Proceedings of 35th International Business Research Conference 30 - 31 May 2016, American University in the Emirates, Dubai, UAE ISBN: 978-1-925488-06-7 A Study of the Factors Driving the Growth of the UAE’s Air Transport Infrastructure Sameena Khan Air transportindustry plays a vital role in the growth and development of the economy of the UAE. Today UAE airports occupy a prominent place as a global hub for passengers as well as cargo movements and have great potential of growth in the future. UAE’s air transport infrastructure is characterized by the existence of number of international airports and operating airlines and delivery of high quality services. Impact of the air transport on the UAE economy is massive. As quoted by a senior official of the General Civil Aviation Authority, the UAE’s aviation industry’s contribution to the Gross Domestic Product (GDP) of the economy is 15 per cent or $46 billion. According to Laila Al Muhairi, Executive Director for Strategy and International Affairs at the General Civil Aviation Authority the UAE’s aviation industry accounts for 250,000 direct jobs and 225,000 indirect jobs and its growth rate average at six to seven per cent is higher than the global average growth rate of one to two per cent (AMEInfo). According to World Economic rd Forum’s Travel & Tourism Competitiveness Report the UAE ranks 3 next only to Canada (ranked 1) and United States (ranked 2) in the Air Transport Infrastructure. Using Secondary data this paper aims to highlight the contribution of the government of UAE and the various UAE based airlines in the growth of the air transport infrastructure. Keywords: Competitiveness, air transport infrastructure, UAE based airlines, airports and Open sky policy. Field of Research (Track): Economics 1. Introduction Through its diversification efforts; The United Arab Emirateshas come a long way in the area of economic growth and development.From the contribution of 90 percent in the 1970s the Oil revenues contribution has currently come down to 30 per cent to the UAE’s GDP (Gulf News 2016). Initially an oil based economy, the country realized that it could not rely on oil generated revenues for long term period. It started the diversification of the economy into other sectors such as construction, banking, retail, real estate, tourism and aviation etc. The UAE has realizedthe aviation industry’s potential in creating great employment opportunities and thus serving as an engine of economic growth and diversification. Being aware of its miraculous contribution to the economy, UAE has consistently endeavored in formulating competitive and conscious strategies focusing on the development of this industry. Today the UAE occupies a prominent position in the global aviation industry infrastructure and is characterized by the existence of seven international airports and a number of operating airlines and delivery of high quality services. ______________________________________________________________________ Dr. Sameena Khan , School of Business, Manipal University Dubai Campus, UAE. Email: sameena@manipaldubai.com Proceedings of 35th International Business Research Conference 30 - 31 May 2016, American University in the Emirates, Dubai, UAE ISBN: 978-1-925488-06-7 2. Research Objectives The study has been conducted with the following objectives: To show the competitiveness of the Air Transportation Infrastructure of the UAE. To focus on the role of the UAE based airlines in the growth of the air transport infrastructure. To analyse the efforts of the governments of the various emirates in developing the aviation industry. 3. Research Methodology This study is descriptive in nature. Secondary data has been used to project the competitiveness and the factors driving the growth of the UAE’s Air Transportation Infrastructure. Data for this study has been taken from the official websites of General Civil Aviation Authority (GCAA), Various airports and airport companies, airlines like Etihad Airways, Emirates Airlines etc., various reports such as Air Transport Action Group’s Aviation Benefits report of April 2014, various reports of IATA, other reports such as: World Economic Forum- Travel & Tourism Competitiveness Report, UAE’s leading newspapers and other sources on the internet. 4. Literature Review “Air transport is one of the leading modes of transportation instrumental in bringing together people and countries. With the rise of low cost carriers there is great enhancement in connectivity and affordability. This has helped not only in the increase of the number of business executives and migrant workers travelling, but also the growth of the tourism industry. Tourism, together with aviation, is the world’s largest sector when all the economic impacts are taken into account. 2015 was one of the best years in the history of the air transport industry. Lower oil prices led to an increase in global demand for passenger travel to 6.7%, and the industry forecasts total net profits of $36.3 billion. Due to sluggish development of global trade; air cargo remained weak (at 1.9% growth). According to IATA estimates, the demand for air travel is expected to grow at 6.9 per cent for Fiscal Year 2016” (Infrastructure Economics and Finance Network: The World Bank).