MIAMI – Over the weekend, news broke that Dubai-based full-service carrier, Emirates, and low-cost carrier, Flydubai, are likely to merge within 18 months. In a story first reported by Aviation Voice, Sir Tim Clark, the President of Emirates, suggested that a deal is imminent if not finalized.
We are minded to accelerate a greater joining of the hip, of what we do, there’s a lot of work going on there to extract value for the shareholder. We could do things better together than apart.
Both Emirates and Flydubai are based at the fast-growing and increasingly crowded Dubai International Airport, the world’s third busiest airport (83.7 million passengers in 2016). More importantly, both carriers are owned either directly or indirectly by the government of the Emirate of Dubai, making the merger process easier to facilitate.
The similarities end there, however, as Flydubai is an ultra low-cost carrier flying a narrowbody fleet of Boeing 737-800 aircraft, while Emirates is a full-service carrier with a higher premium service offering that exclusively flies Boeing 777 and Airbus A380 widebodies.
Flydubai did recently add a Business Class product, akin to that of domestic First Class on American full-service carriers.
Flydubai fills a hole in the Emirates network
But even with the slightly different business models, Flydubai would serve an important strategic role for Emirates – flying to smaller regional destinations. Right now flydubai serves 95 destinations across the Middle East, Africa, Asia and Europe while Emirates serves 140 destinations.
This may seem like a lot, but for the fourth largest airline in the world by revenue passenger kilometers (RPKs), this is actually a very small route network.
As a point of comparison, Turkish Airlines is less than half the size of Emirates by RPKs yet serves more than twice as many destinations around the world (296 to be exact). This is where Emirates has felt the lack of a narrowbody or even regional widebody aircraft in its fleet.
Since retiring the Airbus A330-200 between 2011 and 2016, Emirates simply lacks a functional aircraft with which to serve destinations like Yerevan, Chittagong, and Faisalabad.
These are critical regional destinations in Emirates’ backyard, and Dubai is the most important hub in all of South Asia, the Middle East, and Central Asia. Yet instead of Emirates, these markets are dominated by Turkish Airlines, who has a narrowbody fleet.
Emirates absolutely needs a smaller widebody or even narrowbody aircraft in its fleet plan, and to his credit, Tim Clark has talked about the need for both at various times over the past 18 months.
Emirates is apparently still mulling the notion of ordering regional widebody jets after canceling its A350 orders. The competition apparently has come down to the 787-10 and Airbus A350.
Emirates should adopt a Cathay Dragon/SilkAir strategy
The model for Emirates with Flydubai should be based on what Cathay Pacific and Singapore Airlines have done in East Asia. Both Cathay and Singapore, via Cathay Dragon and SilkAir respectively, have set up sub-brands to serve regional destinations that do not require the premium offering or seat capacity of the primary airline.
This allows both carriers to add precious feed at their central hubs while avoiding any brand dilution from a subpar product on regional routes.
With that in mind, Flydubai already has enough 737 MAX 8 jets on order (75) to fund future growth. Adding another 25-30 737 MAX 10s to the mix could be useful on higher density routes in the region.
To that, Emirates should then add 80-100 787-9s and 787-10s to fly on regional missions, perhaps adding 40-60 787-9s to the main airline as well. The 787-9s is an excellent regional plane and a great long and thin route replacement for the 777-200LR for routes where the 777-8X is going to be at too much capacity.
But even if Emirates just orders the 787 for Flydubai, it is still the better option as the 787-10 has the lowest seat-mile cost of any medium-haul widebody and the 787-9 has a ton of flexibility for route offerings (it could even double to serve long and thin non-premium routes).
The 787s could be configured with a regional business class with angled lie-flat seats (2-2-2 configuration), and the 737 MAX 8s could keep the same recliner seats that they currently have.
Logistics of the hub at Dubai International will be important
Right now Flydubai operates from Terminal 2 at Dubai International, which makes connections to and from Emirates at Terminal 3 difficult to execute (Terminal 2 is not co-located with Terminals 1 and 3).
Within Dubai International, perhaps Flydubai could move its operations to Terminal 1, while the airport could move other carriers from Terminal 1 out to Terminal 2. This also indicates why a simply expanded codeshare with Flydubai isn’t going to be enough – the two carriers need to have a much more integrated setup.
For example, they need to integrate frequent flyer programs as well, as Flydubai’s network is perfect for racking up frequency.
The merger also brings into question the future of Dubai’s Al Maktoum International Airport (Dubai World Central Airport). Emirates had been planning to move to DWC in the mid-2020s, but with the merger, that timeline moves back to 2026-2030 according to Tim Clark.
Dubai International is quickly running out of space, however, and it’s unclear whether Emirates can force other airlines to move to DWC without suffering reprisals in those countries.