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    Case Study

    OfAnalysis of Luxury Airlines

    Emirates Airways and competitors

    Under Supervision of

    Prof. Riccaboni Massimo

    Author

    Abedelazez Safi

    May 2011

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    Abstract

    During the last decade travel and tourism has assisted the Emirates Group in spreading

    its wings into every aspect of travel, tourism and business to become the fastest growing

    corporation in its field.

    Emirates airlines and Middle East aviation system will face strong challenges with

    global aviation during the coming years. In the mean while,the overall growth

    aspiration of the region demands a high-performing aviation system including airlines,

    airports, and air traffic control (ATC) that in 20 years must successfully serve more than

    four times the passengers it serves today. However, international benchmarks illustrate

    that even todays aviation system does not fulfill current demand. In many Middle East

    countries, aviation systems quality and efficiency levels are well below international

    levels (e.g., compared to Europe and Asia). Heavy regulation also has resulted in

    limited service in terms of route frequency and destinations, high customer prices, and aneed for high government subsidies to maintain the system.1

    Middle East aviation markets especially United Arab Emirates have set the level for

    reforming their aviation systems and have started encouraging trading and deregulation

    of airlines rules. In addition, the Middle airline sector plays a smart role in developing a

    world-class, such as Qatar Airways (which has a five-star Skytrax ranking) andEmirates Group (which has above-average profitability).

    Aviation and transport infrastructure is the fundamental catalyst for the creation of

    global cities. The UAEs open skies policy is the cornerstone upon which Dubai built its

    dynamic air transport hub, which in turn supports the growth of other industry sectors.

    The growth of Emirates embodies the spirit of competition and free enterprise, which

    will continue to guide their policies for the benefit of the UAE and of the global

    community in which they operate.2

    Finally, analyzing Emirates airline challenges through SWOT analysis and comparing it with

    Lufthansa Group a prove of being very active with Cargo and shipment services and passengercater through developing there technology and advertise there 40 brands and looking to the

    needs of the customers. It was very obvious of the strengthen of innovation and creativity ofEmirates is much stronger then the weakness and keep in going to hire new employees and

    buying new plans even during Dubai crisis. After compering Emirates with Lufthansa Group thelargest airlines in terms of passenger and second largest airline of fleet aircraft. We will prove

    that Emirates is the most innovative and the fastest airlines growing in the world since they are

    25 years old and Lufthansa 86 years old.

    1Ringbeck. J, Majdalani. F, Ismail. A, Mastering the Challenges of the Middle East Aviation System, 28 July 2006,Booz Allen Hamilton GmbH,p.1.2 Al Maktoum. M, Emirates Group Annual Reprot 2009-2010, http://www.theemiratesgroup.com/english/facts-figures/annual-report.aspx, p.3.

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    Contents

    Abstract.......2

    Emirates Airways Overview......5

    Leadership Team and Style...................6

    Emirates Airline Alliance......6

    Aviation Industry Scenario.......6

    Emirates Strategy.......7

    Emirates Operational Excellence Highlights & Fleet Information...8

    Fleet Acquisition and Financing.......9

    Overcoming Recent Aviation Challenges.....9

    Operational Strategies.......9

    New Markets and Payment Schemes Technology.....10

    Customer Satisfaction Objectives...11

    Knowledge Excellence of the Organization....13

    Emirates Financial Highlights.........13

    Profitability.......14

    Revenue.........14

    Geographical Revenue.....16

    Expenditure...16

    Currency and Interest Rate Risk....17

    SWOT Analysis for Emirates Airways...20

    Lufthansa vs. Emirates........22

    Lufthansa Airlines overview............22

    Airline subsidiaries wholly owned by Lufthansa...22

    Alliances and Partner Airlines........23

    Lufthansa and Group Fleet ........24

    Lufthansa Group Financial Highlights..........25

    Lufthansa Group in Comparison with Competitors.........28

    Emirates Airline in Comparison with Lufthansa Group......28

    Conclusion.....30

    Glossary.....31

    Bibliography......33

    Tables

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    Table 1:Fleet Information of Emirates Airline9

    Table 2:Financial Highlights of Emirates Airline US$ million.....14

    Table 3:Revenue of Emirates Airline in US$ Million....16

    Table 4:Geographical Revenue in US$ Million......17

    Table 5: Operating costs.......18

    Table 6Group fleet Number of commercial aircraft and fleet orders...24

    Table 7:Fleet Order Of Lufthansa Group..........25

    Table 8:Lufthansa Group Financial highlights..........27

    Table 9:Comparing Lufthansa Group with Emirates Airline..........28

    Table 10:GDP Development Forecast 2010 to 2013.....29

    Figures

    Figure 1:Aircraft Departure.....12

    Figure 2: Operating Profit in United Arab Emirates Currency...............15

    Figure 3:Revenue of Emirates Airline in United Arab Emirates currency.15

    Figure 4:Jet fuel Costs in % during last 5 years ...18

    Figure 5: Revenue & Operating profit in EUR..25

    Figure 6: Lufthansa Group with competitors British Airways and Air France-

    KLM........28

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    Emirates Airways Overview

    During the mid-1980s, Gulf Air began to cut back its services to Dubai as it was concerned itwas providing regional feeder flights for other carriers. As a result Emirates was conceived inMarch 1985 with backing from Dubai's royal family, and was required to operate independentof government subsidies, apart from US$10 million in start-up capital. Emirates Airline firstflight on October 25, 1985 by the government of Dubai. The airline industry has started itsoperations with flights to Mumbai and Karachi and then followed by Delhi in September.Today the industry is considered to be a subsidiary of the Emirates Group which isheadquartered in Dubai, UAE.3

    The Emirates Group is composed of Emirates Airlines, airport services provider the DubaiNational Air Transport Association (DNATA), other transportation-related activities, and ahotel group. Owned by the government of Dubai.4 Emirates have flourished under thesheikdom's "wide open skies" policy, which has brought more than 100 foreign airlines toDubai's efficient airport, the busiest in the Middle East.

