June 23, 2004

Reach for the Skies

Aviation gas is up. Ticket prices are up and United is in trouble – again. But Emirates is thriving and with 90 new planes landing soon, its boss is expecting competitors to squeal, as Eric Ellis reports..


Qantas' feisty boss Geoff Dixon presents as if he fears – or perhaps even admires – no one in the airline industry, with the possible exception of himself. But were he to admit even a scintilla of admiration for anyone, there's a strong chance it would be a partially deaf 75-year-old Lancastrian grandfather operating out of a modest office in the Arabian desert.

That man is Maurice Flanagan, chief executive of Emirates Airlines, the Dubai-based carrier that in recent years has defied SARS, terrorism, war and the international rise of budget carriers to challenge Qantas and its traditional rival Singapore Airlines (SIA) for domination in the lucrative global long-haul sector.

If the name seems familiar, it's Emirates bunting you've seen adorning world cricket's umpires, the FIFA World Cup, the Melbourne, Sydney and Perth Symphony Orchestra performances, most of the world's great horse races and, with lesser ­success this year, Collingwood Football Club.

"We should be the most interesting airline in the world but the non-specialists who follow airlines only follow share prices and we are not listed," says Flanagan, an RAF veteran and former British Airways executive who has headed Emirates for his Dubai emir bosses, the Al-Maktoum family, since it first took off from the emirate in 1985. "But the insiders know how good we are."

The Collingwood Magpies aren't the only battlers Flanagan has been helping keep afloat in recent years. There are thousands of lineworkers in Toulouse and Seattle, home bases of aviation's two biggest airline manufacturers, Airbus and Boeing, who owe their job security to Flanagan and Emirates. The carrier has vaulted ahead of regional rivals Qantas, SIA and Cathay Pacific to possess world aviation's most modern fleet. And it's a boast that Flanagan intends to make permanent, with a huge bet on the health of the region's airline industry and the Middle East's central role in servicing it.

Flanagan is awaiting a staggering 90 new aircraft worth $US26bn ($38bn), to be delivered to Emirates' gleaming home base over the next eight years. That's about an aircraft a month, and is a breathtaking amount compared with the unlisted Emirates' net worth; about $US5bn by Flanagan's calculation.

"Our banks are very supportive but it's not a problem for us," says Flanagan. "Looking at our growth estimates, I'm not even sure our current order book will be enough."

Reality check: this is the airline industry here, the same one that industry legends like American Airlines' Robert Crandall reckon has lost more money than it's made since the Wright brothers took to the air at Kittyhawk.

If that's not enough, Emirates' base is Dubai, the heart of the truculent Middle East. While Dubai seems a safe and prosperous Arabian Singapore, the wars in Iraq and Afghanistan are barely an hour's flight away. And Dubai's neighbour is Saudi Arabia, possibly the region's next powder keg in the war on terror.

But to see how high Flanagan and Emirates intend to fly in coming years, spend a minute gawping at the gaping hole dug out of the Arabian desert next to Dubai's already sprawling international airport the next time you rush through it.

The site is almost a square kilometre in area and perhaps 100m deep. Scores of cranes, trucks and diggers toil 24/7 to bring this extension to the existing airport onstream by 2006. One of the world's biggest construction projects – it employs more than 5000 people – Dubai's enormous hole is as big as that which has punctuated Lower Manhattan since 9/11, the day that probably has shaken the industry the most. The project is designed to triple by 2012 the 17 million air travellers who'll pass through Dubai this year. The plan is to make the city the planet's aviation hub, supported by cheap labour (about 75% of the population are $800-a-month expatriates from nations such as India and the Philippines).

Flanagan's vision flies in tandem with that of Dubai's aviation authority – unsurprising, given Dubai emir Sheikh Ahmed bin Saeed Al-Maktoum chairs both Emirates and the regulator. "Globally, Dubai is the ideal ­position for a hub: the centre of the world. Just look at a map. Non-stop between London and Sydney is quite a way off," says Flanagan.

But despite – or perhaps because of – his advanced years, Flanagan is a formidable competitor for the likes of Dixon and the Singapore Inc state bureaucrats steering SIA. And he has made a career – plus a $US479m profit, 75% higher for the March 31 year for Emirates – from being counter-intuitive.

Flanagan has decided that attack is the best form of defence and has become world aviation's biggest buyer of the aircraft designed for non-stop long-haul journeys. The first of 45 Airbus A380-400s – the world's biggest passenger planes with seating for up to 600 people – will be delivered by October 2006.

Emirates' rise – it has turned an independently audited profit 17 of its 18 years in the air – is spooking mandarins at SIA and Qantas. Singapore Airlines had grown accustomed to flying the world's most modern fleet to cater to its business traveller core. But as Emirates soared, SIA has made some bad bets. It paid $US1.5bn for 49% of Britain's Virgin Atlantic in 2000, which Flanagan regards as double Virgin's true value, and then lost another $US500m when its 35% of a collapsed Air New Zealand – and by extension Ansett – disappeared.

Flanagan puts Emirates' success down to Dubai's open-skies policy: "Anyone can fly in and out of here, no need for reciprocal rights." Despite the close links with Dubai's ruling family, Flanagan insists the airline "doesn't get a dirham in state support".

"We got $10m to start up back in 1985 and told never to come back for more," he says. "And we haven't. Qantas and Singapore Airlines can't say that."

Flanagan is bemused by Qantas' efforts to start up budget carrier Jetstar, both in Australia and in Singapore. He says Qantas could suffer a culture clash within the wider airline.

"It's not a good idea. I'm not saying they don't know what they are doing but intuitively I think it's mistaken. You are either in one type of operation or not at all; you have to keep it as simple as you possibly can and this [Jetstar] is making it complex when you don't need to make it complex."

As for the much-speculated about continued expansion of Emirates into the trans-Tasman market, Flanagan says: "We have no specific plans at all for a hub out of Auckland.

"I won't exclude the possibility as things develop. If we were to do it, we would be exploiting the open-skies policies of the US and of New Zealand, but all this talk of us in NZ is muddying the water of this inquiry into Qantas and Air NZ – it doesn't matter which way that goes for us.

"Australia has been a joy to us; load factors have never fallen off, even after Bali. After 9/11, we just carried on, loads fell but by Christmas that year, we'd caught up. We didn't do anything, we were above target for that with no adjustments, no layoffs ... the business came back very quickly."

Flanagan says he is mystified at what little interest airlines such as Qantas have in Dubai, which perhaps explains why Trade Minister Mark Vaile was in his office just minutes after The Bulletin. "We have invited Qantas to come and avail of our feeder services, but I don't think they are too interested. We've had to battle the negative perception of being in the Middle East when we think it's been our big advantage."

"We sort of like it that way."