BloombergBusinessWeek, 5-Jan-17
By Matthew Campbell
It
flies the fanciest product on the biggest planes on the longest routes. There
might not be much more room to soar
In
their fifth week of training, women hired as flight attendants at Emirates
Airline spend a day in Dubai with Pamela Mizzi. A makeup artist from Malta who
spent 12 years in the sky herself, Mizzi greets the students in a windowless
instruction space about 20 feet across, lined on three sides by mirrors divided
into vanities by bright roundels of light, like an old-timey dressing room. Her
job is to teach the trainees how Emirates expects them to look.
Female
cabin crew, referred to invariably as “girls,” are to tie their hair back in
tight buns, preferably secured by a scrunchie in Emirates-brand red. For
makeup, a seven-step process is recommended, starting with foundation and
concealer, then moving on to lipstick, also in preauthorized shades of crimson.
At the back of Mizzi’s classroom are two display racks of Emirates-approved
emollients for “body shaping,” “firming,” “wrinkle control,” and “luminosity.”
“We
have standards in regards to nail care,” Mizzi says. The same is true for
weight. If a crew member looks too heavy, his or her superiors are to report
their suspicions to a central fitness and nutrition department. “And they
follow up,” she says. Little escapes scrutiny. By the time crew members reach
Mizzi’s classroom, they have moved into Emirates-managed apartments with
Emirates-imposed curfews, travel to work in Emirates-branded minibuses, and see
Emirates-employed doctors at in-house Emirates clinics.
The
airline, which is based in Dubai and owned by its government, has become the
world’s largest long-haul carrier by never relaxing its grip—on employees, on
airplane manufacturers, or on its own ambitions. Emirates recently configured a
plane to seat 615 passengers, a record, and flies the world’s most epic nonstop
route, an 8,824-mile arc from Dubai to Auckland. Emirates is essentially the
only buyer of the largest commercial airliner, the Airbus A380, which it gilds
with stand-up cocktail bars and in-flight showers. For every flight departing
Dubai, as cabin crew head to their airplanes, the last room they traverse is a
hall with mirrors on one side and windows to the tarmac on the other. The space
allows workers to inspect themselves for perfection against a backdrop of
government-owned taxiways thick with Emirates jets. That’s the airline, in one
image: glamour and ambition in a framework of absolute control.
Since
1985, Emirates has grown from a two-plane operation at a desert airstrip into a
force whose every movement rumbles through global aviation. The airline’s
growth is inseparable from that of Dubai, with both straining the laws of
financial and physical gravity. The company’s chairman is Sheikh Ahmed bin
Saeed Al Maktoum, the uncle of Dubai’s absolute monarch. He also runs the
airport authority, the aviation regulator, and the city’s largest bank, should
Emirates ever need a loan. Out in the desert, a half-hour drive from the
coast’s skyscrapers and malls, the government is building a $32 billion,
five-runway megahub precisely to Emirates’ specifications. Its ambitions are
consonant with its name: Dubai World Central. The project will have a capacity
of 220 million passengers per year, four times the number that New York’s John
F. Kennedy International Airport serves today. Two-thirds of humanity lives
within the radius of an eight-hour flight. Among industry veterans, the airline’s
rise inspires a respectful awe. “Emirates is unprecedented,” says Tony Tyler, a
former chief executive officer of Hong Kong’s Cathay Pacific. “There’s never
been anything as huge.”
Yet
as Emirates dictates new standards of technology, luxury, and range, it’s
finding that more and more is beyond its mastery. Conceived as a titanic bet on
the growth of what development economists call the Global South—the Middle
East, Africa, South Asia, and Latin America—the airline is at risk if those
emerging markets don’t, in fact, emerge. Emirates in May reported its
first-ever annual revenue decline and is cutting some of its plans for growth
amid slackening demand from sub-Saharan Africa, Turkey, and Brazil. The slump
has industry analysts wondering how Emirates will fill the staggering number of
planes it has on order. The company has agreed to buy 50 A380s and 174 Boeing
777s, adding to the 92 and 148, respectively, it currently flies. By
comparison, British Airways operates 12 A380s, and American Airlines, Delta,
and United have zero.
