dnata, the stand-alone ground, catering and travel services arm of the mighty Emirates Group, is growing in a measured way, on its own terms. Steve Allen, Chief Executive of the dnata Group, discusses its plans with ARGS editor Mark Pilling
The tiny island of Zanzibar, located off the East African coast opposite Tanzania, is the launch pad for one of dnata’s latest overseas ventures.
On 26 January, dnata head Steve Allen and members of the Zanzibar Airports Authority cut the ribbon celebrating the inauguration of services at Zanzibar Abeid Amani Karume International Airport (ZNZ).
Together with Emirates Leisure Retail and SEGAP, a joint venture between airport infrastructure and operations specialists Egis, and private equity fund manager AIIM (African Infrastructure Investment Managers), the partners will deliver airline and passenger services at the new international terminal at ZNZ.
dnata’s entry into Zanzibar is its first foray into Africa. It is somewhat surprising that it has taken this long for a business that charts its international expansion back to around 2005 to make landfall in this continent, which is close to the United Arab Emirates geographically, politically – and in business terms.
Africa has always been of interest for dnata but the right opportunity had not arisen until Zanzibar, explained Allen. “I think we have shied away from Africa in the past as it is a challenging environment,” he said.
The difference in Zanzibar was the strong ties between the state and the UAE and the partners involved in the project. “There were some very capable and willing partners that we would be willing to work with,” said Allen; this helped dnata feel positive about the opportunity when it was asked to participate.
While Zanzibar is a modest start for dnata in Africa, with an investment of US$10 million that will create 500 local jobs, it is characteristic of the firm’s measured approach to expanding its international footprint.
Today, dnata is one of the world’s largest combined air service providers, serving over 300 airlines in 38 countries. Its main activities are the provision of cargo and ground handling, catering, and travel services.
dnata has come a long way since its formation in Dubai in 1959 with five employees as the Dubai National Air Travel Agency. The firm’s overseas footprint began in 1993, when it established its first joint venture with Gerry’s Group in Pakistan. International business later became the focus of its growth strategy in the 2000s with deals including the acquisition of Alpha Flight Ltd in 2010 to boost its international catering activities, and in 2015 it moved into Brazil’s ground services market with the purchase of RM Ground Services.
The ground services industry has seen its fair share of acquisitions and consolidation in recent years, with Kuwait’s Agility acquiring Menzies Aviation in August 2022 and combining it with its own National Aviation Services. Meanwhile in September 2022, Singapore’s SATS announced it would acquire Worldwide Flight Services for €1.18 billion ($1.3 billion).
The dnata team explores all opportunities that come its way, but acquisitions for the sake of building scale are not the company’s style. So where does Allen see dnata’s positioning on industry consolidation?
“I think we will continue to do what we’ve always done, which is continue to grow our business,” explained Allen. “We’ll do it with due consideration. You know, we do want to spread the dnata footprint… and we would look to roll businesses under the dnata umbrella.
“But there is no hurry, put it that way,” he said. “We will choose the right opportunities when they come along. We’re in this for the long term. We have a shareholder which is incredibly supportive.”
dnata looked hard at the Menzies opportunity but concluded it would not “advance our business in a particular way, so we were happy to let that one go”, said Allen. “From a pipeline perspective, we always have 10 to 15 ideas under evaluation. Which ones make it through depends on the business case.”
At the heart of dnata’s vision is its aspiration to be the most admired air services provider, which brings clarity to its approach to business, customers and growth. “That vision of being the world’s most admired just says that we want to be good at what we do, and we want to provide quality services that people want to consume,” said Allen.
“And so, everything we do, whether it’s the people we hire, our approach to sustainability, our approach to technology, innovation, or the way we treat our people, we want to be a company that people admire and want to work with,” he said. Strong financial performance tends to follow if you adhere to this mantra, he noted.
“In terms of where we see ourselves going, we are now a global company,” said Allen. “Over the [past] 13 years we’ve grown massively globally. I think there’s plenty of room now for us to grow organically. We’re in most markets around the world so why wouldn’t we just take our existing businesses and take on new contracts in new airports, as opposed to invest in new companies?
“I think the risk of investing in a large company is that it knocks you off your path. You must merge cultures, you must merge the visions of the different groups of shareholders – whereas what we’ve done is we’ve acquired businesses and brought them under the dnata umbrella and then grown with them. And I think that’s what we’re going to continue to do.
“We do have an ambition to continue to grow,” said Allen. “But there’s nothing that tells me you must be the biggest in the world.” His view is “to grow sensibly, grow where we think we can make a decent return and continue to offer quality products”.
So where does dnata see the opportunities to grow in this fashion? “There are various parts of the world where air travel is just in its infancy,” said Allen. For instance: “The Far East, South America, and India are places with huge populations, and they only actually take a very small number of trips a year.
“Somebody once said to me that in India the average person takes 0.2 trips per year. In Europe, it’s five,” he said. With a massive middle class emerging in India the potential is huge. “If you could turn that 0.2 trips into just 0.4 trips, you’ve just doubled the market in India,” Allen pointed out. “With it double the size of the airports, double the size of the airline fleet, double the size of the ground handlers.”
The blossoming ambitions of Saudi Arabia to radically increase its travel market are also on dnata’s radar. “We have a big travel division in Saudi Arabia where we do corporate and leisure travel,” said Allen. “So, we’ve got a footprint there already. Like everybody we are interested in the trillions that they’re spending to grow [the Saudi Arabian economy], and equally grow the aviation sector as well. So, you know, we are actively interested in those discussions.”
