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‘Investing in local carriers won’t solve India’s aviation problems’

Emirates’ president Tim Clark says the carrier would entertain the idea if the terms were made more attractive
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First Published: Fri, Oct 19 2012. 12 17 AM IST
Tim Clark says if the private sector is encouraged to build or operate airports but interested airlines are kept from increasing flights, the Indian customer and economy loses as the airports will raise charges, which will eventually reflect in ticket prices.
Tim Clark says if the private sector is encouraged to build or operate airports but interested airlines are kept from increasing flights, the Indian customer and economy loses as the airports will raise charges, which will eventually reflect in ticket prices.
Updated: Fri, Oct 19 2012. 12 35 AM IST
Mumbai: Tim Clark, president of Dubai-based Emirates, recently managed to convince Qantas Airways Ltd to drop a 17-year pact with British Airways in his carrier’s favour—that’s a mark of the airline’s aggression. Fiscal 2012 was the 24th consecutive year that the Emirates group posted profits without receiving any protection or subsidy from the government, Clark said in an interview. As for India, Clark admitted that the airline was concerned about the effect of the proposed increase in aeronautical charges at Delhi airport. It has no plans to acquire a stake in an airline in India since the terms are not attractive. Edited excerpts:
How important is India as a market?
We operate 185 weekly flights to 10 Indian destinations in India, which is the largest in any country by Emirates. With more than 800,000 Indian expats living in Dubai, the significance of India for business and leisure travel to Dubai and beyond is clear. We could easily fill 100,000 seats per week in each direction. By not allowing more capacity, travel and trade for all Indians is being compromised, which doesn’t allow the economy to reach its potential.
What are three things you have done right in terms of your India strategy?
We have successfully been utilizing all the rights as per our bilateral agreements. We have been providing consumers with a product and service they wanted, when and how they wanted it; and we have been capitalizing on the emerging global economy of India by opening gateways that meet the ever changing demands. But we have not been able to persuade the Indian government that Emirates adds, not detracts, from the mix of carriers.
So what will be your strategy, given that India may become one of the three largest aviation markets in the world?
As long as carriers are kept out of India, I am not so sure the country will become one of the three largest aviation markets in the world. But our door is always open to working with Indian carriers.
Now that foreign carriers have been allowed to invest in the aviation sector, would you be interested in investing in an Indian carrier?
Investing in local carriers would not be a solution to India’s aviation problems. If the terms were more attractive for investment in the sector, then perhaps we would entertain the idea. The current 49% required stake, with no government assurances on issues that are critical to any successful business, create too great a barrier to entry. Emirates has no plans to acquire a stake in another airline in India or anywhere else.
The airport charges at Delhi have undergone a substantial increase. The same is expected in Mumbai. How does it affect Emirates?
This increase will certainly impact the operating economics of flights. And, given the narrow margins that the airline industry traditionally has to work within, it is no surprise that a number of carriers have voiced plans to review their operations at Delhi. I think the steep hike would have a larger impact on India and its economy, a fall in tourist arrivals, transfer of traffic to competing hubs and damage to domestic and international airline connectivity. Delhi airport is a world-class hub. It is huge. But there is one problem—underutilization. You are keeping people out. We want to increase our operations but are capped by the government agreement. If you encourage the private sector to build or operate airports but keep interested airlines from increasing flights, the airports are going to raise charges to make ends meet. Then airlines will have to put it in the ticket price. Ultimately, the Indian customer and economy loses.
There are many in India who believe that traffic rights under bilateral arrangements with the UAE are not fair...
I don’t agree with this. Emirates provides excellent connectivity to the Indian market not just from its home market, but worldwide to/from points which are not directly connected by any other carrier. The recent research study conducted by the National Council of Applied Economic Research (NCAER) highlighted the positive economic impact of Emirates Airline’s operations on the Indian economy. According to the study, Emirates has contributed $596 million to the Indian economy in 2010-11. Emirates directly employs 1,045 employees and supports over 72,000 jobs in India through its operations. Emirates brought 529,928 foreign tourists into the country in 2010-11, as a result of which $1,153 million has been contributed to the economy as foreign exchange earnings.
The Indian civil aviation minister has stated that the bilateral ASAs (air service agreements) will only be reviewed once the carriers on the India side are able to utilize their entitlements fully. This is bound to affect Emirates, given that you are fully utilizing your entitlements...
The Indian market has always assumed significance for Emirates’ international operations and we are always on the lookout for opportunities to strengthen our relations with India. However, any further growth in the Indian market will be determined by government approvals. Our flights are full and there is a high demand from the Indian public for more flights.
How much of a threat is IndiGo, which is growing domestically as well as internationally?
