UAE aviation strategy faces challenges

17 May 2017

Authorities are looking eastward for future growth

Ongoing expansion works at UAE airports are expected to increase current capacity by close to 100 million passengers annually by 2025.

This additional capacity will come primarily from the Abu Dhabi Midfield Terminal Building and the expansion of the passenger terminal at Al-Maktoum International and a new terminal at Sharjah International.

This forecast excludes the planned 145 million a year capacity that would be generated by the first phase of Al-Maktoum International’s mega expansion scheme.

It must be noted that these schemes were conceived when passenger throughput at these airports was growing at a double-digit rate annually and were clearly going to exceed their capacities way before new or additional facilities are built.

However, except for the smaller Sharjah and Al-Maktoum International airports, passenger traffic growth in Abu Dhabi and Dubai International slowed rather significantly in 2016.

Etihad Airways, and to a lesser extent, Emirates Airline, also suffered from weaker yields despite low fuel prices, due to a combination of political uncertainties, strong dollar, and Qatar Airways’ unrelenting campaign to gain market share.

Even low-cost airline Air Arabia is feeling the pinch, reporting lower revenue and profit growths in the first quarter of 2017.

Even a recovery in oil prices, though remote, will have an uncertain impact to the airlines’ financial performance.

At best, a recovery in oil price will put airlines that are not making money at an even greater risk, according to a study conducted by CAPA – Centre of Aviation. In the same vein, airlines that are making money now have embedded risks such as high costs making it harder to recover once higher oil price returns.

UAE airports capacity (million passengers a year)
 

2016

2025f

Abu Dhabi International

15

45

Sharjah International

8

25

Dubai International

92.5

118

Al-Maktoum International

5

31

Total

120.5

219

Sources: Airport companies; GCAA; MEED

The question in most peoples’ mind today is: does the UAE really need to deliver all the planned capacity to schedule, or would it be more prudent to wait and see how the market evolves over the short- to medium-term?

As the current scenario proves, planning an airport expansion is very tricky. “Timing is everything, you can’t upgrade or expand too soon or too late,” says one consultant.

As it appears, aviation and airport authorities in the UAE are now looking eastward for the answer. Asia Pacific, particularly China, with its rapidly expanding population and economic activities, young population and growing middle class, will be the world’s fastest growing aviation market well into the 2030s. And the UAE airports, along with their regional competitors, just lie within an eight-hour flying distance of this market.

If all aviation forecasts turn out to be correct – with China expected to displace the US as the world’s largest aviation market before 2030 - and assuming a conflict in North Korea is avoided, it does appear that an eastward looking strategy could be the right one. It also perhaps justifies proceeding with the airport expansion projects as planned.

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