    The airline, simply known as Emirates, is renowned for luxurious in-flight service as well asconsistently profitable growth. It is the largest airline in the Middle East, operating over 2,400passenger flights per week,5and it is unique among long-haul airlines in its resistance to joininga global alliance such as the Star Alliance or Oneworld. Emirates do, however, participate incode-sharing arrangements with several carriers and has a minority holding in Sri LankanAirlines.6

    The company has been provided with different recognitions and in 2010 Emirates was noted tobe the sixth-largest airline in the global market in terms of international passengers beingcarried and largest in the world in terms of scheduled international passenger-kilometers flown.Emirates are also known for being one of the only five airline industries that operates in the

    entire wide-body aircraft feel.(7)(8)

    With a fleet of 152 aircraft,9 they are currently fly to over 103 destinations in 65 countriesaround the world, and their network is expanding constantly.10 Nearly 700 Emirates flightsdepart Dubai each week on their way to destinations on six continents. In fact, Emirates'flights account for nearly 40 per cent of all flight movements in and out of Dubai InternationalAirport, while in 2010 they increase their market-share to 70 per cent.11

    Propelled forward by their united strength, the two have evolved at a phenomenal rate toestablish the Emirates Group as an immense organization, spanning a portfolio of more than 50brands and employing over 50,000 people.

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    It can be sent that since Emirates started its business operations, they are able to gaincompetitive position and advantage in the market place. Todays leaders of Emirates areconsidered to be the most influential and essential people in the company as they are the onewho make everything possible for the industry. Sheik and other leaders of the company havebeen able to show their innate ability to lead the company efficiently and effectively.

    Leadership Team and Style

    The Emirates Group (Emirates Airline and DNATA) success has been the continuity of itsmanagement team, many of whom have been with the airline since its start of the company. Theleadership team has 23 years of experience inside the company. HH Sheikh Ahmed bin SaeedAl Maktoum (Chairman and Chief Executive, Emirates Airline & Group), Maurice FlanaganCBE Executive Vice Chairman (Emirates Airline & Group), and Tim Clark (President EmiratesAirline).12

    In the case of Emirates leader, they can be considered as an influential and democratic kind ofleader. It is known the leadership composes the aptitude and skills to inspire as well as influencethe behaviour and the thinking of the people or the subordinates. It is a process of socialinfluence in which an individual can able to provide the support and assistance for others toachieve common goal. It can be said that the decision of Emirates Group leaders to requisite anextraordinary board meeting to deal with the issue and other leaders like Flanagan suggests thathe is possess the democratic type of leadership. It can be perceived in the given case study thatEmirates leader looked for final decisions made by the other members of the corporationespecially the shareholders.13

    Alliance

    Emirates are currently not a member of any of the three global airline alliances Oneworld,SkyTeam and Star Alliance. In 2000, however, the carrier briefly considered joining the latter,but opted to remain independent of the three alliances. The reason for this was later revealed bysenior vice-president of the airline's commercial operations worldwide that, "Your ability toreact in the marketplace is hindered because you need a consensus from your alliancepartners."14

    Codeshare agreements asof January 2011, Emirates has codeshare agreements with thefollowing airlines:15

    Air Malta

    Air Mauritius Continental Airlines (Star Alliance) Japan Airlines (Oneworld) Jet Airways

    !#.Emirates Group Annual Report 2009-2010, Leadership Team Ibid. p.10.

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    Korean Air (SkyTeam) Oman Air Philippine Airlines Royal Air Maroc South African Airways (Star Alliance)

    Thai Airways International (Star Alliance) V Australia

    AVIATION INDUSTRY SCENARIO

    The global aviation industry suffered a disastrous during the crises, with more than a score ofairline bankruptcies, shrinkage in airline networks and service levels and IATA adjusted itsestimates for 2009 net losses from US$11 billion to US$9.4 billion. In the all Aviation sectorsthe airlines suffered contraction, fierce price-cutting and firing the employees.16

    While the oil prices had dominated the first half of 2008, global recession characterized thesecond half and presented a grim picture for those planning the 2009-2010 fiscal years. Fallingdemand, shattered consumer confidence and collapsing yields confronted the airlines. A 15%contraction in world trade saw changed business patterns which in turn meant that travelbudgets were slashed. According to Emirates Airline, the global aviation industry, faced with aneed to invest a collective US$ 1 trillion in new, more fuel-efficient aircraft, was confrontedwith a banking industry reluctant to lend after the near collapse of the finance sector.17

    EMIRATES AIRLINE STRATEGY

    The challenges faced by Emirates Airline same as any other aviation industry it was lucky to beoperating in the Middle East where there was still positive growth in air travel, truism andaviation industry. According to the International Air Transport Association (IATA), "MiddleEastern carriers saw demand grow 14.3 percent, the highest among the regions. The regionscarriers continue to add capacity, increasing 15.3 percent in October and outpacing the growthin demand".18Emirates airline was able to generate a net profit of US$ 964 million, an increase of US$ 777million on revenues of US$ 11.8 billion, that is clear sign of efficient response to the designtook in every area of the business.19

    Emirates was also able to catch up with new ideas and challenges from their experience in theinternational environment and leaving the old traditional practices behind from being beside thecustomer and understand their needs through innovations and new ideas. This aim was very

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    Emirates Group Annual Report 2009-2010, Ibid p.10.!G

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    important for the company to make thing easier for customer safety and entertainment. Twoexamples which illustrate this philosophy:20

    When the crisis hit the world and Dubai specifically the financial institutions had almoststopped lending the money, Emirates continued to have requirements for new financing to

    support its growth program. Also they create new financial instrument that generatedconsiderable excitement in the aviation and financial sectors and was recognized by an industryaward. From advance technology and a new level of safety customer sides, Emirates will be the firstairline in the world to introduce the Smart-Landing and Smart-Runway safety solutions toreduce the risk of runway incursions and excursions. Which will be the level of safety tolanding an aircraft.

    Customer service the heart of the company for Emirates and any other airlines in the world, soEmirates was able to resolve and keep developing in this sector through increasing the network,frequencies and rising service standards and add more value to the customer experience.

    Emirates airline Said There was no temptation shown by the company to compromisestandards or adopt a holding operation until the world economy recovered. And keepchallenging to improve their product and pioneering new ideas with their own. All that growthand continue facing the risk of the recession and not get heart because of they maintain theirgrowth strategy.

