The Four Companies That Created Air Transport – Emirates – The New Standard

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In the mid-1980s, no one could have bet a dollar on the future of Emirates, whose creation on 15 March 1985 followed Gulf Air’s gradual withdrawal from Dubai services. Operations commenced on 25 October 1985 using two Boeing 737s leased from Pakistan International Airlines with flights between Dubai and Karachi. At the time, Dubai bore no resemblance to what the city has become today, largely due to the contribution of its airline, which had no domestic market. And the political situation in the area has gone through strong shocks with two wars in Iraq and a number of latent conflicts between the Gulf states. And yet, almost 40 years later, it has become the world reference for air transport. How can this be explained?

Admittedly, from the beginning, the Dubai government provided the necessary funds for the creation and start-up of the carrier by injecting $80 million into the operation, but this is the only financial contribution it has received from the beginning. We must look elsewhere for the keys to success. I see three of them for the most part.

First of all, there is a great deal of stability in the management. Since 1985, Emirates has had only one Chairman: Sheikh Ahmed bin Saheed Al-Maktoum and two CEOs, Maurice Flanagan and, since 2003, Sir Tim Clark. And this team agreed perfectly to decide on a strategy that has never varied: to connect the countries of the East of the World to the countries of the West by having passengers transit through an extremely high-quality facility, which more than compensated for the lack of a local market. This is what has forced the company to always achieve excellence in its product, whether in operations or on-board service, but also in all the peripheral trades that make it possible to create this new standard of quality, I mean training, ground handling, engineering, all down to the smallest details,  such as the choice of typefaces, colors, or reception in trade fairs in Dubai.

It also took a lot of audacity to become the first and soon the only major customer for the largest civil aircraft, the A380, which allowed Emirates to define and put into operation a product of unparalleled quality. This is how the Dubai-based carrier has become completely dominant for First and Business class customers for all passengers transiting through the Gulf. This is also the reason why the Dubai “hub” has faced strong competition from Western European airports, whose quality of service has become so incomparable with that of the major Gulf hubs. It should also be noted that this model has been copied with varying degrees of success by its competitors in the same area: Qatar Airways with a certain success and Etihad Airways which has suffered a resounding failure.

In any case, all airlines, with the notable exception of the American ones, whose strategy is primarily dependent on the domestic market, have had to position themselves in relation to Emirates. The first concern was to have modern fleets that were more comfortable and more economical to operate, and then to be able to use airport facilities of a level and organization unknown until then. It is also clear that a large part of Emirates’ success is due to the complicity between the company, its airport and its handling company, all of which are owned by the Government, which avoids conflicts of interest. I note that all the new major airport facilities in Europe, I am thinking of Istanbul and in Asia, China, Indonesia or India, are designed on the same principle.

So it is not unusual to recognize that Emirates has initiated and developed a new standard for international long-haul air transport. This has also been profitable because since its creation, the company has only had two years of loss in 2021 and 2022, as has the entire air transport industry. In 2023, it posted a net profit of $3.2 billion on a turnover of $32.6 billion, and as far as we know, the figures for 2024 (the company closes its accounts in March) will still be much higher.

The lesson is clear, quality pays off and customers are willing to pay the asking prices and even choose a transit through Dubai even if it means extending their trip a little to benefit from a service on board that it would be too long to recount here.

$100 Billion for a new Gulf air transport player

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100 billion dollars is the staggering sum that the government of Saudi Arabia has put on the table to develop its air transport. To give you an idea, this corresponds to nearly 4 times the turnover of Air France/KLM and twice that of the Lufthansa Group. The announcement dates from June 2024 and was reiterated at the last World Economic Forum in Davos in the Saudi Arabian pavilion by the GACA (General Authority of Civil Aviation).

What is this manna for? According to GACA’s head of strategy, Mohammed Alkhugaisi, it consists of tripling the number of passengers, developing the number of destinations served to reach 250, and handling 4.5 million tons of cargo. To do this, 50 billion dollars will be devoted to airport infrastructure, by increasing, among other things, the number of runways at Riyadh’s King Salman airport to 6. 40 billion will be used to acquire new aircraft, at 100 million dollars the average price of an aircraft, which still corresponds to 400 units. The last 10 billion will be used to create an infrastructure for logistics and maintenance. All this by 2030 if we are to believe the plan unveiled in June 2024 and confirmed in Davos.

This will seriously shake up Gulf air transport. It is currently shared between Emirates Airlines and Qatar Airways, with other significant carriers such as Etihad Airways, which is recovering from its past strategic mistakes, Gulf Air, which is starting to show its nose again, Kuwait Airways, and Oman Air, not to mention the Saudi carrier Saudi Arabian Airlines and the “low-cost” Air Arabia. The arrival of a new carrier largely supported by one of the richest states on the planet is enough to cause some problems for already established operators, especially since they also have undisguised growth ambitions. The deadlines are fast. Within 5 years, a new landscape will be operational.

It is easy to imagine that Emirates Airlines and Qatar Airways will have no desire to lose their current leadership. This is exercised not only in the Gulf but throughout the world. In terms of passengers/kilometers carried, Emirates Airlines is by far the leading international carrier; it must be said that the Dubai company has no domestic market. Qatar Airways is fighting to make its mark, the company is aiming for the first, but it is not won. So the arrival of a powerful Riyadh Air will further exacerbate the competition, especially if the latter accepts alcohol on board, which is an essential criterion to welcome an international clientele. After all, it is possible that under the influence of its new leader, Mohammed bin Salman, this country will copy its neighbors’ policies on alcohol consumption.

If we count correctly, in 2030 the Gulf will have 5 first-tier carriers: Emirates, Qatar Airways, Etihad Airways, Saudi Arabian Airways, and Riyadh Air, all largely supported by their respective states, which will provide them with all the airport facilities they need and without them being held back by a repressive ecology, as will be the case for Western airlines. The strike force of these operators will be considerable. Counting the current aircraft plus orders, we arrive at a total of 577 Airbus and 641 Boeings, i.e., more than 1,200 aircraft with an average capacity of 250 passengers. This is enough to destabilize international air transport.

Because two scenarios can be envisaged. The first is to imagine fierce competition between airlines that will have to fill their aircraft well. They can only pick up customers outside the Persian Gulf because the majority of “domestic” passengers in this region will use the services of powerful “low-cost” airlines such as Air Arabia or FlyDubai, to name but two. So it is very possible that the major operators will lower their tariffs to supply their fleets. It is difficult to see how traditional Western airlines can follow such a strategy. They will be condemned to lose market share. The other hypothesis is that, in the end, Gulf carriers agree among themselves to keep a consistent fare level and that they focus their attention and investments on improving the quality of service and the ease of transit in their largely modernized airports.

In both cases, Western companies have a real concern to worry about.