Overcapacity may impact UAE aviation sector yields

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By Issac John  www.khaleejtimes.com

DUBAI — To improve the profitability of the UAE aviation industry and ensure its sustained growth, policy makers should refrain from building overcapacity, Dubai Chamber of Commerce and Industry said in a study.

“Building excess capacity beyond the underlying demand for aviation service will lead to declining yields as airlines will find it economically feasible to lower prices to fill extra seats rather than the economics of allowing seats to go empty,” Dubai chamber said in its latest study, “UAE: The region’s 
aviation hub.”

As UAE carriers continue to expand fleet, the country’s eight international airports are undergoing continuous upgrade and renovation, the 
study said.

While Abu Dhabi International Airport has an $8.6 billion redevelopment plan, the Sharjah Airport Authority has initiated a project for a second runway, which is expected to begin in 2010 and complete in 2012.

The Abu Dhabi airport development project envisages the construction of a Midfield Terminal Building that will house the operations of Etihad and will handle 20 million passengers 
per annum.

Dubai’s $33 billion new Dubai World Central airport and the integrated free zone logistics city is by far the biggest single project in the world, the
 study said.

Al Maktoum airport in Jebel Ali will comprise a multi-transport mode logistics hub and an international airport with five runways and a capacity for 120 million passengers and 12 million tonnes of cargo per annum, the study 
pointed out.

“Once fully completed, this capacity will equal the current capacity of London Heathrow and Frankfurt’s Rhein-Main airport combined,” the
study said.

The projected capacity of the new Dubai World Central airport at 110 million passengers by 2012 is bigger than the combined capacity of Dubai International Airport and Abu Dhabi International Airport. It is twice as much as the projected capacity of 60 million passengers per annum in 2012 by
 Doha airport.

Since 2006, leading UAE airlines — Emirates and Etihad — have emerged as a serious global competitor to the established carriers in Europe and Americas, Dubai Chamber 
study observed.

Due to the imbalance between insufficient regional demand and expanded aviation capacity, UAE’s major airlines have adopted a strategy to redirect the international traffic flows from Europe and the Americas to the region, the study noted. “As a result, major players particularly in Europe and Asia are directly impacted.”

The main growth driver of the UAE aviation sector is the massive capacity expansion in both infrastructure 
and fleet.

This expansion of capacity in infrastructure and aircraft, which has been underway for the past few years, is expected to continue through the short to the medium term. “Almost all major airports in the UAE are witnessing extensive expansion while airlines continue to build up their fleet. The modernisation and expansion of the infrastructure will result in efficiency gains that should keep up pressure on ticket prices,” the study said.

Dubai’s  Emirates airlines is the fast expanding airline in the world. Through their sustained fleet expansion plans, the UAE air carriers will become the world’s largest long-haul carriers. The Emirates airline is the largest buyer of all new long-haul aircraft (about 70 per cent of all new orders in the Middle East).

The study noted that by 2012, Emirates airline plans to more than double its all-wide body fleet capacity. “Once all these aircraft are in use, the airline will emerge as the world’s largest long-haul carrier.”

While aircraft orders of Gulf carriers represent real fleet expansions, aircraft orders placed by other leading international carriers are mainly used to replace existing capacity, the 
study observed.

issacjohn@khaleejtimes.com

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