    Emirates Operational Excellence Highlights and Fleet Information

    Every months and year they have surprise news about their fleet but they keep developing thisimportant asset and put it in track. During 2009-2010 the company took delivery of 15 new

    aircraft, 4 Airbus A380s and 11 Boeing 777s. This brought their fleet to 152 aircraft and 194aircraft on order up to date21, 50 Airbus A380s, 21 Boeing 777s, 5 Boeing 747s and 70 AirbusA350 XWBs plus 50 options on the type. The company plan to take delivery of new aircraft atan average of one per month, it also continues to be in negotiations with the manufacturers foradditional aircraft. [Table 1] illustrates Fleet information of Emirates Airline for 2009-2010with fleet of 142 aircraft and 146 on order22

    Airbus A380 is the ultimate symbol of Emirates pioneering spirit they call it superjumbo.A380 continue to be the headline on any new airport in the world, including Bangkok, Toronto,Paris, Seoul and Jeddah, the first regional airport to take the aircraft. These destinations wereadded to an A380 network that already included Heathrow (a second superjumbo service a day

    will be added during 2010), Sydney and Auckland.

    23

    #EEmirates Group Annual Report 2009-20101Ibid, p.16-20.

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    Table 1: Fleet information of Emirates Airlines, Resources: Emirates Groups Annual Report 2009-10)

    Fleet Acquisition and Financing24

    During the financial year (2009-2010), Emirates raised a total of US$ 2,389 million in aircraftfinancing including aircraft operating leases over the period under review, and have alreadyreceived offers of finance covering all deliveries due in the forthcoming financial year. EightB777-300ER aircraft were funded through finance leases, (with the option to refinance in thecapital markets); two through sale and lease back transactions while the freighter was financedas a pure operating lease.According to Emirates airline, the financial highlight of the year was the first ever financing of

    Boeing aircraft through capital markets guaranteed by the US Export-Import bank on financelease. This allowed the transaction to raise US$ 413 million to finance three Boeing 777-300ERs. And this is the type of new financial instruments which Emirates created. This newstructure reached a much deeper and broader investor base than the conventional bank market,which hitherto had been the traditional source of investors for Ex-Im Bank guaranteed exportfinance. The result was a more durable financing solution that is less vulnerable to the financialstress that constricted the banking institutions starting in the fourth quarter of 2008. Thetransaction was also recognized by the industry as ground-breaking and earned accolades fromthe financing community. Emirates have gone on to refinance two more 777-300ER aircrafts inthe capital markets through this innovative structure.The four Airbus A380 units delivered, two were financed as finance leases and two through sale

    and lease back transactions using the German KG market. During the year, also theysuccessfully closed two sale and lease back transactions for eight spare engines and two B777-200 classic aircraft.

    #%Emirates Group Annual Report 2009-2010, Ibid, p.18-21.

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    Overcoming Recent Aviation Challenges

    Operational Strategies

    The global Aviation industry face strong challenges through the recession, while Emirate face

    the same challenges they used their experience in this field in very clear way and continue totake delivery of new aircraft, also invest in their brand, expend network, that was surprise to allother airlines competitor because it went opposite prevailing industry theory on increasingcontraction.

    Cost containment strategy used to maintain organizational costs within a specified budget and torestraining expenditures to meet organizational or project financial targets. To face all thischallenges it was a prior and initiatives were launched at all levels to deliver savings. Internalauditing initiatives designed to underpin cost containment included the introduction of theconcept of Control Self Assessment at all outstations. This strategy was balanced against theneed to safeguard jobs and keep staff costs at significantly lower levels than many of their

    competitors.

    25

    New Markets and Payment Schemes Technology

    New markets were added to Emirates operation this year inside and outside Dubai. By creatingglobal account manager they added value to existing customers. The new markets target,including the increasingly important cruise segment operating out of Dubai. New agreementswere signed with Costa Cruises and Royal Caribbean International. A lots of packages weredelivered during the major events, including the 2010 FIFA World Cup26, the Dubai World Cup

    and the Dubai Rugby 7s.

    27

    They made them by innovative payment schemes for those bookingonline. Cardholders were offered the chance with zero percent interest to pay for tickets in threemonthly installments. This system made an incentive way to most customers to move online touse their business transactions. This system available in 59 countries and in 13 languages, it isgrowing rapidly. Revenue via emirates.com continues to grow at 45% a year and in somemarkets contributes more than 20% of total revenue. Using this new innovative technology andthe swings of consumer behavior, to shape the price policy was sophisticated. They take timewhen the highly sophisticated software systems that routinely track the business and set theprice which compete the competitor all that price setting majored by the team memberexperience. They also took critical decisions on pricing that ran counter to the prevailingconventions that then informed the airline industry. Maintained fares while managing healthyyields supported by excellent load factors. While the competitors continued to discount airfaresto loss levels. This was not a paradox, they made this because to sustained investment in thebrand and make it powerful loyalty among customers. All this stability made the customerwilling to pay a premium for that. Emirates didnt just protect it is route network, but also theyexpanding it each year. Up to March 2011 they continue increasing there network routes untilthey reach 103 destination, so they add new destination to there network and that is one of main

    #&Emirates Group Annual Report 2009-2010, Ibid p.18.

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    strategy to become global airline to join any two points on the earth through Dubai airport.Some of the new route was Dubai-Tokyo, after long waited service and a year negotiation.Considering Emirates as global business they were lobbying on behalf of globalization andagainst the stirrings of protectionism that have resulted from the recession.

    They made major success of deployment the most efficient Boeing 777-300ER to the WestCoast of the United States through the operational procedures and the use of new flight paths. Itbrands the company in very fast way through using the showcased in Bahamas of new flightpaths. That was one operation to transport FIFA delegates to the Nassau destination. This smartstrategy of using the assets was evident on the airfreight side, which tends to be first in, firstout in bad economic times. According to Emirates annual report, during 2009-2010 the globalindustry declined by 10%, registering a 23% fall in one month alone. So the Emirates SkyCargo used a strategy of protecting and securing cargo market share, and they success of doingit through resistant on fast responding to downturn and rightsizing their fleets. That made bigachievement in business though double-digit growing in the volumes transported. They startedthe 2009 with 8 aircrafts, and ended it with seven freighters, 5 Boeing 747Fs and two Boeing

    777Fs. After on they brand new aircraft and benefits were gain a lot from their efficiency and byusing the strategy of economies of scale as they took their place in a large fleet of that type.Despite of the crisis and due to economic situation, advertising spend was redirected fromcorporate to tactical advertising campaigns to support there specific markets. They are alsoknown to be in sport sponsorship, so they continued with a US$ 81.6 million deal to back Italianfootball, AC Milan. And in cricket, became the sponsor of the high profile Twenty 20 WorldCup held in England.28The Emirates Airline marks its 25th anniversary, which is great tactic toremind people of long-term survive Brand.29

    New technological progress was also made in digital communications, with their website trafficto emirates.com increasing while other airline web traffic worldwide is in decline comparing to

    Emirates. Their website traffic reached the highest peak in the first quarter of 2010.In the recession time of global aviation, Emirates was able to show up in every famous eventand be attractive brand for the customers. That make the communication channels of thecompany to continue for long term marketing strategy and showing the excellent way ofknowing who and where to use their business with low costs expenses.

