Emirates is one of the fastest-growing and most profitable airlines in the world. Yet the secret of its success is largely unknown outside the Arab world.
Donald N. Sull, Sumantra Ghoshal and Felipe Monteiro unveil some of the mystery that shrouds a national carrier that enjoys no state handouts – and treats its employees as a giant family.
Less than two decades after its foundation, Emirates placed the biggest order in civil aviation history, for $19 billion worth of aircraft. This at a time when the industry was facing a global slump, which Emirates defied with a massive 74 per cent increase in net profits to $429 million in the financial year ending April 2004. Despite 9/11, two Gulf wars and escalating fuel costs, Emirates has enjoyed a 25 per cent annual growth rate since its founding in 1985 and has not posted a loss in the past eighteen years. In 2004, the airline was among the twenty largest global carriers in terms of passenger miles flown. When Airbus delivers its 555-passenger A380 aircraft, Emirates will take delivery of 45 of the double-decker planes, by far the largest order to date totalling nearly as many A380s as Lufthansa (15), Qantas (12), Singapore Airlines (10) and Air France (10) combined. Most impressively, Emirates has achieved this enviable track record without direct government-funding, although the airline has benefited from the farsighted and ambitious leadership of the Al Maktoum ruling family which has led Dubai’s transformation from a small principality to one of the most vibrant citystates in the world.
Few would have predicted Emirates’ success in 1985, when the airline began with a fleet of two borrowed aircraft. Emirates was born out of crisis, when Gulf Air refused to increase flights to and from Dubai unless the government protected the carrier for its long-haul services. Rather than persuade Gulf Air to change its mind, and knowing how dependent Dubai was on air travel for its burgeoning economy, Sheikh Mohammed bin Rashid Al-Maktoum, chairman of the Emirates Group, established the Emirates airline with an investment of $10 million, a trifling sum by the standards of international airlines.
Right from the start, Emirates did things differently. Sheikh Mohammed instructed his new managing director Maurice Flanagan: “Forget about protection against competition. That’s not the way Dubai works.” Emirates began operations in October of the same year. In contrast to many other national airlines, Emirates never received direct subsidies or relied on government handouts. Dubai’s open skies policy granted foreign airlines the same access and privileges as Emirates. Competing under Dubai’s open skies policy from its onset toughened the fledgling carrier, and according to Flanagan “has helped us to become a carrier which can compete with the best of the world’s airlines”.
Much of Emirates’ success is due to the Al Maktoum’s sheikhdom’s ambitious strategy of reinventing Dubai as a modern hub of tourism and commerce in the Middle East. Almost entirely newly built – buildings over 20 years old are bought for their land value, ripped down and re-built ten times the size – Dubai has strategically re-invented itself as a high quality international tourism destination.
The creation of modern Dubai (one of seven emirates that together constitute the United Arab Emirates) provided an ingenious solution to the problem of Dubai’s limited oil reserves, which are fast running out. In 2000, visitors exceeded 3 million. By 2010, the Dubai government expects to increase the number of visitors to 15 million per year, with another 22 million travellers passing through Dubai in transit. Emirates plans to both contribute to and benefit from Dubai’s growth.
Emirates’ formula for success cannot be found in any management book. Its creativity in seizing opportunities and solving problems as they arise is the company’s strength. “We don’t have to do what other airlines do,” Flanagan observes, “We do what seems right for us.” Gary Chapman, president of affiliated company Dnata, adds, “We are a multicultural environment, with different nationalities, cultures, tribes, kingdoms, so you are always looking at what will keep that team motivated and working well. We sometimes leave things that functionally don’t quite fit, but they work – so why disturb it?”