We do not see IndiGo as a threat. We welcome competition. In fact, this is one of the best things that could happen for Dubai and the Indian economy is for them to fly into Dubai. Their operation, like other LCCs (low cost carriers) in the market, is more likely to grow the air travel pie, and attract more people to Dubai. This can only be good for Dubai and all airlines operating there. As far as the pie created by Emirates in India, we are a full-service carrier operating three classes and are targeting a different travel segment.
Many presume your airline gets financial support and cheaper fuel from the Dubai government, which gives you the advantage over other international carriers...
This is an old, tired argument. Emirates does not receive any protection or subsidy. Our profits are earned the old fashioned way—by increasing revenue and keeping our costs under control. Our financial results are fully transparent and published in an annual report that is audited by PricewaterhouseCoopers and available to the public.
You have ordered many wide-bodied planes but your important market (India) is getting saturated in terms of rights utilization. Where will growth come from?
With or without additional seats in India, our network growth continues and we now operate in 74 countries. We operate 188 aircraft. We have ordered 215 additional ones that will cost over $62 billion. We will also be receiving five more Airbus A380s before the end of 2012, taking our total fleet of this aircraft type to 31, as well as 10 more Boeing 777s.
Already this year, we have launched 12 new routes, including Rio, Buenos Aires, Dublin and Washington. Before the year ends, three more will be launched. We will kick off 2013 by starting services to two more gateways—Warsaw from 6 February and Algiers from 1 March. As our network expands, so will the size of the supporting fleet.
How will the Al Maktoum International Airport (in Jebel Ali, Dubai) affect Emirates’ ability to serve India when it is completed?
Our ability to serve the Indian market is determined by the Indian government and nothing else. We could easily add capacity today. When Al Maktoum International Airport’s second phase opens, we trust that discussions will have moved forward from where we are today with the relevant Indian authorities. The Al Maktoum International Airport is intended to attract airlines from all over the world and not just Emirates. With five runways, the airport will have an annual capacity of 160 million passengers and 12 million tonnes of cargo. A completion date for this second phase has not been given. Al Maktoum International is one of several multibillion-dollar airport projects being undertaken in the region as Gulf states invest in aviation to draw trade and tourism. Local airports rank as some of the fastest-growing hubs in the world and Dubai International last year posted a 9.2% rise in passenger traffic to 40.9 million.
Is Emirates building an alliance with Qantas?
We have formed a partnership with Qantas, not an alliance. The new global aviation partnership between Emirates and Qantas was announced on 6 September. The partnership offers customers a seamless international and Australian network, exclusive frequent-flyer benefits and world-class travel experiences. Under the agreement, Qantas will move its hub for European flights from Singapore to Dubai and enter an extensive commercial relationship with Emirates. The 10-year code sharing partnership is enhanced by integrated network collaboration with coordinated pricing, sales and scheduling as well as a benefits sharing model. Neither airline will take equity in the other. For Emirates customers, it will open up Qantas’ Australian domestic network of more than 50 destinations and nearly 5,000 flights per week.
Airline rankings in the WATS (World Air Transport Statistics) 2010 edition show Emirates to be the fifth largest airline in terms of international scheduled passengers carried (behind Ryanair (1), Lufthansa (2), easyJet (3) and Air France (4)). When do you expect to top this list?
This is not something that we monitor or focus our time on. At Emirates, we just get on with our business. Our approach has been to find out what customers want, and to focus on delivering it.
On the air cargo side, Emirates is ranked the second largest in terms of international scheduled freight tonnes carried—behind FedEx. When do you expect to overtake Fedex?
I can honestly say I have not given any thought to the point you raise. FedEx is a highly respectable and successful business, one with a completely different business model to ours. At Emirates, we are not interested in what others are doing, we keep our focus on our business, which has proven to be quite a successful approach. In the 2011-12 financial year, Emirates SkyCargo registered (a revenue of) AED 9.5 billion (US$ 2.6 billion)—an 8.4% increase (from the year before) on account of an increase in freight tonnage and freight yield per freight tonne km (FTKM) which rose by 5.4%. Emirates SkyCargo’s tonnage increase of 1.7%, reaching 1,796 thousand tonnes, showcases its persistence to grow revenues against the industry norm.
Emirates’ also ranks much lower than Lufthansa, Delta and British Airways in terms of its operating revenue and operating profits...
We focus on our own organic growth without getting distracted by competitors, while connecting cities, continents and people across the globe. Our competitive spirit derives from our birth into the open skies policy of Dubai, a hub now used by 150 airlines. This keeps us focused on providing the very best customer experience and making sure those who fly with us—more than 34 million last year—return to enjoy our world-renowned hospitality on a subsequent occasion.
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First Published: Fri, Oct 19 2012. 12 17 AM IST
More Topics: Tim Clark | Emirates | India | Dubai |