    Customer Satisfaction Objectives

    Continue building their new strategy every where in the world for each year in 2009-2010 theyopened an additional six Emirates lounges including those at Hamburg, Manchester andMumbai airports, the latter being the first lounge in India. Around US$ 72.5 million worldwideinvestments dedicated for this new lounges, for first and business class customers and top-tierSkywards. The lounges are a distinctive feature of Emirates and were giving attraction for theircustomers. With the 6 new Emirates lounges in total they have 26 airport lounges world wide.30

    #GEmirates Group Annual Report 2009-2010, Ibid p.23

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    Aircraft Departures

    Every Each year we find significant change in Emirates Airlines If we look at the Aircraftdepartures in Figure 1 we will see the increased by 12.4% to 123,055 in comparison with109,477 in 2008-2009.31the eremitical increase in traffic came principally from:

    Introducing new services to Durban, Luanda and Tokyo. Also increase frequencies toseveral existing destinations, mainly Jakarta, Rome, Doha, Bangkok, Kolkata and Kozhikode.Increase capacity to several existing destinations with bigger aircraft, mainly Dusseldorf,Munich, Paris, Seoul and Hong Kong.32

    More new investment in their product, they raised baggage allowances by ten kilograms extraper person across all seating classes. This was one of the most competitive tools with all their

    competitors. Also they gave new improvement in bag handling at Dubai International Airport.Around US$ 78 million has been invested in adding cabin interiors and the in-flightentertainment system, like ice as part of the emphasis on continuous improvement to the fleet.The refresh cabin was completed on 26 Airbus aircraft and on four aircraft in the B777 fleet.

    As more passengers migrate to online check-in, they redeployed more stuff from routine check-in duties to personal passenger help which will increase their services level. Even getting intouch with Emirates became easier during the coming years with the upgrading EmiratesContact Centers under a contract with British Telecom Global Connect.33

    $!Dubai International on course to become fastest growing major international airport.

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    Emirates Group Annual Reprot 2009-2010, Ibid p.41.$$

    Ibid p.20.

    Figure 1: Aircraft Departure (Source: Emirates Groups Annual Report 2009-2010)

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    Knowledge Excellence of the Organization

    Emirates Group as an immense organization are spanning a portfolio of more than 50 brandsand employing over 50,000 employees for over 150 countries. The commitment to continuousimprovement in product and service is completed by the ongoing drive to implement the greater

    efficiencies in all technical areas. The efficiencies translate into cost savings and moreenvironmentally friendly operations it proof the excellence of the company. For support thegrowing Emirates fleet, they planned to open a Technical Facility for maintenance in 2010 at acost in excess of US$ 545 million. Also it includes a paint shop that will be used to repaint theaircraft using advanced technology paints capable of reducing in-flight drag. New indictorreceived has been seen during the year that 1,000th GE90 engine for the Boeing 777 fleet, andthe 6,000th Airbus production aircraft an A380. This support form Emirate to their ownplatform for securing their future in an efficient way from the partnership such as Boeing,Airbus and Rolls Royce, it describe the key excellent of the company for the coming challenges.Also, the new Plan for opening of terminal 3 in the third quarter of 2012 for Dubai InternationalAirport is another new levels of excellence.34

    EMIRATES FINANCIAL HIGHLIGHTS

    In this part of the paper we will try to explain the most important subjects of the financialEmirates airline annual report of the company of 2009-2010. As we can see from table 2Emirates was able to return a net profit of US$ 964 million, an increase of US$ 777 million onrevenues of US$ 11.8 billion despite the increasing capacity in the Airport and the aircraftindustry while the change in percentage in comparison with the last year was 56.4% which is atestament to the superb response to the situation made by every area of the business chosen bythe company.35 In the coming pages will see the comparison between Emirates airline andLufthansa airline with it subsidiaries and showing how this excellence testament of the

    company in generating 56.4% of net profit. The 17.1% of increasing with Emirates total assetsis a significant from the company of show non-stop in growing strategy, which is proof theincreasing number of the aircraft up to 142 during the year 2009-2010 whilst the aircraftnumber reach 152 up to date.36

    $%Emirates Group Annual Report 2009-2010, Ibid p.20.

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    Table 2: Financial Highlights of Emirates Airlines US$ million37

    2009-10 2008-09 Change

    Revenue and results US$ m US$ m %

    Revenue and other operating income 11,834 11,782 0.4

    Operating profit million $ 964 620 56.5

    Operating margin % 8.2 5.3 2.9

    Profit attribute to the Owner million $ 963 186 41.5

    Profit margin % 8.1 1.6 6.5

    Return on shareholder's funds % 21.6 4.4 17.2

    Financial position and cash flow

    Total assets million $ 15,127 12,921 17.1

    Cash assets million $ 2,862 2,006 42.7

    Net debt (including aircraft operatinglease) equity ratio %

    158.5 167 8.5

    EBITDAR million $ 2,897 2,256 28.4

    EBITDAR margin % 24.5 19.2 5.3

    Airline operating statistics

    Passengers carried number 000 27,454 22,731 20.8

    Cargo carried tonnes000 1,580 1,408 12.2

    Passenger seat factor % 78.1 75.8 2.3

    Overall capacity ATKM million 28,526 24,597 16.9

    Available seat kilometers ASKM million 161,756 134,180 20.6

    Aircraft Number 142 127 12

    Employee data

    Average employee strength number 36,652 35,812 2.3

    Profitability

    Emirates ended the financial year with an operating profit of AED 3,565 million (US$ 964million) which is AED 1,287 million (US$ 350.4 million) or 56.5% better than the previousyear and a healthy operating margin of 8.2% or 2.9 percentage points higher than last year. The

    $FEmirates Group Annual Report 2009-2010, Ibid p.4.