The
bigger threat may lie in the U.S., the world’s most lucrative travel market,
where Emirates has been expanding aggressively. It flies to 11 cities,
including Orlando, Boston, Seattle, and Dallas. Led by Delta, the U.S. Big Three
are intensifying a lobbying campaign against Emirates and its smaller Persian
Gulf rivals, Etihad Airways and Qatar Airways, collectively the ME3, seeking to
curtail their access to American airports unless “unfair subsidies” are
eliminated. Their argument, that deep-pocketed foreigners are threatening
American jobs by flooding the market with subsidized capacity, was once seen in
business circles as a long shot—but it happens to resonate precisely with
President-elect Donald Trump’s stated view of the world. Similar efforts are
afoot in Europe.
Those
challenges may make the world less hospitable than ever to a company whose
marketing projects a sunny globalism. With Trump and his ilk ascendant, one
Emirates ad sums up a corporate ethos that feels increasingly at odds with the
times: “Tomorrow thinks borders are so yesterday.”
In
1984, Dubai was a backwater, one of the seven city-states that made up the
fledgling United Arab Emirates, when its ruler, Sheikh Rashid bin Saeed
al-Maktoum, and his son Mohammed decided to start an airline. With $10 million
in seed capital and a couple of jets leased from Pakistan, Emirates was created
a year later under the leadership of a pair of British expats, Maurice Flanagan
and Tim Clark, initially serving regional destinations before making its first
flights to London in 1987.
Born
in 1912, Rashid was fond of saying that while his father rode a camel, he drove
a luxury Mercedes and his son drove a playboy’s Land Rover—but his
great-grandson would be back on a camel unless Dubai, never as oil-rich as
neighboring Abu Dhabi, found other sources of income. His vision was to turn
the city into an entrepôt for the Middle East, an orderly hub for business and
tourism—like Singapore, but drier (in every sense). Emerging from a rural
society with a tiny native population, the face of this city would by necessity
be foreign: Bangladeshis to build the skyscrapers, Filipinos to staff the
restaurants, and Brits to run the management consulting firms. Wealthy
Iranians, Egyptians, Saudis, and Indians would fill the condominiums and buy
the yachts, using Dubai as neutral ground on which to play, work, and cut
deals. The sheikhdom pioneered a model of the state as highly leveraged private
equity firm, developing and owning ports, shopping malls, hotels, and, most
important, a top-notch airline to bring the world to its door.
While
Emirates is adamant that it never received subsidies after its startup grant,
there’s no question it’s operated in an environment that drives Western
airlines mad with envy. For starters, Dubai won the geographic lottery. From a
fuel and flight-time perspective, the Persian Gulf is the most efficient place
on the planet to connect Europe with Southeast Asia and Australia, and the U.S.
with India. Strikes and protests aren't an issue—unions are banned, and rights
to free speech and assembly are severely limited. Corporate and income taxes
are nil. And then there are the advantages of being the favored corporation of
an absolute ruler whose word is literally law. Unlike Heathrow Airport and Los
Angeles International, where the rights of nearby citizens to sleep without jet
noise must be respected, Dubai International Airport runs at full speed 24
hours a day, allowing Emirates to optimize connection times for a network that
spans from Buenos Aires to Christchurch, New Zealand. Keeping passengers coming
back, not short-term cost containment, is the highest value.
“We
have never equated our investment into a dollar return,” Chief Operations
Officer Adel Ahmad al-Redha, one of the airline’s most senior Emiratis, says
over tiny glasses of sweet tea in his office at company headquarters, adjacent
to the airport. “His Highness has always told us, ‘Build the right product.’
That’s the priority.” Sheikh Mohammed, who became Dubai’s ruler in 2006, is
sometimes referred to by Emirates executives as simply “the shareholder,”
emphasized with a brief upward glance. The ruling sheikhs are never far away.
Partway through an interview with al-Redha, an assistant silently enters to
place a yellow Post-it in his field of vision: “HH meeting at 10 a.m.” A few
minutes later, al-Redha excuses himself.
Such
proximity to the levers of power has allowed Emirates to play hardball with
opponents. In 2010, Canada rebuffed requests from the U.A.E. to allow Emirates
and Abu Dhabi-based Etihad more landing rights in Toronto. The U.A.E. raged,
abruptly closing its airspace to Canada’s defense minister while he was in
midflight, which forced a diversion, and evicting Canadian troops from a Dubai
base they were using to support combat in Afghanistan. Canadian visitors to the
U.A.E. were slapped with visa requirements, including fees of as much as
C$1,000 ($754), though the gambit backfired. Then-Prime Minister Stephen Harper
told his ministers he wouldn’t allow soldiers to be used as a bargaining chip.
Emirates’ landing rights still haven’t been increased.
