By STEVE ROTHWELL and ANDREA ROTHMAN
Published: June 23, 2010
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LONDON — Emirates, the international airline, is rattling rivals in Europe and Asia with a growth splurge that may be as game-changing for long-distance carriers as the expansion of Ryanair and Southwest Airlines was over shorter routes.
Emirates, a 25-year-old company, is building up a fleet of 90 Airbus A380 superjumbo aircraft with a total of 45,000 seats and operating costs that the manufacturer says are 12 percent lower than those for Boeing’s latest 747.
That is a threat to European carriers that specialize in the same long-distance transfer traffic, the chief executive of British Airways, Willie Walsh, said during an interview.
Emirates’ latest order, for 32 A380s worth $11 billion, was announced this month. It will give the airline 70 more superjumbos than any other airline, funneling price-sensitive passengers through its Dubai hub in a challenge to network carriers including Lufthansa, Air France-KLM and Singapore Airlines. Competitors say that the company is benefiting from government ownership and that they cannot compete with its purchasing power.
“It’s a miracle that Emirates already has more intercontinental seats than Air France and British Airways combined,” said Wolfgang Mayrhuber, the chief executive of Lufthansa. “It took us 40 years to get 30 747s in the air in one of the biggest global economies, so one must assume that this is an investment for the world.”
Emirates ranked only 24th among international airlines as recently as 2000, putting it on a par with Sabena, the state-owned Belgian carrier that failed a year later. In the intervening period the Gulf carrier has increased traffic sixfold, overtaking Lufthansa last year to become the biggest carrier for international flights. British Airways, ranked No.1 in 2000, now is fourth.
“We always planned to grow,” Maurice Flanagan, the founding chief of Emirates and current executive vice chairman, said during an interview. “We were just never able to put our finger on how quickly. Now we’re short of capacity all the time.”
Rivals should follow the Emirates example in buying more large planes to reduce expenses per head, he said.
“I can’t understand why other airlines have been so slow to pick up on the A380,” Mr. Flanagan said. “The economics are fantastic.”
Emirates, which reported net income of $964 million for the year ended March 31, has reached the top spot while remaining outside the three main airline groupings, choosing instead to build Dubai into a transfer hub to compete with alliance bases in London, Frankfurt, Amsterdam, Paris, Singapore and Hong Kong.
Chris Tarry, an independent analyst who has followed the airline industry for two decades, said the model was largely the result of improved jetliner range and Dubai’s fortuitous location midway between Europe and Asia.
“First, there’s now the technological capability to join any two places on the globe with just one stop,” Mr. Tarry said from London. “Second, Dubai is very well placed to capture those intercontinental traffic flows from North America to Asia and Europe to Asia and Australia and so on.”
Emirates has 14 daily routes from six British airports, including five from Heathrow, the busiest European hub, and three from London Gatwick. Starting in September, one of two daily flights from Manchester in northern England will handle the A380, the plane’s first service to a secondary city.
Weight reductions and improved fuel loads should allow the superjumbo to reach the West Coast of the United States from Dubai by 2014, Mr. Flanagan said. The chief salesman for Airbus, John Leahy, predicted that more airlines would buy the plane to defend market share from Europe to Asia and across the Pacific.
While Mr. Flanagan estimates that 40 percent of traffic from Britain connects to other cities via Dubai, Mr. Walsh, the British Airways chief, says that the Gulf carrier is a bigger threat to Lufthansa and Air France-KLM because of the greater proportion of transfer passengers who travel through Frankfurt, Paris and Amsterdam.
“It’s definitely going to have an impact on the business,” Mr. Walsh said last week. “It’s challenging a segment of the market that is important for B.A. But there are other European hubs where the reliance on transfers is bigger.”
The British carrier’s Oneworld alliance partner, Cathay Pacific, will aim to counter the expansion of Emirates with “enhanced connectivity” from its own hub in Hong Kong, a spokeswoman said in an e-mail message.
The Emirates model is eroding network carriers’ long-distance traffic in the same way that discount airlines have eaten into short-haul operations.
The effect could be even greater, since much of the success of Ryanair, which has increased revenue eightfold, to €3 billion, or $3.7 billion, in a decade to become the biggest European low-cost airline, came from linking cities with no air service, whereas Emirates is confronting established carriers more directly on some of their most profitable routes.
Basic to the strategy is the use of so-called sixth-freedom treaties that permit flights between two nations by an airline from a third via its home country. The model works best on long-distance routes requiring refueling, on which Emirates does not lose out to competitors by stopping in Dubai, and for passengers who care more about ticket prices than the duration of a journey.
Andrea Rothman reported from Paris.
Bloomberg News
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