Business Model
The established network carriers in Europe and Australia, i.e. Air France-KLM, British Airways, Lufthansa, and Qantas, perceive Emirates' strategic decision to reposition itself as a global carrier as a major threat because it enables air travellers to by-pass traditional airline hubs such as London Heathrow, Paris-Charles de Gaulle Airport, and Frankfurt Airports on their way between Europe/North America and Asia/Australia by changing flights in Dubai instead. These carriers also find it difficult to deal with the growing competitive threat Emirates poses to their business because of their much higher cost base.
Some of these carriers, notably Air France and Qantas, have accused Emirates of receiving hidden state subsidies and of maintaining too cozy a relationship with Dubai's airport authority and its aviation authority, both of which are also wholly state-owned entities that share the same government owner with the airline. They also allege that Emirates is able to reduces its borrowing costs below market rates by taking advantage of its government shareholders' sovereign borrower status. They claim that this government support cross-subsidises the airline, masking its true financial performance.
In May 2010, Emirates Airline executives refuted claims that the carrier does not pay taxes and receives substantial financial assistance from the Dubai government. They claimed that the airline received $80m in cash in kind since the start of the airline 25 years ago and this was substantially lower to what other national carries have received. Maurice Flanagan also claimed that Emirates incurred social costs of around $600m in 2009 and this included municipal taxes to the city of Dubai. The airline also paid a dividend of AED956m ($260m) in 2010, compared to AED2.9bn ($793m) in 2009 and each year the Government has received at least $100m in dividends.
Emirates also faces competition from other UAE-based airlines, Etihad Airways of Abu Dhabi and the low-budget Air Arabia of Sharjah.
Read more about this topic: Emirates (airline)
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