MIAMI — As Emirates Vice President Sales for the USA, Matthias oversees the commercial activities of Emirates in the USA, one of Emirates strategic growth markets.
Before moving into this role in September 2012, Matthias was Vice President Network Passenger Sales Development based at Emirates Headquarters in Dubai, where he was responsible for Global Commercial Strategies and Commercial Systems.
Matthias airline career spans over more than 20 years as he has held numerous managerial and executive positions for different airlines such as Swissair, KLM Royal Dutch Airlines and Emirates Airline.
A Swiss National, born and raised in Zurich, Switzerland, Mr. Schmid holds a Masters Degree in Business Administration and an MBA from Vienna University of Economics and Business Administration. He has worked and lived in 6 different counties on 3 continents and currently resides with his wife in New York.
Airways: Why there was a delay in initiating service to what was billed the world’s longest route – Panama City, Panama?
Matthias Schmid: One of the reasons was the delay related to the code-share agreement with Copa.
When we look at Emirates route map, it appears that the gateway to Latin America is being focused on Panama City rather than Miami. What is the possibility of Miami or even Ft. Lauderdale where your code sharing partner JetBlue is the top carrier to be added to the system?
I think there’s always a possibility. The U.S. is really one of our if not our key to substantial growth. We’ve seen massive growth here over the last eleven or twelve years. We started in 2004 with one daily flight into JFK. Today, we have 105 flights every week between the U.S. and Dubai, one of which is via Milan from JFK. I think there is no secret we will further grow here in terms of additional destinations and additional frequency on existing routes and of course everybody wants to know what’s the next destination here in the in the U.S. I think our answer is always pretty much the same and most probably yeah you have you made a good guess.
So Ft. Lauderdale could indeed be a possibility?
I think we are pretty much known for choosing non-traditional gateways. I mean, If you look at Seattle for example and probably the biggest surprise for a lot of people was actually Orlando, which was clearly also a non-traditional, and maybe not one of the top 15 gateways people had in mind. So, we are looking at all different options and I think I wouldn’t rule out Miami nor would I rule out Ft. Lauderdale.
With Delta pulling out of Dubai, and your Gulf Rival Qatar launching into Atlanta next June 1. Is Atlanta on the slate as well?
There are lots of possibilities, but nothing is announced.
Would it be fair there’s potentially a significant amount of markets that Emirates could grow into here in this country?
That is absolutely correct. We believe that there are a number of additional gateways in the U.S that we can and will serve over the coming years.
Now, turning to your rivals of the so called “Gulf 3” With three world-class, ultra-competing carriers hubbed within a few hundred miles of each other, What is Emirate’s advantages in this tremendously competitive region? Obviously, you had a substantial headstart and Dubai is truly a tourist, business and trade destination.
First of all and we really don’t compare ourselves with our competitors. We don’t necessarily really look at them because we have a growth plan in mind and that’s really our key focus. Our business model is based on organic growth
Dubai is as you already mentioned. We have some history because we are now in our 31styear of operation, so we are no longer that “new kid on the block.” Dubai is definitely an interesting destination and a very strong global trading hub. Dubai Airport offers the infrastructure that we need for future to sustain our future growth. The new terminal D, was just opened, and with that terminal opening, the current Dubai international Airport (DXB) is approaching the maximum potential capacity around 2020, which is at 90,000,000 passengers a year, so there is still some growth possible. Then at the same time, Dubai World Central is just going through the next expansion phase and that’s going to be the airport of the future with eventually a maximum capacity of 200,000,000 passengers a year.
When do you plan to begin shifting passenger operations to Dubai World beyond cargo?
Our dedicated fleet of 15 cargo aircraft currently operates at DWC. There are some other carriers that actually started passenger operations there as well. In terms of Emirates, there are no real firm plans of what’s going to happen in the future after 2020 when Dubai International will reach its maximum capacity.
Emirates’ LCC, FlyDubai is operating there now.
Correct. FlyDubai has currently split operations between DXB and DWC. Qatar, for example, started to fly out of Dubai World Central as well with a split operation.
What is the your mix between local O&D and connecting traffic at Dubai. I would think O&D would be higher in Dubai than Abu Dhabi or Doha.
Dubai is a destination in its own right but our business model is still very much focused on transfer passengers beyond Dubai. It’s around 1/3rd is local and 2/3 is transfer business.
This transfer-driven traffic flow business model, with a relatively small home market, was practically invented by KLM and Singapore and now Emirates has taken the mantle. Now Etihad and Qatar are true players, and Turkish is pursuing a similar strategy, even though they do have a large home market. In response, some of the legacies like IAG and Lufthansa are redoubling their efforts to this end.
With such a crowded field, how will Emirates retain its edge?
