As Emirates outlines its expansion plans for Australia it is beginning to think about a future public offering
Emirates is planning more aggressive expansion, including a 50% boost in capacity to Australia, despite forecasts of potential overcapacity and a slowdown in the world economy.
When Emirates chairman and chief executive Sheikh Ahmed bin Saeed Al-Maktoum is asked if he is concerned about a possible recession in the USA, he responds: "Not at all. In fact, we are looking at additional US routes, possibly to San Francisco and Seattle."
The story is much the same in every direction, but the biggest near-term growth is aimed at Australia. Here Emirates has fought a running skirmish with Qantas over use of its extensive sixth freedoms between Australia and Europe. Emirates says 75% of all its passengers on flights to or from Australia are not destined for Dubai, but are connecting to or from somewhere else.
"The Australian market has exceeded all our expectations," Sheikh Ahmed said while in Sydney in November to unveil Emirates' latest plans for expanding its Australian operation. "We have transported more than 6 million passengers on our Australian flights to 90 destinations in 50 countries across the world."
The dramatic boost in services to Australia was expected because the UAE in March 2007 expanded its air services agreement with Australia, allowing Emirates in two stages to boost its current 49 weekly flights to 84. In the first stage, covering the next two years, Emirates will add 21 weekly flights, boosting its Brisbane service to double daily this year, followed in 2009 with a third daily flight each to Melbourne and Sydney using Airbus A380s.
The combination of bigger aircraft and more flights, all of which will operate non-stop to Dubai, represent a 50% boost in capacity to Australia for Emirates. As a result, the carrier will use nearly all the capacity it is allowed under the new bilateral for the next two years. It will also push Emirates closer to the leading operators on the Kangaroo route where Singapore Airlines is the dominant player in departure terms (see chart).
Qantas, which in December celebrated the 60th anniversary of its Kangaroo route, plans to counter Emirates with Jetstar flights starting in 2009 to several European cities. Within the next six months Jetstar plans to select a hub for these flights, which will either be Bangkok, Singapore, Ho Chi Minh City, Kuala Lumpur, or Hong Kong. But it will be hard pressed to match the extensive Emirates network, which now offers non-stops from its Dubai hub to 20 European airports and every continent in the world.
Asked about the possible threat of long-haul low-cost carriers such as Jetstar, Sheikh Ahmed replies: "I see no effect at all."
A week before its Australian announcement, Emirates sent a clear signal of its plan to grow. It ordered 93 additional widebodies at the Dubai air show, boosting its order book to 246 widebodies. It now has on order 58 A380s, 57 777s and 70 A350XWBs.
Sheikh Ahmed says this "massive" order, which is the largest order in history by a single airline, "reflects our confidence in the future of air transport and our confidence in Dubai". Financing this order does not seem to worry the Sheikh. For starters, he claims that Emirates has ample cash. It also plans to use finance leases on at least part of this order. A third option, which the Dubai government is now studying, is for an initial public offering of 20-30% of the airline. No timetable has been set for an IPO, says Sheikh Ahmed, who also declines to provide other specifics. "It is up to the government," he says.
Yet, he does admit there is considerable pressure from private investors and the financial community within Dubai for the government to sell a stake in the airline. A partial privatisation is also consistent with government policy, as reflected in its partial float recently of government-owned Dubai Port.
Flotation plans
Any offering of Emirates shares would be on Dubai's stock exchange. Local laws do not cap foreign ownership of an airline, but the Sheikh, who is also president of Dubai's civil aviation department, is fully aware that Emirates must remain majority-owned by UAE nationals to exercise rights under its bilaterals. In any event, a float limited to 20-30% would raise no foreign ownership issue. One of the next questions for the Dubai government to resolve is how much of any IPO proceeds to plough back into the airline in the form of financial help for its fleet growth.
Some analysts are warning about overcapacity in the Gulf, citing major aircraft orders by Emirates, Etihad and Qatar Airways. But the Centre for Asia Pacific Aviation claims the region's "near-perfect geographic position as a hub" is starting to come into its own, thanks to longer-range aircraft and more liberal bilaterals that allow Gulf carriers more scope to exploit their geographic advantage. As Emirates demonstrates, the Gulf is becoming the centre of a hub-and-spoke operation with global proportion.
Source: Airline Business
