Maurice Flanagan CBE, the founding CEO of Emirates Airline and now the Executive Vice-Chairman for Emirates Airline and Group, talks to VICKY KAPUR about the airline's past, present and future.
What do you ask a celebrated, octogenarian entrepreneur whose career spans more decades than your living life? That was my dilemma as I walked into Maurice Flanagan CBE's office in the Emirates Group's sparkling new headquarters in Dubai. To say that he is passionate about the airline would be like saying Warren Buffett is passionate about investing.
Nuggets of history dot Flanagan's well-appointed office - among them a wall-sized chart depicting the airline's aircraft, from the Airbus 300B4 and the Boeing 737 that Emirates leased to operate its first flights on October 25, 1985, right until the super-jumbo Airbus A380, the first of which the airline received last year, and the Airbus A350-900, the first of which will be delivered to Emirates in 2014.
While giving me a brief tour of his office, Flanagan pointed to the framed portrait of Indian industrialist JRD Tata by cartoonist RK Narayan, and had some good words to say about the 'father of Indian aviation', who in 1932 launched Tata Airlines, which later morphed into Indian Airlines.
Flanagan, recipient of numerous personal and professional awards, is a legend himself. He was honoured with the Commander of the Order of the British Empire in 2000 for services to communities in the UAE and to aviation, and was inducted into the Centre for Asia Pacific Aviation's (Capa) Hall of Fame in 2007. Capa's Legends Award is indeed rare, accorded on individuals who've demonstrated 'a lifetime of strategic leadership, innovation and influence in the aviation industry'.
Born in 1928 in England, Flanagan joined the British Overseas Airways Corporation (which has now evolved into British Airways) in 1953 as a management trainee and was seconded to Dubai National Air Transport Association in 1978 on a two-year assignment as Assistant General Sales Manager. He never went back. He became the founding CEO of Emirates, the airline launched to cater to Dubai's growing ambitions as a global business and tourism hub.
Recalling those days (he has a treasure-trove of anecdotes for almost anything to do with Emirates), Flanagan says: "The rule of the game was profitability. Sheikh Mohammed Bin Rashid Al Maktoum [Vice-President and Prime Minister of the UAE and Ruler of Dubai] gave us - Sheikh Ahmed Bin Saeed Al Maktoum [President of the Department of Civil Aviation and CEO and Chairman of the Emirates Group] and myself - $10 million to start the airline in 1985."
Animatedly, he continues: "He said 'Don't come back for any more.' [We had] no protection against competition; no subsidy of any kind whatsoever. That's the way it's always been. You've got to be smart and efficient to survive. All airlines should be [run] like that. You have to be fit; otherwise you won't survive, let alone prosper - we've prospered."
A size that fits all
So what are the airline's plans for the future, I ask. In response, he gets up and, sidestepping the tables displaying the numerous awards and accolades that Emirates has won, takes me to the area in his office where, under a glass tabletop, lies a large map of Dubai. "I'll give you some perspective," he says playfully, and points to the zone where the current Dubai International Airport is situated. Then, he moves a few steps to his left and points to the territory on the map where the new Al Maktoum International Airport is being constructed.
"Do you get the picture?" he asks. I do - the 140 square kilometre airport located in Jebel Ali is massive and the comparison becomes stark when you view both the sites together. If you think the current airport is big, wait until the new one becomes operational. With an estimated completed cost of $33 billion, it'll be the world's largest airport, bigger than London's Heathrow and Chicago's O'Hare combined, and twice the size of the island of Hong Kong. "That's the plan," he says. "To grow."
A great plan, indeed, but will there be enough people travelling through the giant airport with a capacity of 160 million passengers per year, I wonder aloud. "Air transport traffic was growing at around 5 per cent a year [before the global slowdown] - and it will pick up again to 5 per cent a year," he reckons.
"It's a frightening thought, really. There are currently 2.5 billion people travelling by air - at 5 per cent a year, in 14 years' time, it'll double... Which is why these plans are so essential. The rest of the world is sometimes very slow to catch up on things that Dubai, with its very clear vision on the top, recognises," he adds.
"Let me give you an example," he continues. "Operations at the Terminal 3 [Emirates' new, exclusive terminal at the Dubai International Airport] are bigger, much more complex than the Terminal 5 operations at Heathrow. Now you remember the chaos they [Heathrow] had there, and this [Dubai's T3] opened without a hiccup. The media - you guys - didn't notice it. Had it been a disaster like T5, you would have been crawling all over the place," he chuckles.
Then Flanagan elaborates on the numbers. "Before the T3 opened, this airport had a nominal capacity of 25 million passengers a year - there were actually more than 35 million going through. The T3 has now increased its capacity to 60 million and Concourse 3, when that finishes, will increase it to 75 million," he says. With a built-up area of 528,000 square metres, the $1.3-billion Concourse 3 will house 20 aircraft stands, 18 of which will accommodate the A380, as well as including a five-star and a four-star hotel, first- and business-class lounges, and duty free areas.