I think we were the first Middle Eastern carrier that actually made use of the perfect geographical location of Dubai really at the crossroads of the new silk route connecting east to west connecting north to south. If you look at the development of global traffic streams, the growth is happening in that area of the world. We are ideally positioned.
One of the best examples that we always use is we were the perfect connection between China and Africa for example, if you look at in terms of global. This is a stream that has huge huge potential and we are right there in the middle. I think you could also compare the Middle East a little bit to Europe a lot of people say ‘well yeah you have the three Middle Eastern Carriers you have Turkish. Is there enough volume?’
If you look at Europe, let’s say you have a hub of Amsterdam. You have Paris, you have Frankfurt, I mean you have European hubs that are very, very close together geographically. There is no big difference between the concentrations of European hubs versus the concentration of the hubs in the Middle East.
Let’s turn to consolidation for a moment. Do you see a potential for that in the Gulf region, much like it has transpired in Europe and Latin America.
I cannot speak for the other Middle Eastern airlines, and I think all of us have a little bit different business models, but ours is clearly based on organic growth. Yes, we have some commercial corporations with Qantas for example, but really only to the extent where it makes commercial sense and where the two products and network complement each other.
Your Gulf rivals like Qatar invests in rather successful profitable concerns like IAG. Etihad invests in turnaround targets like Air Serbia, Alitalia, and Air Berlin. Is Emirates different in really being more focused on strategic partnerships than outright acquisition or investments?
Are there any other opportunities similar to your mutually beneficial relationship with Qantas that could be replicated as strategic alliances or even joint ventures?
If we see tactical or strategic opportunities to work with partners we would definitely do that. Here in the U.S. we work with Alaska out of Seattle. We work with JetBlue in very important feed markets in Boston and JFK. I think our newest one is with Malaysian.
They actually stopped pretty much discontinued most of their European flights and again they partnered with us now via Dubai in order to cover the Asia to Europe flow. This is kind of a similar arrangement we have with Qantas.
Let’s talk about Emirates relationship, some would say love affair with the Airbus A380. No other airline comes close in terms of operating an A380 fleet the size of yours, nor being such a proponent of the aircraft as a cornerstone of its worldwide business model. Virtually everyone else views the A380 as a niche aircraft.
Well I think right now every third A380 that is actually in the air is an Emirates airplane, so we have the largest operating A380 fleet. We just took delivery of our 75th A380. We ordered 140, so 65 A380s are still going to join our fleet. It’s definitely a big success for us. If you look at the U.S we’re already operating them to five gateways. All of our New York JFK and London Heathrow flights are operated exclusively by the A380.
Our customers still really like these aircraft and I think it allowed us to again elevate not only the experience in the air but also on the ground. In the air, we revolutionized the premium class experience with the onboard bar for our business class and our first class passengers, with our shower two shower spas for our first class passengers.
The aircraft is really appreciated by our economy class passengers because the cabin is very wide so you really don’t have that feeling your seating in a metal tube. On the ground, we operate the world’s only purposely built A380 terminal in Dubai. Our full concourse that is fully dedicated to our A380 fleet where you have double decker bridges to improve the boarding experience for the passenger. Our premium class passengers board directly from the lounge.
What do view as the prognosis for the A380, the A380neo, and even a stretch A380-900? Tim Clark is clearly pushing for the neo. Comments have been made that Emirates will park early generations A380s in the desert.
We are always pushing different manufactures in order to improve the performance and the reach of our aircraft. We are still in discussions with Airbus because we definitely have an interest in further growing that fleet and then eventually replace existing aircraft with better performing ones.
Why is the A380 so central Emirates strategy when other airlines look at it as a niche aircraft, are cancelling and reducing their orders, or selling existing ones in their fleet?
It’s a good question. We just believe in the product and we believe that we connect destinations where there is enough demand to fill these A380s
We have a fleet that consist right now of two different aircraft types. The 777 fleet of which we’re also the largest operator worldwide of and then the A380 fleet There are markets like London Heathrow and New York JFK where we have to operate with the A380 because these markets are highly slot-constrained and if you want to increase capacity you have to fly with largest aircraft and the A380 is just the ultimate aircraft in terms of capacity.
We fly four times a day with the A380 to JFK and of course we do extremely well in terms of loads in all cabins on these flights and JFK is a highly-slot constrained airport.
Expound about the markets & configurations for the new higher density A380s.
We recently introduced a 2-class version of the A380 with even more seats so our standard configuration is 490 seats in economy class 76 in business and 14 private suites in first class and the higher density actually has no first class. It has only business class and economy class and there we have a capacity of around 600 people on these planes. There are routes where there is definitely demand for such big aircraft
Do you see 11-abreast as far as densification as actually being a reality one day on your A380s?
