Dubai Chamber study reveals UAE aviation as a global competitor

These investments consist of fleet expansions and immense airport extensions and development projects. Since 2006, major UAE airlines, the Emirates and Etihad have emerged as serious global competitor to the established carriers in Europe and the Americas, according to a recent study released by the Dubai Chamber of Commerce and Industry.

Due to the insufficient regional demand to match the expanded UAE aviation capacity, the strategy of UAE major airlines is to redirect the international traffic flows from Europe and the Americas to the region.

As a result, major players particularly in Europe and Asia are directly impacted. The aim of this study is to look at the progress process of the UAE aviation sector and to investigate the impetus factor of growth on the supply side.

Capacity Building and Fleet Expansion:

From the supply side, the main driver for the growth of the UAE aviation sector is the massive expansion of capabilities, being infrastructure capability or vehicle capability. This massive expansion of capabilities has been seen for the last few years and is expected to continue in the short to the medium term, both in terms of ground services infrastructure and aircrafts.

Almost all UAE major airports are witnessing extensive expansion as well as placing record orders for new passengers and cargo aircrafts. The modernization and expansion of the infrastructure will result in efficiency gains which should keep up the strong pressure on ticket prices.

The Emirates airline is planning to more than double its all-wide body fleet capacity by 2012. Once all these aircrafts are in use, it is expected that the airline will be the world's largest long-haul carrier. It has been argued that, whilst aircraft orders of Gulf carriers represent real fleet expansions, aircraft orders placed by international incumbent carriers are mainly used to replace existing capacity.

Network Expansion:

To efficiently operate with the strategy of expanded fleets, the air travel carriers are simultaneously expanding their networks globally, which will guarantee feeding more number of passengers into the aircrafts acquired.

Airports Renovation and Expansion:

While expanding their aircraft fleets, UAE airports are also at the forefront of continuous upgrade and renovation.

The UAE has eight international airports. According to Business International Monitor, 2010, Abu Dhabi International Airport has a US$ 8.6 billion redevelopment plan, which includes construction of the Midfield Terminal Building which will house the operations of the UAE's national airline Etihad and will handle 20 million passengers per annum.

The Sharjah Airport Authority disclosed that the bid for the construction of the second runway will be offered soon, where construction is expected to begin in 2010 and to be completed in 2012.

The US$.33 billion new Dubai World Central airport and the integrated free zone logistics city is by far the biggest single project. Dubai's new 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 tons of cargo per annum. Once fully completed, this capacity will equal the current capacity of London Heathrow and Frankfurt's Rhein-Main airport combined.

Industry observers are concerned about the huge capacity building and infrastructural expansions. Those have argued that, there is an extent beyond which the industry may face the problem of overcapacity that exceeds the underlying and the induced demand for the UAE aviation sector.

To improve the economic outcome of the UAE aviation industry and sustaining its growth, industry policy makers are advised to eliminate all factors that can lead to the industry overcapacity and future decreasing yields which can be achieved by meticulously attuning the industry growth plans to the outlook for the growth in the underlying demand. Growth in underlying demand is normally driven by factors such as increases in income, trade and changes in taste.

Building excess capacity beyond the underlying demand for the 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.