Emirates’ Long Haul Business Model Pushes Down Costs – CAPA

Dubai-based Emirates enjoys a cost advantage over European carriers primarily because of its long-haul flights and not because of government subsidies, according to Sydney-based Centre for Aviation (CAPA).

CAPA, which recently analysed the unit costs for Emirates, IAG and Virgin Atlantic, said: “While some argue that Dubai-specific advantages such as low airport charges and the absence of income tax are unfair and represent a form of subsidy, this misses the point that Emirates’ long-haul to long-haul business model is inherently efficient.

“Emirates’ unit cost is lower than that of every European legacy carrier, but, since it also has a longer average trip length than almost every one of them, its unit cost ‘should’ be lower.”

The longer an airline’s average trip length, the lower its cost per available seat kilometre (CASK), CAPA found.

It said that the Dubai carrier’s unit costs are also lower due to an all-wide-body fleet that delivers more seats per departure and a younger average age of its aircraft fleet.

The report added that Emirates has a significant cost-per-available tonne kilometre disadvantage in the cost of aircraft ownership.

“This is due to its policy of investing heavily in new aircraft and its significant use of operating leases,” the report said.

“This tends to fly in the face of arguments that Emirates profits unduly from Ex-Im financing, where US airlines in particular prefer to fly very old aircraft.”

The report follows intense criticism levelled against the Dubai carrier and other Gulf airlines by legacy operators in Europe and the US. Western airlines allege that Emirates receive undue advantages from the government and that a ‘level playing field’ should be created.

CAPA said: “Until government/ regulatory related issues are resolved, talk of creating a ‘level playing field’ means no more than aiming to removing the efficiencies of a new model that has clearly shown itself to be successful. Analysing each aspect of this new model should be the starting point for every government’s travel strategy.”