But
almost everywhere else, the airline is flying at astonishing capacity. Nine
Emirates A380s land in London every day, along with five in Bangkok and four at
JFK. In South Africa, Johannesburg gets four daily 777s, Cape Town three, and
Durban one. Daily flights to those three cities by U.S. carriers number one,
zero, and zero.
At
Emirates headquarters, the wall to the left of Clark’s desk is covered by a
world map about 8 feet high, its projection shifted a couple of turns from the
orientation most Americans are used to. The result is to put the Persian Gulf
in the center. “Lloyd Blankfein has sat in that chair and said, ‘I want that
map on my wall,’ ” Clark says. (The Goldman Sachs CEO declined to comment.) To
the right of Clark’s desk is a window with a commanding ninth-floor view of
Emirates Terminal 3, a trio of silver, sausage-shaped concourses that
collectively make up the world’s largest airport terminal.
Clark,
67, has spent more than 30 years at Emirates, taking on the role of president
(the company’s equivalent of CEO) in 2003. After a peripatetic childhood, he
got his start in the airline industry as a check-in agent for long-forgotten
British Caledonian Airways. As one of Emirates’ first employees, he never
experienced the cycles of contraction and retrenchment that have defined the
careers of his contemporaries at Western carriers. He’s Emirates’ intellectual
godfather, spokesman-in-chief, and enforcer, prone to gazing out over the airfield
with binoculars and upbraiding subordinates for lapses. One executive tells of
an occasion, years ago, when he was excitedly demonstrating a new procedure for
washing airplanes. After listening politely, Clark licked his index finger and
rubbed it, hard, on what appeared to be a gleaming fuselage. The digit came
away covered in grime. The procedure was duly overhauled. Even the model
airplanes that crowd Clark’s office are subject to his inspection. At one point
during an interview, he stops to fret that the landing gear has fallen off a
football-size plastic A380.
Clark’s
tenure has been defined by bold gestures, and he relishes recounting occasions
when a seemingly doomed gamble went his way. He’s claimed credit for silencing
naysayers who told him that reviving the Jet Age concept of an onboard bar, in
Emirates’ case on the upper deck of the A380, would be an expensive folly that
no passenger would bother using. (They very much do.) The same goes for the
airborne showers in first class, requiring planes to take off with 2.2 metric
tons of water, which Clark has said he had to “work conspiratorially” behind
the backs of skeptical Airbus executives to develop. Since Clark took over,
Emirates has several times set aircraft order records, culminating in a 2013
deal worth $99 billion at list prices.
But
apart from picking up two jets destined for a Japanese budget carrier that went
bust, Emirates hasn’t bought a single plane since. With most viable routes
already heavily served, the company has been forced to go farther afield to
keep growing, pushing into ultralong-haul flights to the likes of Panama.
Clark’s current mood is cautious, verging on somber: 2016 was “not a good
year,” he says, and “I think ’17 could be even flatter, slightly worse.” Oil
executives and bankers aren’t buying premium tickets like they used to; demand
is plunging in sub-Saharan Africa; Syria, Libya, Tunisia, and, to a certain
extent, even Turkey have fallen off the tourist map. These days, Emirates is as
likely to reduce luxury as ramp it up. Some A380s are being flown without first
class, in favor of more economy seats, and in September, Clark mused about
introducing budget-carrier-style bag fees. In the airline’s last earnings
announcement, in which fiscal first-half profit fell almost two-thirds, Sheikh
Ahmed warned that “the bleak global economic outlook appears to be the new
norm.”
More
broadly, Clark concedes that Emirates’ emergence as a boundary-pushing titan of
global aviation was an outcome of an era that may now be at an end. “It is true
that we are a product of the multilateralism, the liberalization of trade,” he
says in his office, the lazy ballet of taxiing aircraft visible on the tarmac
just over his left shoulder. On his desk, he’s kept a collection of British
newspapers from June 24, the day after U.K. voters rejected the liberal order
by voting to leave the European Union. “But are we going back to the ’30s? No,
no, no. The man, the woman in the street has been exposed to the good things,
irrespective of faith, creed, gender, nationality, sexuality, it doesn’t make
any difference. Everybody’s out there,” he says. “They can see the world is
open to them. And I’m hoping that kind of sense will prevail. Maybe I’m just
being a little bit naive, overoptimistic.” He spoke on Oct. 26, 13 days before
Trump’s election.
