Improving Operations at Emirates Airlines - Case Study Example

Size Does Matter: Recommendations for Improving Operations at Emirates Airlines {name} {BMG 460} Introduction Company Background Emirates Airlines began with a fleet consisting of two leased aircraft – a Boeing 737 and an Airbus A300 – and made its inaugural flight on 25 October 1985. Today the airline can boast of nearly 700 weekly flights to 60 countries with its modern fleet of over130 aircraft, which include the Boeing 777, the enormous Airbus A380, and the Airbus A330 and A340. Emirates has posted an annual profit every year since its third year of operation, and has never experienced a annual growth rate of lower than 20%. The airline is part of the Emirates Group, which has interests in tour and leisure management, cargo and airline ground operations, and airline-related IT systems. (Emirates, 2009) Emirates’ Bold Business Model Despite the current economic downturn, Emirates is sticking to a program of expansion in the high-end travel market that has some critics wondering if the airlines’ two-decade run of success might come to an end. Emirates has nearly 200 aircraft – one-fourth of them the huge, and hugely expensive, Airbus A380’s – on order, nearly all of them configured for high-priced First and Business Class passengers. Emirates accounts for 40% of the traffic at Dubai International Airport and hopes to increase that share to 70% by next year (Emirates, 2009), and its 700 weekly flights maintain a fairly consistent 78% load rate. Dubai, however, only has a population of about 1.7 million, so clearly the large numbers of passengers paying high prices to fly Emirates are coming from somewhere else. (Grossman, 2009) More to the point, many of Emirates’ strong competitors, airlines with 4- and 5-star quality rankings, are carrying them [see Table 1]. This report will address the challenge that Emirates faces, that of maintaining and improving process efficiencies to provide a superior service than its competitors and meet the aggressive growth objectives the company has set for itself. In the first part, the overall business strategy will be examined, along with the key supporting strategy that facilitates Emirates’ overall objectives. A description of the key process on which Emirates has based its growth goals – the airline’s worldwide routing scheme through its Dubai base – will then be made to illustrate a potential flaw in what is otherwise a very effective concept. Finally, recommendations for improving Emirates’ operational model will be offered. Table 1 – Skytrax 4- and 5-Star Airlines, 2008. (Airlines with service to Dubai in bold) 4-Star Airlines 5-Star Airlines Air France Japan Airlines Asiana Airlines Air New Zealand Korean Air Cathay Pacific ANA All Nippon Airways Lufthansa Kingfisher Airlines Austrian Airlines Luxair Malaysia Airlines Bangkok Airways Meridiana Qatar Airways British Airways Qantas Airways Singapore Airlines China Airlines South African Airways Dragonair Swiss International Air Lines Emirates Thai Airways Etihad Airways Turkish Airlines EVA Air Virgin Atlantic Finnair (Sources: Skytrax, 2009; Dubai International Airport, 2009) Emirates’ Overall Business Strategy Background: The Airline’s Role in the Dubai Strategic Plan 2015 The overall business strategy of Emirates would be ambitious for any stand-alone corporation, but what is remarkable is that the strategy represents just one component of a much larger plan for the entire state of Dubai. Under the leadership of Sheikh Mohammed bin Rashid al-Maktoum (who is also the Vice-President and Prime Minister of the United Arab Emirates), the Emirate of Dubai is essentially being managed as one big corporation. The master plan, known as the Dubai Strategic Plan 2015, sets out objectives for the country to meet by the year 2015 in the areas of economic development, social development, security, justice, and safety, infrastructure, land, and environment, and public sector performance. (Government of Dubai, 2006) At the heart of the economic development portion of the Dubai Strategic Plan are what is described as vertical building blocks and horizontal enablers: components of the plan which must be developed together to realise the objectives. (Ibid., 21) Two of these pillars, travel & tourism and transport & logistic services, fall almost entirely within the purview of Emirates Airlines and the Emirates Group. Thus, the strategic objectives of Emirates are not only goals for the company, but are an integral part of Dubai’s plan for nation-building. (Knorr & Eisenkopf, 2008, 1) Key Components of Emirates’ Business Strategy The biggest part of Emirates’ overall business strategy, and the component that most significantly supports the objectives of the Dubai Strategic Plan, is to simply bring people to