Direct Competitors - NYU Stern School of Business
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Transcript Direct Competitors - NYU Stern School of Business
Welcome Aboard
Emirates Airlines
Fareeda Gaffoor, Janita Kanjibhai, Jennifer Koenig, Devanshi Patel, Sara L. Yue
“When Paul Astin, a British executive of a big construction
company here on the Persian Gulf, travels by air, he no longer
drives to the airport. His favorite airlines, Emirates Airlines, sends
a car to pick him up, as it does with all its business and first-class
passengers in London, Paris, Hong Kong, and 12 other cities. In
business class he has a choice of 48 movie cassettes he can load
when he wants, and a couple of dozen music and talk programs.
Even in economy, passengers may choose from 17 movies and 18
video games available on personal screens. Mr. Astin dines on
meals set on pink linen and sips fine wines.”
New York Times - January 5, 2003
Agenda
غMiddle East Region Overview
غUnited Arab Emirates
Political
Social
Economic
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Airline Industry
Company Overview
Emirates Airline Valuation
Project – New York/ Dubai Route
Conclusions
Q&A
Middle East Overview
غCharacterized by countries whose economies are overdependent on oil
غDiffer on size, wealth, and political agendas
غUAE, Saudi Arabia and Qatar enjoy higher GDP per capita
compared to other countries (Iraq, Iran, Syria) due to more
political stability
United Arab Emirates
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British - Trucial States (150 yrs)
Perpetual Treaty of Maritime Truce (1850s)
Federation state formed on December 2, 1971
Seven Emirates: Abu Dhabi, Dubai, Ajman, Fujairah,
Sharjah, Ras Al-Khaimah, and Umm Al-Qaiwain
Political Structure
غFederal Supreme Court, Supreme Council, Cabinet of
Ministers, Parliamentary Body, Federal National Council and
an independent judiciary
غPresident: Sheikh Zayed bin Sultan Al Nuhayyan, ruler of Abu
Dhabi
غVice President & Prime Minister: Sheikh Maktoum bin Rashid
Al Maktoum, ruler of Dubai
غNo political parties
غRuling families
“It’s all in the family”
Social Structure
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Population: 3,480,000 people
Religion: Muslim (96%)
Spoken Language: Arabic
Labor force: 1.6 million people
78% in services, 15% in industry and 7% in agriculture
Economic Structure
غ2001 GDP: $67.6 bn or $21,000 bn per capita
غ70% of government revenue from oil production
غFree zones
غDirham pegged against dollar
غUneven oil distribution among 7 emirates
غMarkets
Dubai Financial Market (DFM)
Abu Dhabi Securities Market (ADSM)
= 3.67
US & UAE Relations
غEstablished formal diplomatic relations since 1974
غGoal: security assistance and the shared commitment to
security and stability of the Gulf region
غLink of petroleum
غGulf War
غSeptember 11th: UAE severed its ties to the Taliban
Current Situation
غUAE lends help to the US
Access to its airfields
غPresident Zayed attempt for peace in the Middle East
Urge Arab world to ask Hussein to step down
Telephone conversation between Zayed and Bush
غAltered attitude since US air strikes on Iraq
Airline Industry
غHistory
غConflicts:
Economy
Terrorism
War in Iraq
SARS
Costs
غLabor
غAircraft maintenance
غDebt servicing
غFuel
غAircraft delays
Industry Ratios
غLoad Factor :
passenger-kilometers expressed as a
percentage of seat-kilometers
غRevenue Passenger Kilometers :
the number of revenue passengers
carried on each flight stage by the
flight stage distance
غAvailable Seat Miles :
the number of passenger seats
available for sale on each flight stage
by the stage distance
Competitors
Company Overview
غLaunched in 1985 to boost tourism in Dubai
غCurrently services 60 destinations in 42 countries
