Emirates Warns of `Gathering Storm' From Discount Rivals

(Bloomberg) -- Emirates President Tim Clark said he’s braced for a “gathering storm” as low-cost airlines encroach on the inter-continental routes around which the world’s biggest international carrier has built its business.

Dubai-based Emirates sees threats across all long-haul markets from rivals spanning Norwegian Air Shuttle ASA to the Scoot unit of Singapore Airlines Ltd., Clark said Thursday. The Gulf company may also need to establish a short-haul fleet as Mideast nations it has struggled to serve begin to open up, he said.

“For a long time people thought low-cost long-haul wasn’t economically possible,” Clark said at the Bloomberg Berlin Forum. “I didn’t believe it to be the case. Now aircraft makers are producing aircraft that can go for far longer quite cheaply, and it’s up to us to recognize that, and look at how we adapt.”

Clark, 67, said a decision on whether to move away from an all-wide-body fleet and add narrow-body jets to target local markets will be one for his successor. He added that while he sees no immediate switch, it would be “remiss” to commit to a particular plan and that “others coming behind may take a different view,” giving the strongest hint yet that his time in charge may be drawing to a close.

Emirates has established itself as the biggest carrier serving international routes by transforming Dubai into a hub for flights from the Americas and Europe to the Asia-Pacific, Middle East and Africa. Until now the economics of operating only the biggest planes filled with hundreds of transfer passengers has allowed its economy-class fares to easily undercut most competitors.

Delivery Impact

While Norwegian Air has focused its long-haul efforts chiefly on trans-Atlantic flights, it also has a hub in Bangkok. Scoot plans to begin flights to Europe this summer starting with a service to Athens -- a city that’s also part of the Emirates network -- in June. The true impact will be felt when deliveries of more-efficient planes are complete, Clark said, adding: “You ain’t seen nothing yet.” Norwegian alone has orders for 42 Boeing Co. 787s through 2020, of which only 12 planes have been delivered, with options to take 10 more.

“At the back end of ’90s I did a paper on long-haul low-cost,” Clark said. “Everyone laughed at me, but what I predicted then has finally started to happen. We have players in all arenas -- Europe, America, Asia. It’s a gathering storm.”

The executive said that the situation is being complicated by the response of established network carriers such as British Airways owner IAG SA, which plans to start lower-cost flights using Airbus Group SE A330 wide-body jets, initially out of Barcelona, and Deutsche Lufthansa AG’s Eurowings arm, which is expanding as fast in long-haul routes as it is on intra-European services.

‘Instability’

After a “few years of instability,” increasing demand for inter-continental services should be sufficient to support much of the expansion “as the pie grows,” Clark said. Low-cost carriers specializing in short-haul routes are also likely to play a bigger role in linking up with long-haul operators, he said. Ryanair Holdings Plc already plans to provide feeder traffic to Norwegian, and has indicated that it might be open to connecting with Gulf operators.

Political and socio-economic upheavals have created an environment in which running a global airline has become increasingly challenging, Clark said. While a decade ago a major carrier might have faced disruptive events a couple of times a year, “the pace of change is accelerating and quite destabilizing.”

President Donald Trump’s overnight ban on travel by people from seven mainly Muslim nations to the U.S. led to an unprecedented 35 percent decline in the pace of bookings, Clark said, with demand remaining lower. Given its reach, Emirates is a major carrier for a clutch of neighboring nations lacking their own long-haul networks, some of which are affected by the moratorium.

Inaugural Safe

There’s no question of the airline’s inaugural Athens-Newark service being held up following the latest attempts from the U.S. to block the route, which commences March 12, Clark said, adding that authorities would have to give a year’s notice of any intention to redraw international accords. A Congressional delegation from New Jersey and New York this week wrote to Trump urging him to halt the so-called fifth-freedom flight and reviving claims from U.S. carriers that Emirates has benefited from unfair state aid at a cost to American jobs.

Short-haul planes are becoming more attractive to Emirates as Boeing’s 737 Max model and the Airbus A320neo series offer significant gains in fuel efficiency and increase their flying range, Clark said, adding that the jets would be an option for serving a “bigger, more robust” Mideast market.

“The dynamic is changing in the Middle East with regard to access to new markets,” he said in earlier comments at a Berlin media briefing. “Our business model was set in the late 1980s, when access was denied to us by many places in the region.”

No Merger

The carrier’s room for maneuver may be limited by capacity curbs at its Dubai International airport hub, which tend to favor the deployment of bigger planes. The new Al Maktoum International hub will greatly increase flexibility but won’t be occupied by Emirates until well into next decade.

The near 250-strong Emirates fleet currently consists solely of Boeing 777 jets and Airbus A380 superjumbos ill-suited to serving shorter routes, with the carrier ranking as the biggest operator of both types.

“I’m quite sure that management behind me will consider all options,” said Clark, who has run the carrier since 2003. He described reports that the ruling families of the United Arab Emirates who own Emirates and Abu Dhabi-based competitor Etihad Airways PJSC are discussing a merger as “nonsense.”

--With assistance from Deena Kamel Yousef

To contact the reporter on this story: Andrea Rothman in Berlin at aerothman@bloomberg.net.

To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net, Christopher Jasper