19-Nov-2012 1:35 PM

UAE airports booming, may reach 80 million pax throughput in 2012; Dubai to become world's biggest

Analysis

The UAE has experienced a decade of relentless aviation growth. Separated by less than 120km, the three largest airports in the country at Dubai, Abu Dhabi and Sharjah have seen their traffic driven by their home carriers, Emirates, flydubai, Etihad and Air Arabia, each of which handles the majority of passengers passing through the airports.

This year could see the three airports reach a combined 80 million passenger throughput. With each achieving double digit growth, a combination of large order books for the local airlines and an increasing fleet of foreign carriers attracted to the market, the UAE airports are fast approaching the total airport traffic of New York City's system, stagnating at a little above 100 million passengers annually.

Despite a massive airport construction programme, capacity is being challenged and the restrictions on air traffic movements among the UAE and its neighbours are increasingly a constraint on efficient operation.

UAE airports

The three main UAE airports are on course to handle almost 80 million passengers in 2012, all while achieving double-digit growth. This is four times the amount of traffic they handled in 2002 and double the amount they handled in 2006. The largest of course is Dubai, Emirates' hub, but both Abu Dhabi and Sharjah and are growing fast, off smaller bases.

Abu Dhabi, Dubai and Sharjah airport traffic 2008 to 2012*

Over the first nine months of the year, the three airports have handled a combined 59 million passengers. If they meet their comparatively subdued projections, they will see at least 77.5 million passengers pass through their doors by the end of the year.

If their current growth rates continue over the last quarter of the year, combined traffic may just reach 80 million.

Dubai aiming to become the world's largest international airport

Leading the local growth is Dubai International Airport (DIA), home to Emirates and one of the region's fastest expanding LCCs in the shape of flydubai. Comfortably the Middle East's busiest airport, Dubai is also on its way to becoming the world's largest airport for international passenger traffic.

Traffic at DIA for the first nine months of 2012 reached 42.6 million passengers - almost exclusively international - an increase of 13.4% year-on-year.

Abu Dhabi International Airport passenger traffic: Jan-2011 to Sep-2012

The rapid expansion of Emirates and LCC flydubai are the cornerstone of growth at the airport. Emirates controls 60% of seats and 75% of capacity (in ASKs) at the airport and has been busy adding up to three widebodies per month to its fleet this year. The carrier handled 18.7 million passengers for the six months to the end of Sep-2012, up 15.4%.

flydubai has added a comparatively modest five 737-900ERs, but has another two aircraft due for delivery over the final two months of the year. Since the carrier's launch in 2009, it has rapidly expanded to secure around 10% of the seat capacity at the airport.

But Dubai is no longer an Emirates-only airport. More than 80 airlines fly into Dubai and the airport also continues to attract new airlines and add new destinations outside of the Emirates/flydubai pairing. Pegasus Airlines, NordStar Airlines and TransAvia have all added service to the airport over the past few months. Existing operators continue to raise capacity as well, particularly airlines from the Indian sub-continent, Africa and the Middle East. Qantas will also be diverting most of its long-haul European operations through Dubai once its Emirates partnership is sealed in 2013.

Cargo traffic has also continued to grow, although at slower rates than passenger growth. Freight levels at Dubai have built steadily through the year, in contrast to freight tonnage at most major international airports which has either declined or registered tepid growth. DIA handled 1,674,997 tonnes of cargo for the year to Sep-2012, an increase of 3.7% on the same period last year. During Sep-2010, cargo traffic was 193,261 tonnes, an increase of 9.1% and the highest monthly increase in tonnage since Oct-2010.

Dubai Airport is well on track to meet its target of handling 56.5 million passengers in 2012. This will bring the airport uncomfortably close to its design capacity of 60 million passengers p/a, but new capacity is due to come on stream at the beginning of 2013 with the new, Emirates-dedicated, Concourse 3 opening up.

Abu Dhabi Airport supported by - and supports - local economic development

Abu Dhabi International Airport (ADIA) is less than a quarter of the size of its big brother up the road at Dubai, but the level of growth it has witnessed this year is equally impressive, if not more so. For the first nine months of the year, ADIA handled 10.9 million passengers, traffic growth of 19.8%.

Sep-2012 traffic was up 14.5%, with the airport handling 1.2 million passengers. For the first time in the airport's history, ADIA has handled more than 1 million passengers every month of the year.

