Dubai’s strategy – to become the world’s aviation hub

Sheikh Ahmed: “Today, we take the aviation industry as part of the overall strategy for Dubai – we’re really pushing the industry.”

Sheikh Ahmed: “Today, we take the aviation industry as part of the overall strategy for Dubai – we’re really pushing the industry.”

This US$82 billion plan envisages Dubai assuming the role of the world’s aviation and logistics hub; Dubai International Airport’s tagline is ‘Where the World Connects’; it is an ambitious statement, but one gradually being turned into a reality.

Sheikh Ahmed said: “Today, we take the aviation industry as part of the overall strategy for Dubai – we’re really pushing the industry. It can contribute greatly to GDP in the future; we are very focused on aviation policy and we will continue to be so in the future.”

Headline elements of this investment programme are expansion of Dubai’s existing airport to almost treble its passenger capacity and double cargo capacity, construction of a new airport – Dubai World Central – that will eventually become the world’s biggest, and expansion of the Emirates Airlines fleet from around 100 to more than 180 aircraft.

Dubai International Airport handled 16.2 million passengers in the first half of 2007 – up 18% year-on-year, while the amount of cargo handled also rose 11% to 751,000 tonnes. Sheikh Ahmed described the figures as very satisfying, as DCA’s principal focus is on the annual target of 15% passenger growth. It has achieved average growth of 15% since 2002. Throughput was 28.8 million in 2006, up 16.2% on the previous year. The forecast for 2007 is 33 million passengers.

“With both Emirates Airline and the airport, people thought that we were exaggerating about growth in the last five years. I think in the future we should see much more growth than in the last five years,” said Sheikh Ahmed. Dubai International Airport has jumped from 30th position on the list of the world’s busiest airports five years ago to among the top 10 in 2007. To cope with this rapid growth, the airport is undergoing massive expansion.

Can the Dubai model be replicated to some extent in other parts of the world, or is it unique to the special conditions – such as geographical position, policy framework and institutional framework – of Dubai? Sheikh Ahmed’s response is simple: “As a model it works anywhere.” He expanded: “But just because the Dubai model would work in other parts of the world doesn’t necessarily mean it is right for them. There is not only a model in Dubai or the Emirates. There are all kinds of models around the world – in the US, Europe, the Far East – that are working.”

Sheikh Ahmed: “With both Emirates Airline and the airport, people thought that we were exaggerating about growth in the last five years. I think in the future we should see much more growth than in the last five years.”

Sheikh Ahmed: “With both Emirates Airline and the airport, people thought that we were exaggerating about growth in the last five years. I think in the future we should see much more growth than in the last five years.”

The idea that Dubai’s success might somehow be detrimental to the industry in Europe is strongly rejected. “Whatever I do in Dubai, I cannot replace Frankfurt or London Heathrow and it is not my intention to do so – I don’t know why people think that. We cannot replace something in those countries. If two airports are next to each other, they may be competing, but Dubai is not competing with the big hubs in Europe such as Frankfurt and Heathrow,” said Sheikh Ahmed.

DIA role – new significance

“With Dubai emerging as the regional trade, business and tourism centre, Dubai International Airport’s role and scope of operations have acquired new significance. While Dubai currently handles in the vicinity of 30 million passengers annually, up to 60 million passengers, including 15 million tourists are expected by 2010,” said Sheikh Ahmed.

Investments in tourism, hospitality, leisure and entertainment projects, which are already under construction in Dubai, exceed US$365 billion, therefore the number of visitors to Dubai is expected to rise dramatically over the next few years. “Our multi-billion investments in the aviation sector are in line with this projected growth. Owing to this rapid development, Dubai will be a major market and centre for global aviation and aerospace sectors in the coming years,” said Sheikh Ahmed. In line with this, Dubai Aerospace Enterprise (DAE), since its inception last year, has made significant progress in its ambitions to become a global player in aerospace. It has made some major acquisitions and established important strategic partnerships, including a long-term collaboration with Boeing, which was announced in June. One of DAE’s key initiatives is to build a leading global maintenance, repair and overhaul (MRO) capability. The proposed acquisition of Landmark Aviation and Standard Aero is currently being reviewed by the US regulatory authorities, while DAE has already acquired a stake in the Swiss-based aviation technical services provider SR Technics.

