Eye on aviation: Carriers and airport operators are investing in infrastructure, while efforts to establish a local aerospace industry proceed apace

A big part of the emirate’s economic strategy is based around aviation. Building up good air connections is key to its bid to position itself as a regional business centre, attract growing numbers of tourists and, more generally, to enhance its image abroad.

ON GROWTH PATH: In 2011, according to figures from Statistics Centre – Abu Dhabi (SCAD), transport and storage accounted for 2.6% of GDP. Although Abu Dhabi has five airports, the largest and most important by far is Abu Dhabi International Airport (ADIA), run by Abu Dhabi Airports Company (ADAC), a 100% government-owned firm.

As of May 2012, ADIA served more than 90 destinations in 50 countries. In 2011, the airport recorded a total of 12.4m passengers, a 12% increase on the 10.8m registered in 2010. According to figures from ADAC, passenger numbers at the facility grew at a compound annual growth rate (CAGR) of 18.5% between 2006 and 2011, and the company forecasts a CAGR of 7.9% up to 2020.

In fact, data released by ADAC indicated that growth in both passenger numbers and cargo traffic at ADIA for the first eight months of 2012 exceeded that of Dubai International Airport. As noted by James Bennett, the CEO of ADAC, the airport has had continued success in attracting additional operators. Indeed, a total of six new airlines commenced services to the airport in 2012, including RAK Airways, Alitalia and Rotana Jet.

New airlines and more routes ultimately provide an opportunity for growth in the emirate’s tourism sector and overall economy, ADAC’s Bennett said. “The annual economic impact in tourism alone of an additional daily long-haul service into Abu Dhabi is estimated at approximately Dh100m ($27.22m).”

However, the main source of aviation growth has been Etihad Airways. According to company figures, in 2011 the airline handled 8.3m passengers, up 17% on 2010, while revenues were $4.1bn, up 36% on $2.98bn in 2010. In 2011, the company booked a profit of $14m, going into the black for the first time. As of May 2012, it served 87 destinations, operating 187 flights a day. New routes to Washington and Sao Paolo in Brazil were due to open in January and June 2013, respectively, with the latter marking Etihad’s first foray into the South American market. Founded in 2003, the carrier is constituted as a public limited company with the Abu Dhabi government as the sole shareholder.

REGIONAL TREND: Part of the reason Abu Dhabi has been witnessing strong growth is because of expansion in the broader regional aviation market. The Middle East – and the Gulf states in particular – has weathered the global recession of the past few years better than countries in the West, and buoyant intra-regional demand linked to the growing markets of Asia has contributed to growth in Gulf aviation. At the same time, ADAC figures show that the Gulf was a major contributor to growth in world demand, with revenue passenger kilometres increasing by 19.7%, compared to a worldwide rate of 8.2%, and available seat kilometres by 13.1%, compared to a global average of 6.6%. Passenger numbers are essentially outstripping airlines’ capacity across the entire region.

With capacity expanding rapidly at ADIA, Abu Dhabi may well be able to carve out a role as a major east-west transit centre. Moreover, the addition of new airlines and routes will likely bring more visitors to the emirate, which could in turn boost its tourism sector and the economy more generally.

CAPACITY UPGRADE: To avoid a potential supply crunch, both carriers and airport operators are having to invest in new capacity. According to numbers from ADAC, the UAE as a whole is set to spend $19bn on new aviation infrastructure, while the country’s airlines have $118bn in new aircraft orders over the 2012-20 period. Etihad itself commissioned up to 205 aircraft at the 2008 Farnborough Airshow, of which 100 were firm orders, 55 were options (which guarantee the price of the aircraft and delivery date) and 50 were purchase rights (guaranteeing the price, but not the delivery date). Of the firm orders, these included 10 Airbus A380s, 41 Boeing 787-9 Dream-liners and four freighters.

INVESTING IN INFRASTRUCTURE: For its part, since its creation in 2006, ADAC has had to invest constantly to keep pace with the growth at ADIA. Terminal 3, which acts as Etihad’s hub, was opened in 2009, while the refurbishment of the old Terminal 1 was completed in 2011, making for a more pleasant passenger experience, which led to the airport winning the 2012 award for “Best Airport in the Middle East” at that year’s Skytrax awards. In the same year, it was certified as a four-star airport, the first in the Middle East to receive such an award.

