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Full speed ahead for Emirates

Tim Clark says Emirates prefers to grow organically and sukuk is one of the key options to finance new aircraft orders

Tim Clark is an aviation 
veteran of 42 years who needs no introduction. The quick-witted executive, who last year was the best airline personality, representing the best airline in the world, has his finger on the pulse of the aviation industry worldwide.

A member of the founding team of Emirates as head of airline planning, Clark became president of the national carrier in 2003 after spending 18 years helping build an empire envied by the rest of the world.

He strategised the airline’s aggressive expansion and shook up the world with the biggest orders in aviation history.

On the sidelines of the airline’s inaugural trip to Boston, the poster boy of Emirates reflects on the carrier’s successes and constrains, growth strategies and the future of the industry in the Middle East.

Excerpts from the round table:

What are the US gateways Emirates is looking at? Any particular cities on your radar?

If you want specific names, I am not going to play my hand at this stage of the game. The US market is an extremely important one for us. Our operations to the US have been very successful, growing all the time. The quality of business is also growing. We now have A380s flying twice a day to New York. There is also an A380 service to Los Angeles. Remember, the A380 was never designed to fly distances like that with the kind of payload we have. We have done so much work on the aeroplane with the help of the manufacturer to be able to get 485 passengers to Los Angeles every day. These services had started with the 200LRs having 266 seats, so it gives some idea of the pace at which these US points have been growing. Look at the cities in the US that fall into the same kind of size frame and there are quite a few of them that we can target.

What is holding back Emirates’ aggressive expansion in the US and what is standing in the way of the airline acquiring more landing rights in Canada?

Canada is a little time warp. But we are not giving up on it, though it is difficult. The expansion into the US was mapped in 1998 and we signed the agreement in 1999 which facilitated open skies etc. We had actually purchased a whole sub fleet of A340-600s identified for the US markets in 2000. We subsequently changed them to more of A380s. Then 9/11 came along and shut everything down. We were fairly traumatised because of the nature of what happened and the concern the Middle Eastern people had. But the bounce back was fairly strong and at that point we saw 20 points in the US that we could target.

Do you have plans to repeat the Qantas-style agreement or hub building in the US or elsewhere?

No, we are not seeking to expand other than organically. Qantas was a completely separate issue. We are not looking to do things of that ilk at the moment.

What are your main achievements this year and expectations for next year?

It has been a better year compared to the last financial year. In the last two years we have flown into 27 new destinations and taken on 45 new aircraft. In airline economic parlance, to have grown your production — we laid out two completely new international airlines — and kept the profit and cash growing is a solid positive sign. That’s an incredible feat because in my aviation experience when we grow business that quickly, your cash flow starts to take a beating.

So the high points of last year and the year before was the ability of the organisation to grow the business to the extent we have, and at the same time keep it profitable and cash positive as well as keep the balance sheet strong. That’s what you will see again at the end of this financial year.

How can you continue to grow so fast and still maintain the same quality?

It is because of our scalability. In a customer-facing business you have to spend more time and money ensuring the 20,000 cabin crew or the ground staff are equally aware of the criticality of the service offerings. So our training organisations have very high levels of alertness to react very quickly.

Tim Clark is a member of the founding team of Emirates. He became president of the national carrier in 2003 after spending 18 years helping build an empire envied by the rest of the world. — KT photo by Suresh Pattali

Secondly, we spend an awful lot of time and money, constantly refreshing and reinvigorating the products we offer to try and make the people aware of the value proposition — be it bigger televisions, different types of food, new baths or showers. So there is a kind of culture of excellence that permeates the company. I am not saying we are perfect all the time. We a carry a million passengers a week at the moment, and some of them are going to get a little bit upset sometimes, but generally it is good story.

What are Emirates’ major constrains?

Growth at the scale of which we do breeds problems. We are trying to grow the Dubai hub as quickly as possible. There are areas of compression as a result of the surge in flight moments. We have air traffic control issues. Air spaces needed to be managed. These are the constraints we have been working on with the governments in the UAE.

Another area of concern is geopolitical. Emirates has become an extremely well-known global aviation brand and is now the No 1 airline brand in the world. That brings great kudos, but at the same time creates problems because people are concerned about our growth. They try to block what we are trying to achieve and we have to spend time to deal with that scenario.

India has allocated additional seats to Dubai. Does it mean Emirates is going to have more Indian destinations?

The Indian government calls the shots on that. They have given 11,000 more seats to Dubai which have to be shared between Emirates and flydubai. We had asked for 30,000 just for a starter and multiple points in India in addition to what we have at the moment. We did not get any of those. So we have to carve up the cake as best we can. Since May 2008 six long years have passed with no single extra seat coming from India, and we are running at 90 per cent. It’s such a pity.

Do you expect India to open up any time soon?

Do you want to bet? No, I don’t think so.

Do you expect Emirates to go for public listing?

Look, I am the airline manager. I am not the owner. They pay me to manage it, but they don’t pay me to decide whether to go for public listing or whatever. That’s for the Government of Dubai to decide. Maybe one day they will do it, but I have no idea.

Do you have any airline acquisition on the cards?

