CEO Interview -& Competition Time
Tim Clark President of Emirates and
Managing Director of SriLankan Airlines
How has the recent economic crisis affected Emirates?
We’re continuing to record modest growth in what is probably the harshest trading environment that I’ve every known. The past 12 months have been challenging for every airline worldwide. Every leadership team debated long and hard about how to keep their passengers, maintain yields and retain profitability.
The industry has had to cope with many external shocks in this decade with 9/11, SARS, record oil prices and swine flu, to name just a few. Despite the tough conditions, we’re getting through it and load factors are holding up well.
Has the crisis fundamentally changed your outlook and the way you operate?
Our fundamental business strategy remains unchanged. This is to continue to grow to meet the demands of travelers around the globe, and building on our global route network by offering more high-quality, convenient services. We have withstood previous crises such as wars and health scares, but always emerged stronger.
That said, all businesses must continue to evolve as the environment around them changes. Emirates is no exception. While the basic strategy behind our business has not changed, we’ve adjusted our operation to ensure that demand and supply are best matched, tightly managed all our costs and continued to accelerate the introduction of new products and services to ensure that Emirates will remain among the best carriers in the world. Examples of this include our investment in dedicated lounges across our network, which now totals $73 million.
Environment seems to be higher on Europe’s political agenda than in the Middle East. How do you view Emirates’ role in helping aviation achieve its environmental targets?
All airlines have an important role to play and a responsibility for minimizing the impact of their operations, regardless of where they are based. This includes Emirates.
The UAE’s environmental regulations and policies are developing rapidly. We are playing a role in shaping and developing these policies in relation to aviation and environmental best practice.
The average age of our fleet is just 67 months. The Airbus A380 is the most fuel-efficient passenger aircraft in the skies, and Emirates already has five in service and is the largest customer with orders for a further 53 aircraft. They offer fuel economy as low as 3.1 litres per 100 passenger km, which is better than a Toyota Prius. Emirates A380s use the Engine Alliance GP7200 engines, which save a further 500,000 litres of fuel per aircraft per year than other alternatives.
We also undertake a number of other activities to manage and minimize fuel and emissions. These include the “flextracks” flight planning system on flights between Dubai and Australia where literally tonnes of fuel can be saved per flight. Where allowed, we also modify flight plans en route to minimize fuel burn and emissions, and we’re participating in “tailored arrivals” projects.
We have a team of people dedicated to ensuring that we minimize and continually reduce the environmental impact of our operation. We also continue to assess development in biofuels, and see potential in the development of algae-based fuels which we would consider using as and when it becomes feasible.
How will the European emissions trading scheme affect the airline? And what are the priorities for Copenhagen?
Emirates has invested considerable time and resources preparing for the EU’s Emission Trading Scheme (ETS), as EU destinations account for 20% of our overall activity. Despite lingering questions over the legality of the EU ETS, Emirates is committed to complying with any requirements of the scheme. The cost to our business and customers will be nearly $750 million over the first phase of the scheme, from 2012 to 2020.
The biggest disappointment about the EU ETS, in my view, is that none of the member states collecting revenues from this scheme are obliged to put these monies back into climate change mitigation projects, or research into improving aviation efficiency or biofuel development. The UK Exchequer has clearly said that it will put these funds into general revenue—so what’s the point? This is on top of collecting an “environmental tax” in the form of the Air Passenger Duty, and whatever else the United Nations Framework Convention on Climate Change dreams up for us at Copenhagen.
As such, Emirates strongly supports the industry efforts of ICAO, IATA and others to create a global aviation emissions trading scheme—based on a sectoral approach—where aviation pays for its emissions once only. We need to find measures that take into account the needs of developing countries as we did with the global solution on noise. We must also ensure recognition of “early movers” —those airlines who have already invested heavily in modern, fuel-efficient aircraft.
The most important thing for the industry at this point in time is to present a united front leading up to Copenhagen. This must be done through ICAO. Aviation is a global industry and greenhouse gas emissions are a global issue. The complexities of a fractured, regional patchwork of emissions trading schemes, departure taxes and adaptation levies would be too unworkable to contemplate. But if we aren’t united and proactive in our approach, this is what the industry will be facing—paying for our emissions up to three times over.
How do you view social media? Is Emirates going to exploit the potential of Facebook, blogs, Twitter and the like?
Social media is an important and growing part of the communications mix. It is still an evolving area, however, so we are watching the developments closely while taking a measured approach to utilize the opportunities presented by this new platform to listen to, and communicate with, our customer and stakeholder audiences.
In 2007, we used YouTube and Facebook to communicate the launch of our Dubai-Sao Paulo service with a native Brazilian who talked about his native country non-stop for 14 hours and 40 minutes—the length of the flight. Just last month, our wide-ranging “Meet Dubai” campaign, in which an actor spoke unscripted about a number of different aspects of Dubai, was previewed on YouTube before being used in other media.
How important will new technology be to future operations? Do you believe in being an innovator or fast follower? And how does your IT division, Mercator, fit in to your strategy?
New technology will always be an integral part of making our operations more efficient, more customer-friendly and even safer than before.
Across the Emirates Group we have always tried to innovate, wherever possible and, through our successful Mercator division, have developed technology that is custom-built for our operation and industry. Indeed, the service-proven success of our technology means that there is great demand for it from other carriers. Recent examples include RAPID—Mercator’s revenue accounting solution, which was recently introduced by Emirates and subsequently purchased by seven other airlines across the globe.