Abu Dhabi International Airport passenger traffic: Jan-2011 to Sep-2012

Like Dubai, Abu Dhabi possesses a strong and fast growing home carrier, this time in the form of UAE national carrier Etihad Airways. The airline controls around 70% of seats and 80% of capacity by ASKs at the airport. Etihad is only nine years old, but it has already built a network of 87 routes, including six added this year. Another four destinations - Addis Ababa, Washington, Sao Paulo and Ho Chi Min City - have already been announced for launch in either late 2012 or 2013.

Just as important to its growth has been Etihad's relentless build up of a global network of codeshares and alliances. Etihad has strategic shareholdings in Air Seychelles, Aer Lingus, Virgin Australia and airberlin. These partnership quadruple the number of destinations available to the carrier, providing vital behind-gate access to points in the US and Asia-Pacific and funnelling passengers onto Etihad's sixth freedom network through Abu Dhabi. The 38 codeshares and alliance agreements signed by the carrier also make a sizable contribution to Etihad's bottom line.

Cargo growth at ADIA has also been strong, more so than at Dubai. For the nine months to Sep-2012, freight tonnage at the airport increased 14.7%. Abu Dhabi Airports Company credits the continued strong growth of cargo at the airport to the ongoing development of Abu Dhabi as a trade and tourism destination.

The scale of the airline traffic development is helping Abu Dhabi meet its other goals. In September, the Abu Dhabi Tourism & Culture Authority reported that the Emirate was on track to meet its 2012 hotel guest target of 2.3 million stays. Guest arrivals at Abu Dhabi's hotels are up 15% this year.

Sharjah approaching capacity limits, but Air Arabia confident

Sharjah International Airport, base of the region's largest LCC, recorded a 12.5% increase in passenger traffic in the first nine months of the year, with a total of 5.6 million passengers. Highly profitable Air Arabia's passenger traffic over 1H2012 improved 11% while load factors have improved 3 ppts this year, with levels hovering around 85%.

Sharjah International Airport passenger traffic: Jan-2011 to Sep-2012

Traffic is up by more than 700,000 passengers on the same point last year, with just a 3.9% increase in aircraft movements. Part of this is attributable to Air Arabia's load factor improvement, as the carrier accounts for around 80% of traffic at the airport, both in terms of seats and ASKs. Another factor has been the steady increase in larger aircraft operating to the airport. Smaller regional jets and turboprops have been predominantly phased out at the airport, in favour of Airbus and Boeing narrowbodies, as well as the occasional widebody service from carriers such as Uzbekistan Airways and Sudan Airways.

Air Arabia has also been seeking to increase its operations into the high volume Indian market, where it operates to 13 destinations. Under the existing UAE-India bilateral agreement, access and seat allocations have been exhausted (despite coming from separate Emirates, access regimes are based on the volume which the UAE is able to negotiate, so Air Arabia competes with Emirates and Etihad for scarce resources). However, the carrier has been lobbying Indian aviation authorities to allow it to increase its number of Indian destinations to 20 and secure rights to operate more seats.

Sharjah is rapidly becoming a major hub for UAE-India flights. Around one third of the airport's capacity is dedicated to operations to/from India. After Air Arabia, the two biggest carriers at the airport are Air India and its low-cost unit, Air India Express. The two airlines operate more than 45 services per week between India and the UAE.

Premium airline traffic is shifting to the Middle East, anchoring airline flows

One feature which has much greater significance than mere numbers is the continuing expansion of premium traffic flows over the Gulf. As this valued traffic globally becomes harder to attract, the Gulf carriers, with their expanding networks, are increasingly improving their passenger value profile. This is important too for the region's airports as it tends to anchor in the viability of services, where business, corporate and other high value passengers are attracted. London's Heathrow has been a good example of the pulling power that premium flows attract. The main gateway to a major financial centre, its proportion of premium traffic leads the world. Despite the often less than attractive operating environment, with congestion, expensive slots, air traffic issues and the like, Heathrow remains a must-go airport which network airlines continually seek to serve.

With the rapid growth of the 'super-connector' airlines in the Gulf region, premium traffic has become increasingly important in the Middle East. The joint attractions of geographical convenience and superior service standards (including high frequency widebody service to most major cities in the world) has allowed the airlines and airports in the Middle East to divert premium traffic away from traditional sixth freedom hubs in Europe and Asia.