"But at the rate of growth we expect to see when things pick up again - and they will - 75 million will be hit by 2015 to 2016," Flanagan continues. "Of course an airport can always handle more passengers than its nominal capacity. So, sometime between 2017 and 2018, this airport will be at full capacity and unless we can move to the new airport quickly, it would then start to limit and constrain Emirates' growth, leave alone other airlines'," he explains.
"Now, I'm not quite clear on what the plans are for the transition period, but this airport will have to cease to operate, and everything will have to move over, in the fullness of time, to the Al Maktoum International Airport. It will also have a low-cost terminal; so flydubai, which will be operating from Terminal 2 over here, can then move there when that facility is ready," he says.
Will the move to the new airport be phased, I ask. "Very difficult to phase stuff," he smiles. "We can't have half our operations here and half of them over there, but there will be a transition of some sorts. I don't yet know how that will be managed, but the quicker it [the move] is managed, the better," he says.
Going places
With a current fleet of 132 aircraft and an order-book of 160 aircraft valued at $50 billion, Emirates will indeed need the physical space of the Al Maktoum International Airport to match its ambitious growth. "We have 57 A380s on order - one a month coming in once Airbus gets over its [production] hiccup - and Boeing 777, either 300ER or 200LR, at the rate of one a month. That'll continue for several years," he says.
That's a planeload of, well, planes, I thought. "Then, of course, we'll need more," he stumps me. "We'll have the A350 extra-wide body, with deliveries starting in 2014. So those plans are all in place, and the network will continue to expand."
Sure, but with Emirates already flying to more than 100 destinations in 61 countries around the world, are there many 'profitable' routes left untouched? "There are many places that we can go to profitably: we have 56 flights a week to points in Australia, we have traffic rights for more than 70, and in time we'll take all those up. We have traffic rights to go beyond on all those, except for the Perth flights, to points in New Zealand - either Christchurch or Auckland. So, all that growth will go on over the years," Flanagan maintains.
But has the global slowdown in tourism and travel not affected Emirates at all? "Of course, what's happening now, the recession, affects us," he answers. The latest results show that the Group's profit for its financial year ending March 31, 2009, was down 72 per cent from the previous year's record profits of Dhs5.3 billion, to Dhs1.49 billion. Of that, Emirates airline made a net profit of Dhs 982 million.
"This [2008] has been the first year when our profits haven't been more than the previous year's," he says. "We've been profitable for 21 years." What about plans to delay the arrival of some of its aircraft, including the A380? "Well, there is some consideration being given by the EK side on the business side by Tim Clarke, but there is no decision made yet. We might possibly hold back a month or two, nothing serious at all. Just a mere tweaking is all that is being considered - but no interruption to the flow," he reassures.
What are Emirates' other plans for countering the slowdown, then? "We're hanging on," he says. "We're not doing like [what] Singapore Airlines [is doing], which is cancelling orders, mothballing aircraft - no way we're doing anything of that sort. This last financial year we've taken 17 big aircraft - the coming financial year we'll take 17 big aircraft, a mixture of A380s and Boeing 777s," he points out.
"The A380 has [already] had a two-year delay. We should have had 25 at this point, instead of which we've got four. The 25 would have allowed us to reduce unit cost - it would have been an advantage. And there are certain routes - Madrid, Barcelona, St Petersburg, Kiev, Chicago - that we know we can operate profitably but we don't have the capacity. All these places have been pencilled in and increasingly more places are being pencilled in but we don't have the capacity to serve these markets yet."
Flying through the storm
According to the International Air Transport Association (Iata), global passenger demand in March 2009 fell to 11.1 per cent below last year's levels, with airlines having to slash capacity by 4.4 per cent, resulting in an average load factor of 72.1 per cent - 5.4 percentage points below the average load factor recorded in March 2008.
What, then, makes Emirates believe that it will be able to serve international markets profitably during a period of global recession that is witnessing a sharp downturn in corporate and individual travel owing to job losses and cost-cutting initiatives? "That's true [job losses et al] but our seat numbers are up. You try to talk to anybody for a seat on an Emirates flight - our flights are full," he insists.
How can that be when numbers are falling across the world? "Yes, we've got the seat factor up, at the expense of the yield, the revenue per available seat mile - that's come down. So the operation, week in-week out, is slightly better than breakeven, but we expect it to improve," Flanagan says. That makes sense. According to Iata, Middle Eastern carriers were the only ones to experience growth in passenger numbers (of 4.7 per cent) in March 2009 (latest available stats).
"Now, I am as ignorant as anyone else on how long this recession is going to last, but my feeling, based on talking to people who know more about it than I do, is to give it a year. Dubai will recover rather quickly. Other places, like the UK, will be much slower to recover. I think Dubai will recover quickly, I think our markets will come back," he says.
And why does he think this will be the case? "Because everything is in place for Dubai to recover quickly," comes the answer. "People sometimes forget how coherent the whole UAE is, particularly with Abu Dhabi and Dubai together... People don't realise how close-knit the UAE is as an economy. It's a very strong economy. Abu Dhabi has, in a practical sense, unlimited oil. Dubai doesn't have much [oil], but then Dubai has all this trade. The original trade of the dhows continues," he says.