On the cargo side, our next-generation SkyChain system, which replaced legacy systems up to 30 years old, has been purchased by three carriers.
Fatigue risk management has become a major issue and you recently found it necessary to issue a press release on the subject. What are the advantages of the new system over prescriptive rules?
Emirates agrees with many other scientific bodies who have critiqued prescriptive rules as inadequate to the task of managing work-related alertness levels in pilots. That is why Emirates was a leader in the development and application of the Fatigue Risk Management System in Emirates Flight Operations more than five years ago.
The system takes into consideration a variety of different scientifically derived objective parameters including circadian disruption in defining the maximum duty periods, and develops means to counteract individual alertness degradation in ways a single regulation cannot. Additionally, Emirates participates in a number of forums where the issue of flight and duty time is being debated and discussed today. This includes EASA, ICAO, IATA and the FAA’s Aviation Rulemaking Committee in the United States.
Do you support IATA's Agenda for Freedom and how would liberalization affect your strategy?
As strong believers in aviation liberalization, we are in favor of any initiative that helps bring down the remaining aeropolitical barriers still stifling the healthy development of the airline industry.
We support IATA's Agenda for Freedom, even though we were hoping that the final document would be much bolder in addressing the vital issues of market access and traffic rights liberalization. In that sense, the Agenda for Freedom's opportunity to promote liberalization has not been fully exploited. We do believe, though, that it is still a promising step in the right direction—and a commendable achievement for IATA—which will hopefully lead to a more far-reaching commitment of the signatory countries to liberalize international air services in the future.
We know there has been clear evidence of a progression towards aeropolitical multilateralism in the past 20 years. More and more countries are recognizing that liberal air access has a multiplier effect on their economics and protection of their national carriers no longer stacks up in the cost-benefit equation or serves their national interest. Unwittingly, they have been subsidizing their national carriers through a fortress mentality and the elimination of competition, and other primary sectors of their economies have suffered as a result. Emirates itself draws its strength from the open skies environment at its main operating base, Dubai International Airport, where we compete with over 125 other scheduled airlines.
Liberalization has invariably been central to Emirates' strategy of operating a high-quality airline and brand, flying a fuel-efficient fleet and offering travellers true value across a global network through our hub in Dubai. Like our government, we embrace open competition, which is good for consumers and the global economy.
How important is Dubai to the future of the airline?
No one is denying that Dubai has been affected by the global upheaval, but it must also be acknowledged that some of the doomsday reports about the city have been wildly exaggerated in the media.
Like any carrier, we may have to make some short-term adjustments to our operation to ensure we can ride out the current economic challenges and remain profitable. But our longer-term strategy of sustained growth is viable and sustainable. Dubai is, and will always be, one of the central pillars of Emirates’ growth, both as a destination and our hub. The infrastructure and facilities are now in place and are continuing to be developed to ensure that Dubai remains an emerging powerhouse in the region and on the global stage.
We continue to see encouraging news at Dubai International Airport. There was double-digit growth in passenger traffic for the third consecutive month with Dubai Airports announcing a 10.7% jump in passenger numbers during August. This follows increases of 10.3% in June and 12.6% in July.
What role will the new airport, Dubai World Central-Al Maktoum International, play?
Emirates has just completed the first year of operation at Terminal 3 at Dubai International, exclusive to Emirates’ customers. More than 15 million passengers passed through this facility in the 12 months since its opening on 14 October 2008. In time, this will be followed by Concourse 3, providing no fewer than 18 A380 gates. These massive infrastructural projects will boost the airport’s overall passenger capacity to 75 million.
Dubai International is sufficient for our immediate needs and any move of EK operations to Al Maktoum International, and the timing of such a shift, is a decision for the government of Dubai, which is also the owner of the airline.
When all is said and done, does aviation have a sustainable future?
Aviation, like all business sectors, has a wide range of things to do to ensure it has a sustainable future. We’re already a considerable way along the road to sustainability thanks to advances made in the aviation industry. For example, jet engines have become around 70% more fuel efficient over the past 40 years.
Aviation has always tried to enhance its effectiveness and efficiency—something you cannot say about the maritime industry, for example. It lags way behind what we have been doing. However, as an industry we have been slow to communicate these enhancements and we must do this more effectively moving forward.
Emirates currently has 138 aircraft in its rapidly growing fleet—a mix of 130 Airbus and Boeing passenger aircraft and eight freighters. Emirates’ fleet is also one of the youngest in the skies, with an average age of 67 months.
Recent majort orders:
- At the Dubai Airshow in November 2007, Emirates signed contracts for 120 Airbus A350s, 11 A380s and 12 Boeing 777-300ERs.
- The contracts are worth an estimated US$34.9 billion in list prices.
- The agreement with Airbus comprises firm orders for 50 A350-900s and 20 A350-1000s, plus 50 options for the A350-900s.
- The first A350 will be delivered to Emirates in 2014.
- Its total firm order for the A380s now numbers 58.
- Emirates became the world’s largest airline operator of Boeing 777 aircraft.
- It now has another 27 Boeing 777s pending delivery, worth over $7 billion.
- Emirates’ total order book now stands at 154 aircraft, all wide body, and is worth over $50 billion