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    !&

    profit margin also recovered to 8.1% from 1.6%, as significant achievement in a difficult yearwhich indicated in Figure 2 using the operating Profit in United Arab Emirates currency (AED).

    38

    Revenue

    Figure 3 Showing the Revenue of Emirates Airline for the last five years in United ArabEmirates Currency (AED) in billion remained stable in the last two years. In 2009-10 AED42,477 million (US$ 11,567 million) in comparison with 2008-09 AED 42,459 million (US$11,562 million) they are very close. The reason behind the stability of the last two years camefrom stability of the passenger revenue and the decline in the cargo revenue because of thedecrease of the freight yield per FTKM39during the Dubai crisis at the end of 2009. We will seethat in details at table 3 showing the revenue of Emirates Airline.

    40

    Figure 3: Revenue of Emirates Airline in United Arab Emirates Currency, (Source:

    Emirates Groups Annual Report 2009-2010).

    In Table 3 we introduced the Revenue of Emirates Airline in US$ Million. Passenger revenue atUS$ 8,985 million was marginally higher by US$ 79.7 million While Cargo revenue at US$

    $GEmirates Group Annual Report 2009-2010, Ibid p.38-39.

    $VFTKM :Cargo tonnage uplifted multiplied by the distance carried.

    %EEmirates Group Annual Report 2009-2010, Ibid p.38-39.

    Figure 2:Operating Profit in United Arab Emirates Currency, (Source: Emirates

    Groups Annual Report 2009-2010).

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    1,719 million is 8.1% lower than last year (2008-09: US$ 1,871 million), also the result ofdeclining yields. While cargo tonnage increased by 12.2% over the previous year mainly in thesecond half of the year, freight yield per FTKM declined by 18.9%. Revenue from cargo, mailand courier continues to constitute an important 17.2% (2008-09: 18.2%) of Emirates transportrevenue.41

    Table 3: Revenue of Emirates Airline in US$ Million42

    2009-2010

    US$ million

    2008-2009

    US$ million

    Change

    %

    Passenger 8,985 8,904 0.9

    Cargo 1,719 1,871 (8.1)

    Courier 116 95 22.6

    Excess baggage 75 95 (20.3)

    Mail 42 34 23.8

    Transport Revenue 10,940 11,000 (0.6)

    Sale of goods 470 425 10.5

    Destination and leisure 42 52 (19.6)

    Other 114 83 37.5

    Total 11,567 11,562 _

    %!Emirates Group Annual Report 2009-2010,[K,C 71$G?%E

    %#Ibid p.38.

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    Geographical Revenue

    There was an increase and decrease in geographical area this change came for the shift intransport revenues if we check table 4 we will see Americas continent 8.1% is the highest in

    comparison with other this surprise impact came from opening new routes while the West Asiaand Indian Ocean region experienced stronger revenue growth over other regions, but inrevenue East Asia and Australasia in the highest during the year 2009-2010 that is confirm theoperation of emirates are very high in this region because the have most of there networkdestinations in this regions. Europe coming the second in revenue even though have lessdestination than Asia region they are also sponsor of famous sport teams and very highpromotion in their brand name.43

    Table 4: Geographical Revenue in US$ Million44

    Year Gulf,

    Middleeast

    and

    Iran

    Europe Americas East Asia

    andAustralasia

    West Asia

    and IndianOcean

    Africa Total

    2009-10 1,345 3,162 1,090 3,225 1,449 1,295 11567761410

    2008-09 1,318 3,318 1,008 3,294 1,344 1,278 11562859470

    %Change 2.00% (4.70)% 8.10% (2.10)% 7.80% 1.30%

    Expenditure

    If we check table 5 we can see the total operating cost of the 2009-10 year at US$ 10,863million were US$ 299 million or 2.7% less than the previous year the main reason was behindthe reduction in the jet fuel bill which is lower by US$ 690.3 million or 17.6%.More than that the Employee cost increase by 8.3% which compares with 15.9% growth incapacity, reflecting an impressive productivity gain per airline employee, and employeenumbers also increased by 2.3% to reach the total number of 50 thousand employees.

    %$Emirates Group Annual Report 2009-2010, Ibid p.39.

    %%Ibid p.39.

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    Table 5: Operating costs45

    2009-10 08-09 %Change 09-10% of operating costs

    Jet fuel 3,242 3,933 (17.6) 29.9

    Employee 1,727 1,596 8.3 15.9

    Aircraft operating leases 1,119 1,034 8.3 10.3

    Sales and marketing 822 904 (9.1) 7.6

    Depereciation 787 585 34.6 7.2

    Handling 764 689 10.8 7

    In-flight catering and other operating

    costs

    593 523 13.4 5.5

    Overflying 391 348 12.3 3.6

    Landing and parking 238 200 18.9 2.2

    Aircraft maintenance 230 185 24.2 2.1

    Cost of good solds 229 223 2.7 2.1

    Amortisation 18 16 13.1 0.2

    Corporate overheads 695 920 (24.4) 6.4

    Total operating costs 10,863 11,162 -2.7 100

    For the last five years Emirates was trying to reduce the jet fuel cost to improve their efficientand be environmental friendly which they already awarded this more than once, so during 2009-10 they made and improvement in their aircraft engines also buy new engines for some oldplane. If we look at figure 4, we can see the Jet fuel costs at US$ 3,242 million or 29.9% during2009-10 while US$ 3,933 million or 35.2% during 2008-09. This change is not justenvironmental friendly or increasing the efficiency it is also very profitable for the organizationto prove their excellence in follow the right strategy.46

    %&Emirates Group Annual Report 2009-2010, Ibid p.40.

    %LIbid p.40.

