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When a Dubai sheikh speaks

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Hazel Heyer  Apr 28, 2008

DUBAI, United Arab Emirates (eTN) - Dubai’s Emirates Group - comprising Emirates Airline, Dnata and subsidiary companies – continues to weather the storm despite the world’s worst crises, said His Highness Sheikh Ahmed bin Saeed Al-Maktoum, chairman and chief executive of Emirates Airline and Group during the recent the World Travel & Tourism Summit (WTTC)’s Global World Travel & Tourism Summit held here last week.

For Sheikh Ahmed, Dubai’s airline business has no issue with the credit crunch as it has with fuel prices. This, in a country supposedly rich in natural gas but has reduced dependence on oil in recent history. “With pressure from fuel costs continuously dampening our net income production, Emirates has returned consecutive annual profit, and we are… expanding our operations in an increasingly competitive environment,” he said.
Emirates has placed an order for 70 A-350s and 58 A-380s (with the first to go out this October) operating four to four-and-a-half-hour flights.

Fuel costs remained the top expenditure accounting for EK out of all total operating costs. Like other airlines, in 2006, Emirates was forced to increase fuel surcharges on tickets that only covered 41 percent of incremental costs.

The airline’s jet fuel risk management program helped mitigate fuel costs, saving the company $189 million in 2006.The outlook however, remains somber in a volatile global market where oil prices have hit new record highs this morning.
However, despite the sky-rocketing price of oil, Emirates Airline is not exempt from the pinch. The sheikh underscored that just because Dubai is in the Gulf region, the biggest producer in the world, does not necessarily mean they are getting oil cheaper than the rest of the world. They too have to refuel out of Shell or BP – and yes, without subsidy from the government.

If oil rises to $150 a barrel, can Emirates Airline possibly go on? Can the incident be catastrophic as to paralyze EK’s operations?

The aviation head appeared unfazed by the possibility. He said: “If we go back three to four years ago, $117 today is something unthinkable. Today, people cannot believe how we had the old price. We are hedging above $100 a barrel. We are budgeting for $100 a barrel over a year to three, four or even five years. And this is a test of resilience. We are not supported by the government.”

Looking at the airline’s good cash reserve helps EK face the challenges further ahead. Sheikh Ahmed: “Whatever will happen will happen. Nothing lasts forever. What we worry about, if at all, are fuel prices. We don’t see any decline in passenger traffic. We are doing great. We have very good numbers. We cannot see oil go from $150 and higher, but obviously in any business including airline, prices will go up should fuel prices go up. Everything will go up. I don’t see any decline ahead.”

That said, Al Maktoum’s focus is the growth of the group and Emirates Air. He also welcomes the competition but with absolute focus on his own. He said he does not care what the others do or say about EK.

Soon-to-open Dubai’s newest six-runway airport, one that’s much bigger than Chicago O’ Hare’s, has been rumored to sideline London, Frank, Paris and Singapore as hubs. However, EK’s CEO categorically denied the talks. “No, we are not sidelining those airports. Our geographic location allows us to fly all over the world non-stop. The new airport allows anybody to fly around the globe almost non-stop, I don’t think we’re replacing anybody and nobody can replace Dubai.”

With the expanded operation, there are also talks about difficulty in handling the extra load, almost mammoth task, which may put Dubai airport under so much pressure with additional baggage, conveyance, buses, shuttles etc to manage.

His Highness thinks they will not be affected as a brand. Nothing more. “We are not under pressure. Yes, our airport today is over capacity by double the regular flow. There are already 20 million today, this year we expect to receive 40 million passengers. Our ground handlers, ATC, airport authority and staff still cope. And no, we won’t reach the point when everybody says it’s too much, we can’t handle this. There will always be growing pains, as always, like anyone’s concern. EK has reached the top, but we are maintaining our spot at the top.”

EK is owned by the government of Dubai. Given the flexibility by the government, the management of Emirates has freedom to do what it thinks works best for the airline, as long as the bosses don’t ask the government for any subsidies or guarantees. His Highness debunked accusations that Emirates receives hidden government support and subsidies, reiterating that the company’s success is based on a sound and simple business model that focuses on growth and investing in innovations to keep ahead of the competition.

Subsidies from the government included $10 million and not one dirham more. Emirates’ CEO said they now are paying dividends to the government every year. “We have no support from the government at all, our financial results show that. And for those many other governments who accused us of doing so, we are happy to open our books to them. For those who accuse, they can go to our airport and check our books.”

When a Dubai sheikh speaks
Image via wikimedia



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