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Dubai decides that less is more in aviation

It probably goes with the territory of having a federal political structure dominated by two big cities — Dubai and Abu Dhabi — but the UAE likes to double up, or even treble up, on things: Three government airlines, two financial centers, two big seaports, three stock exchanges, and so on.

But some have been critical of the efficiencies of having at least two of everything, especially when financial circumstances are complicated by the low oil price, and there has been a cautious move in recent years to avoid the waste of duplication.

A merger of the stock exchanges has been talked about for a long time, and will surely come one day; and the two big aluminum producers were merged into Emirates Global Aluminum, which is a real power in the global commodities world and will only become even more powerful once its shares are listed on stock markets, as is currently being considered.

It is in that vein of avoiding duplication that you should view the news that Emirates, the biggest airline in the Arabian Gulf, and Flydubai, the successful low-cost carrier also headquartered at Dubai International Airport (DXB), will join forces in a new partnership.

The two will introduce new codeshare arrangements, increased schedule alignment and network optimization that amounts to a major pooling of resources for the two carriers.

This is not a merger, it was stressed. The two will continue to be managed separately, and will (presumably) continue under their own distinctive brands.

But — short of scrapping Flydubai’s livery for that of its internationally recognized bigger brother — it is hard to see how the two could get any closer. They are already both owned by the Investment Corporation of Dubai (ICD).

It makes you wonder why the senior policymakers at ICD did not go the whole way to formally merge the two carriers, which would have produced further “synergies” along the lines that Sheikh Ahmed bin Saeed Al-Maktoum, chairman and chief executive of Emirates Group and chairman of Flydubai, mentioned when he hinted at the new setup earlier this year.

That would have also eliminated another level of costs in the form of management and employee overlap. Maybe there will be more restructuring further down the line.

Some have been critical about having at least two of everything in the UAE — especially when financial circumstances are complicated by the low oil price.

Frank Kane

But you have to say the link-up makes strategic industrial and financial sense. Both airlines have been affected by the weaker economic conditions in the region following the fall in oil prices, reporting big percentage downturns in profits last year and continuing tough markets in the current year.

Code-sharing makes sense for passengers and airlines. Flydubai’s concentration of routes in eastern Europe, Asia and Africa provides a perfect feeder for intercontinental passengers transiting through DXB.

If all goes well with the initiative, it could lead to an expansion of business for the combined entity. The airlines said yesterday that the partnership was aiming at a schedule of 240 destinations by 2020, served by a combined fleet of 380 aircraft. That compares with a current combined network of 216 destinations and 317 planes. Less is more in the current aviation industry.

How that combined fleet is utilized to optimum effect is a crucial question. It might make sense in certain circumstances for Emirates to use Flydubai’s smaller planes on routes where an A380 is uneconomic. 

There are issues still to be resolved: Will Flydubai passengers be prepared to pay the premium for Emirates travel? Will the upmarket Emirates brand be diluted through closer association with a no-frills airline? Above all, will the new set-up make Dubai better placed to tackle the rising competition from the new generation of low-cost long-haul airlines?

Could it also be the start of something bigger? Suddenly, those stories earlier this year of a link-up between Emirates and Etihad, the Dubai carrier’s Abu Dhabi rival, look slightly less wild.

With uncertainties like these, it seems as though the Emirates-Flydubai link-up is best viewed as “work in progress,” the beginnings of a new comprehensive airline strategy for the UAE and the Gulf region.