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25 June 2012

Lessons for Islamic Finance Expansion – Emirates Airline

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By Rushdi Siddiqui

Islamic finance has reached it natural market share in certain markets according a recent A.T. Kearney report, hence, an early ‘amber colored flag alert’ on the need for international expansion.

Islamic finance needs to find an example of a model company, ideally from the Muslim world, which has become a global player based upon customer service, unique selling proposition, innovation, demand, and a charismatic leader.

Should it also look to the west, and examine the likes of Google, Apple, Coca Cola or Pepsi, ExxonMobil, etc.? Does it look at the management style of former GE Chairman Jack Welsh or the vision of the late Steve Jobs?

The answer actually lies with an entity that launched the world’s first ‘airline’ Sukuk nearly seven years ago, and it also happens to be headquartered in one of the birthplaces of Islamic finance: Dubai, UAE.

Emirates Airlines

Emirates came into the market just as many name-brand western airlines were financially bleeding, losing their lustre and cutting back on services – smaller seats, bad food, cheap snacks, poor airport infrastructure, etc. Emirates was/is looking to give the full experience with great connections at great airports, great duty free, great hotels, great shopping, and great destinations.

If we take step back and look at the remarkable (profitable) growth and (global) expansion of Emirates Airlines, there are a number of lessons for Islamic finance generally and Islamic banking specifically. Today, Emirates is the largest airline in the Middle-East, from its humble beginnings in 1985 with start up capital of $10 million from the royal family, and, now, operating over 2,500 flights per week to 121 cities in 71 countries across six continents.
Emirates Airline should be a case study material at, say, Harvard Business School and Harvard Business Review of a company from the emerging markets (a Muslim country) that has become one of the world’s most respected, recognized, and high recall brands associated with quality offering. It is, in Olympic year terminology, the Gold Medal for international airlines for fastest, strongest, and longest without compromising quality.
It has a leadership stability that continues to revenue-grow the business methodically in turbulent times, which adds to the airline’s persona! The Muslim world should review the Emirates (present) life-cycle on building global non-petroleum based companies. It is the epitome of regional economic diversification (service sector) and contributor to a knowledge based economy.

One can say that Emirates was a model for other ‘luxury’ middle-east airlines like Qatar Airways and Etihad Airlines, and, collectively, these airlines have set the bar very high from coach to business to first class for Middle East travel and hub-and-spoke connections to all travel-able continents.

Customer Centric

As Emirates Airlines is the ‘role-model’ for customer centric understanding, Islamic finance is a good ‘case-study’ on (need to improve) customer service. The journey begins at the check in and continues to the business class lounge, whereas one does not hear glowing reviews for front line staff even at royal banking branches. In fact, we often hear about continuous customer training as suggestion boxes often fill up fast and employee turnover.

[Here the Islamic finance human resource needs to be more scientific and time-consuming thorough to ensure job hires are ‘not only fit for purpose,’ but also hires can view a career path to the corner office on the executive floor.]

Furthermore, the customer service has produced five star dining at 35,000 feet and the best in-flight entertainment system in the industry, I.C.E., both extremely important attributes on the long haul flights. The acid test is that time seems to fly-by on Emirates with enjoyable experience resulting in not only repeat business (Skyward benefits) but also (the very important) word of mouth endorsement.

Islamic finance needs to make the same investment on appropriate ‘infotainment’ at the branches, beyond television monitors carrying financial news. The reality of the situation is Islamic banking (religious appeal) is a commoditized product offering, from scholars sitting on same board to cards to investments to financing, hence, it’s needs to continually update ‘an experience’ that keeps customers coming back and recommend to others.
May be the starting point for such branches should be pre-check in service at seven star hotels, like Burgh-al-Arab and Emirates Palace.

Connections that Matter

Emirates is a sponsor of Arsenal in the English Premier League Club, Deccan Chargers of Indian Premier League, Cricket Australia, etc., hence, the connection to sports, i.e., the universal language of building bridges between countries and cultures. The investment, not a cost, in the Emirates brand provides not only exposure, but, more importantly, to tomorrow’s customers using Emirates to Dubai and beyond.

For Islamic banks, from Kuwait, Saudi Arabia, Bahrain, UAE, Oman, Pakistan, Malaysia, etc., the FIFA 2022 Cup in Qatar, may well provide branding sponsorship opportunities on naming rights to stadiums and athletic villages (including financing Islamically via Sukuk), consumer and corporate financing and investment products, etc.

This is an ideal opportunity to showcase to the billion plus viewers that Islamic finance is for all, and, concurrently, de-mystify the many wrong perceptions of this niche market for new geographic markets.

Finally, consumers connect to companies winning awards that are deemed transparent, thorough, fair, competitive and free from sponsorships. Emirates has won a number of international awards, including the prestigious ‘Airline of the Year’ for 2011 by Air Transport World, whereas there are so many awards in Islamic finance that it takes away from the uniqueness and impact of the award.

Cross Border

Emirates Airlines is the poster child for calculated international expansion into the major markets at major airports, i.e., taking on the big boys in their ‘front’ yard. The success in, say, BRICS or G-20 country, is understanding the environment of competition, regulations and customer’s demands and then meeting it all meticulously. It understands the difference between market share gaining growth and profitable growth.

Obviously, the lesson for Islamic finance is demand based expansion to (first stage) other OIC countries based upon providing better products and service than the local institutions. The Arab spring countries of north Africa may just be the lower hanging fruit to apply the Emirates strategy for cross border expansion.

In the same way, Islamic banking could extend the experience from issuing cheque books and cards to connecting entrepreneurs (global alliances), forming a network of business possibilities (code sharing) and entering into a range of services that extend beyond the normal definition of banking (beyond CSR).

Islamic Finance Entry Wedge

The same turbulence of the airline industry is happening in the conventional banking industry right now, at least, since 2008: recapitalization, restructuring, reorganization, bailouts, and bankruptcies. The Emirates philosophy of ‘great’ needs to be strategized and executed cross border by selected Islamic banks beyond sprinkling of branches in other countries.
Thus, as conventional banks recoil, Islamic banks can unveil a new suite of services to grab market share. This closing window of opportunity exists for Islamic banking to pounce and change the discussion of how banks and financial markets could and should operate. The discussion would be directed towards the Muslim world and selected non-Muslim OECD countries deemed financial hubs.

Leadership

Finally, the charismatic leadership of Sheik Ahmad bin Saeed Al Maktoum, Chairman and CEO of Emirates Group, and historical support of Tim Clark, President, and Sir Maurice Flanagan, Executive Vice Chairman, will one soon become a case study on building a leadership stability, continuity and team building for the Muslim world.

Sh Ahmad is also the Chairman of many leading Dubai entities, including Noor Islamic Bank, hence, Noor has the DNA to become a flag barrier for cross border Islamic banking.
The Airline/Islamic Banking analogy works as the airline was a start-up amid global giants such as British Airways, Lufthansa and Delta, etc. It did change the paradigm and it did change the narrative of how airlines could and should operate, and, at least, Islamic finance has a model and path that was paved for international profitable growth.

Emirates Airline’s slogan, Hello Tomorrow, may just be the final piece of the PR motivation for Islamic Finance.

I would like to thank Yadullah Ijtehadi who contributed to this commentary.

[Rushdi Siddiqui is Global Head of Islamic Finance and OIC Countries, Thomson Reuters. He can be reached at rushdi.siddiqui@thomsonreuters.com]

(Courtesy: AlifArabia)

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