Issues & Trends – November 2011
Jewsbury hits back at critics of EK’s ownership
By Ian McMahon
RICHARD Jewsbury totally re-jects suggestions that Emirates’ government ownership gives it an unfair commercial advantage over Qantas (or any other privatised airline).
Jewsbury, the Dubai-based carrier’s senior vice president commercial operations for the Far East and Australasia, spoke to travelBulletin dur-ing a visit to Australia that coincided with the grounding of the Qantas fleet.
Here to participate in the Melbourne Spring Racing Carnival – for which Emirates is the major naming rights sponsor – Jewsbury was only too well aware of the Australian media’s frenzied coverage of the Qantas crisis.
A recurring theme of that coverage was the threat to the national flag carrier’s future purportedly posed by government-owned Middle East airlines.
They copped much of the blame for the inability of the Australian legacy airline to make money on inter-national routes.
But Jewsbury said an airline’s ownership structure does not dictate how it is run and Emirates’ publicly available annual accounts, audited by PricewaterhouseCoopers (PwC), demonstrate that the carrier is run on strictly commercial lines.
“The Government of Dubai is no less focused on getting a return than shareholders in a publicly listed company,” he said. “The Government expects us to make a profit and pay them a dividend every year.”
Jewsbury said operating Emirates profitably is not an easy task in an industry where returns on capital have been historically low and it takes prudent management of “every level of the business” to achieve a positive bottom line.
He said this involves careful scrutiny of the carrier’s cost base where its modern fleet of B777s and A380s plays a key role by minimising fuel burn and reducing maintenance outlays.
He said Emirates worked hard to achieve high fleet utilisation. “It’s all about productivity and getting the best possible return from your assets, including human assets,” he said.
He noted: “There seems to be a lot of talk about labour costs” and insisted that Emirates remuneration levels are “benchmarked to international standards” with the airline paying “market rates” to its workers.
He also pointed out that Emirates’ expatriate workforce in Dubai incurs additional costs for the carrier.
Because the UAE does not provide a social security structure for “expat” residents, it is up to the company to make financial provision for items such as their health care, housing, schooling and pensions.
“That’s something that adds to our cost base,” he said. But in an implicit comment on Qantas’ complaints about its labour costs, he said Emirates does not grumble about these expenses. “That’s just how it is; that’s fair enough,” he said.
Jewsbury’s visit to Australia coin-cided with the announcement that Emirates services ex Australia are now all offering lie-flat seats in business class and private suites in first class.
This follows the upgrading of the EK408/409 Melbourne-Kuala Lumpur-Dubai flight to a B777-300ER aircraft.
Jewsbury agreed a uniform premium inflight product will enhance Emirates’ appeal to the corporate market, saying: “It’s only a modification of one of the 10 flights we operate every day from Australian ports so it’s a relatively modest change, but for me it’s the icing on the cake – it’s good to have that box ticked.”
At the same time he stressed Emirates’ offering extends well beyond its inflight product. He identified Emirates’ global network of 114 ports including 29 destinations in Europe and extensive Middle East and Africa networks as a major asset for the airline.
“And behind that we have a broad and rich state-of-the art (inflight) product which also includes the ICE entertainment system (offering passengers in all classes a choice of up to 1200 channels),” he said.
And the Emirates offering is attracting plenty of Aussies with Jewsbury reporting “steady, sustained year-on-year growth” in passenger numbers.
Corporate business has bounced back here and in other markets around the world, he said, while the strong Australian dollar is driving discretionary leisure traffic.
Unfortunately there is a snag. One of Jewsbury’s worst fears – rising aviation fuel prices – has been realised.
A year ago, when the post-GFC recovery from the drastically dis-counted fare levels of 2009 was gathering pace, Jewsbury cautioned: “I hope oil stays where it is – that’s my big concern: volatility of fuel prices.” (travelBulletin, November 2010).
Twelve months later he reports that rising aviation fuel prices are indeed putting Emirates’ margins under pressure.
“Fuel accounts for 42 per cent of our costs … Our half yearly results will not be as good as (for the corresponding period of) last year,” he said. “It is frustrating when we are seeing such good demand growth and improve-ment in premium cabin seat factors.”
But he remains positive. “We have been there before,” he said, adding that the carrier will persist with its approach of keeping costs under control and con-tinuing to invest in product and brand.
Jewsbury scoffed at suggestions that Emirates could get a better deal on aviation fuel because the UAE is an oil producer.
“If we were getting subsidised fuel prices, my bonus would be substant-ially more,” he said. “We have to buy fuel on the open market – we source it from Singapore – and this idea that there is some hose pipe out of the Arabian Gulf supplying us with fuel is ludicrous. Our annual reports show that we pay a fair rate for our fuel.”
He invited travelBulletin to verify this by downloading the Emirates schedule to ascertain the number of hours flown by the airline and then obtaining from Boeing and Airbus the average fuel burn rates of its aircraft.
By taking into account the aviation fuel price posted daily by Reuters, it becomes possible to compute a ball park figure for Emirates’ fuel costs which, said Jewsbury confidently, would vindicate that the figures quoted in the airline’s annual report do indeed equate to market rates.
“Or you could just take PwC’s word for it,” he quipped.
Jewsbury said Emirates is comfort-able with its Australian capacity – 70 flights a week with approval to increase to 84 “and we have the ability to further increase capacity by using larger air-craft on some routes”, he said.
While Emirates has recently been vociferous in its support of “open skies” in some restricted European markets, Jewsbury said the airline was “fundamentally satisfied” by Australia’s “very progressive attitude to liberalisation”.
He said the Australian Government recognised that, particularly for a geo-graphically remote location, a liberal aviation policy delivered benefits to the country by bringing in tourists and business people.
Asked about alliances, Jewsbury said the airline’s opposition to joining them has, if anything, strengthened.
“They inevitably mean less customer choice and higher fares,” he said.
“But that does not mean we do not value relationships with individual carriers,” he added, citing the interline deals Emirates has with Qantas and Virgin Australia.