    Figure 4: Jet fuel Costs in % during last 5 years (Source, Emirates Group Annual

    Report 2009-10)

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    Currency and Interest Rate Risk

    Any efficient organization hedge against currency risk exposures and interest rate and that iswhat Emirates Airline did to take an advantage from the market movement and currency swaps,so they continue to target a balanced portfolio approach to gain this advantage. For hedging was

    around half of its interest rate and currency risk exposures, using prudent hedging solutionsincluding swaps and options tools. The borrowings and lease liabilities (net of cash) also aircraftoperating leases, at 31 March 2010, comprised 83% on a fixed interest rate basis with thebalance 17% on floating interest rates, while 2008-09 the fixed interest rate was comprised of61% basis with the balance 39% on floating interest rates. Increasing one percentage point ininterest rates would increase the interest charges and the operating lease charges (net of interestincome) during the next financial year by US$ 20.1 million (2008-09: US$ 29,6 million). At 31March 2010, Emirates borrowings and lease liabilities carried an effective interest rate of 2.5%and (2008- 09: 3.5%). They managed their productivity in currency exposure by using prudenthedging solutions and currency swaps, options and natural hedges through outflowsdenominated in Pound sterling, Euro, Australian dollars, New Zealand dollars and Japanese yen.

    For the year ended 31 March 2010, hedging coverage for Pound sterling, Euro, Australiandollars, New Zealand dollars and Japanese yen were 14%, 24%, 29%, 81% and 91%respectively.47

    %FEmirates Group Annual Report 2009-2010, Ibid p.44.

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    SWOT Analysis for Emirates Airways

    This part of the paper will analyse the strategic position of Emirates Airline through the use of

    SWOT analysis. Based on the given case, the strategic position of the Emirates Airline

    specifies their airline and aviation position has been challenged because of the changing

    situations of the airline market. Rival industries of the company has been able to announced theestablishment of their business approach in the global market which offers diversity of airline

    industries to cater the needs of the passengers, cargo and shipment services. The announcement

    of this company affects the strategic position of the entire Emirates Airline. In order to make

    sure that the company will not be left behind, Emirates Airline has been able to involve

    themselves into the expansion to technological developments.

    Through the use of SWOT analysis, the strategic position of Emirates Airline in 2011 will be

    analyzed.

    Strengths

    As a competitive and globally recognised airline industry, Emirates Airline has been able to

    have strategic position in the global market. In fact, when Emirates Airline streamlined their

    business, it already had the advantage of size. With several consecutive years of multibillion

    profits, the company has outshined its major rival companies to become a model firm.

    Emirates Airlines decision to focus on diversified market and by considering and extended the

    cargo shipping and their customer service was a courageous one, and it has led to its current

    position as one of the top global brands. Even upgrading the system to Emirates Contact Centers

    under a contract with British Telecom Global Connect make the company more branded.

    The firm has likewise been characterized by many analysts to have an ability to adapt to

    changing market conditions in order to maximize profit. Listening to and identifying with

    consumers has allowed Emirates Airline to construct a corporate culture that bears little

    resemblance to the Emirates Airline of the past.

    The ability to continuously renew and improve their service in the airline and aviation while

    effectively managing the needs of their target audience is the key to maintaining Emirates

    Airlines leader status and the key for succeeding in having strategic position.

    Weaknesses

    Not all of diversification and approach have been successful and this can be considered as one

    of the flaws or weaknesses of the company.

    Analysts have accused the company of focusing too much on their high-end acquisitions and

    diversification in spite of the risky effects of such decisions.

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    Opportunities

    The basis for long-term competitiveness is the ability to develop continuously new generationsof more advanced airline and aviation services. Therefore one of the companys opportunities isto tap into more markets as a result of the innovations being introduced in the aviation.

    Localized capabilities enabling or even enhancing such co-operationwill alw

    ays mak

    ea

    difference when it comes to first-mover advantages.

    The opportunity to penetrate new growth markets where internet adoption still has room to go,Leveraging Emirates Airlines infrastructure business to get first choice and stronger positionagainst rivals is also an opportunity. They also have the opportunity to get ahead of their rivalcompanies, and this should be the case, since the said market is a potential sizeable source ofincome. The trend of considering the internet market also shows cases new opportunities for thecompany.

    Threats

    Rival companies are major threats to the business (Gulf Air Company GSC, British AirwaysPlc, Air France-KLM S.A. Deutsche Lufthansa AG, Qatar Airways Group).

    Emirates Airline, in contrast, started out in other lines of business and entered and airlinecapabilities of the company.

    The firms inability to keep up with innovations, or recognize its demand, creates a threat forthem, a risk that they could be displaced by other industry leaders.

    The legal and political environment in the countries where they operate in could potentiallyaffect the business negatively.

    Their apparent complacence could be used by their rival companies to their advantage, and takeEmirates Airline by surprise, with the latter realizing too late that they are not the industryleader anymore.

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    ##

    Lufthansa vs. Emirates

    The European airline industry is a competitive and dynamic industry whose fortune is closely

    linked to the performance of the overall European economy. It is impossible to conceive of the

    European Union (EU) economy being able to achieve sustained growth in the future without

    an improvement in the performance of an integrated transport system and air travel is anincreasingly important component within that. After examines the structure of the Emirates

    airline industry and analyze the financial issues of Emirates Airlines now I will shortly describe

    Lufthansa financial industry and their group overview. Which is consider one of the strongest

    Emirates Airline Competitor

    Lufthansa Airline Overview

    Deutsche Lufthansa AGwas founded in 1926 (as Deutsche Luft Hansa Aktiengesellschaft),

    and re-founded in 1954.48It is the flag carrier of Germany and the largest airline in Europe in

    terms of overall passengers carried. It also considers the fifth largest airline in worldwide interms of overall passengers carried. The airlines are operating services to 18 domestic

    destinations and 183 international destinations in 78 countries across four continents Europe,

    America, Asia and Africa. Together with its partners Lufthansa services around 410

    destinations.49

    Airline subsidiaries wholly owned by Lufthansa50

    Air Dolomiti (Italy)

    Austrian Airlines (Austria). British Midland International(UK).

    Edelweiss Air(Swiss). Germanwings, low-cost subsidiary of Eurowings (Germany).

    Lufthansa Cargo, an air cargo company (Germany). Lufthansa CityLine, a regional carrier (Germany).

    Swiss International Air Lines (Basel).

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    #$

    Other Airline subsidiaries51

    Brussels Airlines, Lufthansa acquired a 45% stake in the Belgian airline with an option toacquire the remaining 55% in 2011.

    Eurowings a regional carrier, 49% owned by Lufthansa.

    Jade Cargo International. Lufthansa Cargo owns 25% of the company, remainder is held byShenzhen Airlines, which has a 51% stake, and DEG Deutsche Investitions- undEntwicklungsgesellschaft mbH, a subsidiary of the German state-owned KfW bank with

    24%. It started operations in March 2005 with intra-Asian services. It is the first cargo airline

    in China withforeign ownership.

