Chateau Margaux for Seat 2A: Emirates rewrites rules for airlines

In a world buzzing with budget carriers, Emirates Airline is flying in the opposite direction.

In a world buzzing with budget carriers, Emirates Airline is flying in the opposite direction.

Other full-service airlines have tried in recent years to match the prices and passenger growth of discount carriers, which now fly almost everywhere. Emirates is adopting a very different strategy.

It has revved up the glitz by pouring billions of dollars into its fleet of planes, in-flight entertainment, wine lists and in order to hold on to a relatively small but fiercely loyal group of the world’s biggest-spending travellers.

In November, Emirates rolled out private suites on its newest Boeing 777 jets — three of the 40-square-foot (3.7sq m) single-seat cabins fit across the width of the airliner. It has upgraded its fleet of chauffeured cars that whisk up-market flyers to and from the airport, replacing Volvos with BMWs equipped with Wi-Fi hot spots.

A crew member at a refreshments bar in the first class cabin of an Airbus A380. Picture: Bloomberg

It spent $US6.7 million ($9m) building a lavish lounge at Boston’s Logan airport, part of a global makeover that included upgrades for lounges in Singapore and Bangkok.

Last year, Emirates spent $US56m on its collection of fine French wines alone. It has splashed out $US780m on the stuff since 2006 and owns its own wine cellars in France. On a recent flight, cabin crew poured a $US566 bottle of 1998 Chateau Margaux for its first-class passengers.

On some routes, the airline regularly offers the exclusive Hennessy Paradis Imperial cognac, which retails for more than $US1000 a bottle. Emirates surprised its first- and business-class passengers on a Dubai-Paris flight in April with an on-board wine-tasting master class led by a top vintner. “I want it to feel like you are walking into a Ritz-Carlton,” says long-time president Tim Clark, who helped start the Dubai-owned carrier more than 30 years ago.

Tim Clark, president of Emirates Airline, in a first-class suite. Picture: Zuma Press

The airline is betting that the high profit margins of its luxury tickets will allow it to avoid chasing masses of travellers riding in discounted economy class .

The idea threatens to overturn one of the tenets of how to thrive as a large network carrier.

For most of the rest of the industry, the strategy has, until recently, seemed too expensive and too risky. Carriers have always pushed higher-margin first-class and business . Analysts say those can make up about half of a big airline’s revenue and most of its profit.

Emirates’ focus on its top-paying customers — who aren’t as inclined to make purchases based on price — insulates it somewhat from the industry’s boom-and-bust cycle. It has a higher proportion of business and first-class than its peers, and it puts less emphasis on filling every seat in the plane. Emirates’ load factor, a measure of sold per plane, is roughly 78 per cent, compared with the industry average of more than 80 per cent.

A bathroom with shower in the business class area of an Airbus A380. Picture: Bloomberg

Between 2010 and 2015, Emirates’ profit margin averaged 5.5 per cent, more than double the 2.3 per cent average margin for the industry as a whole, according to data from the International Air Transport Association.

In some ways the superluxe strategy has been around since the start of long-haul commercial aviation — for years, a mode of transportation only the rich could afford.

In the 1940s, Pan Am’s fleet of long-range Flying Clippers offered filet mignon on white tablecloths. A few decades later, the Concorde came to embody the new, global jet set. A handful of Asian carriers, like Cathay Pacific and Singapore Airlines, marketed themselves as more exclusive, pricier, options for long-haul travel.

Low oil prices in recent years frightened off some of Emirates’ most lucrative travellers — international oil and gas executives and big spenders in the Middle East.

In the darkest days of the oil-price rout, when profits and margins sank, Clark cut costs — but only behind the scenes, and in the back of the plane, where economy passengers sit, not in the premium cabin.

An in-flight meal on display, as screens show entertainment options in the business class. Picture: Bloomberg

Emirates also experimented with tactics some other airlines had adopted from budget carriers. It started selling discounted fares in its economy cabin, charging extra for a seat assignment or checked luggage.

But Emirates refused to skimp on business and first-class customers. “The amount of money you would save by going from Champagne to orange juice in business class is infinitesimally small,” Clark says. “The effect on the brand is devastating.”

Two years ago, Clark hired Christoph Mueller, who previously helped turn around two troubled airlines, Ireland’s Aer Lingus and Malaysia Airlines, to push Emirates’ luxury offerings beyond just comfortable seats and expensive wine lists.

WEB WSJ Emirates profit engine

Mueller has a goal to turn Emirates into a high-end lifestyle company for the world’s wealthiest passengers.

He aims to make Emirates’ high-end passengers’ journeys as seamless as possible — from pick-up at home to drop-off at the hotel. Passengers drinking a certain white wine in an Emirates lounge should be welcomed with a glass of the same once on board, Mueller says.

Emirates plans to reconfigure its on-board kitchens to offer by year-end meal service to business-class passengers on demand, rather than at set times. Mueller wants to personalise menus, so you don’t have to eat the same thing everyone else is having.