Dubai. The entire routing network of the airline passes through Dubai International Airport; except for a few routes to Australia and New Zealand that connect through Singapore and Jakarta, every passenger carried by Emirates will pass through Dubai. (Graham, Papatheodorou, & Forsyth, 2008, 159) The hub-and-spoke model of airline routing is commonly used throughout the world and is considered standard practise (Dennis, 2007), but Dubai’s ideal geographic location and the range of modern jetliners means that Emirates can pursue the concept to its ultimate expression: any two major cities on the planet can be connected with one stop, if that stop is in Dubai. (Donnelly, 2005, and Knorr & Eisenkopf, 2008, 2) Other facets of Emirates’ strategy include: Stable traffic mix – Currently, the airline carries about equal numbers of O/D (outbound/destination) and transfer passengers through Dubai, and generates about 20% of its revenue through cargo transport. (Knorr & Eisenkopf, 2008, 2) This diversification insulates the airline from some of the effects of a downturn in one market segment, for instance, a drop in tourist travel. Long-haul flights – Longer flights have a number of advantages. Ticket prices are naturally higher as a function of distance, and since long-haul passengers expect better services, these can be offered with most of the added costs being absorbed by the ticket price. (Donnelly, 2005) Emirates also focuses on markets that are not well-served by its competitors, offering single-stop flights to and from cities that would require several transfers. (Dennis, 2007, and Knorr & Eisenkopf, 2008) This keeps Emirates’ load factor high, which lowers operating costs – more passengers can be moved farther on less fuel. High-quality air and ground services for passengers – Even in economy classes, Emirates’ services are rated very highly by passengers; the airline is often mentioned as one of the top three in services worldwide, along with Singapore and Cathay Pacific. (Donnelly, 2005) The rationale is obvious: happy passengers come back to Emirates for their next flight. No alliances – Although Emirates does have a few code-sharing agreements (i.e., arrangements with other airlines to co-operate certain routes), Emirates is not part of an alliance network as most other major airlines are. (Dennis, 2007, and Knorr & Eisenkopf, 2008) Alliances are conceived as ways for airlines to extend their networks and share resources, but the additional operating agreements place constraints on the individual airlines’ flexibility. (Graham, Papatheodorou, & Forsyth, 2008, 156) Supporting Operations Strategy In order to support the mission of efficiently moving passengers all over the world via Dubai, Emirates must achieve three primary supporting strategic objectives: Minimize the amount of time aircraft spend on the ground. Effectively match aircraft capabilities – capacity, range, and features – to demand. Reduce operating costs as much as possible. Emirates Airlines makes achieving these objectives possible with the composition of its fleet. The Emirates Fleet In order to manage its route network effectively and provide a high level of customer service and safety, Emirates operates a young fleet of the latest series of aircraft from Boeing and Airbus. Emirates’ current fleet comprises 132 aircraft (124 active, 1 in storage, 2 due for delivery, and 5 under construction), with an average age of 5.4 years; the oldest plane in the fleet is a Boeing 777 delivered in 1996, and the newest is a late-model 777 delivered on 30 April 2009. (Planespotters.net, 2009) Table 2 – The Emirates Fleet Aircraft Type Manufacturer Passenger Capacity 1st Year in Service Number in Service A330-200 Airbus 237-278 1999 29 A340-300 Airbus 267 2004 8 A340-500 Airbus 258 2003 10 A380 Airbus 489-600 2008 5 747-400 Boeing Used for cargo only 2004 5 777-200 Boeing 290-346 1996 9 777-200LR Boeing 266 2007 20 777-300 Boeing 380-434 1999 12 777-300ER Boeing 354-442 2005 32 777-F Boeing Used for cargo only 2009 1 (Sources: Emirates, 2009, and Planespotters.net, 2009) The strategy behind the composition of the Emirates fleet is to have aircraft with high passenger capacities, long range (the 777-200LR can fly an astonishing 17,400 km – a round-trip between London and Los Angeles, to put it in perspective – without refuelling), and modern construction that can support passenger features such as extensive entertainment systems. Not coincidentally, the aircraft are effective advertising, essentially being flying billboards. Emirates’ brand image is positively reinforced by their fleet of attractive, modern aircraft. Nor are they easily overlooked; the smallest plane in the fleet, the A330, is nearly 60 metres long and stands as high as a six-storey building, and the massive A380 is the second-largest