Aviation Expansion

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The expansion of Abu Dhabi's aviation industry is having a direct impact on the numbers of visitors to the emirate and hotel occupancy rates.

Etihad Airlines has been actively adding new planes to its fleet and continues to expand service to an increasing network of international destinations.

Kevin Brett, the general manager of the Hilton Abu Dhabi told OBG that the airline's expansion has impacted tourism growth in the emirate. He stated, "In 2004 the occupancy at the Hilton Abu Dhabi finished the year at 56%, whereas in 2005 we finished at above 85%. This huge jump in occupancy was largely underpinned by the emergence and growth of Etihad airlines bringing large numbers of tourists to the emirate."

The airline's fleet will see the addition of an A330 next month, followed by the arrival of an A340-500 long-range aircraft. These purchases will bring the total size of the fleet to 24 aircraft with 10 more on the way in 2007. Meanwhile, Etihad is also continuing its geographic expansion adding two new destinations over the next two months, bringing the total to 36.

Etihad's growth coincides with plans for Abu Dhabi Airport's infrastructure expansion.

The airport has already been supplemented by a second terminal, which has brought its handling capacity to 2m passengers a year. This was opened at a cost of Dh21bn ($6.8bn) in August 2005. However, Etihad's rapid expansion means that the volume of traffic and trade is already opening up a need for even further expansion.

The government has created a new operating company, Abu Dhabi Airports Company (ADAC), with the authority to oversee the development of the airport through a number of outsourcing initiatives. The company, set up under Presidential decree in March, will be empowered to operate, manage and maintain airports in the emirate. This marks a departure from the old structure under which the department of civil aviation was responsible for the regulation, operation and development of all aviation matters. Regulation at the local level will now be dealt with by the department of transport, as ADAC assumed formal control of the operation and development of the airport this week.

Khalifa al-Mazroui, the chairman and managing director of ADAC recently told local media that one of the purposes of the company was to facilitate the growth of Etihad rather than capping its expansion. As a result, the interim solution of providing a new terminal for the dedicated use of Etihad was established. The interim terminal and the development of a new runway will increase the capacity of the airport to five million by the end of 2007.

Meanwhile, some observers are concerned that expansion may outpace demand.

The development of Etihad and the new airport are a reflection of and a stimulus for Abu Dhabi's economic growth and diversification ambitions. The airport will aim to serve this growth; however, it is also a reflection of the expansion of the industry at a regional level, which is leading to greater competition that may lead to over capacity. For example, with the establishment of a new airport at Jebel Ali, which will eventually have a handling capacity of 120m passengers and 12m tonnes of cargo annually, the UAE will have three major airports.

However, Gordon Dixon, the CEO of Oasis Leasing, a substantial player in the aircraft leasing industry, told OBG that he felt that this dramatic increase in the airport's capacity would be sustainable.

He also pointed to even more opportunity in the sector.

Dixon alluded to low-cost air travel as an area of potential growth, telling OBG, "The growth of low-cost carriers will be huge. The market is very under-served, the demand is there and the histories of low-cost carriers show that they create demand. The biggest factor, however, is the expatriate community who would be able to return home to see their families on a more regular basis."

These infrastructural developments will also be completed in time for the arrival of Etihad's order of the A380 airbus, the biggest passenger aircraft in the world. In addition, ADAC will also be looking to develop a free zone at the airport within the next twelve months.

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