    JetBlue Airways, an airline headquartered in New York, 19% owned by Lufthansa. Lufthansa Italia, a subsidiary which operates flights from Milan Malpensa to destinations

    across Europe, with a fleet of nine Airbus A319 aircraft. It is intended to capture a large sliceof the Milan market following major cutbacks by Alitalia as a result of its hub change toRome Fiumicino Airport.

    Luxair Lufthansa holds a 13% stake.

    SunExpress, airline based in Antalya, Turkey; 50% owned by Lufthansa (The remainder isowned by Turkish Airlines).

    Alliances and Partner Airlines

    Alliances are fundamental to Lufthansas success. As a founding member of Star Alliance,

    Lufthansa offers innumerable advantages in the worlds biggest global network. Its regional

    strategy under the Lufthansa Regional brand connects Europes regions with one another and

    with the world beyond. Bilateral partnerships augment and enhance the services portfolio.52

    Star Alliance

    On May 18, 1997 Lufthansa, Air Canada, Scandinavian Airlines, Thai Airways and United

    Airlines formed the Star Alliance, the world's first unilateral airline alliance. The global alliance

    groups together 28 leading airlines, which offer flights to well nigh any point in the globe.53

    Lufthansa Regional

    Under the Lufthansa Regional brand, carriers of the likes of Air Dolomiti, Augsburg Airways,

    Lufthansa CityLine, Contact Air and Eurowings operate point-to-point flights across Europa as

    well as connecting flights to onward international destinations on Lufthansas behalf.54

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    #%

    Codeshare Agreements

    Lufthansa has bilateral cooperation accordswith a host of quality airlines. The partner airlines

    include AirIndia, Air Malta, Air Moldova, JetBlue Airways Jat Airways. Cimber Sterling,

    Cirrus Airlines, Ethiopean Airlines, Luxair, Mexicana, Qatar Airways and TACA.55

    Lufthansa and Group Fleet

    With over 722 aircraft it has the third-largest passenger airline fleet in the world when

    combined with its subsidiaries (look at table 6 and 7). Groups fleet is a core operating resource

    and the largest asset in the consolidated balance sheet. It stands at the centre of the value

    creation process. The fleet includes aircraft from different manufacturers, principally Boeing

    and Airbus. The Canadian manufacturer Bombardier and Embraer from Brazil are also

    represented with larger numbers of aircraft that are deployed mainly in the Lufthansa regional

    companies.56

    !"#$% 'Group fleet Number of commercial aircraft and fleet orders

    Manufacturer/type LH LX OS bmi 4U CLH EN EW LCAG Group fleet

    Airbus A300 6 6

    Airbus A310 3 3

    Airbus A319 26 7 7 11 26 77

    Airbus A320 38 23 8 10 79

    Airbus A321 42 6 6 9 63

    Airbus A330 15 11 1 3 30

    Airbus A340 52 13 2 67

    Airbus A380 0

    Boeing 737 63 11 17 91

    Boeing 747 30 30

    Boeing 767 6 6

    Boeing 777 4 4

    Boeing MD11F 19 19

    Bombardier CRJ 18 10 52 10 90

    Bombardier C-Series 0

    Bombardier Q-Series 20 20

    ATR 5 14 5 24

    Avro RJ 20 18 38

    BAe 146 8 8

    Embraer 15 4 3 17 39

    Fokker F70 9 9

    Fokker F100 15 15

    Cessna Citation 4 4

    Total aircraft 317 84 102 67 26 70 14 23 19 722

    Note Lufthansa AG (LH), SWISS (LX), Austrian Airlines (OS), British Midland (bmi), Germanwings (4U), Lufthansa CityLine (CLH), Air Dolomiti (EN), Eurowings (EW) andLufthansa Cargo (LCAG) as of 31.12.2009

    1) Let to Lufthansa regional airlines. 2) Let to SWISS. 3) Leased to company outside the Group.

    &&[K,C

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    #&

    h4K>5 F9Fleet Order Of Lufthansa Group57

    Lufthansa Group Financial Highlights

    Deutsche Lufthansa AG is a global aviation group. The Group operates in five business

    segments, each dedicated to high quality standards.

    The five units the passenger airline business, logistics, MRO, catering and IT services

    all play a leading role in the industry in which they operate. The Lufthansa Group includes a

    total of more than 400 subsidiaries and associated companies.58

    In the year 2009 Lufthansa ended the financial year see (Figure 5) with an operating profit of

    EUR 130 million (US$168 million), and achieved total operating revenue of EUR 22.3 billion

    (US$28.8 billion) for the year. The five business segments play a leading role in operatingrevenue and profit and they employed some 118,000 personnel at the end of 2009.

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    Passenger Airline Group falls in passenger numbers and prices affected the traffic figures for all

    the airlines in the Passenger Airline Group while Logistics Lufthansa Cargo was hit very hard

    by the collapse in the airfreight market. In the main while MRO, IT Services and Catering

    continued its courses of profitable growth. Despite a sharp decline in demand in Catering. It was

    able to generate profit the reason was LSG Sky Chefs is the global market leader in airline

    catering and also via partnerships grows in innovations and environmental awareness.

    Lufthansa Passenger Airlines responded swiftly to the crisis, cutting costs and imposing a hiring

    freeze. With Climb 2011 they also address structural shifts in demand patterns and aim at

    improving earnings by EUR 1bn by the end of 2011. Strong financial profile with its established

    financial strategy Lufthansa promotes corporate performance and safeguards it against

    fluctuations in demand and on financial markets look at (Table 8: Lufthansa Group Financial

    highlights).

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    #F

    !"#$% F. >+75?"1=" G,6+4 ()1"1

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    #G

    Lufthansa Group in Comparison with Competitors

    With an operating profit of US$ 168m (EUR 130m), the Lufthansa Group (look at figure 6)

    again takes a leading position among its competitors in 2009.

