Emirates is one of the newest major airlines in the world.

It is also one of the world's most profitable, and one of the world's most rapidly growing.

Is there a guilty corporate secret that explains its unusual success?

Does Emirates Enjoy an Unfair Advantage? Urban legend tries to explain away this airline's great service and strong profitability
	Emirates is a relatively new airline, with a very new fleet of planes, and with the largest fleet of A380 super-jumbos on order of any airline.

Emirates Airlines was founded in October 1985.  Little more than twenty years later, it has grown from a small regional carrier to one of the world's powerhouse airlines, with an annual growth rate never less than 20%, and annual profits every year after its third year of operation.

Its most recent financial year, ended 31 March 2008, was no exception.  Profits were up 29% to US$942 million, and the airline now operates a fleet of 113 planes, flying to over 100 destinations in over 62 countries all around the world.

It has a staggering 244 additional planes currently on order (including 55 A380 super-jumbos), and has placed the largest single order for planes ever.

It is also relevant to note that it has a deserved reputation as being a very high quality airline (see my review of Emirates' Business Class).

Their record of growth is astonishing, all the more so as the airline is based in a tiny little country, Dubai, far from traditional population centers and high profit/high density airline routes.  And so, with perhaps more than a slight taste of sour grapes, some people have suggested that in some way Emirates is 'cheating' and has unfair advantages over its less successful competitors.

Is there any truth in this?

The Urban Legends that Attack Emirates' Success

It surprises me that an airline as generally excellent as Emirates has an active coterie of detractors out there; every time I write something positive about the airline, I can be sure to get several hostile emails as a result. Mind you, it is so rare for me to write something positive about an airline, perhaps if I were to write something positive about any other carrier, that too would attract negative comments.

But the particularly surprising thing about Emirates are the urban legends associated with it - both that, because it is a carrier based in the Middle East, it somehow gets discounts on its jet fuel purchases, and/or because it is owned by the Dubai Government, it has access to unlimited capital and never needs to borrow money and therefore has no interest expense. Both these two urban legends conclude with the statement 'and that's why they can afford to be so good, and that's why they're so profitable'.

Here's the most recent example (which is sadly typical, and which served to inspire this article), received from a reader who is best left as anonymous other than to note he describes himself as a retired UA employee (formatting and spelling left unchanged) :

to whom it may concern:            i for
the most part do enjoy your news letter, even the constant rambling & whining can be intertaining.
i do feel that i must point out something that you may have overlooked
though.            you make mention of united emirates as
being such a great airline, with full amenities, RIGHT! you seem to have overlooked one simple theing though... united emirates is an OIL AIRLINE!!! oil comes from saudi arabia and they pay no more than .42 cents per gallon(most cases) .12 cents per gallon for their fuel...
so, it cost them more to refuel for their return flights, THEY control
and can redilly afford it!!!! so please try and think of that when you
are building up their air line...

I've asked the writer (as I do most others) to provide some proof for their allegation.  None is ever forthcoming.

I also asked Emirates' always affable Nigel Page, who heads up the Emirates operation in the Americas region, to comment on both these points.

Jet Fuel Costs

As regards jet fuel, he says

Although some competitors like to insinuate that our fuel prices are unfairly lower than theirs, we get no breaks at all in fuel prices, either in Dubai or anywhere else in the world, other than those that we (and other airlines) manage to secure through tough negotiating and clever sourcing. We actually have a full time fuel buyer, based in Texas, and he saved us US$242 million in our last financial year. Any other airline can (and often does) do the same things we do to control their fuel costs.

Indeed, Nigel's colleague Will Löfberg, Emirates' Manager of Public Affairs, based in Dubai, confirms

Emirates purchases its fuel on the open market and in Dubai our suppliers are: Air BP, Shell, Chevron, Exxon, ENOC - all of whom charge us at commercial rates.

Sources of Capital

As regards the capital claim, Nigel answers

We do not have unlimited capital, and neither do not pay for our aircraft with cash on delivery.  We secure finance through the banks and bond markets, just like any other airline.  We absolutely have to pay interest on our loans at fair market rates.

We also have lease expenses because some of our fleet are on leases.  Just ask ILFC (the world's largest aircraft leasing company - we are big customers of theirs).

The Proof

To confirm Nigel's comments, I went and looked at their most recent annual report for the year ended 31 March 2008 (prepared to international accounting standards and audited by PricewaterhouseCoopers).  Page 2 of this section showed their fuel cost to be 30.6% of their income, and the same section of the report showed they spend 10.6% of their income on plane leases.

Page 2 of this section of their report showed an interest cost of AED734 million for the year, confirming they do borrow money, and their balance sheet (page 3 of the same section) showed total shareholder capital of only AED801 million, although boosted by massive retained earnings of AED15.1 billion, and augmented by borrowings of AED7.6 billion, with interest payable at rates of 5.13% on term loans and 5.3% on bonds.

The current (early June 08) exchange rate between the Dirham (AED) and the US Dollar is 3.67 Dirhams to the dollar, so, if you wish to, divide the numbers above by 3.67 to see them in US dollars.

In terms of fuel, a 30.6% fuel cost is reasonably in line with other airlines and higher than some - for example, in its six months reported through 31 Dec 2007, Qantas (another airline that primarily operates long haul services, similar to Emirates, but fully owned by public investors rather than by any government) reported a fuel cost of only 21% (see page 8 of the Qantas report).  And whereas Emirates had a net cost of finance (it paid more in interest than it received) Qantas had a net surplus (it received more in interest than it paid).

Emirates' Capital is Expensive, Not Cheap

One last thing. Emirates pays its owner rich dividends. With AED801 million invested into the airline, the government received an AED1 billion dividend from the last year's profit, and an AED400 million dividend the year before.  So no-one can describe the equity investment in Emirates as being cheap capital for the airline.  They would be much more profitable with less government ownership and more money borrowed.

The Real Secret of Emirates' Success?

I'll let Nigel explain the Emirates phenomenon in his own words :

No airline is perfect, but having just completed forty years in the airline business I can tell that I have never worked with such an enthusiastic and dedicated management and staff.

The fact that we have well over one hundred nationalities, and come from a variety of airline backgrounds, I believe give us considerable strength. Do we occasionally get it wrong? Of course we do! We are a service industry, and human beings occasionally make mistakes. The important thing is to try and recover the situation well when things go wrong. We have a very high repeat level of customers and we try to give high standards of service.

Conclusion

As best I can tell, there's absolutely nothing in the Emirates report to suggest any unfair advantages, or anything significantly different from what one would expect of an airline of its type.

It is plain that Emirates competes on a close to level playing field with the other airlines around the world, and it is further plain that the reason for Emirates' success is simply what it seems to be - they provide a high quality product that their customers appreciate and return wanting more of.  There's no magic or mystery to this, which makes it all the more puzzling why other airlines look the other way and show no interest in trying to copy Emirates' success, preferring instead to copy the mistakes of their fellow dinosaurs, and with similar negative results.

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Originally published 13 Jun 2008, last update 30 May 2021

You may freely reproduce or distribute this article for noncommercial purposes as long as you give credit to me as original writer.