Creating a Giant
Tim Clark has spent the past quarter of a century building the ultimate big boy’s toy. Along with his Emirates management team, Clark has created a global network carrier flying state-of-the-art airliners to every corner of the globe with an on-board product up with the best, and a brand to die for. But he’s rattled a few cages on the way, as jealous rivals look on – some incredulously and others angrily – at the apparent ease with which Emirates has done it. Those rivals should be warned: Clark does not intend to slow down.
“We are still firm believers in our plan to globalise the Emirates network,” he says. “And this isn’t a token presence in a particular city via multiple intermediate points. This is a robust presence in the points that we serve on a minimum of a daily basis and eventually two or three times a day.”<
Clark has put the pieces in place. He has the right size, mix and number of aircraft in the fleet or on order, he has the route rights, the airport infrastructure and – most controversially for his rivals – he has the full support of his government. Sheikh Ahmed bin Saeed Al-Maktoum – the uncle of Dubai’s ruler Sheikh Mohammed – is chairman and chief executive of Emirates Airline and Group.
“I work very closely with Sheikh Ahmed. He’s the boss, and there’s nothing I do that he doesn’t sanction,” says Clark.
“Emirates arrived on the scene in the 1980s just at the time when the global economy was exploding, and off we went on that wave. There are those who in that post-1985 era couldn’t understand it and couldn’t climb to get there – and they’re still not there. We were born on that wave and able to move with the tide very rapidly.”
The airline now serves about 114 destinations across every continent and has a passenger fleet nearing 150 aircraft. As it works to establish that “robust presence” throughout the globe, Clark says flying transpacific services between points in the Americas, Asia-Pacific and Australasia is “the only piece of the jigsaw that’s missing. We’re just getting into the start positions – we have the West Coast of the USA, we have Chinese points, we have Asian points, we have Australasian points. So the Pacific is encircled and the next stage is to link the dots – we have the rights.”
Clark says if he could have his way this phase of the Emirates strategy would be initiated “sooner rather than later”, but he recognises the timing is not quite right yet. “We need to consolidate our market presence in places like the USA. We need to be as understood in the USA as we are, for example, in Europe.” The “underlying demand” Emirates generates through its huge network feeding into its Dubai hub means the airline is able to ride out the tough times. “We’ve always got people feeding into the system,” says Clark, who sees this continuing to expand as the airline grows and becomes even more global. “When I open the door of an aircraft in Dubai and I’ve got 40 points serving it, each with five people on, I’ve got 200 people on board simply because we are there in their markets.”
The airline’s 148-strong all-widebody fleet comprises 45 A330/A340s, 15 A380s and 88 777s, as well as nine freighters (six 747-400Fs and three 777Fs). With the oldest passenger aircraft having been in service for more than a decade, a significant portion of the fleet will start to be phased out as more 777s and A380s are delivered.
“By September 2013 we’ll have 44 A380s and have taken most of our 101
“We’re gradually phasing out about 70 aircraft – A330s, A340-300s and 777 Classics. Most will have gone by about 2015 or 2016, although one or two will be retained longer.”
The current order backlog stands at just over 200 aircraft, and the influx of new equipment combined with the roll-over will see the Emirates passenger fleet grow to around 185 aircraft by March 2013.
Continuous fleet growth fuels the endless need for more operational staff, with Clark revealing that just prior to the interview he had signed off another 1,000 flight attendants, who will join the airline by March next year. “That will take us up to 16,000 cabin crew,” he adds. While the Emirates expansion will continue, “behind the scenes we’re going to have to be a bit more thrifty because the stubbornness of the oil price is giving us concerns about the bottom line.
“We’re all a little bit concerned about what is going on in the global economy and the volatility. And when there is volatility it has an effect on demand.”
This concern will mean Emirates is more cautious about “the pace at which we increase production and stretch the network” and has seen the airline’s management given “some fairly stiff parameters” to reduce the costs of “inward-facing, back-of-house” functions. “We have been totally focused on growth – perhaps behind the scenes some of those costs have grown at a greater pace,” Clark says. “We’ve got to dig deep and go into structural costs to see where we can start pulling out 5-8%.”
