Low margins limit Dnata’s expansion into mature markets

(SATISH KUMAR)   

 
 

For Gary Chapman (pictured above), President of Emirates Group Services and Dnata, quality comes before quantity. In an interview with Emirates Business, he revealed his motto of always aiming to be the best, not the biggest.

 

Discussing Dnata’s future strategy, he said the company would continue to look at niche markets overseas and would be very selective in the operations it chose to run.

 

While overseas operations accounted for 25 per cent of Dnata’s total revenue – a figure he termed small – Chapman said he was in no hurry to raise this to a more acceptable 30 per cent, as he would only choose opportunities that were in sync with the organisation’s standards. Expressing no hurry to extend Dnata’s travel business outside the GCC, Chapman did reveal that expanding into India could be a possibility this year.

 

While Emirates has been able to successfully implement the “risk management”, or hedging strategy into the airline, why are so many other Gulf carriers still shying away from hedging?

 

In general terms, there are risks that you take. The easiest thing to do is to do nothing. After all, you take a risk when you do these transactions. You need a board or an owner who is prepared to work with you and accept that you do the best you can, as you may get it wrong. Hopefully, you would get it right more often than you would get

it wrong.

 

And I do not think there is much maturity in the market place. Some Gulf airlines, such as Etihad Airways, do hedge. You have got to take a long-term view. What usually happens is, when it is not working you want to stop it. And that is usually the worst step, as emotion comes into play rather than an objective assessment of the position of the company. So emotion is what drives a lot of these decisions for many airlines. And that

is wrong.

 

On the other hand, for Emirates it comes out right 75 per cent of the time. Could have we done better? Yes, we could have.

 

What is Dnata’s strategy for 2008?

 

We have had a very busy 2007 at Dnata. We formed a joint venture in Australia and won contracts from seven airports there. We also formed a joint venture in China. Besides, we have acquired a ground handling operation in Switzerland, which is a fairly large one with about 1,200 people.

 

And we are grappling with the airport expansion here at Dubai International Airport, with all the construction and the work around. The airport was designed for around 15 million passengers, but last year 34 million passengers used it. So we have a lot of pressure, as does everyone out there in Emirates to keep things on track, bearing in mind  this is Emirates’ hub. And to maintain the  standard of service is a big challenge. Hopefully, when Emirates’ new concourse opens, it will release the pressure.

 

So we have a major challenge just coping with the growth of Dubai International Airport. And we are also now preparing for the new Al Maktoum International Airport coming up at Jebel Ali. So we do have a lot on our plate.

 

In terms of expansion, what acquisitions have you lined up for this year?

 

We will continue to look at niche operations overseas. The market is very mature in the Americas and Europe. So opportunities are limited.

 

Margins are generally very low, and it is very competitive. Therefore, we want to be very selective: we do not want to be the biggest; we want to be the best.

 

What is your current overall network of airports, within the region as well as outside?

 

We are at 17 airports at the moment globally, which is still very small. But that is okay. We are not going to be driven by size. And beyond that let us see how the world economy unfolds. If we find dark clouds gathering overhead, which influences the profitability of many businesses out there, it may create new opportunities.

 

With regard to where we see this number going in the next few years, I do not know. As I said, we are very selective.

 

What are your expansion plans on the travel agency side of the business?

 

We are strengthening our position regionally and we are now present in Saudi Arabia, Kuwait and Oman. In November last year, we had our first presence in Abu Dhabi. We have concluded the transactions in Qatar and Bahrain. So we are going to continue strengthening our presence regionally.

 

What plans do you have of taking the travel agency business outside the region?

 

I don’t think at this stage we need to, or want to, look outside the region. However, the Indian Subcontinent is a possibility. And we may look at it this year. The registration process in India can take long.

 

How much do international operations account for Dnata’s total revenues?

 

I would say that Dnata’s international operations are still relatively small. They are about 25 per cent of our total operations at the moment. As for projections, we do not have any.


Our strategy is to look at niche operations and quality, and wherever we are able to make a reasonable return. That is what I am driven by.

 

That is not to say we are comfortable at 25 per cent. If we see other opportunities out there that we feel good about, we would obviously seriously consider them. But we are not going to be driven by the fact that we must reach the 30 per cent mark in two years’ time. That is not the driver. The driver is finding good businesses, which meets our requirements and standards. So if we do that, our percentage will grow, otherwise not – which is OK with us.

 

Do you plan on leveraging Dubai Aerospace Enterprise’s (DAE) regional and global tie-ups to gain business for Dnata?

 

It could be possible, even though DAE gets into airport ownerships and managing airports, which we don’t do. We are a ground handler, handling cargo, passengers and aircraft. But you would expect that relationship.

 

However, we are working with DAE on the bigger picture – on the academic side with the DAE University. And they have aircraft leasing operations, so there are going to be potential opportunities there.

 

 

Gary Chapman

President of Emirates Group Services and Dnata

 

Gary Chapman, an accountant by training, joined Emirates in 1989 as head of finance.


In his current role as President of Emirates Group Services and Dnata, Chapman is responsible for the group’s support functions, including finance, IT, human resources, legal and medical services, and, more importantly, jet fuel price risk management.

 

Chapman is also responsible for the global operations of Dnata (ground handling and travel services), as well as a number of other associated company businesses within the Emirates Group.

 

Before joining the Emirates Group, Chapman spent 12 years with a prominent Arab trading concern involved in construction and in providing support services to the oil industry. He was posted in many places, including Oman, Bahrain, Kuwait, Paris and Houston.

 

He is also the Chairman of Maritime and Mercantile International and Changi International Airport Services and a member of the Board of Directors of SriLankan Airlines, Emirates Flight Catering Company, Emirates CAE Flight Training and Dnata’s overseas ground handling operations.

 
 
 
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