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Q&A

Q&A
Some of your competitors accuse Emirates of enjoying an unfair advantage in terms fuel. Are these allegations valid?What is the relationship between Emirates and the Government of Dubai?
What about landing charges? Do you pay for those?What makes Dubai tick?
And taxes?Do you have labour cost advantages over say a European or Canadian carrier?
What are your sources of Finance?Why are Emirates’ views relevant to policy makers and other aviation stakeholders?
To what extent does Emirates rely on sixth freedom traffic? (The right to carry passengers or cargo from a second country to a third country by stopping in Dubai)

Q. Some of your competitors accuse Emirates of enjoying an unfair advantage in terms fuel. Are these allegations valid?

A. Emirates purchases its fuel on the same terms as every other commercial airline at all airports at which it operates, including at Dubai International Airport. In 2008/09, fuel accounted for 35% of Emirates' total expenditures, which is comparable with the relevant expenditures of other long haul international carriers such as Qantas, Singapore Airlines, Air Canada, Lufthansa or British Airways.

Like many other airlines operating on a fully commercial basis, Emirates was not spared the pain and suffering resulting from the unprecedented volatility in oil prices during the last decade. In the financial year 2008/09, Emirates’ fuel expenditures escalated to US$3,925 million from US$891 million in 2004/05 – even with our fuel efficient fleet. From a historically low base, the relevance of oil to Dubai over the last few decades has been steadily diminishing to the point that today oil related GDP represents less than 5% of Dubai’s total GDP.

Q. What about landing charges? Do you pay for those?

A. Emirates pays the full published landing charges at its main operational base, Dubai International Airport, and does not benefit from any form of volume related discounts. It pays the same standard over-flight charges applied to other airlines across its network and the same airport handling fees to dnata Airport Operations (an Emirates Group company and the ground-handling agent at Dubai International Airport), as would a similar high volume airline customer. Emirates is also subject to the same customs duties as all other airlines operating to and from Gulf Co-operation Council countries.

Q. And taxes?

A. Emirates is liable for all applicable taxes in all countries in its network. Like over 130 scheduled airlines (including some of our most vocal critics on the subsidy issue) operating at Dubai International Airport, Emirates is subject to a tax-free regime that prevails in the UAE and which existed before Emirates first started flying in 1985.

Q. What are your sources of Finance?

A. Emirates has always successfully raised funds from international and regional markets and major banks to obtain finance on a commercial asset-backed basis. No financing has been obtained from Investment Corporation of Dubai (ICD) or the Government of Dubai at concessional rates. In fact, apart from a single aircraft financing in 1987, neither entity has ever acted as a guarantor for any of the loans raised by Emirates.

Emirates has raised a total of US$21.6 billion to date for financing of new aircraft and other corporate finance requirements. This amount was raised from a wide range of sources, including operating leases, EU/US export credit agencies (just over 20%) and commercial asset-backed debt as well as non-conventional sources such as Islamic funding and equity from Japanese and German investors as part of tax-based cross border leveraged leases.

Emirates is fully and independently audited to the highest international standards by external auditors PricewaterhouseCoopers (PwC), as well as by auditors from the Government of Dubai. The PwC audit is conducted in accordance with International Standards on Auditing issued by the International Federation of Accountants. Emirates’ accounts and annual reports have been published since 1993/94 and are fully accessible on the internet at ekgroup.com.

Q. To what extent does Emirates rely on sixth freedom traffic? (The right to carry passengers or cargo from a second country to a third country by stopping in Dubai)

A. Over recent decades most sectors of the global economy have opened up to competition. However, aviation has remained regulated by a web of bilateral air services agreements between states that, in many cases, significantly curtail effective competition by limiting the freedoms of the air. The exchange of third, fourth and fifth freedoms of the air normally form the core of air services agreement negotiations. Countries have not traditionally negotiated the exchange of sixth freedom traffic rights. Protectionist tendencies surface most often when a foreign airline is perceived to be ‘exploiting’ opportunities to carry sixth freedom traffic. Yet, the carriage of such traffic has been an important part of aviation for decades, is a key feature of the business models of all network carriers and a critical source of competition.

Large European airlines such as British Airways, Air France, KLM and Lufthansa have moved sixth freedom traffic over their hubs for decades. Singapore Airlines and Cathay have similarly carried significant volumes of sixth freedom traffic between Europe and Australasia and between Australasia and North America over their hubs. And even Air Canada carries large volumes of traffic to and from the US via its hubs. Sixth freedom traffic is an important part of the Emirates business model too.

Q. What is the relationship between Emirates and the Government of Dubai?

A. Emirates is 100% owned by the Government of Dubai through its commercial investment arm, Investment Corporation of Dubai (ICD). Emirates received US$10 million from the Government of Dubai in start-up seed capital in 1985 and US$88 million invested in infrastructure, which included two B727 aircraft and the Emirates Training College building. This has been more than covered by total dividend payments to the Government of Dubai, which have totalled US$1.32 billion to date. The Government of Dubai and the management of Emirates have consistently made it clear that Emirates is required to be self-sustainable and profitable.

Q. What makes Dubai tick?

A. Dubai’s corporate model has its origins in the city’s historic position as an entrepôt, which has free trade and competitive open markets at its core. Whilst there is a close relationship between the Government and many of Dubai’s strategic commercial entities, Dubai is at its essence driven by commercial entrepreneurial principles. Each commercial entity is an independent company with its own profit targets and operational autonomy. Such a system is not dissimilar to the corporate structures followed in Asia for example by Singapore, Korea or Japan.

Q. Do you have labour cost advantages over say a European or Canadian carrier?

A. All Emirates staff are on the company payroll and are not classed as government employees. Emirates incurs significant social costs to attract and retain the high proportion of staff recruited from around the world (Emirates employs 156 nationalities) on expatriate terms and conditions. On average every year, Emirates has to bear a total cost of over US$400 million for expatriate employee benefits – including accommodation costs for employees and children’s education for management, pilots, engineers and other staff – costs which carriers such as Air France, Lufthansa, Air Canada and Qantas do not incur. Emirates’ cost structure of 13.32 cents per available seat mile in 2007/08 is comparable to that of leading international airlines such as Singapore Airlines and Cathay Pacific, among others.

Q. Why are Emirates’ views relevant to policy makers and other aviation stakeholders?

A. Within the next five years Emirates will have an all wide body fleet of over 200 aircraft, making it one of the top half dozen operators of this type and among the top 20 largest carriers by fleet size overall. In addition, over the course of the last decade Emirates Group has consistently been among the top ten airline groups by various measures of profitability. As one of the world’s leading airlines it regularly engages in national and international policy discussions and debates on key issues impacting the industry. Emirates is by choice not a member of any alliance, believing that customers' interests are best served by remaining independent. We see no tangible benefit from trading-in our own freedom of action. We continue to prefer the flexibility to also make numerous codeshare and interline agreements with other carriers where these are mutually beneficial.