airplane of any kind in the world. How the Fleet Meets the Supporting Objectives Because the fleet is relatively new, maintenance costs are greatly reduced. Newer planes require fewer repairs, and since most parts on a modern aircraft have maintenance cycles determined by hours of use or number of flights (Doganis, 2002, 82), normal maintenance that requires components to be overhauled or replaced is minimised. Thus, planes stay out of the maintenance hangar and spend more time earning revenue in the air. Having a relatively small number of different types of aircraft also saves costs because of common parts and procedures between aircraft. Common aircraft types are also a benefit in terms of managing human resources. Commercial flight crews typically are certified for only one type of aircraft (Doganis, 2002, 79), but similar aircraft types minimise additional training and certification, which gives the airline flexibility in assigning personnel to flights. For example, a pilot certified for the Airbus A330 can fly the A340 after some brief training, since the two aircraft are virtually identical except for the two additional engines on the A340. The aircraft mix selected by Emirates is made up of planes which are highly fuel-efficient – as evidenced by the great range most of them have – and have large seating capacities. Because of their size, the airline can configure the planes for a variety of service levels depending on passenger demand and the requirements of the routes; all Emirates planes have at least two classes, and most have three. (Emirates, 2009) All things considered, the strategy manifested by Emirates’ fleet selection is a good fit for the process required to keep the maximum number of passengers moving efficiently while providing excellent service – with one exception, the giant Airbus A380, which will be discussed in a subsequent section of this paper. But in order to understand why that exception is an obstacle to Emirates’ otherwise seamless operations, a brief discussion of the basic process involved in a typical Emirates flight must be described. A Typical Emirates Flight: The Process of Keeping Planes Moving Sydney-to-New York is nearly the longest air route between any two civilised places on Earth, and is offered daily (by way of Dubai, of course) by Emirates. (Emirates Timetable, 1 May 2009) Emirates Flight 419, a Boeing 777-300ER, departs Sydney at 6:45 PM and arrives in Dubai at 5:35 AM the following morning, after making a 1½-hour stop at Colombo, Sri Lanka. In Dubai, passengers for New York board Flight 201, another 777-300ER, which departs at 8:30 AM and arrives at JFK International in New York at 2:15 PM. Flight 419 then becomes Flight 418, departing for the return trip from Dubai to Sydney at 8:50 AM. In the three hours the plane is on the ground in Dubai, the passengers and baggage arriving from Sydney and Sri Lanka must be unloaded, the plane checked for any mechanical issues, the interior tidied and replenished, food and beverage supplies restocked, the wastewater tanks emptied and fresh water loaded, the plane must be re-fuelled, a new flight crew and cabin staff takes command, and then the passengers – as many as 442 of them – flying to Sri Lanka or Sydney can be put aboard, along with their luggage. While all this is taking place, an identical process is being conducted on the Boeing 777-300ER which will become Flight 201 to New York. This plane is sometimes the same one which arrives at 8:05 AM as Flight 204 from New York, provided it has not been delayed; the shorter time needed to turn the plane around is because baggage and people do not need to be loaded for two different destinations. Based on Emirates’ flight timetable, aircraft turn-around times – based on flights with sequential flight numbers, which generally indicate the same aircraft is being used – range from 25 to 45 minutes in most places, with the shortest times between arrival and subsequent departure being achieved in Dubai. (Emirates Timetable, 1 May 2009) Why the Process Works Efficiently Emirates can achieve this quick and efficient process because of a number of factors. Obviously, the personnel handling the various tasks are well-trained and experienced, but it is the planes themselves that ease the workload. Even though they can carry different numbers of passengers in different class configurations, the Emirates fleet – except for the Airbus A380 – are all approximately the same size, as shown in Figure 3. That means that the same equipment can be used to move the planes around on the ground, they will be loaded with approximately the same amount of fuel and supplies, and passenger management can be designed with groups of 300-400 people per flight in mind. Figure 3 – Comparative Sizes of Emirates Aircraft (to scale) The A380 – The