Emirates positive on prospects for Dublin

 

Emirates would have set up in Ireland a lot earlier than it did but for certain key factors, but its president says the airline has had a positive experience since its launch here in January

UNLIKE BELGIAN singer Édith Piaf, Emirates president Tim Clark has a few regrets. High among them was the decision not to enter the Irish market until January of this year, even though Dublin had been on the Dubai-based carrier’s radar for about 20 years.

“With hindsight, I regret not having moved earlier. Clearly, had we moved in the 1990s or 2000/2001 years we would have been much more established here. We would have had probably two flights a day by now and probably done very well.”

Why did Emirates wait so long?

“A number of things,” he says. “In the early years we were not concerned so much about the volume but about the yield . . . the quality of the pricing coming out of Ireland.

“Secondly, the opportunity costs of the aircraft. In other words, we could probably have made more money going elsewhere at the time. Even in the boom years.”

The 9/11 terrorist attacks on the United States also had a hand.

“When 9/11 came along . . . it became slightly lower down the pecking order, which again, was a bit of a shame.

“Eventually, we reacted, and what we thought would happen in those years is exactly what has happened. It has outperformed our expectations.”

Emirates gave its Abu Dhabi neighbour Etihad Airways a significant head start on attracting Irish travellers to the Middle East and beyond.

Etihad’s group chief executive James Hogan has consistently stated the Irish routes are very profitable for the airline. It flies here 10 times a week and plans to move to twice a day at some point in the near future. Emirates has had a similarly positive experience since launching here in January.

On May 1st, it deployed a larger, 360-seat Boeing 777-300ER on the Dublin-Dubai route to cope with demand. It has so far carried about 120,000 passengers on the route.

Clark says a second daily flight “won’t be far behind” – “within the next 18 months or two years” is his prediction.

“It depends really on the availability of aircraft. They are coming in thick and fast now. We had a setback with the [Airbus] A380 in the early years. All our programmes were affected by that. Whereas we would have been into Dublin by 2007/2008, the A380 programme was three years late for us and that set back all our [expansion] plans.”

The airline recently added a second daily flight from Glasgow, so Dublin shouldn’t prove a stretch.

Clark even joked that if he could get a “runway extension” for Cork Airport, he’d put a flight in there given that he has a house in Lismore. About 40 per cent of the passengers leaving Dublin are hopping off in Dubai. The rest are using the Emirates hub to fly onwards to Australia and New Zealand, and parts of Africa and Asia. “We are opening up Adelaide in a couple of months,” he says. “That will be our fifth point in Australia. We are the biggest [overseas] player, apart from Singapore Airlines, in Australia.”

Ironically, given that we are in the depths of the worst recession in memory, Emirates offers a first-class cabin on its Dublin flights, in addition to business and economy.

Clark said Ireland, Spain and Greece are among its best performers in Europe. Go figure.

“The connectivity that we have [from Dubai] has been particularly successful,” Clark says.

He sees Emirates as a throwback to the golden era of international travel, when BA and Pan Am brought an element of glamour and excitement to flying and had truly global networks.

Nowadays, it’s all about global alliances. So you might book with BA but fly with another member of the Oneworld alliance. Emirates eschews such alliances, preferring to plough its own furrow.

“We serve 125 cities from Buenos Aires at one end to the Philippines, to North America and Africa. There is no other airline in the history of civil aviation that has done what we have done.”

The success of its services here is probably part due to emigration and part export-led.

Clark says Emirates currently has no taste for buying a strategic stake in Aer Lingus, be it the Government’s or otherwise.

“At this stage we don’t have any interest in buying a stake in Aer Lingus. We are keen to do business with Aer Lingus commercially but as far as buying into it at this stage – no.”

Unlike Etihad, which owns just under 3 per cent of Aer Lingus, Emirates prefers not to take strategic stakes in other carriers. It did that with Sri Lankan Airlines for about a decade until 2008.

“A lot of my time and my colleagues’ time was spent running that business – perhaps to the detriment of Emirates.”