Oil is indeed an important asset for the UAE's economy, but for airlines, it is a cost. Historically high oil prices in 2008 have distorted the numbers of every airline in the world. What did it do to Emirates' bottom line? "For several months last year, fuel was running at 45 per cent of our total cost, and that was unsustainable," Flanagan acknowledges.
"In normal times, fuel used to be at 13 per cent of the total cost," he shrugs. "At 45 per cent, that was more than twice as much as what our people cost is. It still is way above 13 per cent, but it isn't killing us like it was at 45 per cent," he says.
Fuel and fares
When asked what he has to say about allegations by rival airlines that Emirates receives subsidised fuel, Flanagan is furious. "This is absolute garbage - it really is. I told you how Emirates was set up by Sheikh Mohammed - no subsidy of any kind whatsoever, and no protection against competition. So unlike any other place you care to name, any airline can come into our market at the capacity and the frequency it wishes, [at] any time of the day it wishes. There's no other place like that - Singapore is close but not perfect in that sense.
"The airlines that have been saying this are Air France and Lufthansa," he continues. "Air France has actually said that Emirates is the biggest threat to their existence - come on, Air France and KLM combined is a huge airline. What are they talking about? It's just because they want to encourage their governments to restrict Emirates' traffic rights into their home countries. Every time this comes up, we deny it but it keeps coming up nevertheless. It will come up time and time and time again," he says, while shaking his head.
"They manage to do things that they do - which is bringing passengers from one point to another point, and continuing with different sectors [destinations]. Of course they all do it - every airline does that," Flanagan points out. "British Airways couldn't survive without doing that, neither could Air France. And Air France is perfectly positioned for that - it's like Dubai in that sense. Charles de Gaulle is a 24-hour airport, which makes an enormous difference - it's a huge advantage. We have it, Air France have it, and they exploit it just as we do it."
Does Emirates have plans of joining an airlines alliance programme? "No, not all," he answers categorically. "These are cartels - there is absolutely no disguising the fact that these alliances are cartels, in the destructive sense, wherein they can put the small and more efficient businesses out of business by predatory pricing - that's what they can do," he claims.
"You know, airlines are not supposed to share information on fares [and so on] with each other - within these alliances, they do [that] all the time. So American regulators are now beginning to question how the Star Alliance operators are able to get away with exchanging information on fares when we can't even talk to another airline over fares.
"Besides that fact, we don't want to join an alliance for, to join an alliance, you've got to compromise some of your systems, your IT system, which is the company's nervous system. Our IT system, called Mercator, is the biggest software business in the UAE. We don't contract in IT, we contract [it] out. So almost any airline you care to name - British Airways, Qantas, Singapore Airlines... all these guys - have some of our software.
"We make money out of our software and it pays for our internal usage. Now if we were to join an alliance, we'd have to make our system compatible with their system, which just would not work [for Emirates]. We see no point whatsoever [in joining an alliance]. As far as commercial relations with airlines is concerned, we can code-share with any number of airlines without being part of an alliance - there will be no point in it," he refutes.
Low cost competition
Capa's recently released Aviation Outlook 2009 says that while "just a year ago, the LCC [low-cost carriers] model was teetering, as ballooning fuel prices reduced the airlines' cost advantage against higher-yielding network airlines," today, it is the conventional model that is under challenge as yields slump. And although oil prices have risen in the past months, Capa believes that "as long as fuel constitutes a smaller part of total operating costs, airlines with lower non-fuel costs - like LCCs - should be better placed to prosper."
Flanagan, however, doesn't see the LCCs as competition. "No, they're not impacting us," he says when asked if budget carriers have had any significant impact on Emirates' bottom line. "The airline you might expect to be impacting us is Air Arabia, but that's operating out of Sharjah. Not just that, it's a different market - much of Air Arabia's market and [soon-to-be-launched] flydubai's market are people who otherwise would have travelled by bus, to Qatar, to Kuwait and to Saudi Arabia."
What about Air Arabia's flights into India, a huge market not accessible by bus? "It has no effect on us," he insists. "You need more seats into India. Even though we have a lot of capacity into India, we could always use more," he says.
Will there be synergies between Emirates and flydubai? "flydubai is totally independent of Emirates," Flanagan maintains. "It's got the same Chairman [Sheikh Ahmed] and same ownership [Dubai government], but it's totally independent," he says. "Of course, there will be synergies one way or another because they [flydubai] will fly to places where we don't fly," he adds. "They will fly to places within four-and-a-half hours of Dubai, with Boeing 737-800, a very efficient aircraft."
Finally, I ask him what he expects from the current financial year. "It's very hard to say at the moment, but I think we'll have a profitable year. I don't know just quite how profitable it will be, but it will be a profitable year. And we will still be able to pay, as we have been for many years now, a dividend of $100 million to the owner, the government of Dubai. We expect to continue to do that," he says.
"And to continue to make profits," he says, "we'll need to keep growing." He then goes on to explain how, including options, Emirates will be receiving 120 A350 aircraft, from 2014 onwards. "So at the rate of one a month, it'll take 10 years," he says. "I should be around that long," he adds jovially. We sure look forward to asking him some more questions then.
© Gulf Business 2009
