Given the current global economic climate, 2010 is a difficult year to open a new airport. But on 27 June, Dubai’s long-awaited new Al-Maktoum International airport at Jebel Ali will officially open. Construction has been completed on the first of the airport’s six proposed runways, but only cargo operations will launch this

With a runway able to handle new generation A380 aircraft, phase one comprises 64 remote stands, a cargo terminal and a dedicated road that links the airport directly to the port of Jebel Ali.

The airport is owned by Dubai Airports, the company that also owns and manages Dubai International airport located in Garhoud. The firm plans phased growth at Al-Maktoum International, ultimately expanding it to handle 12 million tonnes of cargo and 150 million passengers a year. The now complete phase one has been valued at $820m, while phase two is expected to cost some $10bn.

Cargo growth

Last year, Dubai International was the fourth busiest cargo airport in the world, serving 120 airlines and handling nearly 1.8 million tonnes of cargo. In 2007, it was the world’s 11th busiest airport.

All the cargo investment is being concentrated at the new [Al-Maktoum] airport in Jebel Ali

Andrew Walsh, Dubai Airports

The growth in cargo mirrors the expansion of Dubai-based Emirates airline, which accounts for around 70 per cent of total aircargo uplift at the airport. Despite the recession, Emirates saw a 1.4 per cent increase in cargo volumes in 2009, with healthy domestic and regional demand offsetting an 18 per cent drop in intercontinental airfreight.

During the economic boom, it was forecast that Dubai International would soon struggle to cope with the levels of domestic and international passenger and cargo traffic passing through it.

Faced with mounting congestion, the authorities announced plans for Al-Maktoum International, billed as the world’s largest airport, and decided to locate it near Jebel Ali’s port and freezone to boost intermodal movements of air-sea cargo. Dubai Airports expects cargo traffic to exceed 3 million tonnes by late 2015, representing a 50 per cent increase over the next five years. This year, the company forecasts a 12 per cent increase in air cargo volumes.

“Dubai International airport has capacity for 2.5 million tonnes of cargo,” says Andrew Walsh, vice-president for cargo and logistics at Dubai Airports. “And it handled nearly 1.9 million tonnes in 2009. Already, the first four months of 2010 have seen a 24 per cent compound increase in cargo, so we’re on course to handle more than 2 million tonnes this year.

“A lot of this cargo arrives as bellyhold cargo on passenger flights, but there are constraints when it comes to increasing cargo capacity at Dubai International, and there is no significant investment in cargo under way. All the cargo investment is being concentrated at the new airport – its location makes it the ideal multimodal cargo hub,” he adds.

Al-Maktoum International forms the centrepiece of the $33bn Dubai World Central (DWC) development. DWC, launched at the height of the boom in global trade, symbolised everything about Dubai that was bullish and confident, bracing itself for a future built on untrammelled growth in real estate, trade and tourism.

Logistics hub

DWC comprises six elements: Al-Maktoum International airport, Aviation City, Dubai Logistics City, Commercial City, Residential City and Golf City.

Dubai has given priority to the freight and logistics developments in particular, to support the projected growth in tourism, trade and aviation to 2050 and beyond. The logistics city and new airport are intended to secure trans-shipment growth at Jebel Ali port, support growth in air passengers and freight, and attract assembly, logistics and freezone companies.

The decision to locate DWC on a 140 square kilometre site at Jebel Ali reflects the shift in Dubai’s centre of gravity from the Bur Dubai/Deira area. Al-Maktoum International airport is now on the outskirts of the emirate’s built-up area and Jebel Ali Free Zone (Jafza) has played a major role in this shift.

According to Dubai Civil Aviation Authority, the airline industry accounts for about 25 per cent of Dubai’s gross domestic product (GDP).

Jafza generates around a quarter of the containerised goods that pass through Jebel Ali port – now the sixth-largest port in the world – and 12 per cent of Dubai’s airfreight. Building the new airport near Jebel Ali will allow Dubai to plan for growth in trans-shipment, logistics and shipping.

To support this strategy, in 2009, the government launched Dubai Logistics Corridor, billed as the Middle East’s first multi-modal logistics platform, to capitalise on the emirate’s air, sea and overland connections, and secure its position as the leading regional transport hub.

Dubai Logistics Corridor is a partnership between Dubai Aviation City Corporation and Economic Zones World, a subsidiary of state-owned conglomerate Dubai World. It aims to cut trans-shipment times from four hours to less than one hour, making Dubai one of the most efficient logistics hubs in the world.