If
there’s anywhere that will test Clark’s brand of optimism, it will be President
Trump’s Washington. Generalized distrust of foreigners, particularly Muslim
ones, and a determination to reopen long-settled trade deals were among the
only common threads in his erratic campaign. The so-called Open Skies
agreements that allow unlimited flights between the U.S. and the Persian Gulf
present a rare confluence of Trump targets, giving new energy to a lobbying
group formed in 2015 by Delta, American, and United, along with several
industry unions, called the Partnership for Open & Fair Skies.
The
group claims the ME3 carriers have collectively received at least $42 billion
in direct and indirect subsidies since 2004 and are twisting Open Skies deals
to dump into the American market excessive capacity that wouldn’t be possible
without government help. It argues that the trio’s growth is out of all
proportion to the size of their home markets—a population smaller than Ohio’s,
in the case of the U.A.E.—and can only be the result of unfair advantages. In
Emirates’ case, the partnership pegs the 2004-14 subsidy figure at $6.8
billion, including $2.4 billion in fuel-hedging losses assumed by the Dubai
government and $2.3 billion in subsidized airport charges. An additional $1.9
billion is the result, it says, of a “union ban resulting in below-market labor
costs” and further unquantifiable benefits accrued from “exemption from
competition laws” and the “absence of independent regulatory oversight.”
Emirates disputes all of these figures and says U.S. airlines have received
ample advantages of their own, notably via Chapter 11 bankruptcy protection
that shielded them from creditors during restructuring efforts. As it also
points out, U.S. carriers barely fly to India, Africa, or the Middle East, the
main destinations to which it’s ferrying American passengers.
The
partnership’s stated goal is to persuade Washington to force the governments of
the U.A.E. and Qatar to end the purported subsidies as the price for continued
unrestricted access to the U.S. The debate has had some nasty moments. In a
2015 CNN interview, Delta’s then-CEO, Richard Anderson, noted that “terrorists
from the Arabian Peninsula” were responsible for the U.S. airline industry’s
post-Sept. 11 meltdown, which he called “a great irony.” (Anderson later
apologized.) Delta also pulled its sponsorship of Atlanta’s historic Fox
Theatre after Qatar Airways held an event there.
“When
you look at the fact that no U.S. carrier flies to the Gulf region and the ME3
have 30 flights a day to the U.S., how is that possible if not at the expense
of U.S. jobs?” asks Ed Bastian, Delta’s current CEO. Gulf carrier flights that
operate directly from Europe to the U.S., allowed under so-called fifth freedom
rights, are a particular concern. While Emirates does so on just one route
(Milan-New York), a significant expansion would threaten U.S. airlines’
trans-Atlantic cash cow.
The
partnership’s lobbying of the Obama administration was inconclusive, in part
because not all U.S. players are on board. JetBlue Airways and Alaska Airlines,
both of which code-share with Emirates, have said they prefer the status quo.
Boeing has stayed neutral; Emirates is its largest customer, and Qatar and
Etihad aren’t far behind. Bastian and other allies of the group, though,
believe the new president will have their back. Trump “has expressed great care
for American jobs and the impact of foreign subsidies on U.S. workers,” he
says. “He has been very clear that free trade shouldn’t be at the expense of
American jobs.” Adds Tim Canoll, the head of the Air Line Pilots Association, a
partnership-supporting union: “The political stars are aligning.” The group has
already begun discussions with Trump’s transition team, and it plans to
increase its direct lobbying efforts as soon as cabinet and policy adviser
positions are filled. If they’re successful, Emirates’ critics in Europe,
particularly Lufthansa and Air France-KLM, are likely to revive their own
attempts to throttle its expansion on that continent.
For
now access remains open, and Emirates is pushing deeper into the U.S. In
December it began daily flights to, of all places, Fort Lauderdale. Clark says
U.S. airports are eager to bring Emirates to their terminals despite any
controversy; Denver, whose mayor recently led a delegation to meet with
Emirates in Dubai, may be next. The partnership claims most ME3 flights to the
U.S. lose money and are intended to crush competition by thronging the market
with cheap seats. The experience of Australia’s Qantas Airways provides a
cautionary tale. After trying and failing to compete with Gulf airlines on
routes to Europe, losing hundreds of millions of dollars, Qantas in 2012 gave
up and entered a comprehensive alliance with Clark. Most of its Europe-bound
passengers are now booked on Emirates flights via Dubai.
Still,
airline watchers aren’t so sure about the U.S. partnership’s claims. Demand for
flights to markets like India and Africa has grown significantly in the U.S.,
even in second-rung cities. “They’re not eating someone’s lunch,” John
Strickland, a U.K. aviation consultant, says of Emirates. “They’ve created new
lunch.”
