Travel

Emirates eyes U.S. to reach lofty goal

FinanceBusinessMergers, Acquisitions and TakeoversGlobal ExpansionCompanies and CorporationsBusiness TripsHotels and Accommodations

Although little known in the United States, Emirates Airlines -- based in Dubai -- is the world's fastest-growing carrier and hopes to be the world's largest airline by 2015.

"It's only a matter of time," said Sheik Ahmed bin Saeed al Maktoum, the chairman and chief executive of Emirates and the uncle of the ruler of Dubai, part of the United Arab Emirates.

Most of the airline's growth until recently has been along routes over the Atlantic and in the Middle East. But now it is setting its sights on the U.S., Los Angeles in particular.

"I can't think of any airline growing that fast," said Richard Aboulafia, an aviation analyst for research firm Teal Group Corp. "It was just the size of Alaska Airlines six years ago and now it's vying to become the world's largest."

Last month the airline threw a $2-million party in Houston fit for an oil baron -- a Dubai sheik, actually. He was there to celebrate the start of nonstop service between Houston and his home emirate.

About 700 guests were treated to fireworks and filet mignon, all under the massive retractable roof of a 41,000-seat baseball stadium as Cindy Crawford emceed and singer Kenny Rogers entertained. It was by all accounts one of the most lavish private bashes this city has had in a while, not perhaps since the free-spending oil boom days.

Started in 1985 with two leased planes, Emirates now operates a fleet of 112 long-haul, wide-body jets. It gets a new plane -- typically costing $200 million to $300 million each -- about every two weeks, and it has placed orders for 245 planes worth $60 billion.

It is the largest buyer of the $350-million, double-decked Airbus A380, the world's largest passenger jet. It has ordered 58 of them, nearly a third of all orders for the plane.

With Los Angeles service, the airline would expand its global reach from what was once the little fishing village of Dubai but is now better known for its super-size ambitions.

In many ways the airline and Dubai are inseparable as they have fueled each other's growth, mainly driven by necessity. Oil that made the Persian Gulf region super-rich is drying up in Dubai. United Arab Emirates, a country made up of seven emirates, is considered one of the more Westernized and moderate Arab nations.

Hoping to create an economy less dependent on oil, the first ruler of modern Dubai, the father of the current ruler, set out in the 1980s to make the emirate a major Middle East transit point by starting an airline that would create traffic through Dubai.

"He was thinking about the airline as an ambassador," said Ahmed, who recalled how he was told by telephone that he would have $10 million to start the airline, with the goal of bringing 15 million hotel guests to the country by 2010.

Dubai, which had a population of 340,000 when the airline started in 1985, is now home to a quarter of the world's building cranes, lifting materials for nearly 5,000 buildings currently under construction there. The population has grown to about 1.4 million, but that is expected to double by 2015.

It is building the world's largest shopping mall, a 12.1-million-square-foot complex. It has the largest indoor ski slope and is completing the largest airport, which includes six runways.

Eventually, there will be enough hotels, shopping centers and entertainment complexes to help make Dubai one of the world's largest tourism destinations, Ahmed said.

But having an airline won't be enough to sustain its ambitions to be a major air transportation hub, so Dubai has also begun creating an aerospace industry. Armed with $15 billion, Ahmed last year started Dubai Aerospace Enterprise, whose endeavors include acquiring and creating companies that maintain, repair and make parts for airplanes. It also is buying airplanes and plans to lease them to other airlines.

This year, it quietly acquired two aircraft maintenance companies in Los Angeles. And last month, Dubai Aerospace Enterprise said it would order 200 airplanes from Boeing Co. and Airbus, which would make it the world's third-largest aircraft leasing company.

"They have a holistic aviation industrial policy," Aboulafia said. "These are all growth areas, so if traffic doesn't pan out they can get into aircraft repair and leasing."

Some analysts have begun to question its growth plans and whether the airline can sustain its 25% annual growth rate.

"They're expanding willy-nilly. It's almost like they're throwing spaghetti against the wall and hoping it sticks," said Michael Boyd, an aviation consultant. "I don't think they can continue expanding like this. They're going to run out of places to serve."

Late last year, Emirates said it was considering selling 20% to 30% of the airline in an initial public offering, which fueled speculation of financial woes.

Ahmed said the airline was merely being opportunistic, hoping to tap a burgeoning pool of capital.

Competitors privately grumble that the airline's growth has been subsidized by the Dubai government and that the carrier has an unfair advantage, although no official complaint has been filed with the World Trade Organization.

Ahmed said that since the initial $10-million infusion, the airline has never sought or obtained government funding.

Darin Lee, a principal at consulting firm LECG who specializes in airline economics, said Emirates hasn't needed government aid because it has been profitable every year except for one since it was formed.

"They have an all-wide-body fleet that primarily flies long-haul trips, so their seat cost per mile is actually quite low," Lee said, adding that at the same time the airline is able to "command a premium" for its service. "People are choosing to fly Emirates because they have this incredible reputation for service."

The flights to Houston, for instance, have been full as oil executives fly directly to Dubai to connect to other Middle East cities. In the past, they would have flown British Airways, connecting through London, or Air France, connecting through Paris.

Emirates is looking at opening two new U.S. routes next year as it takes delivery of planes with the world's longest range. Dubai is almost halfway around the globe from Los Angeles, which would "push the limits" of even the newest, longest-range airplanes, Ahmed said.

A Los Angeles service would target a sizable Muslim community in Southern California. And it hopes to draw the Hollywood crowd that would feed Dubai's ambitions to be the Middle East's filmmaking and entertainment capital.

Eventually, the carrier envisions a transpacific route, with an eye toward emulating defunct Pan American World Airways' reach that took travelers around the globe in both directions.

"95% of our network are nonstop flights from Dubai, and that's part of the success of Emirates," Ahmed said. "We take people right to their destination. You don't need to take off your shoes and belt twice."

peter.pae@latimes.com

Copyright © 2014, Los Angeles Times
Comments
Loading