Emirates was founded in 1985 with a $10 million cheque from Sheikh Mohammed bin Rashid Al Maktoum, which allowed it to lease two aircraft. Today, it has 180 aircraft in service, with another 223 on order with a list value of $62 billion.

Clark has been with Emirates since day one. According to his biography profile, he had established a reputation as a “talented route planner” during four years at Bahrain’s Gulf Air. Before that, he was with the now-defunct British Caledonian Airways.

He earned an economics degree from London University in 1971, using some of those skills to scrutinise demographic data and passenger statistics in identifying profitable new routes for Emirates.

Pakistan was the first target market, as it had a population of 150 million and just one, state-owned carrier at the time. Emirates’ first flight took off for Karachi on October 25th, 1985. India then followed, and it has since gone on to build a network of 74 countries.

Emirates’ expansion continues at a rate of knots. This year alone it has launched routes to 15 new cities, including Rio de Janeiro, Ho Chi Minh City and, of course, Dublin.

It’s more a travel and tourism vehicle for Dubai, which suffered its own economic crash post Lehman Brothers, as many of those who did business there were credit-crunched by the lack of cheap cash. In the 2011/12 financial year, the Emirates Group increased revenues by 17.8 per cent to $18.4 billion and recorded its 24th consecutive annual profit.

It puts millions behind its brand worldwide, for instance numbering Arsenal, AC Milan and Paris St Germain among the top football clubs it backs.

Everyone is expecting a big-ticket sponsorship at Ireland at some point. To date, the airline has dipped its toes in the water by backing the Irish Open golf tournament and sponsoring television programme Masterchef on RTÉ.

“We wouldn’t have difficulty entering into any sponsorship here. We are receptive, ready and willing to engage, as we do in other markets. It’s only a question of time before we have organised ourselves to do something there. We’ll find something and we’ll do it in a way that is commensurate with the way we do things in the organisation.”

Emirates was approached about the naming rights for the RDS but “we’re not doing anything at the moment”, he said.

He gets a little prickly when asked how Emirates differentiates itself here from its younger UAE rival Etihad. Both serve similar markets and portray themselves as providing a top-class service to travellers they won’t get from legacy airlines.

“I don’t spend my time trying to differentiate myself from Etihad. The models that Etihad and Qatar have tend not to be dissimilar to our model. Etihad started in 2004 and they came to Ireland sooner. They’ve done quite a good job here . . . I think James [Hogan] will tell you that they are still doing fairly well .”

The big bugbear for all airlines at the moment is the price of fuel. Emirates is no different, despite the perception in certain quarters that it gets a sweetheart deal from the oil-rich UAE. In fact, Dubai has little or no oil to its name.

“Some say we have subsidised or free fuel. We don’t. We have to pay the normal market rates,” he explains.

Fuel accounts for 42 per cent of Emirates’ total costs and Clark estimates this year’s bill will be more than $6 billion (€4.8 billion).

Increased fuel costs were the reason its profit in the 2011/12 financial year fell by 72 per cent to $410 million. Emirates abandoned hedging a few years back when the price of oil fell back sharply from its peak of $147 a barrel, leaving many airlines locked into expensive hedging contracts.

“I have said to my masters in Dubai that I can manage the business up to about $120/$125 a barrel. Once it goes above that, it becomes extremely difficult.” Oil prices were trading earlier this week at about $114 a barrel.

“The oil price remains stubbornly high. I refuse to accept that this is to do with true pure economics. It is subject to the manipulation powers of the speculators in the business.

“To me, the true oil price today would be $70 or $80. Its volatility remains a mystery to many of us in the business today. It is something I would love to see a full international inquiry [into] – as to how oil trades are done and what is going on there. I don’t think it should be at the price it is today.”

What would prices above $120 a barrel mean for Emirates?

“At that point the company reaches its breakeven point and you either start to strip more costs out, which is the long run is damaging to your growth model, or you start to contract. Those are anathema to the way that Emirates has grown its business over the past 27 years.”

He paints a gloomy picture for the aviation industry as a whole if oil prices go above $120.

“You will see the industry go into a spiral downwards like you’ve never seen before in the history of aviation. Certainly, the peripheral airlines will go out of business and you would start seeing a major contraction of the sector. ”