US airlines have done an excellent job of holding back on capacity lately, and that has left them with at least somewhat decent results considering the state of the economy. But not everyone has been so disciplined. Emirates recently announced that it would grow 14% in 2009 despite some seriously worrying signs from its hometown of Dubai. Is this smart? Probably not, but who cares? It will likely lead to some great deals for travelers.
You would think the management team at Emirates would be getting nervous right now. Dubai’s economy is really getting hit hard. The Dubai stock market has plunged more than 75%, real estate prices have tanked, and jobs are disappearing. Just this week, the United Arab Emirates said it would buy $10 billion worth of bonds from Dubai in order to prop it up.
Considering that backdrop, Emirates seems like it’s from a different world. The airline still expects to take on 58 A380s, more than a quarter of all A380s ordered worldwide, and it placed an additional order for 60 smaller Airbus widebodies less than a year ago. During the airline’s fiscal year (which runs April 1, 2009 to March 31, 2010), Emirates will take on a new passenger widebody every 20 days, including 7 A380s. Surrounded by a collapsing economy, where will they put these planes?
Many of those A380s were expected to be outfitted with massive numbers of Economy seats to shuttle workers between labor-rich India and Dubai, but now there will be fewer people going back and forth. And with fewer visitors coming to Dubai in general, demand will be dropping dramatically from that angle as well. They will apparently focus the new aircraft on “on routes where there is a greater demand from our customers. All of our new capacity will be deployed in markets where we see growth potential, particularly Africa and the Middle East,” though from what I can see, there will be increases to just about every region of the globe, including North America which will see increased frequencies in San Francisco and LA.
So what does this really mean? There is going to be tremendous price pressure on Emirates in the near future until the economy is able to catch up. Keep an eye out to see if any massive discounting happens. It’s likely only a matter of time, and it could make for some great deals.
A friend and I were discussing the state of the Persian Gulf airline industry barely two days ago. He and I agree that there is serious over-capacity from this region where every major city has a “hometown” airline that yearns to circle the globe with high-end service and state-of-the-art aircraft.
Gulf Air allowed itself to be eclipsed, as did Kuwait Airways, once the standard bearer of the region and now seemingly faded behind the flash of Emirates, Etihad and Qatar. Saudi Arabian was always something of a loner given the travel restrictions to that country but bottomless support from the Saudi royal family.
It just seems that these airlines operate with zero domestic feed for their respective hubs and trip over each other trying to connect the dozen or so dots in the region that matter with the rest of the world at large.
Somebody is going to blink or sneeze pretty soon here and that will inevitably create a lot of white elephant widebodies at the Airbus and Boeing foundries, idle an army of specialized workers in an already distressed global climate and leave the taxiways of the region clogged with mothballed birds some unrestrained CEO shouldn’t have bought in the first place.
But Cranky is right…Delicious deals will soon be available for those with an inkling to shop the bazaars of Bahrain.
While Emirates’ new deliveries aren’t helping matters, a major cause of the overcapacity in Gulf has been the actions of the former owners of Gulf Air each dropping out of the company and setting up its own national champion with far more service than GF ever provided.
GF’s 25-25-25-25 (then 33-33-33, then 50-50) ownership structure guaranteed an inability to ever set up a primary hub at the expense of the other owners. Either BAH or AUH could have been that hub with the other playing a secondary role and DOH and MCT having limited long-distance flights, but it seemed that when the quadripartite GF assigned routes to the Far East and Europe they almost did it in a round-robin matter. Now that it’s wholly owned by Bahrain, GF finally has the ability to set up a rational hub, but it’s in competition with rather irrational players.
The global downturn is making Boeing’s move with the 787 look like the winning hand over the A380 more each and every passing day. (If Boeing can ever get the 787 delivered.) I have a hard time believing that Emirates will take delivery of all 58 of those A380’s. I also have a hard time believing that there is demand for 58 of those in the entire world at this time.
Here in the UK Emirates is quite aggressively going after european travelers who fly on to india, asia, australasia and to some extent Africa. They seem to be marketing themselves in all sorts of regions of Europe, for example they have long haul flights from 5 UK cities (compared to BAs 1; London). In the commercials they ran recently here they were promoting the number of places you could connect from DXB. With all these new widebody aircraft i see them increasingly moving away from regional operations to long and ultra-long haul, using DXB primarily to connect passengers. It wouldn’t surprise me if they start to cut back regional middle-eastern services and concentrate more on the long haul ala Singapore Airlines.
I know many people who have got great fares on EK recently particularly to India and on the kangaroo route. Combine this with the ability to fly from lots of regional airports in europe and the cheaper per seat mile costs using the new generation aircraft and you could see how it might work.
I agree that Dubai’s worsening economy is going to hit Emirates, but maybe not as hard as you might think, as the percentage of long haul connecting passengers vs passengers terminating in the middle east region increases over time.
Alex comes close to touching on something Cranky missed — it won’t just be Emirates that will be under pricing pressure — it will be every airline exposed to Emirates competition, including the European carriers and Singapore Air (not to mention Etihad, Gulf, Qatar, Jet, etc).
A’s comment on the 787 is correct — if Boeing can ever deliver this thing, the 787 (and its Airbus near-equivalent, the A350) will be essential for the Europeans, in particular, to compete against the Emirates onslaught, by offering nonstop versions of what Emirates will offer, very cheaply, via connection (and thereby strip Emirates of premium traffic on these routes).
Whether Dubai can sell enough bonds to cover the resulting Emirates losses remains to be seen.
I looked at the flights to India from San Francisco and Los Angeles, they have a really good product from here compared to the competition.
One of the problems we have on the West Coast is that there are not many airlines that have good connections onward to India via the Pacific. Airlines such as Singapore, Cathay Pacific, Malaysian and Thai have awful connections where you have to spend an entire day at the Airport or stop over for a day.
Lufthansa has some of the best connections but its planes are old, service is sub par and seats are uncomfortable.
So Emirates is poised to take the USA-India business quite easily since there is not much competition.