“Although the transport industry provides the link between tourism generating and destination regions the industry's role as an agent in destination development has Proceedings of 35th International Business Research Conference 30 - 31 May 2016, American University in the Emirates, Dubai, UAE ISBN: 978-1-925488-06-7 been largely overlooked. If the ability of tourists to travel to preferred destinations is inhibited by inefficiencies in the transport system there is some likelihood that they will seek alternative destinations” (Bruce Prideaux, 2000). “On top of tourism infrastructure and other classical determinants, transport infrastructure is a significant determinant of tourism inflows into a destination”(Jameel Khadarooa, Boopen Seetanah, 2008). As part of the international airservices liberalization; in 1990s the US initiated an Open Skies campaign. A landmark event in the liberalization of international airservices was the conclusion of the U.S.- EU Open Skies Agreement in April 2007 (Gong Yu, 2009).“Liberalization has led to substantial economic and traffic growth. Such positive effects are mainly due to increased competition and efficiency gains in the airline industry, as well as positive externalities to the overall economy; liberalization allows airlines to optimize their networks within and across continental markets. As a result, traffic flow patterns will change accordingly. Strategic alliance is a second-best solution and will have a reduced role when foreign ownership restrictions are relaxed; there is a two-way relationship between the expansion of low-cost carriers (LCCs) and liberalization. The rapid growth of LCCs leads to increased competition and stimulated traffic, calling for the removal of restrictions on capacity, frequency, pricing and entry. In addition, development of LCCs in domestic markets can promote liberalization policy for international aviation by increasing the competitiveness of the national aviation industry”(XIAOWEN FU, TAE HOON OUM and ANMING ZHANG, 2010). 4. Competitiveness of the UAE in Air Transport Infrastructure UAE occupies 24th place out of 141 countries assessed by World Economic Forum in its Travel & Tourism Competitiveness Report 2015. UAE has been ranked number one in the Middle East and North Africa region. The UAE ranks 3rd next only to Canada (ranked 1) and United States (ranked 2) in the Air Transport Infrastructure. Table 1 Value and Ranking of the UAE IN various Indicators of Air Transport Infrastructure for 2015 S.NO. Indicators of Air Transport Infrastructure Value Rank(out of 141) Proceedings of 35th International Business Research Conference 30 - 31 May 2016, American University in the Emirates, Dubai, UAE ISBN: 978-1-925488-06-7 Air Transport Infrastructure 1 2 3 4 5 6 Quality of air transport infrastructure† Airline dom. seat kms per week (millions)* Airline int’l. seat kms per week (millions)* Departures per 1,000 pop.* Airport density per million urban pop.* No. of operating airlines* 5.9 6.7 0.3 4,849.5 38.4 1.3 113.0 3 2 91 3 8 58 12 † Indicators derived from the World Economic Forum’s Executive Opinion Survey are always expressed in a 1-to-7 scale (1 = worst score, 7 = best score) * Statistical indicators that are not derived from the Executive Opinion Survey Source: World Economic Forum Global Travel & Tourism Competitiveness Report 2015 Table 1depicts the performance of the UAE in various indicators of the Air Transport Infrastructure sub index. 5. Government’s efforts in the development of Air transport infrastructure The government of the UAE has been proactive in development of air transport infrastructure.Both at the federal and emirate level, the UAE has sought to encourage the development of air transport infrastructure, by investing in airports and airlines. Dubai’s strategy of infrastructure investment led to the development of two international airports and establishment of the airline i.e. Emirates and Fly Dubai. Abu Dhabi’s efforts led to the establishment of the emirate’s national carrier Etihad.Today there are seven international airports in the UAE providing both passenger and cargo services from and to UAE. In 1996 The General Civil Aviation Authority (GCAA) was established by Federal Cabinet Decree (Law 4) with the objective of regulating Civil Aviation. The body emphasizes on the safety and security and aims at strengthening the aviation sector within the UAE and its upper airspace. A new Air Navigation Centre named as The Sheikh Zayed Centre was started in late 2009. In terms of its design it is one of the world’s most technically advanced centres and is regarded as the largest and busiest air traffic management facility in the Middle East (GCAA). GCAA has signed Air service agreements with a number of countries. In November 2015 when The United Arab Emirates signed an open skies