Saudi Arabia and the UAE are close partners on the global stage and a lot of people who work in Saudi Arabia live in Dubai and commute. “We have a natural understanding of the Middle East, we have close political ties, and we know a lot of the people that are doing the work. So, I hope those things will help us to expand our operations in Saudi,” explained Allen.
dnata evaluates a constant mix of opportunities to grow, be they acquisitions, partnerships or requests for proposals, he went on. “We have a small business development team that are in contact with not just the airlines but governments. In some cases, governments are coming forward and saying they’re looking to outsource the airport or to privatise the airline and the ground handler. So, we talk to them about how we might play a part in that.
“Where there’s huge growth and where I think the major players haven’t traditionally operated, I think that’s where there’s an opportunity to earn a decent margin, and to make a big difference in the way that air travel is run in those locations,” said Allen. “We could offer a step change to them that they couldn’t get if they just went locally.”
dnata’s holistic solution
So, what makes choosing dnata the standout option? “I think there’s a couple of things,” explained Allen. “One, dnata is more than just a ground handler. We have the ground and cargo handling division. We have a lounges product through marhaba (which means ‘welcome’ in Arabic). We have the catering and retail division. And we have the travel division. So, we can offer a more holistic solution to an airport than maybe others could, and we can join some of those together to get synergies as well.”
dnata is doing exactly this in Zanzibar. “I think Zanzibar has taught us that if we join all our capability together, we can offer something that none of our competitors can,” said Allen. “Take a very simple concept: if you have a cargo warehouse and you have a catering centre, both are essentially a big warehouse with a freezer and drop-off and pickup docks. Why not put them in the same place?”
Apart from SATS in Singapore, few operators have this overlapping capability at a host of global locations as dnata does. “We can collocate, we can offer back-office synergies. These are things that other people can’t do. So, I think there’s that opportunity of having a broader portfolio that we can offer.”
This is an approach customers appreciate, too. “When we’ve talked to airlines about it, they’re very interested in the concept of a more holistic strategic partnership,” said Allen.
dnata has the added advantage of geography. “I think we are experts in this region of the world in terms of the Middle East and the Indian Ocean and East Africa,” said Allen. “We know this part of the world is heavily influenced by the Arab world. And therefore, we are in a strong position to partner in these regions. And I think we’re looking to expand more in the Middle East and East Africa as a result.”
When it comes to growing dnata’s various business divisions, Allen has a simple philosophy. Its Airport Operations part of the business is its largest in revenue terms at 68.5%, followed by Inflight Catering at 20%, Travel Services at 8.3%, and Other Services at 3.2% (2021-2022 year).
“Each division is run by a separate CEO, and I create competition between them,” said Allen. “It depends on what they bring to the table. They are looking for growth opportunities and new businesses and they come to me with those thoughts and ideas. I’ve got no favourites. There are opportunities in all three divisions, and we’ll see what comes along.”
In terms of recovery, dnata returned to profit in its financial year to the end of March 2022, and made further progress in the 12 months to the end of March 2023. In line with increased air and passenger traffic, dnata saw a significant uptick in operations across all its divisions.
This drove strong revenue growth in the year to March 2023 however, dnata’s overall performance was challenged by inflation and increased costs across its markets. Its revenue is derived mostly from international activities, amounting to 72% in 2022-2023, with 28% coming from the UAE.
dnata’s total revenue in this 12-month period increased by 74% to AED14.9 billion (US$ 4.1 billion), with growing flight and travel activity across the world.Overall profit for dnata was AED331 million ($90 million), compared to last year’s AED110 million ($30 million).
The outlook for 2023 is strong, although the recovery is not uniform across all markets, said Allen. “The recovery has gone from west to east. In the Americas we’ve seen a full year of strong recovery.” That region, including dnata’s large operations in Brazil, has seen business volumes grow to 90% of 2019 levels.
At its large Dubai hub business is over 100% of pre-Covid volumes, Australia is up to 65-70%, Singapore 60% and Hong Kong at 40%, said Allen. These markets will continue to revive and surpass 2019 levels in time.
One area that is dropping back is air cargo, which for so many was a saviour during the Covid period, as sea freight becomes more popular once again.
A market that developed for dnata during Covid was Australia, where the company already had significant handling and catering operations supporting Emirates and other customers. “When the opportunity came to build up handling capability, Australia was a natural destination to look at,” said Allen.
“During the pandemic Qantas decided it would outsource ground handling, so they split that between the three major handlers, and we took a fair chunk of that,” said Allen. In addition to handling Qantas in several cities, dnata provides all the airline’s hub inflight catering, having taken this over from the flag carrier just prior to Covid.
dnata’s peak revenue year was its 2019-2020 financial year, when it registered AED14.8 billion ($4.0 billion). Allen expects the financial year ending in March 2023 to see a return to 85-90% of pre-Covid revenues.
“Going into next year, we’ll probably move away from the pre-Covid definitions and talk more about growth versus this year, because we’re getting towards five years away from pre-Covid [comparisons],” said Allen. dnata will also seek to restore margins to the 10% level it was achieving prior to Covid.
That will be welcome news for the handler’s shareholder, the Investment Corporation of Dubai, the Government’s principal investment arm. dnata is part of the Emirates Group, which includes Emirates Airline, but Allen stressed the standalone nature of the services company, with its own balance sheets, P&L accounts, and annual reports.
dnata is in a strong position, with a supportive shareholder, good liquidity, and the opportunity to grow. But it will be selective, explained Allen. “There’s nothing holding us back apart from a tendency to want to make sure we take the right options rather than just dive in and find that we’ve been side-tracked from our overall goal,” he said. “I think we’re in an extremely strong position, and we’ll see what opportunities come up in the next few years.”