Emirates Sets New Standard for Airlines, But Will Its Master Plan Fly?

"From Dubai you can reach almost any inhabited place on earth nonstop," says Seth Kaplan of Airline Weekly. While Emirates and other Middle Eastern airlines may compete with U.S. airlines on some routes, it is the major airlines of Europe, namely Air France/KLM, British Airways, and Lufthansa, which are likely to be caught in the tug-of-war for global travelers if these new Middle Eastern carriers are successful in re-routing business travelers through their hubs.

While many European and Asian airlines are known for superior in-flight service, Emirates, Etihad, and Qatar Airways have eclipsed these offerings, winning numerous awards for excellence. They are rapidly becoming the favorites of many business travelers. Besides limousine service on the ground, Emirates offers gourmet dining, 1,000 channels of in-flight entertainment, and private first-class suites complete with fully stocked individual mini-bars. Their new Airbus A380's have two showers on board with spas large enough to accommodate an entire family.

How can an airline afford such extravagance in the current economy when other airlines are cutting costs and services just to stay afloat? In many markets, Emirates can command a premium price. Kaplan believes business travelers will pay for a quality experience on a long flight and that Emirates can roll out high-quality business- and first-class products system-wide because most of their routes are long-haul. It is also far more cost effective to outfit a new airplane with the latest technology and in-flight amenities, while there is less benefit upgrading an older airplane closer to retirement.

Emirates and the other airlines in that region have another huge advantage over U.S. and European airlines. From Dubai, Emirates serves ten nonstop destinations in India, four cities in Pakistan, more than a dozen cities in the Middle East, a similar number of African destinations, more than 20 European cities, and another 20 or so ports of call in Asia and the Pacific. No European airline covers that breadth and depth of destinations outside Europe, and all U.S. airlines combined serve only two cities in India and four in the Middle East, with Delta as the only U.S. airline flying to Africa.

Additionally, Kaplan says Dubai is very supportive of Emirates, with a new airport that is expanding to handle 70 million passengers annually, making it one of the busiest in the world. Dubai also has open skies, making it easier for Emirates to expand in other countries that reciprocate. Finally, Dubai has lower aviation taxes and fees than many other places. There might be less than $100 in taxes and fees on a typical long-haul flight from the U.S. to or through Dubai, while those same taxes and fees can be $400 transferring through London Heathrow or Frankfurt. Thus, Emirates can charge the same price as British Airways or Lufthansa and pocket the difference.

Emirates is owned by the government of Dubai, which many consider to be an unfair advantage, but Emirates is run like a business and reports financials as an independent company. For the 2007-08 fiscal year ending March 31, Emirates earned a $1.45 billion profit. For the first six months of fiscal 2008, Emirates' earnings were down to $77 million as a result of higher fuel prices, but with depressed oil prices, profits could rebound if Emirates' 78 percent load factor persists.

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