Interview: Tim Clark, Emirates Airline president

Why industry challenges have failed to hamper the growth of Emirates.


Emirates Airline President Tim Clark, Interviewed By Shane McGinley

Here’s a tip: if you ever want to attract the attention of an Emirates Airline executive just mention two words - fuel and subsidies - and you are likely to feel the full force of their wrath. “No, none whatsoever… Don’t even talk to me about subsidies or asking people for help. We do it ourselves,” Tim Clark says, lashing out at my suggestion the Dubai government-owned carrier should use its political might to push for some sort of subsidy as it battles surging oil prices. “Since our first plane flew from Dubai to Karachi in 1985 we have not received a drop of fuel without paying full price,” he adds when pushed on the issue by the UK’s Telegraph newspaper. It’s an issue the airline president faces on a regular basis whenever a microphone is shoved in his face.

Set up over 25 years ago with just US$10 million from Dubai’s ruler, HH Sheikh Mohammed Bin Rashid Al Maktoum, the carrier was certainly in no need of any government support as it reported a 51.9 percent surge in profits to $1.6 billion, its twenty-third year of profit in a row. Faced with the volcanic ash cloud, winter snow chaos in Europe, earthquakes and tsunamis in Japan and regional unrest in the Middle East and North Africa, this is a remarkable achievement. However, the issue that presents the biggest challenge is the rising cost of fuel and while the state-owned flag carrier refuses to ask the government for support, it admits that its performance would have been even greater if oil prices weren’t in an upward spiral.

“Yes, we are dealing with the pricing issue, we have no choice. After all, fuel is taking 43 percent of our total costs. Ten years ago it was twelve to thirteen percent, so, as you can imagine, this is a monster to deal with,” says Clark. In the last sixteen weeks he says a rising fuel bill has wiped $280 million off its profits for this year. “At the moment, there are gross distortions taking place because of the activities of a few and there is not a lot we can do about it. We just have to live with it and manage our businesses,” he says.

Brent crude hit a 32-month high in March, reaching more than $127 a barrel, as unrest spread in the MENA region, fanning concerns supply could be disrupted. While Emirates first added a fuel surcharge of up to AED520 on some routes, it was subsequently quick to remove it when prices fell again as the death of Al Qaida leader Osama Bin Laden sent oil prices tumbling. But Clark believes the shadow of oil prices looms large on the industry and the airline as a whole.

“I do not believe the economy can sustain that price for too long as it will bring us all to our knees, not just the aviation industry but everything else. No airline on the planet is going to be able to continue to do what it was doing, whether that is pricing, whether that is cost reduction, whether it is capacity or whether it is programme reassessment,” he says. “Nothing can be sustained at this level so something has to be done. I think if oil stays where it is then there are going to be some casualties and I think you will see an undermining of the very state of the global civil aviation industry.”

Emirates recorded a 14.5 percent rise in passenger numbers to 31.4 million, while seat capacity rose to its highest level ever at 80 percent. Analysts have pointed to the fact that the resurgence in business class is one factor which has helped Emirates to grow further. “Business travel has come back over the last year, not just in the Middle East with the likes of Emirates, but all over the world,” says BGC Partners strategist Howard Wheeldon. “But economy class continues to suffer because of economic uncertainty and oil prices, which I think may well rise again.”

In fact, figures from the International Air Transport Association (IATA) reported that, in February, premium air travel held up well, slowing to 7.7 percent from 8.1 percent in January as economy travel growth slowed more steeply to 3.3 percent from 4.9 percent. When speaking of where the casualties could come from, Clark believes the low-cost carriers could be the most at risk due to heavily rising oil prices. “I am not going to name who they are. Some will be the low-cost operations,” says Clark.

Oil prices have already claimed a scalp in Saudi Arabia, where Riyadh-based low-cost carrier Sama went under late last year and further evidence was in the twelve percent drop in first quarter profits for Sharjah-based Air Arabia, the Middle East’s largest low-cost carrier. While its revenue rose a healthy six percent, its spiralling fuel bill was the cause of the dent in its profits.

The other great issue the Dubai super-carrier faced this year was, of course, the regional unrest across the Middle East and North Africa, which was sparked in Tunisia in January and has subsequently led to the fall of decade-long rulers in Tunis and Cairo. “When the Tunisian revolution started we did halt our services there briefly. Of course, we have had to terminate Libya for the time being. Egypt we also reduced but we have brought it back to about twelve to thirteen a week,” explains Clark. “We have faced some difficulties on some of our other routes that have faced unrest but we are keeping our head above water unless it becomes operationally difficult for us.”

