Emirates set for shake-up

first_imgThe world’s biggest international airline, Emirates, is about to embark on the biggest changes in its 31-year history: the introduction of a fourth travel class and low-cost-carrier-style a la carte price to pay for extras that are now free.The airline is scrambling to find new sources of cash as price competition from other airlines hits not only yield – average fares paid – but also total revenue, which has dipped even though the number of passengers the airline is carrying continues to grow strongly.However, Emirates isn’t rushing: it says the announcement of what form its new premium economy service will take could still be up to 18 months away.In fact, it may even decide to launch two different forms of premium economy at once – an economy-plus seat-only deal similar to “economy comfort” offerings popular among US airlines priced at  20-30 per cent above best economy discount fares; and a fully-fledged premium economy similar to that offering by its joint-venture partner, Qantas, which usually sells at double the economy discount rate or more.The new class of seating would offer more “pitch” per seat row – typically 36-38 inches (91-95 centimetres) – with a wider seat (19 inches – 48 cms — across) at eight-abreast per seat row, instead of the squeezy 10-abreast standard economy seat in the airline’s Boeing 777-300ERs, which are just 17 inches (43 cms) wide.At 10-abreast – also used by American Airlines, but not by many other carriers, who’ve stayed with nine-abreast —  Emirates’ 777-300ER have one of the world’s highest seat counts for the type at up to 427.By contrast, airlines that have stuck with nine-abreast have as few as 244 seats (Japan Airlines). Emirates also offers 10-abreast economy in its A380 superjumbos, but the seats are 18 inches (46 cms) wide.Emirates has been forced to make changes to its business model after the latest half-year, reported in November 2016, saw a 75 per cent collapse in profit to $US212 million and a contraction in overall revenue, down one per cent to $US11.3 billion, even though the number of passengers carried by the airline grew nine per cent to 28 million.“The bleak global economic outlook appears to be the new norm, with no immediate resolution in sight,” Emirates’ chairman and chief executive, Sheikh Ahmed bin Saeed Al Maktoum, lamented.But the airline had seen in coming. “I see a change in the way corporate business is going to develop which of course will affect our yields because the high end stuff isn’t going to come through as it was in the good old days,” Emirates president, Sir Tim Clark, told the annual meeting of the International Air Transport Association in June 2016.He said passenger volumes would still grow despite a weak global economy, but air fares were expected to fall 7% this year and would remain depressed.“We are going to be there for a long time on these fare levels,” he said, warning that competition would intensify as new low-cost, long-haul carriers like Norwegian Air Shuttle pushed further into intercontinental routes.That’s great news for travellers, but it means Emirates must now re-evaluate how it generates revenue and profit. Being the only carrier that offered in-flight entertainment in every seat, which Emirates was once alone in doing, is no longer enough.“The trick is to (price) match and deliver more,” Clark told one interviewer. “That is becoming more difficult these days, because in the old days, we were the only kid on the block doing what we’re doing. Now, there are others who are emulating us.“Because certain segments of our markets have become deeply discounted, we’re having to look and see whether we can extract more value through the ancillary revenue stream.“It’s somewhere we’ve never traditionally gone, but the digital world tells us that that’s the way people are thinking. Where the value is clear to them, and is delivered to them in a manner that they expect, they will pay for (extras).”That’s backed by an Ipsos survey of 3000 flyers last year for the US airline lobby, Airlines for America, which found that two-thirds liked the new world of optional extras on top of the basic fare.In fact, Emirates began surcharging for advance seat selection in October 2016 – as little as $US10 on short routes and as much as $US40 on long-haul routes for passengers who want to sit together and not be separated by the booking engines’ random seat allocation.Clark forecast that other optional fees were on the way for items like second checked bags, special food and wine requests, premium check-in or expedited security clearance.Premium economy has also become a money-spinner for airlines like Emirates partner Qantas, which resisted the trend towards the new class for a decade before jumping on board in 2007.According to some airline analysts, for full-service carriers, premium economy is now the most profitable offering per square centimetre of the floorspace it requires, given the cost of the higher service levels afforded to business and first class passengers.Qantas typically charges double its best discount economy fare for premium economy, but on the long intercontinental routes between Australia and the US, a host of carriers including Virgin Australia, Delta, American and United have been successful with less expensive economy-plus offerings providing slightly less legroom than premium economy, but still substantially more than standard economy.Clark has said the long lead time before the change is partly to allow time for a large number of Emirates’ 230 aircraft to be refitted before premium economy is officially offered to travellers.last_img

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