Emirates: A 'glass half full' airline

Richard Vaughan, senior vice-president of commercial operations for East Asia and Australasia at Emirates Airlines, discusses growth and the downside of alliances.

Emirates Airlines symbolises the heady days of the past decade. From a massive A380 order to in-flight showers in first class, the airline made a name for itself outdoing its competitors. But with the world in the midst of a global recession, can the airline continue its lavish spree?

Based on Emirates' earnings for the six months to September 2008, it is clear that things are not as rosy as they once were. Citing fuel costs, the airline's net profit fell 88% to Dh284 million ($77 million) from a year earlier. Operating revenue grew 31% to Dh22.1 billion, but costs rose faster at 50.4% year-on-year. Revenue passenger traffic growth was 11%, which is below the capacity growth of 13%. For the previous fiscal year to March 2008, Emirates net profit rose 62% to Dh5 billion.

Despite the darkening economic landscape, Richard Vaughan, Emirates' senior vice-president of commercial operations for East Asia and Australasia, is buoyant about the airline's prospects. From its plan to expand 14% in 2009 with the addition of 18 new aircraft -- in contrast, Singapore Airlines will reduce capacity by 11% and cut 17 aircraft this year -- to turning down queries from the global airline alliances, Vaughan tells FinanceAsia that he is confident about Emirates strategy to go it alone, downturn or not.

How is Emirates performing in the current economic climate?
Obviously there's an effect but we're still pretty confident going forward. We are holding our own in most markets, some are patchy but there is no consistent trend downwards. The premium travel market is definitely softening.

Most of the Far East is doing well. China is a little bit of an issue because there are some issues around visas being issued overseas, but we expect [travel to] China will come back.

Given the current economic climate, why is Emirates going forward with its expansion plans?

We're definitely a "glass half full" airline rather than a "glass half empty" one. We're positive about the future and are looking to continue to develop the airline. We have a long-term plan and we're sticking to it. You could say now we should reconfigure some of the aircraft so that we can take into account soft business in any particular cabin but by the time you finish it you're on another curve up again. We remain positive about the future so we will continue on our path.

For example, it was incredible how quickly the market in Bangkok came back after the airport closure. Other than the 10 days that it was closed, it bounced back immediately; within the first week we made money. Asia remains resilient for us.

Is Emirates planning the make any acquisitions or join an alliance?
We're not merging with anyone and we're not going into an alliance. There is no value. I have the firm belief that the consumer will end up paying more because an alliance, by its nature, will control markets. Therefore, when you control the market you can charge what you like. Alliances are like 10 or 20 wives or husbands that you've got to please at the same time. When you're in an alliance and you say you want to fly a new route you have to consider the alliance partners who operate the same route; this restricts you.

Weaker carriers probably get support from the stronger carriers [in an alliance] but it comes back to having control over your own destiny. As an independent airline you have this control. The best solution for us is to stay away from [alliances] and be concerned about making our own product the best as humanly possible.

What are some of the economic benefits from Emirates' service?
We develop passenger flows because of our [Dubai] hub operation. For example, when we started operating to Moscow there suddenly emerged a large market between Moscow and East Africa. Whether that market was there before I don't know, but I think it wasn't and we opened up a new market. This is good for Kenyan tourism, a good opportunity for Russians to travel and good revenue for Emirates.

When can we look forward to an Emirates IPO?
Any decision for an IPO rests with our owners, the Government of Dubai. Emirates' chairman and chief executive, Sheikh Ahmed bin Saeed Al Maktoum, did talk about the possibility of a partial IPO nine-months ago but no date was mentioned. In a buoyant market, floating a product like Emirates would be a huge success but now there's just not a lot of trust in the market.

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