Facing challenges before the outbreak, Emirates' golden years are gone

Emirates is grounded, and global aviation with it. Much as Pan Am was an emblem of the first wave of global aviation, Emirates has dominated the world airline industry for a generation. The suspension of all passenger flights marks the death knell of that era.

The Dubai-based carrier is the largest airline by international passenger traffic, with the capacity to move its customers 391 billion seat-kilometers last year. In terms of cross-border traffic, that’s twice the capacity of any U.S. airline and about a seventh more than the three European carriers that are its closest international competitors in terms of scale.

The shutdown of that vast network is a hammer-blow not just for the industry but for people around the world.

There’s a reason so many airlines are (like Emirates) state-owned, or have special rights and duties to their home countries written into their constitutions. They aren’t just a leisure service: they’re a piece of vital national and international infrastructure that can provide an airlift service in an emergency. But businesses that thrive on bustling cross-border traffic are inevitably going to struggle in current conditions.

Emirates' mighty fleet of Airbus A380s is a point of pride for the airline.

Cathay Pacific – another carrier that, like Emirates, has no domestic aviation market – is cutting 96% of capacity in April and May, which is as close as you can get to shutting down, while Qantas is ending international flights altogether.

We’ve seen something like this before. Pan Am went bankrupt amid the collapse in air travel that accompanied the 1991 Gulf War; its competitor Trans World Airlines entered the first of many Chapter 11 processes around the same time.

Another wave of bankruptcies and rescue takeovers followed after the September 11 attacks, and again after the 2008 financial crisis. More than a decade on from that, we’re probably overdue for another shakeout.

Emirates' latest fully-private Boeing 777 first class suite.

That certainly looks like what we’re going to get. “Most airlines in the world” will be bankrupt by the end of May at current rates of cash burn, according to consultants CAPA Centre for Aviation. The industry needs about US$200 billion in bailout money if it’s to survive, according to the International Air Transport Association, the largest group representing airlines.

Emirates has some serious weaknesses as it approaches this perfect storm. Dubai’s status as the preeminent hub in the global network of transfer passengers, and its fleet of capacious twin-aisle jets, are as much a product of the recent era of promiscuous globalization as Pan Am’s fleet of gas-guzzling early-model Boeing 747s were a product of the era before the 1973 oil crisis.

On an immediate level, that means it lacks even the meager domestic aviation cashflows that rivals in the U.S., China and elsewhere can fall back on.

Emirates' vast fleet of Airbus A380s is "a symbol of promiscuous globalization".

In the longer term, there’s the risk that Covid-19 and the Trump-driven trade wars that preceded it raise drawbridges across the world, leaving behind a dark mentality of xenophobia as gates are closed to outsiders. In that grim future, Emirates’ Benetton catalog-tinged vision of a multicultural world shaking hands at Dubai airport looks as outdated as, well, shaking hands.

Even if things return to a semblance of normalcy at some point, Emirates’ golden years are behind it – a fact that neatly coincides with the upcoming retirement of Tim Clark, who led the airline since its inception.

Rivals with bigger domestic markets have already been looking to use longer-haul Airbus A350s and Boeing 787s to skip past hub airports like Dubai altogether. The A320neo and the 737 MAX, should it recover from its current woes, will also bite off pieces of medium-haul traffic with budget carrier-style prices, undermining key routes into Europe and South Asia.

Emirates President Tim Clark will shortly retire from the airline he helped build into a powerhouse.

Emirates still has some advantages in facing the coming conflagration. Unlike Etihad and Qatar Airways, it has never reported a loss in financial reports dating back to 1989. That’s a fairly extraordinary result for an airline that’s been around for so long – although there’s still a week still to go on its current financial year.

Most importantly, though, the only shareholders it answers to are Dubai’s ruling Al Maktoum family.

For decades, they’ve regarded the carrier as a crucial element of their oil-poor emirate’s strategy for a long-term economic future. With crude prices currently south of US$30 and Gulf monarchies edging alarmingly close to burning through their own petrocash piles, that bet looks as sound as it’s ever been.

If aviation is about to be crippled by a virus-driven resurgence of nationalism, it’s the carriers most closely bound up with their governments that stand the best chance of survival.