Emirates Thinks Out Of The Box

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At a time of high fuel prices and unrest in the Middle East many carriers are considering to curb down the routes or increase fares. However Emirates proves to the world that it is an innovator and not a follower.

Every time fuel prices rise, airline ticket prices rise, this is the trend worldwide. Though it is tempting, Emirates intends to be unconventional.

The biggest international airline is not worried about higher fuel prices. It said that it will combat profit squeeze from high fuel prices by slashing fares to fill its 500 seat Airbus A380s.

I can understand how irritated some airlines become, because 43 percent of our daily costs are for fuel, and its out of our control, Clark said last week in Paris. But the last thing you should contemplate is capacity reduction. Its easy to do, but it has sounded the death knell for so many carriers.

It has been normal industry practice to target profitable routes and overlook those which hinders cash flow.

That strategy is risky because it hurts sales and destroys confidence among passengers, airports, holiday companies and businesses in destination cities, so that traffic often never returns, Clark said on June 20 after a visit to the Paris Air Show.

Growth

Emirates is clear about its growth and strategy. Clark cited U.S. based Trans World Airlines Inc. and Pan American World Airways as major carriers that have gone bust during his career after fatally paring back their networks.

He also said that the airline is planning on sticking with a rapid growth model based on building Dubai into a high-volume, inter-continental travel hub using a wide-body fleet featuring 90 A380 superjumbos with 45,000 seats, Clark said.

While cutting fares to sell tickets on the 517-berth planes will push up the occupancy level needed to break even, the impact of government spending cuts in many overseas markets means that strategy is more likely to succeed than one based on curbing capacity and raising fares, he said.

We have no intention of cutting back our growth. But that doesnt stop us from redeploying assets if we think we can get a better return on a certain route, he added.

Emirates had an 80 percent occupancy level in the year to March 31, when it boosted passengers 14 percent to 31.4 million and lifted net income 43 percent to 5.93 billion dirhams ($1.6 billion) on sales that rose 26 percent to 57.4 billion dirhams.

Stimulate demand

There is a wave of austerity in Europe from France and the U.K. to Ireland and Greece, and people are concerned about that, Clark said. But what has changed in the last 20 years is that whereas travel used to be way down the list of priorities, people now rate it as the No. 1 thing they want to do.

So we need to stimulate demand and get back to pricing levels that are affordable for the customers while still giving us a margin.

Deutsche Lufthansa AG (LHA) and British Airways have already slashed costs after oil surged to more than $145 a barrel in 2008, sending jet fuel to a record $4.36 a gallon, and have little room left for maneuver, Clark said.

Airlines will probably achieve a collective profit of $4 billion this year, 54 percent less than previously forecast, the International Air Transport Association said June 6, citing the impact of higher oil prices, Arab unrest and the Japanese earthquake and tsunami.

When oil reached $145 that caused a huge reworking of the way things were done, and airlines got themselves back on an even keel and began making money again, only to get another kick in the solar plexus when it went back to $120, Clark said. Now everyone says lets contract, ground planes and lay off crew. But this time the cupboard is bare.

Dominos

Brent crude reached $127 a barrel on April 11 and was priced at about $112 yesterday. Clark said oil needs to sell for between $60 to $80 a barrel for airlines to operate in comfort.

Emirates is also conscious of the impact that reining in jet orders would have on manufacturers, Clark said, with contract cancellations or modifications likely to prompt an horrendous domino effect among smaller carriers that could compromise Airbus SAS, Boeing Co. (BA) and their supplier base.

You start to bring down the global duopoly when its in our interests to maintain it, he said. In a leaner industry your costs go up because you dont have the plethora of choice.

Clark said hes in any case confident the plane orders are necessary as Dubais location between Asia and Australasia and Europe, North America and Latin America allows Emirates to tap demand spurred by globalization and growth in emerging markets.

Summer travel

Emirates have been keeping a low profile for a while. it is a classic case of a tiger moving slowly ready to pounce an industry analyst told arabiangazette.com. Compared to other GCC carriers Emirates was quiet at the Paris Air Show however it was only a matter of time before they made headlines

Emirates have announced its slashing of prices at the most appropriate time. Many families have planned to travel for the summer and beat the heat. This is the best time to offer such facilities. Other carriers havent showcased their offers but I doubt anyone of them decided to take such a route. This will put Emirates at the top of the consumers summer list.

We did not decide to take a vacation this year, but now we may re-consider told a PR analyst from Dubai.

Apparently it is not only Dubai based consumers who are enthusiastic about the move. Mohammad a businessman from Qatar told that he feels very enthusiastic about the move. I wish that the reduction in price is across the board and across all countries that Emirates operates.

Low cost carriers

Low budget airlines have become a cheap and efficient way to travel. The price fits into everyones wallet.

This move of the airlines would definitely make some of the low budget carriers nervous.

Im very happy Emirates decided to reduce ticket prices. Now we can take our family holiday and travel in style a mother of two told arabiangazette.com. Even though we were planning on flying a budget airline now we will definitely change our reservations.

Emirates has definitely adopted a path less travelled by its competitors.

Thinking out of the box is not new for Emirates and this is why it is one of the most successful airline companies in the world.

Source: Bloomberg, Emirates 24 7, Emirates

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