agreement with the Government of the Slovak Republic; the number of air service agreements reached to 168 of which 122 were open skies. Open skies agreement allows unrestricted frequencies, capacity and types of aircraft, whether owned or leased, to be operated Proceedings of 35th International Business Research Conference 30 - 31 May 2016, American University in the Emirates, Dubai, UAE ISBN: 978-1-925488-06-7 by the Designated Airlines of each country in any type of service (passenger or cargo) on the routes between that country and the UAE (UAEinteract 2015). Though the presence of international airport in the UAE can be traced back to 1932 much before the formation of the federation; whenthe opening of Sharjah Airport for operations was done to provide a stopover en-route to India and Australia by Imperial Airways and remained in operation until December 14, 1971 but theconstruction for the current airport commenced during 1970s and it was opened on January 1, 1977(www.airporthotelguide.com). Sharjah enjoys an “Open Sky Policy” which permits the Airlines Traffic rights without any hindrance. It has the most competitive rates in terms of landing and handling. It consists of the most modern equipment and infrastructure which can handle aircraft of all types and is complemented by professional, efficient and courteous staff (Sharjah International airport, government of Sharjah). The efforts of the government of Dubai has yielded fantastic results .The Emirate of Dubai boosts of not one but two international airports i.e. Dubai International airport (DXB) and Al Maktoum International Airport at Dubai World Central (DWC). These two airports in combination connect more than 78 million passengers to 280 destinations across six continents through some 140 airlines. In 2016 the passenger traffic is expected to surpass 85 million and by 2020 to surpass 100 million. Dubai is investing on long term projects to expand the infrastructural facilities. In the year 2011 Strategic Plan 2020 a US$7.8 billion airport and airspace expansion programme was launched to boost capacity at DXB from 60 million to 90 million passengers. On 24 February 2016 Concourse Dthe result of a $1.2 billion investment was opened to enhance service and boost capacity for some 60 international airlines that now provide 350 flights per day to 94 destinations around the globe at Dubai International, the world’s number one hub for international passenger traffic. Another expansion project is underway at DWC to increase its capacity to 26 million passengers by 2018. This project is the forerunner to the US$32bn expansion plan intended to make DWC the world’s largest airport with an annual capacity exceeding 240 million passengers a year and 16 million tonnes of freight (Dubai Airports Review 2015). Proceedings of 35th International Business Research Conference 30 - 31 May 2016, American University in the Emirates, Dubai, UAE ISBN: 978-1-925488-06-7 To lead the development of the aviation industry in Abu Dhabi ; Abu Dhabi Airports Company (ADAC) a public joint-stock company incorporated by Emiri Decree number 5, of March 4, 2006 was formed (abudhabi.ae). Abu Dhabi Airports wholly owned by the Abu Dhabi Government owns and operates the five airports at Abu Dhabi including the two international airports andplays an important role in the Government of Abu Dhabi’s Economic Vision 2030 (ADAC). During the past ten years the company has invested over 20 AED billion in capital development projectsacross all of its airport sites. Midfield Terminal Complex (MTC) is the biggest infrastructure project undertaken so far which will increase Abu Dhabi International Airport’s overall capacity to 45 million passengers per year (WAM). In order to develop the master plan for the expansion of Fujairah International Airport a memorandum of cooperation has been signed between Abu Dhabi Airports and Fujairah Airport. Through this Fujairah International will benefit from Abu Dhabi Airports' experience in planning and managing an airport expansion (arabianbusiness.com).The plan includes upgrade and extension of the existing runway, connect taxiways and replacement of the ground lighting and approach lighting systems as well as construction of a new ATC tower and parallel Visual Flight Rules (VFR) runway and taxiways (zawya.com). In the year 1976 Ras Al Khaimah International Airport was established to provide access between Ras al Khaimah and the world. It covers a variety of destinations including Europe, the Middle East, North & East Africa, Central Asia, Sub-continent and the Far East and offers both passenger and cargo services. In April 2007 a wide extension program was initiated to significantly upgrade the passenger terminal building, public transport infrastructure, and the building of new cargo terminal (RAK airport).Ras Al Khaimah International Airport is heading towards its next stage of expansion which includes six new aircraft gates, increase the number of check-in counters by 70 per cent and expand the retail space by at least 40 per centas