Al-Maktoum International is intended to support cargo growth at Dubai Logistics City, which will be built on a 25 sq km site in Jebel Ali. Dubai Logistics City will be a centre for warehousing and transport providers, with a mix of common-user and dedicated space. Confirmed tenants to date include Germany’s Kuehne & Nagel, Jordan’s Aramex, local RSA Logistics and Eagle Industries.

Back when all these projects were planned, the economic prospects for Dubai looked strong. But then came the financial crisis. The emirate’s real estate market collapsed, visitor numbers stagnated and growth in air and seafreight trans-shipment ground to a halt. Airfreight volumes dropped by 10 per cent worldwide last year.

Work slows

Despite the crisis, work on DWC has continued. By April, the government had committed nearly $5bn to DWC so far, most of it to fund the construction. Initially, Dubai expected to complete all construction work at Al-Maktoum International by 2025. But now with short-term forecasts for passenger and airfreight volumes less positive than they were, Dubai has yet to unveil the tender packages for the airport’s second and third construction phases.

Whereas previously the race was on to complete Al-Maktoum International, this year has seen much less congestion at Dubai International airport. Originally, DWC expected airlines to compete for space at the new airport, now, it is uncertain whether any carriers will switch operations to Jebel Ali in time for the cargo launch.

Emirates’ current fleet comprises 145 aircraft, and the airline has placed orders worth $49bn for an additional 146 aircraft over the next 12 years, with 50 A380s to be delivered by 2013.

The carrier had planned to move its entire operation to the new airport from the outset. But now, the airline says it plans to stay at Dubai International for the coming decade, following the opening of a dedicated terminal in 2009. In April, Emirates president Tim Clark announced the airline would not switch operations to Al-Maktoum International before 2022 at the earliest.

Despite Emirates opting to stay put, Walsh says operations will start at Al-Maktoum International with freight customers in place. But with only days to go before the launch, he was unwilling to release names before the official opening. “We are talking to all the major airlines, to new operators and to charter operators,” he says. “And those talks are in the final stages of negotiation. But we do have a number of customers signed up.”

Dubai Airports has put together a package of financial incentives to encourage airlines to move to Al-Maktoum International, one for carriers that sign up in time for launch date, another for those that will come in later.

“It’s necessary for any new airport to offer incentives to attract customers, even though we believe that Dubai World Central is already a good proposition in its own right,” Walsh says. “We are talking, after all, about the first phase of a multi-modal facility that is near to Jafza and to a road network connecting Dubai to the rest of the GCC.

“There are good reasons, in the first place, for airlines to come to the new airport. But we are working with Dnata [a major supplier of air travel services in the Middle East], and Dubai Logistics City to offer a package that includes competitive office and warehouse rental, parking fees and other elements.”

Expansion of Dubai International means passenger operations are under less pressure than two years ago, so Dubai Airports will not launch passenger flights from Al-Maktoum International until March 2011 at the earliest.

Dubai Airports is raising annual capacity at Dubai International to 90 million passengers a year, above the 75 million passengers originally planned. Concourse three, a $1.2bn extension to the airport, will open in late 2012. Its 20 contact stands are equipped to handle A380 aircraft.

There is also scope to increase passenger capacity at Dubai International’s terminal two, which has been expanded to create a hub for local low-cost carrier Flydubai. The terminal can handle up to five million passengers a year, but its operations are restricted to regional, charter and specialist flights.

Dubai Airports was set to announce whether to replace or expand this terminal as MEED went to press.

With the possibility to expand terminal two to handle up to 20 million passengers, Dubai International has sufficient space to handle mid-term passenger demand.

It makes good sense to use existing passenger facilities and limit disruption, but in terms of logistics, the pressure is on the Dubai authorities to prove that the second airport was a necessary investment.

Securing funding

Following Dubai’s real estate crash, private investors will demand a solid business case before committing to new commercial and real estate ventures. Dubai must prove Al-Maktoum International can attract first cargo, then passengers, if it is to persuade banks to finance future phases of DWC.

One such project is Aviation City. Dubai’s Department of Civil Aviation will decide later this year whether to offer the project on a build-own-transfer basis. Dubai Airports declined to discuss timescales and sources for future funding.

The next few months will prove critical. Unless Al-Maktoum International can attract significant cargo volumes this year and next, investors will be reluctant to buy into Dubai’s grand vision for logistics.

If the airport’s first phase attracts customers, it will strengthen the case for investment not only in the $10bn second phase of expansion at Al-Maktoum International, but also in the wider DWC development as a whole.