German rival Lufthansa recently confirmed that the regional unrest was going to hit its 2011 revenue target by around ten percent. This equates to around one percent of its projected global revenues for the year, or around $300 million. It is not known what the impact has been on Emirates but it is likely to have been similar. However, normality is beginning to return and Emirates recently announced that its capacity was being increased to Tunisia, the catalyst for the current unrest, to four flights per week. The carrier has also restarted flights to Abidjan in the Ivory Coast after the service was suspended amid conflict in the country. In Japan, operations have also resumed and Clark is confident that the Japanese market will recover. “The timeline I am not altogether sure of [but] I remain an opportunist and people will eventually go back to Japan, simply because it is a formidable player on the global stage, economically speaking. Too much relies on what Japan does so we need to get that back.”

Already serving 111 destinations in 66 countries, the airline’s chairman HH Sheikh Ahmed Bin Saeed Al Maktoum says it will soon fly to “several hundred destinations” and is set for a massive expansion. “I’m sure this will make a lot of people unhappy, but the market is there to grow. Airlines in Europe don’t want to see us there because we are giving them competition. But we get good market share because of the product. We have big plans. We will operate more to North and South America and also Asia,” he says.

Australia and East Asia already contribute around 30.9 percent (or $1 billion) to Emirates’ revenues and it aims to increase that over the coming years, in a bid to diversify into more emerging markets. At present, Emirates is allowed to service 84 flights a week to Australia and currently flies around 70. However, Sheikh Ahmed says it is the airline’s aim to meet this limit and push it even further to 100, dependent, of course, on support from the Australian aviation authorities. So will Canberra become the new fighting ground for the UAE? After all, permission for more landing rights is never assured and Emirates, more than most, knows this only too well. It has already been rejected for additional landing rights in Canada and it is facing opposition for more capacity to cities in Germany and Austria. “It is rather sad that it gets to this kind of level,” says Clark. “The industry as a whole has many problems and infighting and bickering doesn’t help at all. We have to find a way and it is incumbent on Emirates and the other Gulf carriers to show entities that are concerned about what we do that we do not present a threat, that there is clear and substantiated evidence that the effect on the aviation market we have entered has not been detrimental in any way at all.”

With more than $66 billion worth of planes on order from Boeing and Airbus, Emirates needs to find these new routes to service these jets. With such a large stream set to come online, the airline faces two issues: space at Dubai airport and finding alternatives in the event of delays. Emirates boosted its A380 orders to 90 planes in June, but Clark says the only reason it was not higher is because it simply does not have the space to store them at Dubai International. For this reason, the carrier is surely hoping to soon complete its transfer to Al Maktoum International, which is due to be fully operational by the end of the decade. Another issue is the possible delay of the A350, which may mean Emirates is forced to fill the hole in its fleet with additional Boeing 777-300s. Clark understands the situation faced by manufacturers, but, with growing fuel prices, protecting the bottom dollar is top priority. “I guess it has been extremely hard for Boeing and I think it’s going to be hard for Airbus. Are we guilty of something there? Probably, I think the airline community, including ourselves, was very demanding of both major manufacturers to produce lean fuel-efficient machines that were cheaper to maintain and carried more and went further,” he observes.

With large mergers in the industry, such as the Lufthansa Group, Air France-KLM, BA-Iberia, United-Continental and Delta-Northwest, some believe that consolidation is likely to be Emirates’ next move. However, Clark categorically rules this out. “I am not convinced that the consolidation in the way it has been conducted in Europe and the US has been the right one,” he told the Telegraph recently. “Getting sidetracked into M&A [mergers and acquisitions] or an alliance would bring us to a complete stop as half the time our chemistry and DNA does not jibe with other airlines.”

Sheikh Ahmed further stated that the airline did not envisage a stock listing anytime soon and had backed off from any bond issuance while it believed prices are unfavourable. His rationale? He believes the airline simply doesn’t need the cash that badly. Having raised its dividend from AED956 million last year to a whopping AED2.3 billion this year, the government is likely to agree. Despite this, uneducated critics around the world will continue to claim Emirates is being backed up by the government and it will, no doubt, continue to be a bugbear for Clark.

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