Emirates is transforming into a lean and hungry machine that is bouncing back from declining profits in 2016. He's doing this with an aggressive approach to industry inefficiencies, and a raft of initiatives in next-gen technologies
On day four of the Dubai Airshow, as ITP Media Group title Aviation Business sat down to speak with Emirates president, Sir Tim Clark, the wires were aflood with stories about the airline’s tug of war with a certain European aircraft manufacturer.
Emirates had kicked off Dubai’s biennial aviation marquee by shocking the world with an order for 40 Boeing Dreamliners on Day 1, and no A380s. Clark’s statement earlier in the year turned out to be the one that rang most loudly: that he wouldn’t be pressured by a “guillotine in November” to seal a deal for more of the superjumbos that have defined its fleet over the last decade.
The airline would likely still have pressed just as hard – the world’s biggest A380 customer is asking for changes at Airbus the way its biggest shareholder would. But a return to form this year, after the biggest decline in profitability in the Dubai-based airline’s history in 2016, has brought the airline its swagger back.
“When the annual results came out last year, everyone was going ‘this is the beginning of the end’, and ‘Emirates is finished.’ Well, think again,” says Clark.
At Emirates since the airline’s inception, Clark is arguably aviation’s most important executive in the world. He’s led the airline since 2003, turning it into a global powerhouse and household name, and he’s done it his way. Now, he’s spearheading a change in the airline’s business unlike anything seen before.
The first batch of those changes have been evident with onboard crews noting meal and flight preferences through smart devices as opposed to the traditional clipboard, pilot training aids in the form of eye-tracking technology, and the company’s plans to develop autonomous vehicles for ground side operations as well as an interface to integrate experiences for travellers for platform. But Emirates’ embrace of future technology goes even deeper.
Know your audience
At the heart of Emirates’ journey to become more agile is the customer, and the airline is constantly learning how to better understand what customers want, and transforming how its website markets and sell tickets online.
“With the digitalisation and the knowledge AI systems that we have, we’re learning all the time what our customers want, when they want it, why they want it and what they’re going to do with it,” he says.
“It’s only been a few years for us on the journey, but we have 1.2 million people flying with us every week at the moment and we’re getting far better at it.”
The rapid embrace of all things digital is beginning to show results. Group and airline profits rose by 75 and 111 percent, respectively, in the airline’s half year results announced in November. Yields, which have long been under pressure, are picking up as well, as is passenger demand, says Clark.
“A lot of it is through more computing power and understanding segmentation. Emirates is now perfectly positioned now in terms of cost structure. We’re a much better and leaner company in 18 months than perhaps a couple years ago,” he says.
Cutting out the middle man
Spurred by the airline’s advancing digital repertoire, one of the biggest changes Clark will attempt in the next five years is to remove the thorn in its side: intermediaries.
“I have often said, I find it a great pain to me that I put the Emirates inventory into the hands of another. They’re very grateful to get that inventory and make a fat margin because they then have the nerve to charge us for putting our inventory in their system. That just makes no sense to me.”
Clark is talking about the global distribution systems powering travel agencies worldwide. For decades, and at a cost to airlines, they have been the standard industry method to sell airline tickets. But some such as Lufthansa and British Airways parent IAG have recently announced surcharges on global distribution system (GDS) bookings.
Emirates has had to work with GDS until now only because it had to. “We couldn’t do anything about it at the time because we didn’t have the technology then. Now, we do,” he says. “All sorts of people enter the system that do not go from the look to book, but we have the data about where they look,” says Clark. The trick, then, is to create a huge raft of online products that Emirates can hyperpersonalise and then market itself.”
“I don’t see a place for them in five years,” Clark says. “The GDS have a contra-rotating agenda of lining their own pockets first and ours somewhere down the line. But there’s a storm coming and I’ve been saying it for a long time to these guys. What they do and the value they bring was fine 15 years ago, but that’s no longer the case, because we can actually do what they do better than they could ever do.”
