The man overseeing the world’s largest airport investment programme discusses the impact of the global downturn on the aviation sector, and reveals how Dubai’s long-term vision remains in place.
Dubai’s megaprojects have always aroused admiration and scorn in equal measure. But until now, the relentless growth of the emirate’s economy has meant cautionary voices could be safely ignored.
Prudence became a dirty word in the world’s financial capitals before the current downturn, but while Dubai has not been alone in discovering that its aura of invincibility was merely that, the emirate’s extravagance was greater than most.
Paul Griffiths arrived as chief executive officer of Dubai Airports in August 2007, when the upward curve of expansion was at its steepest. At the Dubai Airshow in November 2007, Emirates Airline unveiled orders for more than 90 new long-haul aircraft, worth $35bn.
Aviation has been at the forefront of the emirate’s transformation. Spearheaded by the extraordinary growth of Emirates airline, Dubai has established itself as a new inter-continental aviation hub, linking East and West.
“[About] 97 per cent of all people who arrive in Dubai come by air, and 40 per cent of them do not pass immigration,” says Griffiths, speaking to MEED at the operator’s headquarters at Dubai International airport. “The airport probably sees more people each year than all the other major establishments in the city put together.
“We feel that we are vital to the infrastructure of Dubai and an engine of economic sustainability. We have to continue to grow and not constrain demand.”
There seems little danger of supply failing to meet demand. Griffiths has inherited responsibility for the largest programme of airport investment in the world. In October 2008, Dubai International airport opened its third passenger terminal and construction work began on a third concourse. By 2011, the airport will have capacity for 75 million passengers.
Down the road at Jebel Ali, the first phase of the Al-Maktoum International airport is scheduled to open, with cargo and executive passenger services, from June 2010.
“The runway and runway lighting are done,” says Griffiths. “The control tower is physically complete, and we will begin installing and testing systems soon.”
Few projects in Dubai have been as divisive as the plan to build the world’s largest airport, with capacity for 160 million passengers. For some, the construction of Al-Maktoum International is a logical requirement of Dubai’s growing influence in global air travel. Emirates’ new aircraft will need a home and the current airport will run out of space fast if the Middle East aviation boom continues.
However, Dubai is already an estimated $70bn in debt and dependent on federal assistance to meet its obligations. The Middle East aviation market has held up well compared with the rest of the world, but has dipped sharply in recent months. In the current circumstances, critics claim the new airport’s eye-watering $33bn price-tag defies economic sense.
When Griffiths arrived in the job, he was repeatedly asked why expansion was continuing at Dubai International, when it was to be eclipsed by Al-Maktoum International. It is a sign of the times that this line of questioning has now been reversed and that Griffiths has become accustomed to fielding questions about when or if the new airport will be built.
The Dubai rumour mill is in full swing. One day stories circulate that the project will be indefinitely postponed or cancelled, the next that it will become a UAE-wide airport run jointly by Dubai and Abu Dhabi.
|October 2007 to date||Chief executive officer, Dubai Airports|
|2004-2007||Managing director, Gatwick Airport, BAA|
|1990-2004||Director, Virgin Travel, Virgin Group|
|1986-1990||Developed marketing, commercial planning and technology functions, Dragonair, Hong Kong|
“As soon as there is a hiccup in the market or financial system, the human response is to believe that white is black and black is white,” says Griffiths.
“Why should the long-term view over 20-40 years change because of what we hope is a temporary financial situation. It might elongate the timescale but we know we will outgrow this airport, therefore we have to have a new one. We are talking about an airport that will take eight years minimum to build.
“It took 16 years to build Terminal 5 at Heathrow [in London], so why would we change our strategy because there is a hiccup in the financial markets for a while.”
The current downturn may well affect the immediate timescale for construction, but Griffiths stresses the long-term nature of the business. The fundamentals that have underpinned Dubai’s growth in aviation remain true, he says. Passenger numbers continue to rise, while Emirates is still growing as an airline.
At the same time, however, Griffiths concedes that passenger traffic growth in 2009 will be far below the double-digit growth of recent years. “January is looking good, with 6.5 per cent growth, which is where we think we will end up for the year,” he says. “Clearly, it will not be double-digit growth, but we will stay in positive territory.”
