QUESTION: What are the key forces in THE GENERAL and the INDUSTRY ENVIRONMENTS that affect Emirates' choice of strategy?

EMIRATES AIRLINE* In 2019, Emirates Airline was rethinking its growth strategy Boeing 777 long-range planes and Airbus A380 superjumbos. that had propelled it from a small start-up to one of the In particular, Emirates has managed over the years to radically world's biggest carriers measured by international passen- redraw the map of the world, transferring the hub of internager mileage. Started in 1985, the airline deviated from the tional travel from Europe to the Middle East. Dubai, the hub strategy of most other airlines to use its position between of Emirates, which currently handles over 80 million passenthe United States, Europe, Africa, and Asia to connect gers each year, has become the world's busiest airport for inflights between distant pairs of cities such as New York and ternational passengers. A new terminal, the largest in the Shanghai or London and Nairobi. Tim Clark, the firm's world, was recently built at a cost of $4.5 billion just to acpresident referred to these as "strange city pairs." No airline commodate the almost 265 Emirates aircraft that fly out to has grown like Emirates, whose expansion qualifies it to 155 destinations around the world (see Exhibit 1 ). 1 claim the crown of the freewheeling sultan of the skies. Recent developments, however, such as the drop in oil Its strategy of flying large numbers of passengers around prices and the growth in terrorist attacks have led to a dethe would have been difficult without the introduction of cline in demand. Many companies, particularly in the Middle East, have been reducing travel for their employees, * Case prepared by Jamal Shamsie, Michigan State University, with the reducing the premium revenue that Emirates has been genassistance of Professor Alan B. Eisner, Pace University, Material has been erating from first- and business-class passengers. Similarly, drawn from published sources to be used for purposes of class discussion. growing fears about terrorism has led passengers to cut back Copyright @ 2019 Jamal Shamsie and Alan B. Eisner. on international travel and to reduce connecting through the EXHIBIT 1 Top Global Airlines There are several rankings of the world's airlines, but a few have consistently been rated highest in service over the last five years. These are listed in no particular order. Source: Skytrax. EXHIBIT 2 Performance Hiahliahts finances, used international auditors, and posted regular quarterly profits (see Exhibits 2 to 6 ). "We are confident that any allegation that Emirates has been subsidized is totally without grounds," Clark declared. 2 The dispute was finally settled with a deal between the United States and U.A.E. in May 2018. In fact, Emirates claims that it has worked hard to achieve its leading position by offering onboard amenities, like bars and showers on its aircraft, which other carriers find frivolous (see Exhibit 7). Beyond this, it points to the high standards of service from its crew that speak many languages and come from many countries. Emirates service manager, Terry Daly, says that he uses a quote as an inspiring light: "I may not remember exactly what you said. I may not remember exactly what you did. I will always remember exactly how you made me feel."3 Launching a Dream The roots of Emirates can be traced back to Gulf Air, which was a formidable airline owned by the governments of Bahrain, Abu Dhabi, Qatar, and Oman. In the early 1980s, Source: Emirates Airline. the young sheikh of Dubai, Sheikh Mohammed bin Rashid al Maktoum, was upset by the decision of Gulf Air to cut Middle East. The availability of Boeing's 787 long-range flights into and out of Dubai. He responded by resolving to planes has also added to the problem by allowing passengers start his own airline that would help build Dubai into a cento fly directly from Europe to Asia. ter of business and tourism, given the emirates' lack of sig. Furthermore, the largest U.S. airlines alleged that Emirates, nificant oil resources. like others such as Etihad and Qatar, have received subsidies The sheikh recruited British Airways veteran Sir Maurica from their governments. It has, according to their claims, pro- Flanagan to lay the groundwork for the new airline, which vided Emirates with an unfair advantage. Tim Clark, Emirates' he bankrolled with \$10 million in royal funding. He placed president, responded to the charges in the report by insisting a member of his royal family, Sheikh Ahmed bin Saeed al that his carrier has never received government subsidies or Maktoum, to the top post. Just 26 years old, Ahmed bin obtained free or cheap fuel. The airline