The costs focus comes on the back of a stellar financial performance in 2010 by the Emirates Group, which posted a 43% rise in net profit to Dhs5.9 billion ($1.6 billion) on sales that were up more than a quarter to Dhs57.4 billion. The airline arm contributed the bulk of the profit, to the tune of Dhs5.4 billion, while passenger numbers rose more than 14.5% to 31.4 million.
The 2010-2011 financial year took a slight hit from effects of the Arab Spring, but Clark says the airline has “dealt with that” and is now optimistic about the political changes across the Arab World. “I’m a great opportunist and a great believer that the change will deliver good,” he says.
Clark says the airline’s system-wide seat load factor is running at about 78-79%, some three percentage points below where he wants it.
“The problem is with the oil price where it is, we’re facing a situation where fuel is almost 60% higher than what we were paying last year so the trick has been to ease up and better manage the income streams.
“That’s not necessarily putting up fares. We have to assess the various revenue segments in which we operate and try to improve the quality of business within those segments.”
Clark says he is surprised yields so far have stayed where the airline wants them. “In fact we’ve got more out of them this summer, but it was at a price – demand was affected. The rate of increase in the segments declined.”
Emirates’ continuous network development is currently seeing a drive to expand into the Americas, with several new destinations coming on line during the next few months, including points in South America (Rio and Buenos Aires) and the USA (Dallas/Fort Worth and Seattle). The latter market is one where Clark says Emirates must raise its brand profile and consolidate its market presence. The USA is a “really difficult nut to crack” as it is not a single entity, he says. “We’ll do that through adding more destinations and getting our marketing act together.”
Expansion is ongoing elsewhere too, with Baghdad, St Petersburg, Zambia and Zimbabwe all coming on line between now and February. China is a key market and a major area in Clark’s sights for growth. Three points are currently served, as well as Hong Kong.
“We want a lot more from China, at least another four destinations,” he says. “Asia is very strong and it will continue to grow for us. The groundswell of support from the consumer base in the Asian markets for Emirates is very strong. People vote with their feet.
“We need more access in to India. And we’ll be taking up our frequencies into Australia – going to 12 flights a day.”
But Clark, known for his candidness during interviews, is reluctant to divulge too much from his Emirates network master plan – for fear of imitation. “Whereas 15 years ago nobody was really interested in what we were going to do, the moment I say anything now I get five other carriers moving in there very quickly.”
His openness returns when discussing how Emirates expansion plans have fallen victim to politics in markets where government concerns have prevented the airline from gaining the greater access it has sought. This has been a problem in Germany, where suspected behind-the-scenes lobbying by Lufthansa has limited Emirates to only four gateways. Similarly, the airline has struggled to expand its Vienna services. “Austrian warned that it’s not going to make its 2011-2012 profit targets and we’ve come up against that first-hand because, ‘shock horror’, there’s a huge opposition to a second frequency into Vienna,” says Clark.
However, Clark believes the tide is already turning for the “keep them out” campaigns.
“Irrespective of the positions of the legacy carriers and alliances, there now seems to be a realisation – even amongst them – that this is not going to work. They’ve got to shape the way they go about their business activities to take us on.”
Clark admits he takes an “obtuse view” towards competition, be it from fellow Gulf airlines, any threat from China, or legacy rivals.
“I’m a great believer in competition and in the airline business itself. The more people that can buy A380s or 777-300ERs the better it is for all of us. It’s a paradox, but the fact is that I honestly believe it helps us to do the job better.”
However, one aspect of modern competition he cannot abide are the global alliances, whose behaviour he likens to global “gang warfare”, threatening to stifle competition and prevent it being nurtured. “I’m so opposed to alliances because I believe they distort and channel and direct for the greater good of the alliance thing, rather than the consumers that are driving it all.” Clark says the alliances – particularly Star – have created “a fairly difficult, vicious structure internationally” and is concerned about how much of a threat Emirates is perceived to be. “We have learnt that we are considered to be the single largest threat to the Star Alliance group on the Planet today. While I’m hugely flattered by this, it is also a worry because it shouldn’t be that. There is actually room for us and our way of doing things, and the way they do. I don’t spend my time trying to take down Star Alliance. I’d rather work with all these airlines on an independent basis, and that’s what we do. Because I’ll always give business to the partners that we have relationships with.”