Some analysts point to the growth of online travel agencies and search engines and say air travel is the ultimate in commoditisation in terms of seats, even more so if airlines abandon the GDS en masse. But Clark has sharp words for any that would want to include Emirates in that fold. “The Googles of the world say we’re going to just make you a supplier of seats from A to B. Wrong! This is Emirates you’re taking about and we will never be commoditised, subsumed or subjugated by some other overarching global brand,” Clark says.
It’s not just GDS but any other intermediaries including the aviation lessor community, as well as banks that the airline deals with that Clark is ready to go to war with.
“I make no secret of the fact that for many years people have been very fed up with intermediaries. We need to dis-intermediarise the business in many respects, with all the people that come between us and the true nature of the game. Be they lessors or even the banks that we deal with.
“There’s a lot of people in the middle of the aviation game that extract an enormous amount of value. And when I go back to the prognosis of yields, I can take flatlining or lowering yields in real terms if we can dis-intermediarise the business so we actually get the value we need to reduce the cost base.”
Clark’s faith in Emirates’ ability to decipher customer demand leads him to be optimistic about first class. “A lot of people think we’re going the other way and I say to myself ‘Excellent, keep thinking like that’ because then we get all the business.”
The airline recently dropped first class options on certain routes to Gatwick this winter, but that’s just part of the plan, according to Clark. “Of course we will adjust the horse for the course. We might drop it to the Philippines or Durban, but if you talk about London, LA or Beijing then first class demand is very strong there. Where it doesn’t exist to the levels to justify a full cabin of seats, we take it down to a two-class offering.”
Eventually, Emirates will upgrade its business class product similar to what it offers on its A380s. “So if you do not find first class and have to go on business class, then it’s perfectly okay.”
On the question of premium economy, Clark concedes Emirates “may have underestimated demand.” However, a lot of that stock came to market between 2007 and today, according to Clark, when the global economy went through a real problem. “Demand then was pretty flaky,” he says. “However, with all that said, demand is picking up again with people’s propensity to pay for premium but not necessarily for business. We are looking at premium economy seriously and considering whether the cabin is big enough and what the risk-reward might be.”
Similar changes to price points and segmentation are how Emirates will respond to the “the gathering storm”, the phrase Clark coined in relation to ultra long-haul, low-cost carriers (ULHLCC) such as Norwegian Airlines and Singapore’s Scoot.
“You have to believe those carriers will increase the size of the pie by tapping into incipient demand from a lot of people who never would have travelled before. And we want a piece of the action,” he says.
In the Gulf, partnerships similar to the one Emirates and flydubai announced in July are springing up. Saudi Arabian Airlines has set up a low cost subsidiary, Wataniya wants to tap into Kuwait Airways’ network, and Omani low cost carrier Salam Air has also indicated it wants to “complement” Oman Air, according to its CEO.
When asked if they pose any cause for concern, Clark is resolute in his response. “No, not at all, game on,” he insists defiantly, reasoning that partnerships such as these will once again increase the size of the pie. “Dubai is the honeypot of course, and soaks up anything getting thrown at it which is great for consumers, city and airlines.”
Instead, the one wildcard to all of Clark’s plans for Emirates’ future is the macro economic outlook. Clark acknowledges that the airline went through “burning hoops over the last 18 months,” but much of that is because of the global economy and “nothing to do with what we’ve done,” he says.
With oil prices on the way up and US markets at historic peaks, the last thing the world needs is “unequal equilibrium caused by geopolitical traumas, such as in Korea or wherever,” he says.
“If quantitative easing remains where it is today or comes off a bit, we might see what’s driving emerging markets to keep moving. If my hunch is right – and to be fair even the world’s greatest global economists are struggling with this question – once you pass that inflexion point it’ll move on its own.
“I’m kind of optimistic that this is what is going to happen, but I can’t tell you for certain. But when in doubt as I always say, ‘follow your instinct’.”