If realised, 6.5 per cent growth would take passenger numbers through Dubai International to almost 40 million this year, barely more than half the 75 million passenger capacity that will be available by 2011. Moreover, Griffiths has already begun planning for a fourth terminal at the current airport, which would add capacity for at least 5 million more passengers.
Although he remains bullish about the prospects for growth, Griffiths is candid in his appraisal of the market in the short term. The operator is now preparing to keep its head-quarters at Dubai International for longer than was intended when the new airport was launched in 2005.
By maximising capacity at the current airport, Dubai Airports is giving itself the freedom to delay the development of Al-Maktoum International, if falling demand or financial constraints continue to hamper growth.
Furthermore, it is cheaper to expand existing facilities than to build from scratch at Jebel Ali. Extending the life of Dubai International will give the operator greater freedom to push back the phasing of construction at Jebel Ali, if required, and provide a cushion against future growth.
“If it proves we do not need the stream of capacity in the timescale we originally envisaged, or it is not possible to build it in that timescale - we have the flexibility of building it in phases,” says Griffiths.
“We will need a new airport, but there is an optimisation of this airport that will keep it alive for longer at fairly low cost.”
“We are confident that the combination of those two masterplans working together will deliver the capacity to exist at this airport for longer than originally planned, but it will also give us the ability to seamlessly transfer to the new airport when the time comes.”
The current focus should be on efficiency, he adds. “Focusing on people and processes and optimising what we already have can be an awful lot cheaper than building your way out of the problem.”
This would appear sensible, and is the anti-thesis of the “build it and they will come” philosophy that has guided Dubai’s investments for so long.
Inevitably, however, this shift in tone again leads to questions about the future of Al-Maktoum International. Is there still the need for the new airport, and does Dubai still have the means to pay for it?
“Sheikh Mohammed [bin Rashid al-Maktoum, ruler of Dubai] has gone on record as saying he will prioritise the airport development and, as far as we are concerned, there is no change in that plan,” says Griffiths.
However, the crisis in international debt markets has already forced groups to pull out of bidding for London’s Gatwick airport, which Griffiths used to run and is currently up for sale by UK airports operator BAA. Has he sought or been given government assurances that the money needed for Al-Maktoum International is still available?
“We do not need to seek assurances because our spending is incremental,” says Griffiths. “If you are asking whether cash flow is sufficient to sustain investment in the project, the answer is yes. Up to now it is. That is all I am interested in - can I keep the pressure on and maintain progress?”
Griffiths’ work has not been confined to the airports. The operator has also been closely involved with the next stage of Dubai’s overall transport strategy. In recent months, this has brought him into conflict with the emirate’s Roads & Transport Authority (RTA) over the route and funding for the Purple line of the Dubai Metro.
Griffiths insists that the proposed route for the line, which directly links the two airports but skirts around the city centre, does not best serve the city’s needs.
With the RTA postponing work on the line for up to a year to look again at the emirate’s rail masterplan, Dubai Airports has submitted an alternative scheme for rail lines linking the two airports to a central terminus, via the city’s main commercial and residential districts.
“As far as we are concerned, the Purple line situation is absolutely clear,” says Griffiths. “Where the rail capacity is needed is between the airports and the popular residential and commercial areas of Dubai. I do not think there is a business case for an inter-airport link, and I have made that clear from the day I arrived.”
However, Griffiths is aware of the importance of maintaining good relations with the RTA, if Dubai Airports is to achieve its own plans. “We value our relationship and need to work together to overcome these challenges,” he says. “We will not get to 80 million capacity here [at Dubai International], and certainly won’t get to 160 million at Jebel Ali, if we don’t get the road and rail links right.”
For now, Griffiths will focus on the development of his two airports, aware that in the current market there is little he can do to halt the rumours surrounding his flagship project. The current airport will welcome FlyDubai, the new state-owned, low-cost carrier, in the coming months, and Griffiths is satisfied that his business will quash the doubts in the long term.
“Ultimately, 75 or 80 million capacity will not be enough for the expansion plans of Emirates, or the positive growth that we have seen from the other carriers at the airport,” he says. “Air travel is still an aspirational commodity for people, they want more not less, and that remains the case despite this temporary downturn.”
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