Emirates takes delivery of it's first Airbus A380 super jumbo jet

picture source: Airbus

Emirates Airlines today took delivery today of it’s first of sixty Airbus A380s on order with European aircraft manufacturer, Airbus S.A.S based in Toulouse, France. The ceremony took place in Hamburg, Germany. In attendance were Sheikh Ahmed Bin Saeed Al-Maktoum, the airline’s chairman and Airbus CEO Tom Enders.

The United Arab Emirates, home to Emirates Airlines, is determined to make the Middle East one of the leading hubs in the world. To this end, Dubai-based Emirates has been on an aggressive expansion streak focused almost entirely on long-haul routes.

Based on feedback from Singapore Airlines which took delivery of the first A380 ever produced in October 2007 and the second in January 2008, the manufacturer’s promise of fuel efficiency of the aircraft seems to be holding up. Singapore Airlines is reportedly very happy with their purchase even after Airbus missed several deadlines to deliver the plane.

Airbus advertises a fuel efficiency rate of 2.9 litres per passenger per 100 kilometres based on a 555 passenger configuration at 100% load factor with no cargo for the A380. The industry average is 5 litres per passenger per 100 kilometres. This is unmatched in the industry although critics point out that with an average load factor of 70% which is the more realsitic measure, the numbers change dramatically.

In February 2008, Kenya Airways CEO Titus Naikuni told CNN in an interview that profits for the airline were expected to drop following the December 2007 election crisis that crippled the Kenyan economy and kept travelers away.

There was an interesting revelation during this interview. He said that Kenya Airways makes 70% of it’s revenues from transit passengers, 20% from tourists and the remaining 10% from domestic passengers. In other words, Naikuni was telling us that Kenya Airways has become a hub and spoke (H&S) airline. This model has been the undoing of many airlines here in the US. For one, a glitch at the hub affects the whole network as we saw late last year with the election skirmishes and could spell disaster for a carrier. Second, competition from point-to-point airlines and other more efficient hubs means a lower load factor while fixed costs remain high. The H&S model depends on volume and super-efficiency for it’s benefits to be fully realised. Third, the introduction of new players like Virgin into the market when the model hasn’t proven resilient enough just complicates matters.

Here in Texas, the Wright amendment kept Southwest Airline’s hub in Dallas Love Field airport and American Airlines hub at Dallas Fort Worth airport for this very reason. These two airports were essentially shielded by law (and a bit of political maneuvering) from competing against each other, even though they are only 30-45 minutes away from each other, until they were able to stand on their own. Jared Blank of the Online Travel Review, wrote an obituary of the hub and spoke model and the death of the US airline industry as we have known it and blamed it all on oil.

Emirates is able to buck this trend because of the central global location of it’s hub in the Middle East. From there, it can connect passengers to any point on earth non-stop and combine city pairs anywhere in the world with only one stop in the Middle East. The purchase of super-long range aircraft takes full advantage of this to help Dubai in it’s quest to become the leading hub in the world. In addition to that, Dubai itself is not only rising as a major hub for both cargo and passenger traffic, but has also become a destination in the UAE’s long term strategy to move away from oil wealth and to make Dubai a financial and vacation destination.

Emirates Airlines was started in 1985 using two leased aircraft, an Airbus A300 and a Boeing 737-800 and rose to become one of the world’s premier international airlines. It posted an incredible 25% growth every year for the first 20 years since it’s inception and has become unstoppable in it’s global aviation dominance plans. Recent casualties include the failed attempt by Australia’s Qantas and Air New Zealand to merge in an effort to fend off competition from the airline and Virgin Blue on the highly profitable Trans-Tasman route. Although both airlines might still merge, they are open to other options as well and are fully aware that long-term survival will not be possible without a merger.

I remember in the late 80s and early 90s if you purchased a ticket on Emirates, you did not want anyone to know about it because you were considered “poor” or “cheap”. The airline made what seemed to be a million stops and it felt as if you were never going to reach your destination. How times have changed !

Competition in and out of Nairobi for long-haul flights is expected to get tough going forward for Kenya Airways as today’s delivery to Emirates becomes reality with several other planes yet to be delivered and Dubai transforms itself into the transit point of choice to and from Africa, Europe the Middle East and the Far East. In addition to that, Delta Airlines will enter the Kenyan market in 2009 on an Open Skies agreement with Kenya and fuel prices are expected to permanently remain high.

Kenya Airways seems to be developing a new strategy to justify the H&S model by increasing mid-haul Pan-African flights, installing a high-end ERP system and introducing e-ticketing all in this year in an effort to increase efficiency and reduce costs as it prepares to battle for passengers but this will not be enough because the most profitable routes (and the most competitive) still remain Europe, Asia, trans-Atlantic and Trans-Tasman (Australia and New Zealand) so for the near future, it seems like the strategic thinkers at Kenya Airways have their work cut out for them as they try to figure out how to continue to stay afloat in what the Qantas CEO, Geoff Dixon has termed as the ‘new aviation world order.’

In my opinion, a much more aggressive stance is required not only by Kenya Airways, but all remaining African airlines, including open, unrestricted bilateral agreements and takeovers or mergers if the market demands it. The 30-plus years of experimenting with restrictive bilateral agreements which favored national, state airlines that were inflexible to market demands has proven to be a dismal failure and need to be done away with if the remaining African airlines ever expect to be players on the aviation world stage.

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