe

The Emirates copycats could destabilise the market

What could produce problems for Emirates?

Airlines | Executive Summary | 26 January 2011

Consequences for European network airlines

How are European airlines threatened by Gulf carriers?

Chart 2 : European carrier capacity by seat

Airlines | Executive Summary | 26 January 2011

Chart 3 : European carrier exposure to Emirates relvant markets

BA/Iberia current key markets not threatened

Indian growth aspirations challenged

Lufthansa suffers from a decentralised home market

Air France a balanced network

And a centralised home market

Airlines | Executive Summary | 26 January 2011

Threats to both Air France and Lufthansa

European network airlines will keep up the pressure

Gulf carriers have high service levels and low costs

3,500 Passenger Length of Haul (km)

Airlines | Executive Summary | 26 January 2011

Current European strategies

Some European carriers are trying to restrict access to markets

Seeking to limit liberalisation of the industry is a delicate matter

Secure partners in the hinterland of the hubs

Airlines | Executive Summary | 26 January 2011

If you cant beat them?

The move would strengthen the alliance position in India

Understand which traffic flows are defensible

... as does Europe-China

Lobbying efforts will also continue

Airlines | Executive Summary | 26 January 2011