WEF 2020: In Conversation With Emirates' COO Adel Ahmad Al Redha & CCO Adnan Kazim

Hi, you're watching Bloomberg Quint, and we come to you from the World Economic Forum's annual meeting here in Davos. I have with me Adel Al Redha, the CEO of Emirates, and we're going to talk about the aviation industry, the operating environment, and growth opportunities in this year and the years to come of this new decade. So thank you very much for speaking with us. Let me start by asking you what you make of the aviation market right now, given that there is some concern about global growth. Do you expect that 2020 will be slightly muted growth because of trade tensions, slower growth, and those issues, or do you expect to continue to do as well?

Okay. One of the other challenges I think your airline and maybe some other airlines have been facing is to do with delivery of aircraft, specifically with Airbus, and fleet management and therefore the ability to grow the fleet. Can you talk us through what the last year has been like and how your plans for the decade are unfolding?

And what would these new markets be, including maybe some of the existing markets that you serve, like India, where you might be looking to ramp up growth?

Okay. I do want to ask you about the India opportunity. I know that you have a very large service to India, but you've also been keen to be able to grow it. What are the prospects looking like?

I'm going to ask you a strategic question about India, and I think you were anticipating that question. Are you looking at maybe participating in the divestment of Air India to be able to get a stronger foothold in the local domestic market? Does that fit in with your broader strategic growth plans?

It's interesting — one of your competitors, Etihad, had a difficult experience with Jet Airways in India. And Qatar has been publicly talking about wanting to invest in IndiGo Airlines, if IndiGo was at all interested. And the other airline that's available for sale, as the government has expressly mentioned, is Air India, which is why I thought: is there any opportunity for a player like yours who wants to increase the India presence beyond just the seat-sharing limitations to be able to participate in a local carrier, so to speak — and not just a local carrier, an international carrier like India as well?

So you didn't say yes or no to Air India?

Okay. But depending on what opportunities open up, you will be looking at India actively. But as far as this specific acquisition, it is a no.

Thank you very much. And joining me now is Adnan Kazim, the Chief Commercial Officer of Emirates, to talk us through what the revenue opportunities for aviation will be in this new decade and the new growth markets as well. Thank you very much for your time. Let me start by asking you how difficult you think the operating environment currently is for aviation, including for your airline, and where do you see both the revenue and growth opportunities in this new decade?

I think the industry is going through a growth pattern of 3.5%, which was declared by IATA. And there is profitability — I think the profit has been announced at 20.9 billion for 2019. Next year is forecast to be 25.5 billion dollars in profit. So it shows that this industry is going through a growth, even though there are some hiccups here and there in terms of geopolitical uncertainty, currency, and a lot of this kind of uncertainty that may be slowing things down. But overall, I think we're seeing the industry going through a pattern of more optimism in terms of growth. And airlines are growing. As far as Emirates is concerned, we are riding the same sort of boat. We are quite optimistic about the future — that's why we went through a major order of aircraft that we have in place today, which we see the coming ten years will be modeled around this growth pattern, and we need more capacity.

Okay. We're at the beginning of a new decade. What do you expect will be the major trends in aviation? I know one of the things being discussed here in Davos is how to make all transportation industries more climate-friendly. That might be one way of looking at it, but what are some of the other commercial trends that you think will unfold in this decade?

I mean, there is a pattern which is coming, mainly driven by the European industry, in terms of how to make the industry more climate-friendly — imposing some sort of carbon taxes. I think these are common things that are happening. We'll see if that will come in and impact the pattern. But as far as the industry is concerned, these are part of the ongoing challenges, whether it's to do with diseases — I think what we're seeing from the China side right now — and what's happening with carbon taxes and climate-related issues, which is also expected. But overall, I think the industry will continue because aviation and airlines are the core for people's transportation from one point to another. People will still use aviation as a key form of transportation in the future.

Do you see consolidation playing out in this decade?

It's happening. We're seeing consolidation in many markets. Whether the consolidation is good — sometimes it's good to bring capacity alignment to the level that it requires. Sometimes too much capacity in the market creates uncertainty in terms of yield and in terms of how many seats can be offered in many markets. So consolidation brings that alignment. I think consolidation is something really good for the industry, and we're seeing it happen quite often in Europe — many of these airlines buying each other. It's not happening as much in our part of the world, which is more the subcontinent and Middle East, but that's something that may happen in the future and more often.

Okay. Let me ask you a few questions about India. I know you do about 172 flights to India and you're obviously interested in increasing that if the bilateral agreements permit you to. What would be the ideal capacity you'd like to build with India, and what kind of growth market do you see India being, given that internally right now passenger numbers growth has been very muted — the worst numbers in the last six years, in fact, for December?

