The UAE is home to two of the world’s busiest airports (Dubai International and Abu Dhabi International Airport), two of the world’s biggest airlines (Emirates and Etihad Airways), as well as the low-cost carriers Air Arabia and flydubai. The country is also building the biggest airport in the world (Al Maktoum International at Dubai World Central), in addition to hosting some of the biggest air shows and aviation trade fairs for both commercial and defence markets. Calling the UAE an aviation hub in the widest sense is thus no exaggeration.
The thriving industry is a strong contributor to the country’s efforts in economic diversification. It is opening up foreign markets to UAE exports, lowers transport costs, particularly over long distances, and helps to increase competition because suppliers can service a wider area and potentially reduce costs through enhanced economies of scale.
The industry also adds to more flexibility of labour supply, which should increase efficiency. It encourages UAE businesses to invest and specialise in areas that play to the economy’s strengths, and speeds up the adoption of new business practices, such as time-sensitive inventory management that depends on quick and reliable delivery of essential supplies. In general, the industry raises productivity and hence the economy’s long-run supply capacity.
“Direct impact of the aviation industry showed a 9.6 per cent contribution to Dubai’s overall economy in 2013, surpassing government services, mining utilities, agriculture and construction, as well as 6.1 per cent of Dubai’s total employment”, states Oxford Economics’ latest report on the market, Quantifying the Economic Impact of Aviation in Dubai.
As aviation also plays a significant role in enhancing other industries such as retail, manufacturing, construction, hotels, catering and wholesale through supply chains, the report states the combined direct, indirect and tourism impact contributed 26.7 per cent of the emirate’s GDP. According to the report, the industry will contribute $53.1 billion (Dh195 billion) to Dubai’s economy, 37.5 per cent to its GDP and will directly and indirectly support more than 750,000 jobs by 2020.
What the future holds
Once Al Maktoum International is complete, the GDP contribution is expected to increase to 44.7 per cent by 2030.
Growth in the sector is indeed impressive. UAE airports handled more than 101 million passengers in 2014, of which more than 71 million went through Dubai International alone. Al Maktoum International will be developed into the world’s biggest airport, with five runways and four terminal buildings.
Khalifa Al Zaffin, Executive Chairman of Dubai Aviation City Corporation, said at the recent Dubai Airshow — held at Dubai World Central — the airport will be completed by the first quarter of 2022, with a capacity of 220 million passengers and 16 million tonnes of cargo annually. It can currently serve five million passengers and 600,000 tonnes of cargo.
Al Maktoum International is at the core of the UAE’s rapidly growing role as a global aviation logistics hub. Logistics and aviation districts will surround the airport as industry-specialised free zones. Additionally, the Dubai World Central project encompasses a number of real estate developments and is seen as one of the most ambitious commercial projects in the world, occupying an area of 145 square kilometres.
It is planned to be the future home and/or workplace for about 900,000 people in the master-planned city named Dubai South.
Dubai International will be able to handle 100 million passengers when the expansion is completed. Abu Dhabi International Airport is also in expansion mode, with the new Midfield Terminal expected to be 70 per cent completed by the end of the year. The new terminal will push the capacity of Etihad Airways’ home base to 45 million people.
With air traffic to and from the UAE expected to double by 2030, the General Civil Aviation Authority will, according to its own forecast, have to handle 5,100 aircraft movements a day, up from 2,250 average daily movements in 2014.
There are a lot of positive side effects to this rapid growth. UAE airlines will further strengthen their brand image as leading premium airlines globally. They will attract more alliances with other carriers and increase pressure on established national airlines especially on the Western Europe-Asia-Pacific route, offering affordable yet more comfortable stopover flights on that route via Dubai or Abu Dhabi.
Prospects and problems
The UAE is growing in prominence as a centre for international air shows and is emerging as a prime international networking hub for both commercial and military sectors. Furthermore, the country is set to play a larger role in subsectors such as training for pilots and other airline staff and in the maintenance, repair and overhaul industry.
Insiders also expect UAE banks to expand their aviation finance business, given the growth of this market.
However, there remain challenges, says Sanjay Bhatia, Managing Director of Alpen Capital Investment Bank. “With many players, the GCC airspace is becoming congested, resulting in increased operating costs and flight delays.”
Bhatia adds that continued fleet expansion plans might lead to overcapacity across the sector. The aggressive expansion will also require more skilled personnel and maintenance staff, which could lead to labour shortages.
The latter, however, is also an advantage. One that could further grow the country’s economy.
The big picture
The UAE federal budget allocates $280 million (Dh1.02 billion), or 3.7 per cent, to infrastructure including aviation.
The overall costs of the Dubai International expansion is expected to reach some $7.8 billion (scheduled for completion in 2018), while $2.96 billion is allocated for the Abu Dhabi International Airport’s expansion of the Midfield Terminal Complex (completion 2017) and $32 billion for Al Maktoum International at Dubai World Central (completion 2022).
In comparison, Qatar, the third big regional player, is spending $16 billion on Hamad International Airport in Doha (completion 2017), while Saudi Arabia will spend $12.3 billion up to 2020 on the expansion of the Jeddah Airport, several regional airports as well as upgrading of the Riyadh Airport, along with building a new Medina airport.
According to a January Capa release, China led in airport construction, with 56 airports that have ongoing projects, with an investment of close to $60 billion.