    ()*+,% '. >+75?"1=" G,6+4 H)5? +75?"1=" G,6+4 H)5? 8:),"5%= J),$)1%

    Companies comparison of 2009 Lufthansa Group Emirates Airline

    Revenue US$28.8 billion US$ 11.8 billion

    Operating profit US$168 million US$ 964 million

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    #V

    After looking at table 9 we can see Emirates was able to return a net profit of US$ 964 million

    which is five times higher than Lufthansa while Lufthansa revenue is twice higher than

    Emirates airlines this is a testament to the superb response to the situation made by every area

    of the business by Emirates airlines.

    The important factor between both of them Lufthansa is Global aviation and it operates in 183

    international destinations except the regional destinations while Emirates is international airline

    and it operate in 102 international destinations without regional destinations and no alliance.

    The key success for Emirates they have very modern fleet which Lufthansa Airline and

    Lufthansa group didnt have yet. Emirates owning 8 aircraft of A380 and 50 on order while

    Lufthansa ordering new 15 aircraft of A380. Boeing aircraft 777 300ER which reach the other

    side of cost Emirates owning 52 and 19 in order, but Lufthansa doesnt have much of this

    Family they just has 4 of 777 with their subsidiaries and 30 of Boeing 747 while 20 on order.

    61

    One of the most important factors between both airlines Middle East and Asia/Pacific GDP

    (look at table 10) and airlines traffic estimation is growing very fast according to IATA

    Emirates Airlines took that in consideration and they are very developed in Middle East Area

    and they are opening two new destinations Asia/Pacific.62

    Emirates have very innovative strategy to respond to the markets and invest in each creative

    market special of being sponsors for famous event that promoting the brand worldwide.

    !"#$% RA. GSD S%0%$64:%15 (6,%

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    $E

    Conclusion

    In this case study about Analysis of Luxury Airlines Emirates Airways important subjects suchas company overview, leadership team and style, alliance, aviation industry scenario, Emiratesstrategy, emirates operational excellence highlights and fleet information and fleet acquisition

    and financing were introduced and highlighted. In addition, overcoming recent aviationchallenges such as operational strategies, new markets and payment schemes technology,customer satisfaction objectives and knowledge excellence of the organization were includedand illustrated. Furthermore, financial highlights, profitability, revenue, expenditure, currencyand interest rate risk of Emirates Airlines and geographical revenue in US$ Million wereshown. SWOT Analysis such as Strengths, Weaknesses, Opportunities and Threats wereintroduced and analyzing lufthansa group with Emirates airlines.

    In this paper I went through a short overview about the Emirates Airline describing thatcompany has got one of the youngest fleet in the world and one of the most developed aviation.Looking to the awards which Emirates groups got more than 400 international awards aremaking it clear to understand they are luxury aviation and very modern airline. One of the mainreason which was behind making of the Emirates Groups very success was behind theleadership team which they had more than 23 years of experience with the company it self afterall this experience make Emirates Airlines to be proud of not having alliance comparing to othercompanies.

    Looking back to the aviation industry in the worldwide it was so strange to make EmiratesAirlines to keep in operation and continue of buying new fleet and developing the companyinfrastructure.

    After all when I analyzed the SWOT analysis and looked at the challenge of the company of

    being very active with Cargo and shipment services and passenger cater through developingtheir technology and advertise their 40 brands and looking to the needs of the customers. It wasvery obvious of the strengthen of the company is much stronger then the weakness of keep ingoing to hire new employees and buying new plans even during Dubai crisis. ComperingEmirates with Lufthansa Group the largest airlines in terms of passenger and second largestairline of fleet aircraft. I could say Emirates is the most innovative and the fastest airlinesgrowing in the world since they are 25 years old and Lufthansa 86 years old.

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    $!

    Glossary

    AED (Arab Emirates Dirham):United Arab Currency.

    ASKM (Available Seat Kilometer):Passenger seat capacity measured in seats available

    multiplied by the distance flown.

    ATKM (Available Tone Kilometer):Overall capacity measured in tones available for carriageof passengers and cargo load multiplied by the distance flown.

    Codeshare Agreement: sometimes simply codeshare is an aviation businessarrangement where two airlines share the same flight. A seat can be purchased on oneairline but is actually operated by a cooperating airline under a different flight number orcode. The term "code" refers to the identifier used in flight schedule, generally the 2-character IATA (International Air Transport Association) airline designator code andflight number.

    Currency Swap:A swap that involves the exchange of principal and interest in one currencyfor the same in another currency. It is considered to be a foreign exchange transaction and is notrequired by law to be shown on a company's balance sheet.

    EBITDAR:Operating profit before depreciation, amortization and aircraft operating leaserentals.

    EBITDAR Margin: EBITDAR expressed as a percentage of the sum of revenue and otheroperating income.

    FTKM:Cargo tonnage uplifted multiplied by the distance carried.Hub:In air traffic a hub refers to an airlines transfer airport, a central connecting point for

    different routes. Passengers and goods are transported from the original starting point to the

    airports hub. From there they are carriedto their destination by a second flight alongside

    passengers and goods from other departure points.

    IATA: International Air Transport Association the international trade association for the

    airline industry.

    MRO:Short for maintenance, repair and overhaul of aircraft.

    Passenger-kilometer/tone-kilometer: Standard output units for air transport. A revenue

    passenger-kilometer (RPK) denotes one fare-paying passenger transported one kilometer. A

    revenue tone-kilometer (RTK) denotes one tone of load (passengers and/or cargo) transported

    one kilometer.

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    $#

    EBIT:Financial indicator denoting earnings before interest and taxes.

    EBITDA: Financial indicator denoting earnings before interest, taxes, depreciation and

    amortization. Depreciation relates to items of property, plant and equipment and amortization to

    intangible assets both terms apply equally to non-current and current assets. The figure also

    includes impairment losses on equity investments accounted for under the equity method and onassets held for sale.

    Operating result:Measure of profitability denoting the operating result calculated as the result

    of operating activities, adjusted for book gains and losses, write-backs of provisions, exchange

    rate gains and losses on the measurement of non-current borrowing as of the reporting date and

    income and expenses relating to other periods,

    Traffic revenue: Revenue generated solely from flight operations. It comprises revenue from

    transporting passengers and cargo as well as related ancillary services.

    Group of consolidated companies: Group of subsidiaries included in a companys

    consolidated financial statements.

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    $$

    Bibliography

    Al Maktoum. M, Emirates Group www.theemiratesgroup.com.

    Benham, J. "Dubai moves ownership of Emirates, Dnata to ICD Transportation".www.arabianbusiness.com.

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