President of Emirates Sir Tim Clark: Candid discussion during interesting times

The COVID-19 pandemic continues to be front and center in the minds of everyone no matter what occupation or stage of life, and the effects around the globe vary from still raging to almost under control. How does an international airline interpret these wide swinging scenarios and make a plan for going forward?

President of Emirates Sir Tim Clark: Candid discussion during interesting times

Peter Harbison:

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Yeah. And as you go down the supply chain to the smaller companies, there’s been a lot of pressure on them even before COVID, which has forced consolidation, less competition in those suppliers and therefore probably a more fragile position as well. So yeah, that’s something that once we’ve stopped the need to hold our breaths, we’re going to have to start readapting to that.

But so, Tim, can I take it … Let’s look at Emirates versus the rest of the world, if I could have you stand back from the whole industry, which I’m sure you do from time to time. Rolls Royce, for example, just downgraded its projection of the number of wide bodies that are going to be flying this year. Last October, they talked about something like 70%. Now they’re talking about 50, 55%. So, if they’re correct, and I think a lot of people would more or less agree with those numbers, you’re talking about a much smaller industry next year in long haul flying. Is that a good thing for you? Are you the ones who are in the best position to increase your relative market share in that half a size market?

Tim Clark:

Well, I suppose from a predatorial point of view, competitive point of view, we have a very large fleet, which unlike others have discarded or retired or put into moth balls. We haven’t done that. The airplanes are being kept in an advanced state of readiness for operations as soon as we need it. There is a view that there will be a stripping out of capacity over the next two or three years, because of what I just said. Capacity has been taken out and will not be replaced. There was also a view that the number of aircraft that will be supplied by both Boeing and Airbus will diminish against their original contract. We know that for certain now, because of what Boeing has said recently.

So, if you take this all together, there is likely to be a shortage of capacity principally in the medium long haul markets. And given that the capacity will be, as I think it may be, and that demand, if I am right, will be very strong in multiple segments, not all, there could be a supply/demand issue. That’s for everybody to take a view. My view is that the most important thing is, and I say this with a kind of industry hat on, rather than the Emeritus airline situation, which is a dominant carrier on the international scene, it’s far better to have healthy competition and that the carriers that are doing a good job in all the geographical sectors of the world can continue to operate. It serves no purpose for one carrier to dominate and price gouge or whatever. That is short-term thinking. It’s not healthy thinking, and it doesn’t do anybody any favors.

We have to recognize that many companies are taking on enormous amount of debt. Their balance sheets are fairly stricken. They have to deal with the impairment of those balance sheets over time to get them off their balance sheet so they can function as fully commercial operations again. And I, with an industry view, I sympathize with that imperative. It’s not what they want to do, but they have to do it.

So, I’m hoping that there will be an adjustment. There will be an adjustment, and I think it’s more on the supply side that will be a problem, not the demand side. So, if people believe as I do, I would suggest that what they should be thinking about is the upside, not the downside and that demand will drive to the upside and that will cause you to think about capacity. Probably heresy in many areas of the world today or [inaudible 00:16:56] or head offices, but my instinct is telling me that this is going to come good and it’ll come back at a pace. So be prepared.

Peter Harbison:

I guess the important thing in the meantime is that you’re still there when it does. And I guess that’s an issue for a number of airlines, as they look down the next six months or so. So, Tim, you talk in terms of medium to long haul coming back. In terms of market demand, if we do have an industry that’s pretty much half the size both on the demand and supply side, and probably that’s more or less where we’re looking at for the next year or so or even longer than the next year if we don’t get back into business till September. You’ve always sworn by the triple seven in the past, the large aircraft. You’ve taken it into some very big regional market or some relatively small regional markets that you made big. Is that for you going to be the aircraft of the future, the 787s is something that you’ve been … the future, the 787s is something that you’ve been looking at, or the 777X. Where is your general direction heading as a major international long haul carrier? Sorry, if I could just add one thing to that too, given there’s a lot of low cost short haul, medium haul, and long haul operation now coming through with the NeoLRs and so forth that the market was shifting anyway, wasn’t it? So where do you stand in terms of say the 787 versus the 777X?

Tim Clark:

Well, I think you just got to roll the clock back to prior pandemic. So, this disruption, this disturbance that the virus has caused, I’m not going to be … let’s say it’s not so transformational that it’s caused us to challenge what we were doing and had planned to do. We had already ordered 350s, we had already ordered 787s. We were the driving force behind the ER transformation into the 777X, and we sat with Boeing a long time ago defining what the airplane had to do, the crossover of 87 technologies into the airplane. So, we were very interested in that airplane. The problem, of course, is, as we know, there are issues with it in terms of certification and getting out the door. Does that change what we were planning to do? No, it doesn’t. The 380, of which we have 118 at the moment and five more on delivery, will continue in the plan until the mid-30s, the 777X was due to come in June of last year, now it’s unlikely to be I think before the first quarter of ’24.

Both the 87s and the 350s, of which I think we had 50 350s and a similar number of 87s, we’re just looking at how we can bring these into the fleet and when. Obviously, to the point we made about what demand going to look like, et cetera. Is the fundamental business model changing? Are we going to see the super hub that we created diminish? No, it doesn’t. Do we probably need more aircraft post pandemic to do the job? Yes, we do. There are many cities and markets that we haven’t served, for very good reasons, sometimes it is because even with intelligent misuse of the aircraft, it still doesn’t stack up on the economics, and that’s when we back fly Dubai into the program with their 737s. Of course, that’s been retarded with the max order, but that’s now going to kick in again fairly soon.

So, taken together, using the new twins, fuel efficient twins, using the 380s on the trunk routes barreling through from East to West and North to South, et cetera, with the X gradually slipping in to replace the 380s that eventually go retire, we will have a leaner, very fuel efficient, environmentally friendly, not that it isn’t at the moment, but a network that will probably be 30% larger in terms of cities served than it is today. So, prior to the pandemic, we had rolled this forward to 2035, where we saw the airline being, and believe me, there was never any suggestion that the business model and the centrality of the super hub that we created would alter in any way. In many respects, it got larger, more focused, and as we grew the hub, the unit cost of operating the hub fell, and so it became a far more … let’s say it got the benefits of scale to a level that we have at the moment, but that much more later on.

And of course, part of that was that our inflight product would continue to excel. So long as others are copying us around, then I continue to enjoy the benefits of knowing that we’re doing the right thing. We will continue to innovate; we will continue to make sure that we are aligned with the aspirations of the sectors. And the other thing is that post pandemic, I talked about it earlier, could there be new sectors coming to market? Could there be new segments within the existing markets that we’re already dealing with? Yes, I think there could. I think there could be a changer in the way people think about travel in the future, on the upside, not on the downside. So, we continue to be convinced that that’s the way we’re going to go. How and when these airplanes come in will be a question of managing where we think demand is likely to be in the countries and whether the manufacturers are in a position to deliver at the pace and numbers that we want.