However, growth projections have been such that in 2010, ADAC decided to build a new terminal at ADIA, known as the Midfield Terminal Building (MTB). Upon completion in 2017, the MTB will accommodate up to 65 aircraft and handle up to 8500 passengers per hour, an added capacity of 30m passengers a year, bringing total annual capacity at the airport to 47m passengers. Taking completed work into account, total investment in the development plans and projects to increase airport capacity is around $6.8bn. In June 2012, ADAC awarded a consortium of Athens-based Consolidated Contractors Company, Turkey’s TAV and local contracting group Arabtec the contract to build the 700,000-sq-metre MTB, at a price of Dh10.8bn ($2.9bn).

Until the MTB is built, however, ADAC has undertaken a number of other measures in recent years to ensure that the airport is able to handle the growth in passenger numbers. These include opening Terminal 3, a dedicated facility for Etihad, in 2009; refurbishing Terminal 1, which was completed in 2011; and adding new parking facilities.

COMPETITION: The new capacity comes in response to growing passenger demand, but part of the rationale behind it is to help maintain Abu Dhabi’s competitive edge. Although the regional market has been growing steadily, competition remains intense.

This carries over to the regional airlines as well, where margins are tight, as is the case worldwide. In addition to Etihad, two other major Gulf carriers, Qatar Airways and Emirates, are competing for the same east-west transit business, and on the face of it they have very similar offerings and hubs that are very close together. While this is not necessarily a problem in itself – after all, several major air hubs in Europe, such as Amsterdam and Frankfurt, are in fairly close proximity – this factor does enhance competition. Moreover, the UAE’s aviation industry is run on strictly commercial lines, and does not benefit from state subsidies. For the moment, however, growth in the industry is sufficient to ensure that all carriers are continuing to expand their operations.

BUILDING A LOCAL INDUSTRY: The expansion of the regional aviation market has led many carriers to rapidly expand their fleets. A common practice in international aerospace contracts is to offset part of the value of a contract by performing some of the work in the buyer’s home country. The scale of recent Etihad purchases, combined with high levels of federal defence procurement, has led a number of international aerospace groups to establish partnerships in Abu Dhabi, laying the foundations for an indigenous aerospace industry to complement the existing aviation industry (see Defence and Aerospace chapter). A number of these have located in Al Ain, which, according to plans, will be developed as the centre of an aerospace cluster. Already, several firms have set up maintenance, repair and overhaul facilities locally, as well as assembly and manufacturing services, such as Strata, a manufacturer of composite material for aeroplanes. In the shorter term, demand for pilots in the region is strong and two training institutes, Horizon Flight Academy in Al Ain and Al Ain International Aviation Academy, train pilots and maintenance personnel, respectively.

In addition to Etihad and other large international carriers, the Gulf region is also home to a number of low-cost airlines, such as Bahrain Air, Air Arabia and Jazeera Airways, many of which serve Abu Dhabi, but none of which are based there. While Air Arabia has taken advantage of Sharjah International Airport’s proximity to Dubai to turn it into its main hub, Al Ain International Airport is unlikely to position itself as a budget airport. The requirements of the developing aerospace industry and flight schools mean passenger capacity at the airport is constrained, although its location, just over an hour’s drive from Abu Dhabi and Dubai, means there is potential to develop into a cargo and logistics centre.

Rotana Jet, the first domestic airline of the UAE, has made considerable inroads into the aviation industry following its establishment in late 2010. The budget carrier recently launched routes from Abu Dhabi City to a number of UAE destinations including Fujairah, Sharjah and Ras Al Khaimah, respectively. Plans are also in the pipeline to incorporate Al Ain into this emerging picture. There is potential to connect Abu Dhabi City with Dubai, although plans are somewhat premature at the time of writing. Rotana Jet’s flights connect with international ones to ensure passengers transfer smoothly to long-haul destinations. Indeed, the airline is predominantly targeting leisure and business travellers, although it is not affiliated with its namesake hotel brand.

PRIVATE AVIATION: One area of air travel which is flourishing is private aviation, with Al Bateen Executive Airport, part of the ADAC family, recording a 26% growth in aircraft movements year-on-year over the first four months of 2012. A number of private aviation firms operate in Abu Dhabi, including Royal Jet, a subsidiary of Abu Dhabi Aviation (ADA), one of the largest commercial helicopter firms in the region, in addition to Falcon Aviation Services and XO Jet. Proximity to the booming Saudi market, combined with robust local demand, means prospects for this segment are strong. “Private aviation is a good indicator of economic health,” said Nadir Al Hammadi, the chairman of ADA. “We have seen an increase in business over the last year, so this is a positive reflection of where the market is headed.”

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The Report: Abu Dhabi 2013

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