x Abu Dhabi, UAEFriday 19 January 2018

Diversity is key to the success of Emirates

Against a background of bad losses by the world's leading airlines, Emirates Group has announced healthy profits.

Emirates Group's announcement of Dh1.49 billion (US$406 million) in annual profits last week cemented its reputation as an outlier, turning profits for the airline and associated companies while some of its staunchest competitors slid into losses. The earnings included Dh982m ($267.5m) for the airline, and another Dh507m from its sister company, the ticketing and handling firm DNATA. Although the airline's results were an 80 per cent drop from the previous year's profits, they were some of the best in the industry.

By contrast, British Airways reported a pre-tax loss of £401m (Dh2.35bn) for the year, compared with a profit of £922m the year before. Air France-KLM lost ?814m (Dh4.18bn). Also, Singapore Airlines reported pre-tax operating losses of S$110m ($75.6m) for its last quarter ending in March. To understand how Emirates managed to pull it off, one needs to look beyond the usual figures of passengers carried, load factors, yields and fuel bills. Instead, it helps to also look at hotel occupancy rates, baggage handling fees and even consumption rates for coffee and alcohol.

Emirates Airline and Group, as it calls itself, is gargantuan, with 48,000 employees spread across divisions that include the airline, baggage handling, armoured courier services, hotels, an aviation college and travel agencies. Emirates's catering arm delivered 29 million meals last year, 82,000 a day for itself and the other airlines serving Dubai International Airport, while its Arabian Adventures company virtually created the country's desert safari industry from scratch. One of its newest initiatives is camel polo offered by a subsidiary, Gulf Ventures.

Critical to Emirates's success is the fact that it owns a number of cash-generating businesses that work either as monopolies or in duopolies, some of which report directly into the Emirates Airline balance sheet. The Emirates empire consists of two holding companies, Emirates Airline and DNATA. Technically speaking, there is no company called Emirates Group, since there was never an Emiri decree that legally established it, officials say. Ownership of the two companies was recently transferred from the Dubai Government to the Investment Corporation of Dubai (ICD), a Government investment arm.

Although less well known than the airline, DNATA is a diversified, multinational force of its own. DNATA Airport Operations takes care of baggage and cargo handling at 17 airports in seven countries - the Emirates, Singapore, the Philippines, China, Switzerland, Pakistan and Australia. DNATA Travel Services, meanwhile, handles ticketing and travel bookings for individuals and corporations at dozens of locations in the GCC, and recently opened an office in Kabul.

Many of the services are monopolies, such as in baggage handling at Dubai airport, and this is one reason DNATA's contribution to group profits rose considerably in the past year. In the 2007-2008 financial year, DNATA's profits were Dh280m, or 5.3 per cent of the group's overall earnings. But in its annual results for the financial year ending March 31 this year, DNATA's profits were Dh507m, representing 34 per cent of the group's overall earnings.

DNATA's monopoly at Dubai airport, which gives it the power to set its own prices to service the 130 airlines flying there, has not come without some grumbling. The German airline Lufthansa pays DNATA about ?1m a year, but recently said the fees were too high and did not provide enough benefits. It also complained of sponsorship laws requiring airlines to appoint a general sales agent, instead of handling its own ticketing as it does in other countries.

Meanwhile, some of Emirates's market-leading companies fall under the airline's side of the balance sheet, instead of DNATA's. The carrier's Emirates Leisure Retail division has a majority stake in the fast-growing Costa Coffee chain in the UAE, which has doubled in size to 65 outlets in the past two years. In March, it also established a subsidiary to develop the Hudsons chain of coffee shops in Australia.

Other food chains it controls in the Emirates include the restaurants Left Bank, Apres, Hamburger Nation, Noodle House, Shoreline Clubhouses, and the fast-food outlets Hey Pesto, Deli Express and Good-2-Go. Since 1999, Emirates Airline also has had a controlling stake in MMI, one of only two firms licensed to distribute alcohol in the UAE, along with African & Eastern. MMI claims to be have a 70 per cent market share in certain categories in the UAE, and is also present in Oman, South Africa, Kenya, Tanzania, Uganda and Zambia. Revenues for the company grew 20 per cent last year, Emirates said.

Over the years, the airline has also diversified into hotels, a natural synergy with its airline and holidays divisions. It controls the Le Meridien Al Aqah in Fujairah, and the small but growing Premier Inn Hotels chain in the UAE. New projects include other hotels and resorts in Dubai, Australia and the Seychelles. Emirates Airline deserves a great deal of credit for its considerable success in aviation, from its founding in 1985 with two Boeing 727s to what is now one of the world's leading airlines.

But its considerable profits, even amid declining passenger demand and the sorry state of the world economy, can also be explained by the way the airline has greatly diversified in recent years. The airline and DNATA have wisely parlayed their powerful position as two of Dubai's "national champions" and acted like investment companies, aggressively acquiring franchises and exploring new opportunities in the GCC and beyond. igale@thenational.ae