has always disclosed its Saeed had just graduated from the University of Denver in EXHIBIT 3 Income Statement (in millions AED) EXHIBIT 4 Balance Sheet (in millions of United Arab Emirates Dirham) ZQUITY AND LIABILITIES Capital and reserves Non-current liabilities \begin{tabular}{lrrrr|} Trade and other payables & 155 & 123 & 683 & 513 \\ Borrowings and lease liabilities & 45,433 & 42,071 & 40,171 & 40,845 \\ Deferred revenue & & 1,063 & 979 & 1,596 \\ Deferred credits & 2,437 & 2,621 & 2,227 & 1,090 \\ Derivative financial instruments & 81 & 26 & 192 & 440 \\ Provisions & 4,081 & 4,067 & 3,825 & 3,762 \\ Deferred income tax liability & 3 & 4 & 5 & 4 \\ Total non-current liabilities & 52,190 & 49,975 & 48,082 & 48,250 \end{tabular} Current liabilities Trade and other payables Income tax liabilities Borrowings and lease liabilities 26,795357,60629,303189,03025,1931910,83127,037359,260 C174 CASE 22: EMIRATES AIRLINE EXHIBIT 5 Revenue Breakdown (in millions AED) the United States. Since he had not held a job before, the young Sheikh looked to Flanagan in order to figure out how to run the airline. However, the speculator growth of Emirates can be attributed to Sir Tim Clark, who was handed the critical task of route planning. He recognized that about two-thirds of the world's population was within eight hours of Dubai, but the firm lacked the aircraft to take advantage of its location. This began to change with the arrival of more advanced aircraft, beginning with the introduction of Boeing 777 in 1996 to the Airbus A380 in 2008. The long range of these aircraft allowed Emirates to develop routes that could linl any two points in the world with one stop in Dubai. From serving 12 destinations in 1988, Emirates was able to expand at an alarming rate, particularly after it started adding Boeing 777s to its fleet after 1996. The carrier continued to grow even through the recession that began in 2008 , taking possession of more new aircraft than any other competitor. "We operated normally. We put on more aircraft. We carried more passengers," said Mohammed H. Mattar, senior vice president of the carrier's airport services. 4 EXHIBIT 7 Service For Premium Passengers On Emirates A 380 - Offer 4,000 channels of in-seat entertainment - Offer unlimited free wi-fi throughout the flight - Serve Cuvee Dom Perignon, 2000 champagne - Serve Iranian caviar - Serve gourmet cuisine prepared by chefs of 47 nationalities - Offer largest selection of premium wines - Use bone china by Royal Doulton - Use specially made cutlery by British design house Robert Welch - Provide Bulgari-designed amenity kits - Feature a stand-up bar - Offer two on-board walnut and marble design showers* Providing the Ultimate Experience They are not attracted to the starting salary-only about Emirates strives to provide the best possible experience to its $30,000 per year-or to the free room and board that comes passengers in all sections of its aircraft. It was the first airline with it. They are excited about the possibility of joining an to offer in-flight viewing in the back of every seat. "That seems iconic brand that joins people around the world. pretty normal for long haul airlines now, but it wasn't then," Once they have been recruited, Emirates uses a statesaid Terry Daly, who is in charge of service at the carrier. 5 A of-the-art facility to train its employees-from those who caravan of flight attendants, who are fluent in a dozen lan- check in passengers to those who serve them on their planes. guages, pass up and down the aisles, providing service with a The exterior of the training facility resembles the fuselage of smile. Daly, who maintains the highest standards for all a jetliner. Inside, everyone pays particular attention to the in-flight services, is known for having once fired eight service flight attendants who must make sure that everyone on the supervisors on a single day when he discovered that the flight aircraft receives the highest level of service on every single attendants they had supervised deviated from his precise flight. This is particularly important for a carrier whose instructions on how to respond to requests from passengers. flights are of long duration because they serve destinations From its start, Emirates has also been known for the across all continents. quality and selection of food that the airline provides, even Catherine Baird is in charge of training the airline's new to passengers in the back of the aircraft. The catering divi- recruits who constitute only about 5 percent of the applicasion is the world's biggest, a multifloor maze of monorails tions that make it through the selection process. The low and cameras, vast warehouses of wines and