Home / / Emirates reaches limits of organic growth strategy

Emirates reaches limits of organic growth strategy


Comments / 371 Views / Monday, 23 April 2012 00:00


Reuters:  Breakingviews: Emirates airline is changing its flight path. After more than a decade of organic growth, the Dubai carrier announced this week that it is studying foreign acquisitions. While the airline says it hasn’t entered any talks for the moment, the shift comes amid rising competition.

Meanwhile, India is due to decide whether to allow foreign airlines to own up to 49 per cent of its local carriers.

The Dubai airline, which carries more than 30 million passengers a year, faces competition from its equally ambitious, deep-pocketed rival Etihad, the Abu Dhabi-owned official carrier of the UAE. Emirates airline is larger and has been profitable for longer.

But the upstart has started to cherry pick minority stakes in the very markets Emirates is eyeing, and it is growing fast.

The German market is a case in point. Emirates for years lobbied for landing slots at Berlin airport - in vain.

Then Etihad waltzed in last year by picking up a near 30 per cent stake in cash-strapped Air Berlin for a total of $350 million in loans and fresh capital.

It’s easy to see why acquisitions would be tempting for Emirates. Loss-making airlines in the fast-growing Indian market are obvious targets.

A 49 per cent stake in Kingfisher, for example, would cost just $95 million, while the Dubai group could provide cheap financing to lighten the airline’s $1.3 billion debt burden.

Despite India’s high taxes, Sudeep Ghai at consultancy Athena Aviation suggests Emirates could find value in the market even if the airline doesn’t make money at first on the short flights from Mumbai or Delhi to Dubai.

That’s because a significant share of the passengers would transit into Emirates’ profitable long-haul network.

In India or elsewhere, the challenge for Emirates would be to turn around a business with only a minority control.

That kind of buy-to-build strategy has failed many. Emirates itself last year sold its 44 per cent stake in Sri Lankan Airlines, bought in 1998, back to the operator at a loss.

But in a buyers market, it is easy to see why Emirates might be tempted to stray from its tried-and-tested organic route.

 


Share This Article


COMMENTS

Today's Columnists

“Govt. will compensate every person affected by floods and landslides”: Anura Yapa

25 May 2016

“We have money; we will pay each and every person affected by floods and landslides,” assured Minister of Disaster Management Anura Priyadarshana Yapa, in an interview with the Daily FT. Yapa pointed out that people need not worry ab...


Is a degree worth the cost?

25 May 2016

If a family can afford to pay, higher education is worth the cost. However, when tax revenues are spent or  students borrow to attend college, we as a society need to question whether a degree is worth the cost   ...


Coming out of the economic crisis: Time is running out for Sri Lanka

24 May 2016

For Sri Lanka to attain its goal, it is of utmost importance to consolidate the budget which has gone out of control due to falling revenue and soaring expenditure   Crisis manifesting as a foreign exchange shortage Sr...


Authentic leaders: Are they here?

24 May 2016

Perhaps the natural disaster we are currently facing could be a wakeup call for managers and administrators at all levels alike to think and act like authentic leaders     Overview We still bear the bru...


Columnists More