I’m not very much involved in product specification so I can’t really comment on that.
Moving on to the ME3 vs US3 controversy, it seems like things have quieted down on that front. Has there been any developments?
I can’t really speak on that. The only thing that I can say is that we reacted to the allegations and more than a year ago we presented a very, very detailed rebuttal and like everybody we are actually waiting to hear and to see what the outcome is going to be.
One route, JFK to Milan Malpensa initially was the catalyst for this imbroglio. Why was that route chosen and was it worth it?
First of all we have Fifth Freedom traffic rights between Malpensa and JFK. Whenever we look at a new route, we look at its economic potential, and if you look at the passenger volume and product between these two points, we saw it as under-served and a good business opportunity. I think we’ve proven right because we started that flight with the 777-300 in June 2015 we upgraded that route with an A380.
We do extremely well on that route and it became very popular not only amongst leisure travelers but especially among corporate travelers because we believe we offer the best premium class product on that route. We also offer a very attractive schedule because we’re actually the last departure out of JFK so were leaving around 10pm so you have a full day in New York.
We’re also the last ones leaving from Malpensa, so we have a late afternoon departure out of Malpensa, which still brings you in time for dinner in New York. So I think it’s the product on one hand but it’s also the schedule diversity that we offer.
Are there also other Fifth Freedom rights of the network that Emirates is pursuing?
We have some Fifth Freedom on the Trans-Tasman so we several flights between New Zealand and Australia. We have additional Fifth Freedom flights involving Colombo, Mali, Hong Kong, and Bangkok.
Are there other Fifth Freedom flights planned from the U.S.?
There are no immediate.
It’s been a challenging year economically in many parts of the world, and the Gulf is no exception. In the face of it, capacity ASKs and spending continues to grow while in many parts of the world revenue and PRASM is declining. Emirates results are softer than in more recent boom years.
I think there is no particular concern. I mean our home is in a very interesting geopolitical area.
I am not sure I believe that Dubai and Emirates aren’t negatively unaffected, but what is it that insulates Dubai from some of these challenges?
We are affected by all the economical factors like everybody else. Yes, the falling price of oil on one hand helps. But on the other hand, if we look at Houston for example is highly dominated by oil and gas of course. It is a problem so you gain on one side but then again you potentially lose on the other side because you have an entire industry that almost stopped traveling and oil and gas was actually very, very high yielding traffic.
Our big advantage that we have is the power of our global network so we have most probably one of the most global networks and we are not like some of the other carriers highly dependent on Trans-Atlantic only. But we really connect the world and I think we have a lot of opportunity to open new flows if we need.
I can give you an example during the global financial crisis: During this period we actually had significant capacity increase into Australia so we grew our Australia capacity significantly in 2008 just during or prior to the global financial crisis.
Most of the Australian traffic was actually Europe to Australia traffic because these were interesting and relatively high yields. Then we saw downturn on Europe to Australia flow so we looked at opportunities to or options to replace that business and we were actually successfully able to activate the flow of India to Australia so it’s a little bit of backtrack from India to Dubai and then to Australia.
There was a flow we didn’t necessarily focus on before because we were really able to generate significant volume on Europe to Australia but once that flow decreased a little bit, we were able to activate other flows to replace this business.
So the key is really to grow in all the areas so make sure that we don’t have an over representation east of Dubai right so if we grow east of Dubai we have to also grow west of Dubai and south of Dubai. In order to really have a network that we can switch on and switch off certain flows and optimize our income.
You’re always seeking some sort of equilibrium and diversification. Turning to the all-important Indian sub-Continent. This is a true growth and often high yield market hobbled by the lack of a true international world-class home flagship carrier. What happens when or if the day Air India or Jet Airways become truly capable of attracting high yield traffic and are strategically stronger operators than they are today? Plus, you have Qatar hyper-focused on the India market as well.
I don’t have the exact RPKs out of India but I we are definitely one of the largest, if the not the largest internationally carrier that serves India.
I think we look at all these developments and we embrace competition. Dubai is a place that really embraces competition because Dubai is completely unregulated. I think there are more than 100 carriers that actually offer services from Dubai. It’s actually one of the most competitive markets and we really believe yes competition is good and we have to be agile and always alert in order to react to these developments.
We try to actually stay at the forefront of all these development but I think we don’t have any particular concerns whether there would be an Indian carrier that is going to really grow. If you look at even at the India to U.S routes until very recently Indian carriers didn’t have the technology to fly 1long-haul non-stop. In these days, Indian carriers can and are easily fly nonstop to the US as the US carriers can easily fly to India non-stop, with aircraft that can fly 16-17 hours you are never really covered or immune to competition.
