Economics Essay on Emirates Airlines

The government of Dubai founded the airline with an initial capital injection of $10 million. Many competitors have always cited preferential treatment from the government of Dubai, as the explanation to Emirates rapid growth, which sees its sales grow 20% a year, and double in size every four years.

Analyzing the financial reports of Emirates group, audited by PWC, demonstrates that there are no unfair advantages in the form of government subsidies. Every financial year Emirates airlines pays the government of Dubai in dividends, which have now totaled up to $2.3 billion.

There are however a few government policies which have benefited Emirates Airlines indirectly and allowed it to expand in such a rapid rate.

Tourism

The government of UAE has always played a crucial role in the country’s economy. Supported by the high price of oil, coupled with its abundant supply of the natural resource, the government has been able to diversify its economy. It has invested $52.7 billion into the travel and tourism sector of the country only in 2013. In recent years, the UAE has become a popular tourist destination.

The number of tourists arriving in Dubai has increased from 5 million in 2002 to a staggering 10 million in 2012. The government aims to attract around 20 million tourists by 2020.

Dubai’s emergence as a tourist destination, coupled with Emirates Airlines dominance in the region coupled with its far reaching direct flights, has allowed Emirates to rapidly grow.

Infrastructure

According to the Global Enabling Trade Report the UAE is ranked 19thout of 132 countries, putting its trading infrastructure ahead of countries such as France, Ireland and the US. The UAE was ranked first regionally and 11th globally in terms of quality of a...

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...heir competitive prices.

Bargaining Power of Customers

Emirates operates B2C and also B2B commerce transactions. Multiple segments and without large customers, the power of the buyer is not too obvious, however larger businesses that consistently provide large business volume might have some bargaining power.

Relatively small switching costs between airlines increases consumer bargaining power.

Bargaining power of Suppliers

Emirates’ fleet is solely encompassed of Airbus and Boeing aircrafts. Boeing and Airbus are effectively a duopoly. The lack of alternative manufactures increases supplier power.

Furthermore, the airline has lower operating costs at its hubs due to low labour costs. In Dubai there are no unions and there is an abundance of cheap labour from India and Pakistan. Emirates employee costs are 12% of operating costs, compared to 27% at Lufthansa.