‘Supply should come before demand’

A US$4.5 billion expansion programme is underway that will see Dubai International Airport’s capacity grow to 70 million on completion in 2009. This involves the construction of Terminal 3 and Concourses 2 and 3, which are being built exclusively for Emirates Airline. The emphasis is clearly on being proactive in anticipation of growth, rather than reactive to growth.

Sheikh Ahmed said: “Yes, the UAE recognises the role of airports in terms of being engines of economic development. Supply should come before demand; it takes a lot of effort building infrastructure for dynamic growth.”

Concourse 2 will be complete by mid 2008, while Concourse 3 – dedicated to the A380 – is expected to be operational in 2009, making Dubai International Airport the first in the world to have a dedicated A380 terminal.

Dubai International Airport’s current developments include Concourse 2, which will be complete by mid 2008.

Dubai International Airport’s current developments include Concourse 2, which will be complete by mid 2008.

US$10bn new airport

The US$33 billion Dubai World Central project, described as Dubai’s most significant to date, will include the world’s biggest airport, which is already under construction. Twice the size of Hong Kong Island, the mammoth project is designed to support Dubai’s aviation, tourism, commercial and logistics requirements beyond 2050.

40km from the existing Dubai International, the US$10 billion airport – JXB – will have at least six parallel runways and as many concourses capable of handling 120-150 million passengers and more than 12 million tonnes of cargo per year upon completion.

Concourse 2 will increase the duty free area by 8,000sqm.

Concourse 2 will increase the duty free area by 8,000sqm.

“The first of the six runways will be completed by October 2007, enabling freighter operations to begin in 2008. The airport will be linked to the existing Dubai International via an express light rail system and dedicated road network. A customs-bonded road and rail corridor between the two airports will enable fast cargo and passenger movement,” said Sheikh Ahmed.

Dubai International Airport’s Concourse 3 – dedicated to the A380 – is expected to be operational in 2009, making Dubai International Airport the first in the world to have a dedicated A380 terminal.

Dubai International Airport’s Concourse 3 – dedicated to the A380 – is expected to be operational in 2009, making Dubai International Airport the first in the world to have a dedicated A380 terminal.

Sheikh Ahmed: “Whatever I do in Dubai, I cannot replace Frankfurt or London Heathrow and it is not my intention to do so – I don’t know why people think that. We cannot replace something in those countries.”

Sheikh Ahmed: “Whatever I do in Dubai, I cannot replace Frankfurt or London Heathrow and it is not my intention to do so – I don’t know why people think that. We cannot replace something in those countries.”

JXB will have two passenger terminals – one dedicated to Emirates Airline and the other for regional and international carriers. A third, more functional terminal is earmarked for low-cost carriers, while dedicated facilities are also planned for executive jet operators. The airport will also house the Executive Jet Centre – one of the biggest in the world – and will function as a one-stop centre for business jet operations, including leasing and chartering of business jets, ground handling, and VIP passenger handling. Sheikh Ahmed explained that it is designed to initially handle in excess of 100,000 aircraft movements a year and is due for completion in 2008.

Acquiring airlines ‘always an option’

Asked whether Emirates Airline had any interest in acquiring other airlines, Sheikh Ahmed described it as “always an option”. “We have a 43% stake in Sri Lankan Airlines and manage the airline 100%. If it is a good business, why not? We have to ask – is it worth it? Are there any politics behind it? How easy would it be to run it? Sometimes airlines are heavily unionised,” he said.

Does he view Qatar Airways and Etihad Airways as Emirates Airline’s biggest competitors? “I think you compete with airlines wherever you go. The main competition is the national carrier; if I go to Doha, it is Qatar Airways. At any airport, the national carrier accounts for 50-55% of traffic. I take them all as competitors,” said Sheikh Ahmed.