Not at the moment. I never say never because I am never going to sit in this chair for ever. We don’t know if all the people may one day come and tell me this is what they want to do. So never say never.

With the planned 80-day runway closures in May, how’s that going to affect flights, or is there a possibility of Emirates moving some of its operations to the new Al Maktoum International airport? Also, will Emirates ultimately split its operations into two hubs?

The runway shutdown, of course, will give us difficulties, taking away 50 per cent of the production. Those runways are used 24/7, unlike at Heathrow where they have curfews. There is no point trying to make a big fuss about it. I am happy to ground 20 aircraft in that period of time and we are doing our best to deal with how to minimise the impact.

At the same time we have the foreign carrier community to be looked after, making sure they get a fair share. Being the hub carriers, I think flydubai and Emirates have taken the biggest hit on the shutdown. So we are trying to consolidate as much as we can since May is a fairly quiet month in international aviation terms. We also have the holy month of Ramadan in July. So in terms of timing it is a good time to go. Nevertheless, we still have to put 20 aircraft on the ground, and each aircraft has six sets of crew. So we are requesting them to take leave; we are not going to remove anybody. We just have to run the operations a bit tighter.

About the question of who will go to Dubai World Central [DWC], I believe flydubai will operate from there. Others will follow. Post 2020, the Dubai government will build a world-class field at Al Maktoum which will accommodate all or some. As we get closer to that time, they will decide who is going there. But whoever goes, DWC won’t be short changed.

But don’t forget that they have said clearly that Dubai International Airport [DIA] of today will remain open. If we are moved, just say, all the terminal we have just built will be inherited by foreign carriers. However, Emirates will not, at any cost, operate from both hubs.

How do you place the Middle East market in the next 10 years?

Let’s assume the geopolitics and the economic factors at play do not constrain what is likely to happen, and then I think it will almost go nuclear. Hub carriers like ourselves and the low-cost carriers are all poised to grow further. Even Indian carriers, at the latest round of talks, have expressed interest to open hubs in Dubai. They all want to come but we can’t accommodate them at Dubai International. If they want to go to DWC, ahlan wa sahlan.

So imagine an Indian carrier having 50 aircraft on the ground. They feel so constrained in their own theatre of operations that they look at someone like Dubai which is unconstrained. Don’t break the law and fly safely as you go — that’s on the table for them.

So I see more of this trend growing, with the caveats of geopolitical non-interference and the economic forces at play are allowed to grow encumbered. I can see the spend elements in the GDP are growing at a high rate now. Look at the build programmes in Dubai — they are talking about building over 80,000 hotel rooms. Look at the growth in the medium enterprises that are going into the free trade zones. Look at the number of Indian startups expanding. Look at the Chinese growth at the Dragon Mart — they are doubling the size. Oh yah, there is a lot going to happen in the Middle East.

I think some of the European carries have got their heads in the sand about that. For us, the Middle East is a honeycomb.

Will you increase fares or cut overheads to manage any rise in operational costs?

A rule of our business is the customer-facing service will remain world-class, will remain the best in class, and will remain the bar where everybody seeks to get to. We are spending an awful lot of money in the next generation of jets. So we have to manage all of these through a very efficient house operation, maximising the untilisation of the assets like the A380 — it is a $450 million aircraft. So there are other ways of offsetting the cost growth in product development and these are the areas we actually need to go after. Behind the scenes, we are pretty ruthless about who gets what, why and when.

If you look at a recent report done by external agencies, Emirates is the lowest cost operation of its type in the world today. When we set up the airline in 1985, one of the rules of the game was that we must keep our cost at such a level that we can grow our products to a high level of demand. That’s what we have done and are sticking to it. If you don’t want to raise the fares and spare the people, you have to manage the cost structure so systematically.

What is Emirates’ strategy in the run-up to Expo 2020?

As I said, in the last two years we have added 27 new cities and taken on 45 new aircraft with many of them being the A380s. In November last year, we signed the largest aviation order in aerospace history — for 150 777Xs and another 50 A380s. That would tell you were we are taking the airline to by 2020-23. It is a formidable proposition. Had the expo not happened, would we’ve done the same? Yes, we would.

How is Emirates paying for the new aircraft?

There are multiple places where we can go to pay for the order books. The Islamic market is particularly fertile at the moment. We can look at sukuk and other bonds. We can also look at other sources such as renting out airplanes as you rent out a house. It has never been a problem for us to get finance, mainly because the balance sheet is so strong. The company’s track record of profitability and cash generation is strong. The management has been fairly much the same as it has been. So we are regarded as a low-risk gilt-edged investment placement vehicle.

So are you looking issuing sukuk in the immediate future?

We are looking all these options at the moment as we have lots of aeroplanes coming in. So there will be more of such types of financial vehicles in future.

There are reports that you have not firmed up or signed the order for the A380s placed in November? Will you be signing it soon?

It will be done. There had never been a problem of a done deal not being signed. We always do as we have promised. There may be issues of mismatch of timings and trying to structure the deal etc. The most difficult part is the last five per cent of any deal. But yes, it will be done; I cannot say when.

Since Nepal is a major tourist destination, why isn’t Emirates looking at the Himalayan Kingdom?

Nepal is certainly on our radar.

— suresh@khaleejtimes.com