I mean, we always believe that India can offer more due to the size of the population, and the government of India is putting a lot of emphasis on opening India to tourists. There is an objective to bring in more tourists from the world to India. There is heavy investment coming from the Indian government in opening new airports — more than 100 airports will be opened until 2024. With all this investment happening from the government side, and even from the relationship side between UAE and India — it's more from a bilateral sort of basic relationship to a strategic level. We have over three million Indians living in Dubai. We have over 12,000 employees of Indian origin working with Emirates Airline. Definitely there is a huge opportunity that Emirates could add, way beyond the nine points that we serve. One of the things India definitely needs to look at is how to open up opportunities to the regional airports, which would allow more people to have a seamless pattern of traveling. With our network of 157 points, at least 85 to 90 percent of this network has not been covered by Indian carriers. So there is a huge opportunity Emirates can bring in terms of additional tourists to India.

I mean, mobilizing the passengers — because there is a bottleneck. No matter what you do today, you cannot cover everything through Bombay and Delhi. There is a bottleneck from the core airports, and that's one thing India needs to look at in terms of how to open up the regional airports and enhance the current capacity. Today we're sitting at a restricted bilateral.

This restriction, unfortunately — I mean, even the Indian carriers today, we both are operating at almost 95 or 99 percent, in fact, around the year. When you have an airline industry at 80 percent, there is a spill happening on the traffic. So I think there is for sure a major opportunity for both sides — from the Dubai carrier side and from the Indian carriers — to benefit more from that opening in the bilateral. And knowing what's happening around the political angle between the two countries, there is room for much improvement. I would say if we double the capacity, it will not be enough. That's the kind of bilateral that needs to be relieved. Today, honestly, India is one of these countries that is part of the street where the UAE stands today, and there should not be any restriction on the capacity like what India is holding today with other countries in the world. That kind of inhibition should be looked at at one time to open up and go for a free flow between the two countries.

It's a doubling of capacity and more access to regional airports, because Bombay and Delhi can take only so much load. But doubling of capacity will not help if you're only restricted to Delhi. Would you like to do the India growth story on your own, or would you be interested in a partner? This is the question I put to your colleague as well — you said a partnership opportunity that you might consider exploring in India.

Sure. As far as Emirates is concerned, we always like to work with our colleagues in the industry. It's not something we do alone. Today — just six or eight months ago, I was in India — we signed an agreement with SpiceJet, a code-share cooperation with Emirates and SpiceJet, that will give them access to the Emirates network and give us access to their network. That cooperation will go across — the frequent flyer program, the cargo, and so many other elements of cooperation that we are trying to align. We also have an interline agreement with IndiGo, which we're working with them on network cooperation. So if we do this kind of access, the benefit will come back to the Indian carriers we deal with today, like IndiGo and SpiceJet.

Would you consider taking that beyond into an equity partnership of some sort? So let me rephrase this question: your competitor Etihad had an equity interest in Jet Airways, which has not turned out very well for them. At this point in time, Qatar Airways has been speaking of wanting to buy a stake in IndiGo, which is India's largest airline with more than 40 percent market share. And then there is also Air India, which is on the block right now and the government is committed to wanting to sell that airline, which is not just a domestic service but an international service as well. So what model works for you? Are you looking for a new player like IndiGo or Air India?

We have a unique model. I think since day one of establishing this company, it was about growing through organic growth and through the partnerships that we build. Today we have around 22 code-share partnerships with solid partners, because we have 130 interline agreements with many airlines. And that strategy will remain and continue. So as far as equity goes, I don't think — without going through insolvency proceedings right now, there are two buyers interested, but none of them are airline companies. I mean, for us, we're too busy with what we are doing within the UAE. We are busy lining up the 200 aircraft that are coming into Emirates, trying to deploy them and map many of these corporations along with the growth of Emirates. It's all about time and putting the effort from the management into different entities. Sometimes we don't have that spare capacity. So there's no equity focus — we're focusing on what we have and trying to strengthen our hub and home. But that doesn't mean we should be doing it alone. We will be working with many sorts of partners in the world. As I mentioned earlier, we're working with SpiceJet, we're working with IndiGo — we add value and they add value to each other without being involved in the shareholding, the management, and those things, because that consumes time and a lot of effort. I think today we're more focused on what we do and we try to do it right.

It's not just a broad strategy, or is it because you've seen Etihad's experience in India, you've seen other previous experiences in India, and you feel that it's better to stay away from equity partnerships?

Well, sometimes from our angle, at the time you enter these kind of equities, you tend to go away from your home comfort zone in terms of the policies and so many other things that today you have control over. Once you go overseas, you don't have that sort of control. And I think we'd rather work on something that we know, something that we have control over, and something where we can build the strategy the way we want it and mold it. If you got full ownership over India, different structures and a different sort of environment that you need to work with. So I think we've taken a approach from day one that we work around where we are good at, where we can do it, and where we can manage it in an environment where you have full awareness and can drive the business. I think this works.

Mr. Kazim, thank you so much for talking us through what it will look like for Emirates and your interest in India. Thank you very much.

Thank you. Thank you very much.