liquors, multi- acceptance rate pushes people with diverse backgrounds to national chefs slaving over steaming pans, kettles, grills, compete in an American-Idol style brains-and-beauty contest stretching into eternity, along with the latest in robotics, all for a chance to travel around the world as an Emirates cabin of which delivers 180,000 meal trays to Emirates planes crew. According to a recent report, the crew has anerage each day. "It's about making sure the culinary offering is age of 26 years, compared to over age 40 at U.S. Airlines, and absolutely first class across the airplane," said Daly. 6 is 75 percent women. Their weight is carefully monitored, But Emirates has always tried to push further and fur- their makeup mandatorily reapplied regularly, and unwed ther on the service and amenities that it provides to its pre- pregnancy is not allowed. mium class passengers. Included with a business class ticket The airline offers a vast no-expenses-spared crew training a limousine ride to and from the airport, personal assis- program, where each new recruit moves through different ance with the check-in process, and use of one its 30 world- departments with specialists in different areas for seven wide lounges. One of 600 multinational and multilingual weeks. By the end of their training, the newcomers have members of a welcome team called Marhaba-Arabic for been instructed in aspects of posture, etiquette, safety, and welcome-help all first- and business-class passengers clear evacuation. There are strict standards for the color of the all formalities upon departure and upon arrival. lipstick, the shade of hair color, and even the style of lingeOver the years, as Emirates has moved to larger and larger rie. Everything must go well with the pinstripe khaki uniaircraft, it has found ways to enhance the experience of its form, the color of sand, with white scarfs billowing like premium passengers during flight. The airline had pioneered exotic sails. Women must adhere to certain hairstyles that the concept of a suite in first class with its launch of A340 the crowning blood red hat will work with. "When walking back in 2003. With its 50A380 s, the world's biggest jetliner, through an airport terminal, it's usually a Catch Me If You more than any other competitor, Emirates is able to offer 14 'Can movie moment, with passengers all turning their heads," first class suites, each with a vanity table, closet, 23-inch TV said one of the new recruits. 9 screen, and electronic doors that seal shut for total seclusion. Like everything else, Emirates is over the top in what it First class passengers also have access to two enor- calls Nujoum, the Arabic word for stars, by including motivamous spa showers-a first in the industry. An event plan- tional team-building exercises in its training program. Travel ner who flew first class said, "To walk onto the A380, to writer Christine Negroni, who participated in one of these have an average-size bathroom, a seven minute shower, full- exercises, described the experience the new recruits typically size bath towels, and your own attendant is pretty amaz- go through: "It is a combination of a customer service experiing."7 All premium class passengers-both in first and ence and a come-to-Jesus rally, highly produced like a Hollybusiness class-have access to a big and circular lounge, wood spectacular. If you had told me that Disney produced with a horseshoe-shaped stand-up bar in the center, for it, I wouldn't doubt it. By the end of the day, they are whipped which Emirates forfeited a number of business-class seats. into a frenzy of feeling 'What can I do for Emirates?" 10 Communicating to the Masses Grooming a Special Employee In spite of the extra touches that Emirates can provide to its Each year, Emirates holds Open Days in more than 140 cities passengers, the carrier discovered from focus groups they across 70 countries for the purpose of attracting new conducted that their name was not well known in many recruits to join its elite force of 23,135 flight attendants parts of the world to which they were expanding. They from 130 nationalities who speak more than 60 languages. 