x Abu Dhabi, UAEThursday 27 July 2017

Will a tie-up lead to an Emirates-flydubai consolidation?

Challenging operating environment has pushed the two carriers closer

Sheikh Ahmed bin Saeed Al Maktoum, the chairman of Emirates airline, says the tie up between the two carriers will unlock value. Victor Besa for The National
Sheikh Ahmed bin Saeed Al Maktoum, the chairman of Emirates airline, says the tie up between the two carriers will unlock value. Victor Besa for The National

In an increasingly turbulent travel industry, existing synergies between Emirates and flydubai have led the two carriers to move closer announcing an “extensive partnership” yesterday that will pave the way for greater network integration and crossover of passengers out of their joint hub at Dubai International Airport.  

“This is an exciting and significant development for Emirates, flydubai, and Dubai aviation,” said Sheikh Ahmed bin Saeed Al Maktoum, the chairman and chief executive of Emirates Group and the chairman of flydubai.

“Both airlines have grown independently and successfully over the years and this new partnership will unlock the immense value that the complementary models of both companies can bring to consumers, each airline and to Dubai.”

The flydubai low-cost model, which relies on single-aisle planes, allows penetration and connectivity of markets that complement the wide grid of Emirates. The closer integration means promoting a seamless form of co-operation between the two companies that either doesn’t exist at the moment or is fragmented.

Emirates operates 259 wide-body aircraft fleet serving 157 destinations, while flydubai runs 58 single-aisle Boeing 737 aircraft to 95 destinations. The current combined network comprises 216 unique destination points. By 2022, the combined network of Emirates and flydubai is expected to reach 240 destinations, served by a combined fleet of 380 aircraft.

Work on combining a number of areas such as network planning and frequent-flyer programmes is already under way and the group said it expects the first new code sharing agreements to be in place in the final quarter of this year.

In an interview with The National last week, the Emirates president Tim Clark said he believes there is pace for the two companies to work closer together in the present economic climate and amid lower demand for travel.

“There is under the shareholder’s direction that we should be working closer to extract more value,” said Mr Clark. “Obviously they believe a more consolidated, or rather a more working together approach, would deliver more value to the shareholder, than the two working separately or in some cases competing against each other, which makes little sense.”

Emirates Group reported a 70 per cent drop in profit in its fiscal year that ended in March and flydubai reported a 69 per cent decline in its earnings in 2016 because of the challenging operating environment.  Both Emirates and flydubai, which will be managed independently, are owned by the Investment Corporation of Dubai.

The closer tie-up, which has been under consideration by the Dubai government for some time, has also led speculation as to whether the two carriers might merge.

“Emirates has never operated single-aisle jets for smaller, intra-regional routes, so merging with flydubai might provide useful feeder traffic,” said Richard Aboulafia, an aviation analyst with the Virgina-based Teal Group

“Frankly I’m surprised this tie-up hasn’t happened sooner,” said Saj Ahmad, chief analyst for London-based Strategic Aero Research. “The sheer synergies and economic muscle the two share in Dubai and beyond is one that they can leverage to their advantage and provide passengers even more flight options. I don’t see it as consolidation unless Emirates actually absorbs flydubai. I believe both will remain independent operations, but they will develop a closer bond – of that there is little doubt.”

Asked if Emirates would consider taking on a minority stake in any airlines at the moment, Mr Clark said: “not at this stage. I don’t think they [government of Dubai] would do that.”