hassanmosaid79
Emirates Global Strategy OPENING CASE Emirates is one of the…
Emirates Global Strategy
OPENING CASE
Emirates is one of the world’s largest airlines. With service to more than 150 cities in 80 countries across the globe through a fleet of 300 aircraft, in 2019 Emirates ranked fourth in the world by total scheduled passenger kilometers flown. The airline was also the second-largest cargo airline in the world behind Federal Express. Emirates was incorporated in 1985 in Dubai, the most populous city in the United Arab Emirates and the capital of the Emirate of Dubai. The airline, which is state owned, started its operations with just two aircraft.
If Emirates had followed the standard pattern on smaller startup airlines, it perhaps would have established a number of short haul routes, serving other locations in the Middle East. In fact, it pursued a radically different global strategy. Using Dubai as a hub, Emirates positioned itself as a long-haul, low-cost global carrier, with ambitions to connect the world through Dubai. Dubai’s location on the Persian Gulf was strategically valuable because it was ideally positioned to connect the West and East. Still, it was an audacious strategy. Emirates’ business model was focused purely on purchasing wide-bodied long-haul aircraft that would be able to link any two points on the globe through its 24-hour hub in Dubai. To support this strategy, Emirates emerged as the largest operator of Airbus’ A380 super jumbo jets. Indeed, Emirates operates nearly half of all A380s ever delivered. The company also has the world’s largest fleet of long-haul Boeing 777 aircraft.
This strategy has given Emirates a cost advantage that comes from several sources. First, if it can fill its fuel-efficient wide-bodied jets, the operating cost per passenger mile will be lower than for airlines that operate a mixed fleet of long-haul and short-haul jets, as do all other major airlines. Short-haul networks tend to be more expensive to operate, with higher costs per passenger mile. Second, as a relatively new airline, Emirates does not have the legacy costs associated with high labor costs, pension requirements, union work rules, and the like that burden many long-established airlines (to say nothing of the fact that unions are rare in Dubai). Third, the corporate tax rate in Dubai is zero, which is another source of cost advantage.
Despite its relatively low operating costs, it would be incorrect to think of Emirates as a low-cost airline in the mode of Southwest or Ryanair. Far from it, Emirates offers a full complement of first- and business-class seating, premium in-flight service, and lounges in airports for business and first-class travelers. In 2019, Emirates was 10th out of 80 global airlines ranked by AirHelp by on-time performance, service quality, and claim processing. Measured on service quality alone, Emirates was ranked number one in the world. The double advantage of being able to offer high-quality service at a low cost goes a long way to explaining Emirates’ emergence as one of the world’s major airlines. Its strong global brand helped to drive demand, which resulted in full aircraft and lower operating costs.
Another interesting aspect of its strategy concerns its partnership with the Dubai government to promote Dubai as a leisure destination for tourists, as well as for business and professional conventions. The city has a large number of luxury hotels, restaurants, clubs, beaches, amusement parks, shopping malls, and so on, turning it into a destination in its own right, rather than just a hub. This strategy creates more demand and helps to fill incoming and outbound aircraft, which further lowers Emirates’ operating costs.
Despite all its advantages, however, Emirates has been particularly hard hit by the sharp decline in airline travel resulting from the COVID-19 global pandemic. As airline travel slumped in 2020, Emirates could no longer fill its A380s and 777 aircraft, operating costs surged, and losses mounted. The company has cancelled orders for additional A380s, and in anticipation of several years of depressed demand due to the pandemic, for the first time it is adding some smaller aircraft to its long-haul mix. To shore up demand, the airline is also looking to boost its strategy of bringing more travelers to Dubai for vacations and conventions, hoping this will help to fill its aircraft.
QUESTION 1 -a Summary of the case.
QUESTION 2: Emirates positions itself as a long-haul, low-cost global carrier. What gives
Emirates a competitive advantage over rival airlines?
QUESTION 3: Despite being a relatively young airline, Emirates has quickly established itself
as a power player in the industry. How has the company achieved this?
QUESTION 4: The COVID-19 pandemic threw the airline industry into a state of chaos. How
has the strategy that helped make Emirates a major player in the industry also made it more
difficult for the airline to be competitive in the changed environment?