View from other industry leaders on growth in the Gulf

Emirates increasing competition at Hamburg

Michael Eggenschwiler, CEO, Hamburg Airport, describes Dubai’s expansion as “a typical element of an opening market worldwide”. “Dubai is building a hub as others have done, and it is making use of its geographical location. Dubai says it has a one-stop offer, which is a viable concept,” he said. “If you look at it from the point of view of an open market, Emirates is market driven and commercially driven. It would be wrong to prevent development.”

Emirates operates daily from Hamburg to Dubai and New York JFK; it has increased capacity and is now flying the A340-500 and is achieving good load factors. A new weekly cargo service to Dubai was launched on 2 September.

Eggenschwiler said: “For us, the appearance of Emirates has been very positive. Hamburg is an origin and destination airport and Emirates gives us a new perspective on long-haul. We’re getting a good product and good exposure; Emirates is increasing competition. On one side Emirates is following a track seen elsewhere in the industry. They are adding competition, which I think is good for the market. Emirates is opening up opportunities for typical non-hub airports with good catchment areas. It is seeing good load factors and has said that the Hamburg route has been profitable from day one.”
Emirates is contributing to Hamburg’s continued growth. Passenger numbers increased 12% in 2006 and 5% growth has been achieved so far this year. “We will pass the 12 million barrier this year. Between 2003 and 2006, we have had average annual growth above 8%,” said Eggenschwiler.

He explained that Hamburg is looking to develop its long-haul network. “We are not specifically looking at the Middle East, we are looking for opportunities, be they to the US, Middle East or Far East. We are not developing into a hub, but we are looking to add long-haul services,” said Eggenschwiler.

Emirates – a threat to Europe’s one-stop traffic?

BAA likes the style of Emirates and its operating model. David Field, aviation strategies director, explained that the airline makes good use of capacity at BAA’s large airports and also has good traffic flows at its smaller airports. He said: “You cannot help but admire their expansion. Emirates is one of the few examples of an airline, country and civil aviation community aligned towards the same goals and pulling in the same direction; you cannot help but admire that, we would all like that.”

But does Field see the development in Dubai and the Emirates model as a threat? “It is certainly a threat to one-stop traffic, which the likes of Lufthansa and Air France are offering as well. If BA is flying US-London-Asia and Emirates comes in and offers US-Dubai-Asia, BA is going to fight to keep its traffic. It’s our job as airport operators to give airlines the capacity to compete hard for traffic,” he said.

However, BAA does not see the Dubai model as an immediate threat at strategic level. “In 20 years time, when Dubai World Central is up and running with six runways, it may be a threat, but it is not our most immediate focus,” said Field.

Gulf expansion changing traffic flows

Ad Rutten, executive VP and COO, Schiphol Group, believes that the Gulf carriers are seeing an opportunity and are taking it with both hands. “They have a clear vision to utilise their central position and make the most of the current aircraft technology. They have ambitious plans and ways of funding them. They have taken matters into their own hands. In the past the Gulf area only served as a ‘tankstop’ for airlines en-route from Europe to Asia and vice-versa. Dubai for example has developed itself into a hub, but also into a destination,” he said.

What impact does Rutten believe the expansion of Gulf carriers and of airport infrastructure in the Gulf will have on airports in Europe? He said: “It is forecast that the aviation market will continue to grow; in fact in 20 years time the number of aircraft will double. This implies that all can profit from this growth, however some more than others. The Gulf area is placing itself in a position to take a share of this market, of course at the expense of others. Already now we can see that some traffic flows are changing and will affect traffic at Amsterdam Schiphol (AMS). For example, Emirates’ new Newcastle-Dubai route will certainly lead to a decrease of transfer passengers from Newcastle via AMS to Asia. But it could also lead to increased traffic flows from/to Newcastle equally via AMS and Dubai by stimulating the market.”