8 realized they needed to create a message used to develop their brand among consumers that would inform them passengers who are willing to pay a little more. Singapore what to expect from Emirates. This message could also be Airlines, for example, has introduced a premium economy used to encourage existing and potential employees to rally section that offers wider seats with more recline, a cocktail behind the airline and work to deliver on its promise. table, more storage space, and a sleek 13.3-inch high defini- In its usual style of pushing for the best, Emirates sum- tion screen-the largest in its class. On it's A 380 flights, Etihad moned the world's top 10 advertising agencies to Dubai to has introduced, with grand bravado, a three-room, $21,000 compete for a massive international advertising campaign. one-way Residence and nine $16,000 one-way one-room First StrawberryFrog, an advertising agency that had recently Apartments, complete with a Savoy Academy-trained butler started operations in New York City, was one of the firms and private chefs. vying for the contract with the rapidly growing carrier. Its Rumors have circulated that Emirates might take over Etihad founder, Scott Goodson, had read an interview with Emirates Airways, which has been losing money since it began service president Tim Clark shortly before this gathering of adver- in 2003. A merger would create the world's largest airline, tising agencies. "And in that article, he was talking about measured by available passenger seat kilometers. Both airlines his vision, that he wanted Emirates to be a global company rely on "super-connector" business models and serve many of and wanted to make the world a smaller place by bringing the same markets. But several hurdles exist, since Emirates is people together," said Goodson." nervous about taking on Etihad's liabilities, which include These comments inspired Goodson to come up with over 160 orders for planes worth tens of billions of dollars. the idea of "Hello Tomorrow," which allowed his firm to Some industry analysts have questioned the ability of clinch the contract with Emirates. These words became Emirates to deal with these growing challenges. Joe Brancatelli, not just the idea for an ad campaign but for a new way to a business travel writer, recently stated: "I could make the think about an airline. Through the use of powerful story- case that Emirates' moment has passed. Emirates was the telling, words, images, music, and film, this message por- trendy airline three or four years ago." 15 In a recent meeting trayed Emirates not just as a carrier that delivered a to announce the latest performance figures for the airline, superior experience, but as a catalyst for connecting a new Emirates chairman and CEO His Highness Sheikh Ahmed global culture of shared aspirations, values, enthusiasm, bin Saeed Al Maktoum brushed away these concerns. "Over and dreams. In his conversation with Tim Clark, Goodson the years, we have always managed to come up with new said: "Ad campaigns are fleeting. The power of a move- products," he responded to any concerns that were raised. 16 ment is that it can change habits and rally millions." 12 Immediately afterwards, the StrawberryFrog team spent 18 months at Emirates headquarters educating emENDNOTES ployees, making them foot soldiers in this campaign. In 1. Dubai Airport. 2019 (March). Fact Sheet. http://www.dubaiairports. early spring 2012, the "Hello Tomorrow" brand was ae/corporate/media-centre/fact-sheets/detail/dubai-airports. launched, a universal message in myriad languages in 150 2. Seal, M. 2014. Fly me to the moon ... with a stop in Dubai. countries. In television ads, an Emirates flight attendant Departures.com., Summer, p. 276. pushes his drink cart as a mammoth A380 airplane seemed 3. Departures.com, Summer 2014, p. 277. to be literally built around him, its various parts and per4. Carey, S. 2015. U.S. carriers claim unfair practices. Wall Street Journal, sonnel coming from countries spanning the globe, providMarch 6, p. B3. ing proof that the airline was truly a global enterprise. 5. Departures.com., Summer 2014, p. 276. 6. Ibid., p. 277. 7. Ibid., p. 277. Chasing Tomorrow? 8. Emirates. 2019. The Emirates Service. https://www.emirates.com/ Even as Emirates tries to set itself apart from other carriers english/experience/the-mirates-service/. by enhancing the customer experience, it is facing new 9. Departures.com. Summer 2014, p. 278. challenges. It has found it difficult to fill its A 380s, leading 10. Ibid., p. 277. it to reduce its latest orders for the plane. 13 Emirates is also 11. Ibid., p. 310. running out of room for further expansion at its hub in 12. Ibid., p. 278. Dubai. The loss of orders from Emirates may have played a 13. Press Release. 2019. Emirates signs deal for 40 A330-900s, 30 A350largepartintherecentdecisionbyAirbustoshutdownproductionoftheA380.1414.TimHepher&AlexanderCornwell.ThefutureoftheAirbusA380isunderthreatasEmiratesconsidereddumpingthesuperjumbofora 900s. Emirates, February 14. production of the A380. smaller jet. Reuters, Jan. 31, 2019. At the same time, many of its competitors have also been 15. Departures.com, Summer 2014, p. 278. trying to improve on their offerings, particularly for the 16. Ibid., p. 275