New Airline, New Figures

Economic News

22 Jul 2010
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While officials in Abu Dhabi were announcing the start of a new, cut-price airline last week, new figures showed that it is not just aircraft that have been leaving the Emirates in recent years. Capital too has been heading overseas in large amounts, making the UAE the top player in inter-Arab investments.



Flights with the new airline, Etihad, were launched November 5, with commercial operations due to begin this week. Capitalised at Dh500m, with its 500 million Dh1 shares all owned by the Abu Dhabi government, the airline is able to claim status as the UAE's national carrier. In accordance with this, Etihad was established last July via a decree from His Highness Sheikh Khalifa bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces.



"We have the distinction of being designated the UAE's national airline and I can assure you that we do not take that responsibility lightly," said Dr Sheikh Ahmed bin Saif Al Nahyan, Etihad's chairman, aboard the launching, ceremonial flight.



Etihad's arrival is unlikely to be taken lightly by its rivals, either. It is now the fourth airline in the UAE, with Emirates, Gulf Air and the recently launched Al Arabia from Sharjah also in the market. In addition, Abu Dhabi also has an international charter aircraft service, Royal Jet, which is 100% UAE owned.



However, sector analysts were generally upbeat about the impact Etihad would have on what might appear an overcrowded market.



"The launch of Etihad Airways is good for the future of the aviation industry," James Hogan, president and chief executive of Gulf Air, told Gulf News on November 5. "Another airline will mean more competition which is good for the customer, the industry... It will be business as usual for Gulf Air," he added.



In support of this viewpoint, analysts also point to the rising amount of air traffic in the region, with tourism recently growing by significant amounts.



However, others argue that if Etihad does well, this might oblige Abu Dhabi to refocus attention on its own airline and leave Gulf Air to Bahrain and Oman. Qatar pulled out of loss-making Gulf Air two years ago.



"Gulf Air might be impacted in the sense there could be an overlap of routes," an air industry analyst told Gulf News November 5. "Judging from the aircraft that Etihad Airways plans to acquire, it seems initially it will operate short-haul services and on these routes there could be a clash with Gulf Air."



Etihad's fleet currently consists of two leased Airbus A330-200 aircraft, with plans for future expansion. Meanwhile, the first destination of November 5's ceremonial flight was Al-Ain, also in the UAE. The airline will initially operate three times a week to Beirut, with this service to be followed with flights to Damascus and later with other Middle Eastern destinations, the Indian subcontinent, the Far East and the UK.



Meanwhile, also leaving the UAE for other Middle Eastern destinations over the last 17 years has been some USD7.38bn of inter-Arab investments.



These figures were announced by the Kuwait-based Inter-Arab Investment Guarantee Corporation (IAIGC), an affiliate of the Arab League, also on November 5. They showed the Emirates as being the dominant player in the inter-Arab capital market, with UAE investments in other Arab countries making up more than a quarter of the total inter-Arab capital movement of around USD26.28b pumped around between 1985 and last year.



Official figures showed the UAE also ranked third in the 21-member Arab League in attracting regional investment, with an estimated USD2.39bn over the same period. The bulk of the UAE's investments in the region were in Saudi Arabia, which received nearly USD6.53bn of Emirates capital.



Over the same period, Arab investments in the UAE totalled around USD2.39bn, with the bulk of these funds coming from Lebanon, which invested nearly USD804m. Other key investors in the UAE were Syria, with around USD375m, Egypt with nearly USD221.7m, Sudan with about USD209m, and Saudi Arabia with USD157m.



As for total foreign direct investment (FDI), the UAE was an important destination during the 1990s, with a record inflow of around USD260m in 2000. However this fell to a net outflow of USD156m in 2001, further demonstrating the Emirates role as a net capital exporter.



Yet, while the figures do show the important place the UAE has in the regional capital import and export market, the IAIGC figures also show that the Arab world was still in a relatively lowly position in terms of total world FDI - which was around USD735.2bn in 2001. The Arab world received a mere 0.8% of that total.



However, as Etihad took off, perhaps its success -- and of other companies like it -- may also bring back in the future more FDI on its returning flights.

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