At London's Heathrow Airport, 16.0% of all seats flown (including premium economy) are in the premium category, according to Innovata data, against a world average of 7.0%. Paris Charles de Gaulle, also a reasonably high value market, has 10.5% of seats in this category. Meanwhile 12.4% of the seats through Dubai Airport are now premium; and Abu Dhabi has 11.5%. (The influence of Qatar Airways on neighbouring Doha Airport is also powerful, with 10.3% of seats through the airport composed of premium). These are powerful drawcards for airports as airlines seek to generate a solid base for their revenue profiles.

Since 2007, the share of global premium traffic connected to the Middle East has swelled from between 8% and 9% to around 12% to 14% of global premium traffic.

Middle East premium traffic and revenue share: Jun-2007 to Aug-2012

Much of this growth has been substitution away from European and some Asian carriers to the Gulf airlines, but the relentless growth of developing markets connecting to the Middle East has also contributed to the development of the regional premium traffic performance. Long-haul flights from fast growing markets such as Africa and Asia Pacific have been increasingly using the Middle East as a connecting hub.

Local premium traffic performance remains comparatively subdued and is much more dependent on local and global economic conditions than long-haul flights.

UAE creating the world's premier air transport network, while traditional hubs are starved of new capacity

The massive development of the UAE's airport infrastructure and the level of passenger growth gives the country one of the world's premier air transport networks, as well as one of the busiest local airport systems. With passenger operations at the immense Al Maktoum International Airport in Dubai set to commence from 2H2013, the scale of the UAE's airport network will be eclipsed only by cities that have historically been at the heart of international air transport.

London still plays home to the world's busiest air transport system, yet the UAE's airports are rapidly catching up. Passenger flows in the UAE doubled over the past five years and are forecast to double again by 2020, reaching more than 150 million p/a.

London's five major airports - Heathrow, Gatwick, Stansted, Luton and London City - handled 133 million passengers last year. However, growth in the southeast of England is constrained by airport capacity, and the seeming intractable political opposition to new airport development or the expansion of existing facilities. New York's major airports handled 105.5 million, and growth over the past three years has averaged just 1.5% growth, also approaching their own capacity limits.

UAE, London and New York area airport traffic: 2009 to 2011

This stands in direct contrast to the relationship between the various UAE local governments and their airports and the local carriers. Dubai's two airports alone will add a combined capacity for another 20 million passengers next year, including the Emirates-dedicated Concourse 3 at DIA. Capacity for another 90 million passengers will be added in Dubai over the next decade. Abu Dhabi will see capacity for another 27-30 million passengers p/a added by 2017, with the development of the new Midfield Terminal Complex. In line with the Emirate's planning for the future, the terminal complex will ultimately have capacity for 50 million passengers p/a.

To support the development of the UAE's major carriers, as well as broader national development goals, billions are being invested in development of aviation infrastructure. Overall, aviation contributes just under 15% of the UAE's GDP, a figure that will only increase as the country's major airlines continue to grow. In Dubai, aviation is expected to generate 22% of total employment and 32% of the Emirate's GDP by 2020.

DIA aims to eclipse London Heathrow as the world's single largest airport for international passenger traffic by 2020. This is a target that even London Heathrow operator BAA admits is likely, given that the airport is already operating in excess of 99% of runway capacity. Dubai expects to handle almost 100 million international passengers p/a by 2020, and has forecast an average annual growth rate for passenger traffic of 7.2%.

Dubai International Airport passenger traffic forecast: 2010 to 2020

Separated by less than 120km, the three largest airports in the UAE now represent an immensely complex aviation system. The major problem on the horizon is not capacity on the ground, but capacity in the air. IATA director general and CEO Tony Tyler recently warned that the Gulf region is "already nearing crisis levels" and air traffic management delays are the "arch enemy of any successful hub".

Airspace constraints mount as traffic grows

Regional solutions will be needed to sort out airspace congestion, otherwise bottlenecks in neighbouring airspace will hamper growth just as much as congestion in local airspace. The UAE has been proactive about engaging its neighbours in airspace development. On a local level, there are a number of efficiency and capacity enhancement projects ongoing at Abu Dhabi and Dubai.

UAE airspace map

Otherwise there is little to stop the burgeoning growth

The UAE's airport network is set to become every bit as dense as similar networks in Europe, Asia and North America. These networks serve cities with vastly greater local populations than the combined populations of Abu Dhabi and Dubai.

However, the UAE is not thinking locally but globally. With one third of the world's population within four and a half hour's flight and two thirds of the world's population within eight hours flying time, the UAE's airports and airlines will increasingly connect the globe.