The world’s largest international airline, Emirates, is relentlessly expanding its network: Oslo, Brussels, and Budapest have all been added over a six-week span this fall. Anywhere you can land a jumbo jet and find a few travelers, it seems, Emirates is eager to fly.
The U.S. in particular has piqued Emirates’s interest. The airline currently flies to nine U.S. destinations, including A380 service to Dallas-Fort Worth that began Wednesday. America represents just 7 percent of current revenue for Emirates, which is more evenly balanced across Europe, India, and Australia. As a result, the Dubai-based carrier is “looking for more points” on the map and hopes to boost its presence in America, Emirates President Tim Clark said last month at an aviation conference in Chicago.
These grand ambitions have drawn harsh criticism from rival U.S. and European airline executives who accuse Emirates of competing unfairly, propelled by subsidies from the Dubai government, which owns its parent company. The airline has denied this accusation for years. Emirates prefers to describe its home government as committed to making aviation a pillar of the economy, which has allowed the airline to flourish. The same strategy is playing out in neighboring Qatar and Abu Dhabi, home to rapidly growing Qatar Airways and Etihad Airways.
Relentless expansion by Gulf rivals has disrupted the major European carriers and could, in just a few years, represent a major financial threat to the three globe-spanning U.S. airlines. Ask Doug Parker, chief executive of American Airlines (AAL), to name his top business concern, and he won’t cite the Ebola virus or terrorism. The world’s largest carrier worries most about its new breed of foreign competitors. “As the Gulf carriers are proving you don’t even need to have a real market for travel to create a global airline, you just need to use your airport to connect people across other countries,” Parker said this month at a U.S. airlines conference in Washington, D.C.
Emirates is targeting 70 million passengers annually by 2020, up from 40 million now. And that growth is partly a function of torrid aircraft shopping: Nearly 300 airplanes are now order at Boeing (BA) and Airbus (EAD:FP). An order for 150 of Boeing’s newest 777X jumbo jet, worth $56 billion at list prices, is the single largest purchase in commercial aviation history—and it comes with options for another 50 777Xs. Less than a year ago, Emirates also bought 50 more of the largest passenger aircraft, Airbus’s A380, helping to keep the slow-selling, twin-deck superjumbo in production. Clark said recently he would be “in the market for another 60 or 70″ A380s if Airbus would overhaul the jet with new engines that are more fuel efficient.
The buying spree presents a potentially thorny issue: Where will all those planes fly? The carrier will certainly boost daily frequencies on some of its routes to help build schedules that are more flexible and attractive to business travelers. In a few years, however, it will need to find new cities that can support jumbo jets—and it will need to explore more flights that do not connect in Dubai.
That’s the scenario that most concerns the likes of Delta Air Lines (DAL) and American. A year ago, Emirates began a daily flight from Milan to New York by extending one of its three daily flights to Milan across the Atlantic. In response, Alitalia (AZA:IM) and Delta, partners in the SkyTeam alliance, went to court and won a ruling in April that the flight violates the bilateral air agreement between Italy and the United Arab Emirates. Emirates’ appeal of that ruling is pending.
Regardless of how the Italian litigation concludes, Emirates will continue to hear appeals from European airports keen to have a new carrier offering new flights. Over time, Americans may find that Emirates is a viable option for flights to Europe and perhaps even across the Pacific. The one certainty amid Emirates’ growth is that a fight is coming: U.S. airlines won’t simply cede traffic to a foreign rival.
(Bloomberg Businessweek)