Emirates
and its U.S. antagonists agree on one thing: The vast majority of Emirates’
passengers aren’t going to Dubai. Three in five fliers are connecting to
somewhere else, and Dubai’s airport has been designed as a massive machine to
facilitate their movements, a polished-stone fulcrum between Dar es Salaam and
Guangzhou, Dallas and Dhaka. The bulk of flights arrive and depart in three
“waves”: one from 2 to 4:30 a.m., another from 7 to 11 a.m., and a third from
1:30 to 4 p.m. Between those rushes the airport is eerily quiet, even in the
operations center, the size of a hockey rink, where Emirates manages the
flights. A giant central screen shows the location of every Emirates plane in
the air. A thick, curved line of blue avatars is headed to and from Western
Europe; a smaller cluster moves between Dubai and Africa; another inches toward
East Asia. Far to the north, flights to Los Angeles and San Francisco are
headed straight over the top of the world.
To
spend time on Planet Emirates is to be bombarded with reminders of the awesome
scale of its operations, often proffered by staff who’ve worked there since the
early days and remain mildly bewildered by what the company has become. The
airline operates an industrial-size wine cellar in Burgundy, with 3.75 million
bottles aging at any given time. Its flight kitchens are the largest in the
world and make almost everything from scratch, from hummus to hamburgers, as
well as 25,000 muffins a day. They incorporate what Emirates says is the
world’s largest dishwashing operation, using 17 colossal machines to clean 3.5
million items daily. In case of a breakdown, 200,000 sets of cutlery are kept
in reserve.
Still,
the strains of growth are apparent. The airport, which has only two runways and
is hemmed in by development, can become severely congested at peak times, and
the move to Dubai World Central is probably a decade away. On Skytrax, which
aggregates customer reviews of airlines, Emirates gets an average of 6 out of
10 as fliers complain about inconsistent service across its sprawling network,
a score lower than that of budget carrier EasyJet. (Skytrax nonetheless named
Emirates its top airline of 2016, an award that draws on separate data.)
Meanwhile,
online forums for pilots and cabin crew are crowded with complaints from
Emirates staff about what they say are excessive hours and inflexible policies.
For example, female cabin crew who’ve been employed less than three years must
leave their jobs if they become pregnant. Because virtually none are locals and
Emirates issues their visas, that generally means leaving Dubai. After three
years of employee service, maternity leave is available but largely unpaid, and
it depends on the mother being married; giving birth out of wedlock is a crime
in the U.A.E. Staff also complain about curfews and visitor restrictions in
Emirates-administered housing, which human resources chief Abdulaziz al-Ali
says are necessary because “we know a little more about this country than
foreigners who come.” He insists that employees are happy—so much so, in fact,
that “there is no reason for them to become unionized.”
Staff
and passengers alike do have other options. Etihad and Qatar Airways are using
the same geographic advantages to expand, cloning the “superconnector” model
pioneered in Dubai. In Istanbul, an airport that may be as large as Dubai World
Central is under construction and could eventually allow Turkish Airlines to
become a global challenger. Then again, the superconnector model itself might
fall apart. The proliferation of lighter, fuel-efficient jets such as the
Boeing 787 are making long-haul routes between smaller cities economical,
reducing the role for megahubs of all stripes.
In
the 70-odd years of large-scale commercial aviation, no airline has managed to
stay on top for long. Pan Am was the last word in intercontinental glamour in
its day, and its day came to an end. It’s a problem that Clark is clearly
wrestling with as he contemplates his own retreat from the stage. He hasn’t yet
set a date for his retirement but acknowledges it isn’t far off. No successor
has been chosen yet.
“If
I was in my 40s, I’d make bloody sure that in 20 years Emirates was right there
and never came down a notch. I’dkeep. Up. The pressure,” Clark says, pausing
for emphasis. “Adapting and changing to do everything we need to do to align
ourselves not with what the establishment requires us to do, but what the man
in the street requires us to do … that’ll keep us there. If that doesn’t
happen, they’ll be running around with lots of empty airplanes.”
As
Clark speaks, in the middle distance a crew of workmen moves gingerly across
the roof of Terminal 3, washing away its accumulated coating of blown sand to
reveal a skin of shining chrome. The procedure has to be repeated constantly.
If it weren’t, the airport would eventually sink back beneath the dunes.
