Yesterday I addressed the issue of whether or not Emirates is subsidized, but I touched on something much bigger. Let’s assume the airline isn’t subsidized. Even if that’s true, does it have an unfair labor advantage? That’s a much more complex question.
One of the things you often hear is that labor costs at Emirates are very low. Is that true? Oh yeah. Take a look at the average cost per employee for the last fiscal year for Emirates as compared to a couple of our big guys here in the US. (This is in US Dollars.)
Just think how much airline labor costs have dropped in the US over the last decade and this is even more jaw-dropping. It’s not a perfect comparison, of course, because it doesn’t reflect the different structures at the airline, but one thing is clear. Emirates doesn’t have to pay nearly as much for its labor as other airlines do.
This isn’t anything surprising. There are very different standards and costs of living in many different places around the world. But often lower costs of living come with significantly worse living standards.
Living in Dubai
There has been plenty of criticism over the years of the working conditions in the United Arab Emirates. You can read a report from back in 2006 if you’d like more details. But these reports generally focus on lower level jobs, often in construction, and not those of people who work at Emirates.
Take a look at this page that Emirates puts out talking about flight attendant jobs. There are no unions. Flight attendants are hired on three year contracts from all over the place and that contract can be renewed by the company only if it so chooses. People can resign, but if they do, their visa to work in the country is terminated.
Since people are hired from all over, Emirates provides company housing in Dubai. Pilots seem to get high quality housing, and the flight attendant shared housing seems spartan but certainly passable, even by western standards.
Emirates does provide medical and dental care through its own medical clinics. It also provides transport to and from work. Wages aren’t up to what you’ll find at legacy carriers in the US or Europe, but there is no income tax to take a chunk out of the salary for each worker. In the end, this comes together to make for a pretty nice package.
This sounds like a very structured lifestyle that is designed to get the most out of each employee while he or she works at the airline. But is that a bad thing? Apparently not for a lot of people since there is no shortage of applicants and the standard of living seems acceptable.
Sustaining the Advantage
More importantly to our discussion, is this an unfair advantage for Emirates? That’s a debate for the ages. It’s an advantage, to be sure, and it makes life difficult for those airlines that are based in higher cost places, but that doesn’t make it unfair. This is an issue that’s not unique to the airline industry by any means. It’s the whole free trade issue that’s been replayed over and over again. Some countries can make TVs for less than others, and that’s why we generally buy TVs in the US that aren’t made here. Whether or not it’s unfair depends upon who you ask. It doesn’t seem that way to me.
What I’m more interested in is whether or not it’s sustainable. Emirates has placed a huge bet that it can grow to be an enormous airline. It is looking to operate 100 A380s and many more 777s. The sheer volume that it is hoping to support is mind-boggling.
Can Dubai continue to grow and deliver big money traffic? If it does, then surely the cost of living will continue to increase and Emirates will see less of a cost advantage as compared to its peers. If it doesn’t, and it really can’t grow at a fast clip forever, then the state will likely be unable to keep its friendly no income tax policy. It will need money to support its infrastructure. If it starts to struggle with money issues, then Emirates could find itself operating in a different, less friendly environment as both the airline and state see growth slow.
When that happens, will another airline and country come in to take its place? While it was easy for TV manufacturers to switch to China or Indonesia when costs rose in Japan, geography is much more restrictive here in the airline industry. There’s not going to be a major hub in Zambia despite the low cost of living and eager workforce. The lack of local population and inconvenient geographic position certainly doom a place like that.
But there are other Middle Eastern hubs that would be happy to serve that population. Outside of the UAE, Turkish and Qatar are the most threatening, but others will follow. There will always be a new low cost provider if the opportunity is there.
I’m getting a little off track here. Is this an unfair advantage? If Emirates is providing an acceptable quality of life for its employees, then it’s pretty hard to argue that the advantage is unfair. Only if a company is succeeding by providing poor working conditions that violate human rights should it be considered an unfair advantage.
That doesn’t seem to be the case here, but I’m more than happy to hear from those with experience. Hit the comments down below.