it strives to become the major hub for low cost carriers in the Middle East. In 2017 the construction on the expansion will commence and once completed it would increase the capacity to 3.5 million passengers a year up from 1.5 million currently.Today, the airport directly connects to 12 destinations, out of which 10 are operated by Air Arabia, and with the launch of Qatar Airways flights in February 2016 it is one stopover from more than 150 destinations (Gulf News 2016). Proceedings of 35th International Business Research Conference 30 - 31 May 2016, American University in the Emirates, Dubai, UAE ISBN: 978-1-925488-06-7 6. Contribution of the UAE based airlines A number of UAE based airlines provide the cargo and passenger services from and to the UAE.On 25th October 1985, Emirates airlinebased at Dubai International Airport andwholly owned by the Government of Dubai started its flights with just two aircraft—a leased Boeing 737 and an Airbus 300 B4.After the initial start –up investment, the Government of Dubai saw fit to treat Emirates as a wholly independent business entity. Emirates had to face competition from the ever-growing number of international airlines that take advantage of Dubai’s open-skies policy yet it has been able to record an annual profit in every year since its third in operation (emirates.com). Today Emirates is the world’s largest international airline and it carried 49.3 million passengers and 2.4 million tonnes of cargo in the year 2014-15. It has a fleet of more than 230 aircrafts and serves 140 destinations in more than 80 countries across six continents. It has placedmany record-breaking multibillion plane orders to both Airbus and Boeing during the course of its existence.In 2011 it bought 50 B777-300ER aircraft, worth $18bn. At the 2013 Dubai Air Show another record-breaking order was made, for 150 B777X aircraft and 50 A380s, worth a combined $91.4bn.In 2014-15, Emirates added 24 new aircraft to its fleet, including its 50th Airbus A380 and 100th Boeing 777-300ER and also retired 10 older aircraft. Emirates airlinehas been able to manage the average fleet age of 75 months which is half the industry average of 140 months. In terms of the inflight services it has many firsts to its credit.In 1992 when it installed TV screens on the back of all seats, in all classes, it became the first airline to do so. In 1994 it provided the first in-flight fax service and email and SMS services in 2013.In October 2014, free Wi-Fi on board service was introduced.It invests over US$ 20 million annually to install and maintain Wi-Fi services across its fleet. It is also extending connectivity via strategic partnerships. On 31 March 2014 it formed the partnership with Qantas the Australian flag carrier. In earlier 2015 the partnership was extended to include codeshare and frequent flyer relationship on flights operated by Qantas’ domestic airline, Jetstar (The Emirates Group Annual Report 2014-15). Fly Dubailaunched its operations on June 1, 2009 from terminal 2 at DXB. It is owned by the government of Dubai and is the second low –cost carrier in the UAE. It flies to more than 90 destinations across the Middle East, Subcontinent, Africa, Russia and Eastern Europe and Proceedings of 35th International Business Research Conference 30 - 31 May 2016, American University in the Emirates, Dubai, UAE ISBN: 978-1-925488-06-7 operates on average more than 1,600 flights a week.The airline currently has a fleet of 50 new Boeing 737-800 aircraft and has more than 100 Boeing aircraft on order (Investment Corporation of Dubai). Etihad Airways the national carrier of the UAE was established by Royal (Amiri) Decree in July 2003. It started operations in November 2003 and has developed into one of the fastest growing airlines in the history of commercial aviation.Etihad Airways total fleet size is 120 aircrafts and isone of the youngest in the world and currently serves 116 existing or announced passenger and cargo destinations in 68 countries.It has partnership with a number of airlines such as Airberlin, Jet Airways and Virgin Australia.It’s codeshares give a combined passenger and cargo network of nearly 600 destinations, and over 25,200 flights per week, more than any other Middle Eastern airline. During the period 2016-2025 it would get 188 aircraft deliveries. In 2015, 17.4 million passengers travelled through Etihad Airways, a significant increase of 17 per cent over 2014 levels, and it operated 97,400 flights which covered 467 million kilometers.This formedmore than 75 per cent of the total passengers who travelled to and from Abu Dhabi International Airport that year. After adding the passenger traffic of the airline’s equity partners that operate flights into Abu Dhabi than it formed 84 per cent of passenger traffic at Abu Dhabi International Airport. In 2015 Cargo volumes touched 592,090 tonnes of freight and mail flown in total registering an increase of four per cent year-on-year. The airline accounted for 88 per cent of cargo imports, exports and transfers at Abu Dhabi