Process Breaker? The A380 is longer, taller, heavier, and has a greater wingspan than almost any aircraft in the world, and is unique among airliners in having a nearly full-length upper deck, virtually making the giant plane two complete airliners in one. The most telling statistic that illustrates the consequences of its great size is the turn-around time for the plane: in a test in ideal conditions at Dubai in August 2007, it took 90 minutes to turn the A380 around between flights, at least twice the amount of time of any of Emirates’ other aircraft. In addition, the airplane requires special terminal facilities in order to load and unload passengers on two levels. (Banstetter, 2007) Emirates is counting on passenger demand for the unique services available on board the A380, such as a lounge, private compartments, and shower facilities, to make operating a large number of them profitable. But so far, the plane has been an operational and economic headache. Emirates recently announced that the A380 would be pulled from the Dubai-to-New York route and replaced with a smaller Boeing 777 due to lack of demand, and the airline’s A380s have been grounded on at least one occasion due to nagging electrical problems. (Michaels & Bianchi, 2009) The question of whether or not Emirates ought to operate the A380 is one of planning or strategy, and is rather moot; the airline already owns several, and so the challenge is to find ways to accommodate the A380 into the efficient process that keeps the rest of the airline on the move. The concluding section of this report will offer some suggestions as to how that might be achieved. Recommendations for Improving Operations with the Airbus A380 1. Maximise Use of the Aircraft: Option A At present, Emirates flies four routes with the A380: Dubai – London (Flight 001/002) Dubai – Bangkok (Flight 372/373) Dubai – Toronto (Flight 241/242) Dubai – Sydney – Auckland (Flight 412/413) Only the Sydney – Auckland route makes use of more than one stop for the airplane, while each of the remaining routes could be modified to shift some of the passenger demand and make operation of the plane more economically realistic – avoiding public relations embarrassments such as cancelling the New York route. For example, Flight 372/373 could be extended to Hong Kong, replacing Flight 384/385 (a Boeing 777-300ER, on a route that is less than one-eighth of that particular plane’s range) on the Bangkok – Hong Kong route. Likewise, the London flight could be extended to other points in Europe or North America, and the Toronto flight could reach some other cities in North America, such as Chicago or Los Angeles. 2. Maximise Use of the Aircraft: Option B An alternative or an addition to extending the existing routes of the A380 is to route the planes through Dubai, rather than to and from Dubai. For example, a possible A380 route might be Auckland – Sydney – Dubai – London – New York. Not only does this increase the number of potential passengers on the plane, it presents a very simple solution to the extra time and handling the A380 requires at its base in Dubai by halving – at a minimum – the amount of time it spends there. 3. Modify the A380 Flight Schedules for Arrival & Departure during Low-Traffic Periods On the current schedule (Emirates Timetable, 1 May 2009), Flight 002 from London arrives in Dubai daily at 12:05 AM. Between 11:55 PM and 1:05 AM, there are 27 other Emirates flights that arrive in Dubai, or about one every two-and-a-half minutes. Between 1:05 AM and 2:50 AM, by comparison, there are only six arriving flights. Shifting the flight schedules for the large, labour-intensive planes by even an hour would take advantage of less-busy airport times and increase efficiency. Conclusion This report has briefly described the background, strategy, and basic operations of Emirates Airlines, and suggested ways in which the flagship Airbus A380 may be better utilised to fit efficiently within Emirates’ existing processes. The A380 is an impressive plane, and the services it allows the airline to offer its passengers are a very good fit with Emirates’ service philosophy, but operationally it is an anomaly in a process that keeps hundreds of planes and thousands of passengers moving smoothly through a single point on a daily basis. Yet with relatively minor changes in existing plans and procedures, it can be made a very effective part of the Emirates fleet. References Banstetter, T. (2007). Emirates concludes A380 test. Sky Talk, 22 August 2007. Fort Worth Star-Telegram [Internet]. 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(http://www.planespotters.net/Airline/ Emirates?show=all&sort=dd&dir=desc). Skytrax. (2009). Official World Airline Star Ranking. [Website] (http://www.airlinequality.com/StarRanking/ranking.htm). Read More