Emirates recently published a paper entitled Aviation at the Crossroads – Safeguarding Competition and Consumer Choice, in which it highlights recent tactics by the alliances that create a “join or perish” commercial incentive for non-aligned airlines. “The emergence of three mega-alliances presents public policy concerns that merit careful attention”, and could “harm consumers”, Emirates says in the paper.
Unsurprisingly, Clark says the thought of joining an alliance is “anathema” to Emirates. “There’s no point in even going there. You must have total command and control of what you do. You can’t allow yourself to be subjected to the whims of an amorphous board, like the Star Alliance, saying ‘you can’t do this, you can’t do that; you’ve got to buy this aeroplane; you’ve got to fly this route’. Not in the world as it is today. We want to move rapidly where we have opportunities, for example, to second or third-level airports. I don’t want to be told ‘you can’t go to that hub; I’m going there so you feed me’. Forget it.”
This sort of independent thinking has been central to Emirates’ early and continued success. “When the global economy took off, because we were totally focused on what we do, because we were not alliance-affiliated, we had nobody else to answer to and we did things the way we wanted to. We recognised in the mid-1990s that the world was changing rapidly and we had to adapt our business. We exploded the growth of Emirates, took on huge numbers of orders that shook the industry. We did that because we could see [demand for air travel] was going bananas.”
By comparison with the Emirates buying frenzy last year – that saw it order another 32 A380s and 30 777-300ERs – this year has been fairly quiet for the airline, so far. However, Clark already has his eyes on the next potential acquisition – a successor for the airline’s huge fleet of 777-300ERs.
His deep understanding of aircraft performance means he was never slow in getting stuck in with the design teams in Toulouse and Seattle as they developed their recent large widebody types. It is no different now. Clark has been quick to express his displeasure at the way Airbus has messed around with the design of the A350-1000 – for which he holds 20 orders and could potentially take more if the aircraft’s specifications meet Emirates requirements – and is pushing Boeing as it develops a 777-300ER successor, with the view to being a potential launch customer.
Airbus unveiled a revised specification for the largest A350 variant at the Paris air show in June, along with a two-year delay to service entry from 2015 to 2017. The changes centre on a modified, more powerful variant of the Rolls-Royce Trent XWB engine, along with increased weights to provide additional range capability. But Clark is not happy the revisions were implemented without any dialogue with Emirates. “If they had talked to me, I would have said: ‘[The improvement is] not good enough’,” he says.
“On paper, the old -1000 was hugely economical – it was a 777-300 classic replacement. That’s why I talked about converting my -900 orders.” But that possibility has dimmed with the changes, and Clark hopes Airbus’s US rival could hold the answer. “There’s a lot of work going on [at Boeing on the new 777], and we’re involved in it.”
Clark has informed Boeing that Emirates needs a twinjet capable of flying a 50-tonne payload – by its rules – between Dubai and Los Angeles. Today that route is operated by a 777-300ER, with a payload of about 35-37 tonnes. “I keep telling Lars Anderson [head of Boeing’s 777 Advanced Product Development team] that I’m already flying the -300ER there, so give me an aeroplane that can do it reasonably so I’m not shedding payload to get us there,” he says.
When he is not busy assisting the airframers with their product development strategies, Clark is also taking a leading role in a push to shake up IATA post Giovanni Bisignani.
His now famous observation from the floor at this year’s AGM that the association was perceived as being “run for the few, by the few” was part of an effort by a group led by the Gulf carriers to see reform at IATA under the stewardship of newly appointed director general Tony Tyler.
Participation in the management of another airline is a strategy that Clark indicates he is in no rush to repeat, after the experience Emirates had when it acquired a minority stake in SriLankan Airlines in 1998.
“We were in there for 10 years and spent a huge amount of time on the project,” he says. “I was down there six times a year, even with Peter Hill running it.”
Although Clark jokes that British Midland International could be available to buy from Lufthansa for “200 million”, he says there is “nothing on the cards” at the moment for Emirates to buy into another carrier. “But we never say never,” he adds.