International Airport in 2015. Air Arabia the first low cost carrier in the middle started its operations in October 2003. It has its head office at Sharjah and also runs fully-owned operations in Ras Al Khaimah, the most northern emirate in the UAE, and a joint venture in Egypt. On 19th September 2007 Air Arabia P JSC ("the Company") was incorporated as a Public Joint Stock Company in accordance with UAE Federal Law No. 8 of 1984 (as amended)to become the first publicly listed airline in the region. It islisted on the Dubai Financial Market and traded under ticker symbol: (DFM: AIRARABIA) as a holding company with assets worth over AED 11 billion. It serves over 101 destinations spread across the Middle East, North Africa, Asia and Europe. Air Arabia operates from five international hubs that are Sharjah International Airport, UAE; Ras Al Khaimah International Airport, UAE; Mohamed V International Airport in Morocco; Burj Al Proceedings of 35th International Business Research Conference 30 - 31 May 2016, American University in the Emirates, Dubai, UAE ISBN: 978-1-925488-06-7 Arab International Airport in Alexandria, Egypt; and Queen Alia International Airport in Jordan, Amman.In 2015, 23 routes were added to its network including the significant achievement of becoming the first low-cost airline from the Middle East and Africa to enter the Chinese market with the launch of regular non-stop services to Urumqi, the largest city in Western China. It’s this network expansion strategy that led to significant growth in the passenger numbers in 2015. More than 7.6 million passengers flew with Air Arabia in 2015, a 12 per cent year-on-year increase.Air Arabia fleet isone of the youngest fleets in the world comprised entirely of Airbus A320 aircraft. It has done heavy investment on the fleet and ordered 44 A320 aircrafts back in 2007. In 2015 Air Arabia received 6 new aircraft and thus had taken delivery of 36 out of the 44 A320 aircrafts ordered taking the fleet total to 41 Aircraft. Itrewarded the 55 million customers that chose to fly Air Arabia since inception by launching an award-winning low cost loyalty program ‘Airewards’ (Air Arabia Annual Report 2015). It also provides cargo services to more than 50 destinations across its network (airarabia.com). 7. Conclusion Since 1932 after making a humble beginning with the opening of the Sharjah International Airport; The UAE has come a long way in the air transport infrastructure.As per International Civil Aviation Organization(ICAO), every $100 of revenue produced by air transport triggers an additional US$325 in the economy and every 100 jobs generates on average 600 additional jobs in other industries ( Infrastructure Economics and Finance Network: The World Bank) .Realising the role that aviation plays in facilitating trade and tourism, and creating employment in many different industries; the government of the UAE along with its home airlines have made enormous efforts and investments in the aviation sector. The impact of the UAE based airlines is not limited to the country alone and it spreads to the number of cities and countries served by them. According to one reportEmirates Airline has contributed more than $848 million annually to India's gross domestic product (GDP), supporting over 86,000 jobs (arabianbusiness.com).These are not only making profits for themselves but are also contributing towards social responsibility by taking up various projects e.g. Emirates is actively involved with the Dubai Desert Conservation Reserve, a 225-square-kilometre natural reserve, in an effort Proceedings of 35th International Business Research Conference 30 - 31 May 2016, American University in the Emirates, Dubai, UAE ISBN: 978-1-925488-06-7 to preserve the natural and cultural heritage of the area (khaleej times, 2015). Supported by the strategic geographical location and efforts of the government and airlines the UAE has emerged as one of the world’s leaders in aviation. The present challenge is to maintain this advantage through effective long-term strategy and building the best infrastructure in the world. One of the Challenges faced is the congested airspace and if this problem is left unaddressed, traffic delays and fuel costs stemming from congestion could cost the industry Dh36 billion. Emirates has focussed on making Dubai the world’s busiest hub airport byoperating hundreds of routes with its own equipment, Etihad has followed the policy of alliances and partnerships, which has helped in creating an international network that is more flexible and cheaper to operate. These strategies complement each other and provide the aviation sector with room to be able to survive in a notoriously volatile market. Continued investment in the quality infrastructure and greater communication to make air traffic run smoothly will ensure long-term growth (the National 2016). References Abu Dhabi Airports celebrates its ten year anniversary, investing 20 AED billion in capital development projects. (n.d.). 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