غEmirates strives to be known as an international airline
based in the Middle East rather than just an Arabic airline
that flies abroad
Emirates: “the finest in the sky”
غReceived over 200 international
awards of excellence
غFirst Middle Eastern Airline to
win Passenger Service Award
غOne of the youngest fleet of
aircraft in the business- 3 years
“When the going gets tough Emirates gets
going”
غGulf War
Only airline to continue flying to Kuwait
Increased number of flights by picking up competitors’ slack
غStill profitable despite open skies policy at Dubai
International Airport
Post September 11th
غPosted an 11% increase in net profits in 2001
غIncreased flight service to Pakistan and Afghanistan
غAnnounced plan to purchase 58 new aircraft as part of
expansion strategy - Cost:$15 Billion
غ22 aircraft are Airbus 380-800 largest aircraft in productionto be used for Dubai-New York route
Current Emirates Situation
غCurrently increasing number of flights out of Dubai,
especially to Southeast Asia
غWar not really effecting business due to no direct flight
with the United States
غExpansion routes planned for New York, San Francisco,
Atlanta and Chicago
Ratio Analysis
Gross Profit Margin
Net Profit Margin
Return on Assets
Return on Equity
Current Ratio
Quick Ratio
Debt to Assets
Debt to Equity
Interest Coverage
8.77%
6.56%
3.97%
15.68%
1.88
1.75
0.75
2.95
22.28
Financial Status
غGovernment-owned but does not receive
subsidies
غDh1.5 billion bond issuance in June 2001
First Emirates Airlines bond issue
Largest dirham-denominated bond issue
First to be listed on Dubai Financial Market
غPrivate-equity
1.5 Billion
Dirhams!!
Relative Valuation
غComparable firm selection
Beta
Growth
Route structure
Size
غTEV and Equity multiple analysis
غEquity value of $4.01 billion using EBITDA multiple
Calculating the WACC
غCost of Debt
UAE sovereign risk-free rate: 2.93%
Altman Z-Score Rating: BBB+
After-tax cost of debt: 4.28%
غCost of Equity
Built-up Beta: 0.87
S & P IFCG Market Return
Cost of equity: 7.79%
غWACC: 5.48%
Discounted Cash Flow Valuation
غCash flow estimation
Margin analysis
5-year projection
غEquity Value: $4.72 Billion
غRelative Valuation: $4.01 Billion
غEVA: $39.5 million
Route Expansion
غShould Emirates Airlines add a direct flight between New
York and Dubai to its route structure in 2004?
Project Valuation
غDetermining Discount Rate
Adjusted beta for added risk = 1.37
غEstimating Cash Flows
Malaysia Airlines Newark-Dubai revenue percentage
Costs based on Emirates current route structure
غInitial Outlay – Utilization percentage multiplied by cost of
Airbus A380-800
DCF Valuation
Present Value of Cash Flows$ 192,749,220.28
Initial Investment
$ 220,930,232.56
Net Present Value
$ (28,181,012.28)
Emirates Airlines should not
begin flying to New York in 2004
Option to Delay for One Year
Begin operating New York Dubai route now or delay for one year
Time 0
Time 1
PV of future cash flows
Totals
$11,978,026.41
$359,592,483.73
$371,570,510.14
$11,749,001.05
$352,716,910.43
$364,465,911.48
$11,451,268.08
Option Value if delay and lose first period cash flow
$
138,662,251.17
$0.00
Option Value
=153,698775.52*.17
1.0293
NPV to Delay
$22,227,991.30
NPV to begin NY-Dubai $
(28,181,012.28)
The value of the option
suggests that Emirates
should delay the New
York to Dubai route for
one year.
Conclusions
غEmirates Airlines is a profitable company that consistently beats
industry standards by emphasizing quality service and pursuing
strategies that appear to contradict what majority of carriers follow
غRoute Expansion between New York and Dubai should begin in 2005
Thank you for flying with
Emirates Airlines!
Questions ?
His Highness
Sheikh Ahmed bin Saeed Al-Maktoum,
Chairman