Home / / Emirates reaches limits of organic growth strategy

Emirates reaches limits of organic growth strategy


Comments / 377 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

Sri Lanka ready to ride the global tourism trends in 2017?

24 January 2017

Strictly from a demand perspective, whilst Sri Lanka crossed the two million visitor arrivals, from a supply chain terrain, new properties coming into fray with brands like Anantara, RIU, Movenpick and very soon Shangri-La is encouraging for Sri L...


Too clever by three quarters on bonds

24 January 2017

‘Monk’s petition on eve of bond debate in House’ was the caption of a front page story in the Sunday Times of 22 January. The UNP has sent their emissary to Hulftsdorp together with footnotes. There is a palpable air of duplicity...


Steamrolling of Central Bank by Minister of Finance: An unsavoury development?

23 January 2017

An unsavoury rift between the Central Bank and Minister of Finance A growing rift between Finance Minister Ravi Karunanayake and the senior management of the Central Bank is surfacing now, worrying both financial markets and prospective fo...


Sustainability: How that translates to agriculture

23 January 2017

Once cultivated, traditional paddy that is grown organically will establish its own markets based on the consumer demand   For the longest time the word “sustainable agriculture” was a catch phrase only. I...


Columnists More