Right. Now, let’s touch on pax-ex a bit. At ITB this past March, you introduced a new business class hard product.
Just to clarify we presented the new business class seat for our 777 fleet because the A380 product is a little different, so that the new product for our 777s that we presented during ITB for the first time will be introduced with the new deliveries that will join our fleet as of Nov 2016 so it’s basically in 6-7 months.
This 2-3-2 configured product announcement definitely caught a lot of people off guard, particularly as it is not configured in what’s become the de facto 1-2-1 direct aisle access standard. What was the strategic thinking behind doing that?
We measure our passenger ratings very closely all the time and overall we still offer our 2-3-2 configuration as a very good product. It’s accepted by most by our passengers and then obviously also has like always an economic angle because you try to optimize the space in your cabin.
What’s next for Emirates’ passenger experience? Perhaps a true premium economy product or an upgraded pitch/legroom economy product? The Gulf carriers appear to be sticking to a traditional 2 or 3-class product.
Right now, we are sticking pretty much with a three-class configuration because we believe that our economy class product is a leading product in terms of seat pitch, in terms of inflight entertainment, in terms of our cuisine on board, so there is maybe not such a strong requirement to implement a premium class economy class product.
One interesting thing about premium class economy is also if you really target the corporate market, it’s not entirely clear how you can sell or how you can display this premium class economy-economy premium class product because very often we have a certain threshold where most of the corporate travel executives are actually looking at lowest logical fare per class. Then they have a certain threshold that you can exceed in order to still be within your corporate policy and what we hear from a lot of corporate is that very often premium class economy is out of this threshold.
And that is something worth noting. How do you really map this product in the distribution especially to cater for the corporate market?
Is there a concern that a 1-2-1 business class would almost dilute first? A concern that premium economy might dilute business class?
Might there be such opportunities on sub-fleets as you are doing with the new short/medium haul high-density A380s?
As far as I know right now there are no plans to do that. You also need to be careful is creating sub fleets because one of our key success factors is really having a very harmonized fleet, essentially two different aircraft types pretty much all in a very similar if not identical configurations which really gives the operational and planning sides the maximum flexibility. We believe that is really key. If you go into creation of sub fleets you lose some of this flexibility.
As we wrap this up, gaze into the crystal ball and give us your thoughts on the upcoming fiscal year.
The airline industry will grow, we know that right? I mean historically we know that the airline industry grows pretty much at the factor of 1.5% of global GDP growth with some ups and downs. I think overall we will see future growth and the industry will grow and we are very well positioned in playing a significant role in that growth.
A concern that we have because our base costs are in U.S. dollars is that we have a lot of revenue in Euros, Australian dollars, and South African Rands. The currency impact right now versus the U.S. dollar is huge. So that is one of the concerns definitely one of the concerns that we have, but I think we weathered the significant thunderstorms.
The good thing is that we have our stronghold in geographical areas where there is more growth so we may have accelerated growth if you look at all the BRIC (Brazil, Russia, India, China) countries for example as an international airline that offers the most frequency into BRICS countries.
You are buoyant on the BRIC countries. We don’t hear this often.
Let’s take China for example. Everybody talks about the downturn of China but I mean it’s still significant economic growth. We still see significant growth and as mentioned, China is still the largest direct investor into Africa and that is a flow that not too many can actually participate in and with our geographic location we are still a perfect connector. This is why by the way in May we are going to open two new destinations in central china so we still see quite some potential there.
It sounds like then you view that Emirates can find a silver lining in any cloud, and adjust to any reality? Perhaps be a bit clairvoyant?
We are known to place aircraft orders in an anti-cyclical fashion and so far I think we always achieve or over achieve what we actually plan for or envisioned. Therefore as a company, we are still very confident that we will further grow and that we will be successful in the coming years.
In conclusion, what has you totally excited for in the coming twelve months in the industry at large and particularly your company?
I mean not only the next year but in general, when we all talk about the airline industry, we talk a lot about the onboard product, we talk a lot about the ground product, seat pitch, seat recline, food, and all these things which is again key because that’s at the end of the day what the consumer enjoys right?
But one of the things that personally excites me and I think us as a company is some really revolutionary things which will most probably happen in the distribution and in our consumer interaction that we will see in the near future.
We invest because we have a very, very high focus on how we are going to interact with our consumers in the future: What kind of tools offer our consumers to book flights, to manage flights, to interact with us? We clearly want to become the leader not only in the airline space but in the whole travel space and we are actually looking at a more holistic approach how we can offer the best possible travel experience to our consumer.
So, I think there will be a lot of developments that we will see over the coming years in terms of how we interact with our consumer. How do we engage with our consumers 365 days a year and not only if they actually are at the airport of if they have to book a flight. Stay tuned…