The impact of Emirates’ Newcastle-Dubai route on AMS highlights the potential for the Gulf carriers to take one-stop traffic away from European airports. Rutten said: “The passenger will have a choice – either fly via AMS or via a Gulf airport. Things will depend on price, schedule, comfort etc. AMS is well placed with an extensive network in Europe and on intercontinental routes. For example, we have more destinations and frequencies from AMS to the UK than LHR has.”

He contended that expansion in the Gulf will only be a threat to Europe’s airports if they do nothing about it. “We must react of course. For AMS this will imply that we must continue to be innovative and offer the right products to our customers (airlines and passengers). We must remain the preferred airport,” he said.

‘We need to defend a free and fair market’

The key point emphasised by Thomas Kropp, Senior Vice President, Head of Corporate International Relations and Government Affairs, Lufthansa, is that the Middle East market must be “developed in a free and also a fair manner”.

“Development of infrastructure in the Middle East is a good benchmark for Europe. It is painful to see how protracted infrastructure expansion can be in Europe. The State-owned airports and airlines in the Middle East can expand faster,” he said.

Europe, he asserted, must look at the impact of this and look at legislation to see how it can remain competitive. “It is the duty of the EU and especially of Member States to be more efficient and quick than in the past. It is a clear message for the EU politicians – they have to look at quick and efficient competition,” said Kropp.

He was also keen to emphasise the effect of air transport not being part of the World Trade Organization (WTO), which means airlines must rely on bilateral agreements worldwide. “These bilaterals must be based on fair benefits for each side. If you have an open market, there must be similar opportunities on either side of the market. That is currently out of balance between the EU and Gulf States,” he said.

Kropp highlighted the fact that in Germany the Gulf carriers have double the frequencies of the Chinese and Indian carriers, which in relation to their respective markets is quite out of proportion.

“We need possibilities to defend a free and fair market, and we have to defend our interests via traffic rights. We have to look at whether market saturation has already been reached. We must use balanced distribution of traffic rights to the fairness of both sides,” he said.

Asked whether he felt the Gulf carriers were enjoying unfair competitive advantages, Kropp said: “If you look at the figures of some carriers, some say they are profitable. But the cost base is irrelevant, as some are not paying taxes, or fees and charges. There are a lot of unfair conditions that need to be discussed in the future.”‘

‘Heated debate’ in Germany

Thilo Schmidt, Director General for Civil Aviation, Germany, explained that the country’s airlines, in particular, are worried about the expansion of the Gulf carriers and are arguing that the regulators have already given them enough. “It is a pretty heated debate,” said Schmidt. “It goes without saying that airports are sympathetic to new routes operated by Gulf carriers. On the other hand, there is some concern from the airlines that there is some disparity between the markets in Europe and the UAE. Dubai is practically one of the smallest markets you can think of, whereas Germany and the possibilities beyond are huge by comparison. The frequencies of the Gulf carriers are high compared with their market size.”

Schmidt can understand the concerns of European carriers. “The infrastructure in Dubai in terms of taxes and conditions is better than in Europe, which gives Gulf carriers an edge. There is widespread concern that there is an uneven playing field. However, business is business. I would hope the carriers in Europe that are concerned are finding a business way of competing rather than a regulatory way. I would prefer competition based on good business not regulation,” he said.

There are currently four German airports with Emirates services to Dubai – Frankfurt, Munich and Düsseldorf all have double-daily services, while Hamburg has a daily service. “Those airports with Emirates operations are happy with them, while those that don’t have them are desperately looking to get them. Berlin and Stuttgart are very eager for Emirates services,” said Schmidt.

It is too early to predict the outcome of the “heated debate” taking place in Germany; several studies are underway into the impact of the Gulf carriers on European markets. “I always encourage airlines to come up with ideas as to how best to handle the situation. At some time, I have to have negotiations with the UAE. It’s not going to be easy and it won’t happen soon,” said Schmidt.


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