Question

Should Emirates expand it's fleet to a mix of aircraft (aka United Airlines), or should they enter a global code-share alliance? Explain your reasoning.

Answer 1

Emirates will go for codesharing alliance. Emirates’ business strategy is to grow organically, the airline constantly considers a wide range of commercial opportunities and pursues strategic cooperation that makes commercial sense, such as codeshare partnerships or agreements.

As can be seen from the graph above the US is still underdone when it comes to Gulf carrier penetration. This is both because it is early days and because the hub proposition is different for the US.

Although Emirates is undoubtedly well placed to service Indian travellers between the US and the sub-continent, the hub value for the US market deteriorates the further east the origin point is.

So, few would think of flying between Shanghai and San Francisco via Dubai; but Shanghai-New York over the Gulf becomes potentially competitive, as a search on Expedia will show. And, the further south the East Asian point, the more competitive it becomes – for example, a daily Ho Chi Minh City service by Emirates over the Gulf, one-stop to New York offers a direct challenge to any other product (as a combination of elapsed time, inflight quality, frequency, network coverage, price etc).

Then, for Bangkok, where Emirates has a five-times daily operation, or Singapore, with thee daily non-stops from Dubai, connecting with three-times daily New York flights, the “product”, especially for business/premium travellers, emerges as a winner for travellers to the Big Apple. This is one reason the Gulf airlines, with their extremely high quality inflight product, are capturing the lion’s share of global premium traffic, just as many airlines are cutting back on front-end capacity.

For the still small, but fast growing and high yielding African market, the Gulf carriers are becoming a more and more attractive proposition from US points. Their extensive networks in the region and their explosive entry into partnerships with many of the key African carriers are positioning the Gulf airlines to compete aggressively with European hubs, where the rare direct services are not available.

Yet it takes time to build network strength. For the time being the US (and Canada) does not have adequate capacity, frequency and network to have the pulling power the hub carrier enjoys in Europe.

Thus, strategically, Emirates must achieve two goals:

• First, enhance its partnership/reciprocal codeshare linkages. This will allow it to feed its network via third party airlines, both providing Emirates with more traffic and its partner with greater access to a global network; then
• Secondly, having constructed its foundation, expand its own services.