Aviation industry in UAE will add 37.5% to its GDP by 2020

The sector is expected to contribute nearly USD 54.45 billion (Dh200 billion) to the country’s economy by 2020, providing up to 750,000 jobs. It means the aviation sector will contribute 37.5% to the UAE’s GDP by 2020.

Definition / Scope
Market Overview
Market Risks
Top Market Opportunities
Market Trends
Industry Challenges
Technology Trends
Pricing Trends
Regulatory Trends
Market Size and Forecast
Market Outlook
Distribution Chain Analysis
Competitive Landscape
Competitive Factors
Key Market Players
Strategic Conclusion
References

Definition / Scope

The UAE consists of seven emirates:

Abu Dhabi
Dubai
Sharjah
Ras Al Khaimah (it acceded to the new federation in February 1972)
Ajman
Umm Al Quwain
Fujairah

The commercial aviation industry is the network of commercial aircraft operators, airports, air navigation service providers, and manufacturers of aircraft and their components. It is responsible for connecting both the short and long haul, providing millions of jobs and making the quality of life convenient.

Aviation sector provides the only rapid worldwide transportation network, which makes it essential for global business and tourism. It plays a vital role in facilitating economic growth, particularly in developing countries.

Market Overview

Dubai International (DXB is the world’s number one airport for international passengers and second for international freight. Passenger traffic totaled 88.24 million in 2017 while there was a travelers’ flow of 43.74 million for the first six months (Jan-Jun).

Abu Dhabi Airport (AUH) is the UAE’s second-busiest commercial airport with the annual 500,000 aircraft capacity.

Sharjah airport handled 10.97 million passengers in the first eleventh months of 2018. In 2017, total passengers flow was 11.37 million via 77,627 aircrafts movement.

Globally, 4.1 billion passengers were carried by 41.9 million commercial flights for departure, arrival, and transfer. The Middle East represents 4% of the total passenger traffic worldwide.

The aviation sector in total contributed an estimated 2.4 million jobs and a USD 130 billion support to GDP in the Middle East in 2016.

There exists 13 commercial airlines based in the UAE but operates worldwide. Six commercial airports connect the whole UAE with the rest of the world. 309,640 flights took place from airports in the country and to the country.

UAE’s connectivity ranking stands at 6 out of 205 countries analyzed by ICAO Air Transport Bureau ranking each country based on the number of countries and territories that can be easily reached from it by air, with the actual number of countries or territories that can be reached directly or with one stop in square brackets. Airport accessibility in the UAE is measured at 82.68%, which is above the global average for all countries being 74.41%.

The UAE constitutes 49.3% of the total fleet size in the GCC aviation sector. Air Arabia and Flydubai are the low-cost carriers (LCCs) of the region, while the Emirates and Etihad Airways are full-service carriers (FSCs).

Market Risks

Airlines are highly affected by the price of oil. A slight hike in fuel price can cause a huge increase in the cost of each trip. It is estimated that just a USD1 increase per barrel of oil can cost the global airline industry an additional USD1 billion a year. This risk is outside the control of individual airline company.
The airlines’ industry has been disrupted by the emergence of low-cost carriers. The risks of price-cutting by competitors are more of a problem in the airlines industry than any others.
The airline is risky business around the world with high CAPEX and low-profit margins.
A slight slowdown in the global economy can have a devastating effect on air travel. The number of business trips and holidays during times of economic crisis and can have an impact on the profitability of the airline business.

Top Market Opportunities

The UAE has established a brand reputation with excellent national airlines such as Emirates Airline and Etihad Airways emerging successful at an international level.

Being strategically located at approximately an eight-hour flying distance from two-thirds of the world’s population, the Gulf acts as a central aviation hub and a key link between the eastern and the western world.

Maintenance, Repair, and Overhaul (MRO)

MRO stands at an estimated USD 3.8 billion, accounting for approximately 6 percent of the global market. Emirates Airline spends 30% of the total MRO spending. Etihad Airways makes only 9% expenditure on MRO. Engine overhaul is the main segment of the Middle East aircraft MRO market, constituting around 42 percent of the overall spend.

Other market segments include airframe heavy maintenance (22 percent), component overhaul (19 percent), and line maintenance (17 percent).

Another area of opportunity, the Aerospace Manufacturing industry is also on the rise. In Al Ain, Abu Dhabi’s second city, the UAE government is developing a dedicated aerospace and aviation cluster, the Nibras Al Ain Aerospace Park. Strata, a composite aerostructures manufacturing company, is located in the Nibras Al Ain Aerospace Park and manufactures for the biggest players in the industry, e.g. Airbus and Boeing.

The aggressive expansion of the GCC carriers also requires a large number of skilled personnel to fly the new aircraft and poses a need for a bigger cabin and ground handling staff.

Market Trends

The geographic location combined with the fleet expansion and the expanding airport infrastructures is some of the key growth drivers.

Strategic location:

With its strategic location and unmatched airport infrastructure, the UAE is poised to take advantage of growing air traffic between the eastern and western parts of the world. Its central position connects more major global destinations via a single non-stop flight than any other hub.

The data shows there are around 2 billion people within 2.5 hours’ reach by air from the Middle East. Businesses are moving to the region for this very reason that the travel links and connections are so good. It is much easier to connect with many parts of the world from here than from many other cities or key hubs in various locations around the world.”

Standing as the linchpin for trade routes between Europe and Asia, the United Arab Emirates is a key point on aviation’s new Silk Road. With no snow to shovel off runways and no unions to strike–and within an eight-hour flight from two-thirds of the world’s population–Dubai has swiftly become a perfect air link.

Fleet expansion:

Etihad Airways increased the number of aircraft operation to 121 in 2015 from the previous year’s 110 fleets. The UAE is investing more than USD 23.16 billion in the aviation infrastructure that will help its four national carriers with a combined fleet size of 502 aircraft to serve more than 75 million passengers annually.

In 2017, the Dubai-based carrier – the largest operator of wide-body aircraft in the world – grew its fleet by 21 new aircraft, with nine A380 and 12 Boeing 777-300ER deliveries, rounding off the year with 269 aircraft and 243 aircraft pending delivery.

Airport Infrastructure expansion:

Dubai has emerged as the major air cargo hub of the Gulf Region, mainly due to its world-class infrastructure. Both it’s airports, Dubai International Airport and Dubai World Central, are capable of facilitating fast transit of freight from sea to air.

They harbor the capability to transfer full container loads between the quayside at Port Rashid or Jebel Ali to the Dubai International Airport, or vice versa, within as less as six hours.

The UAE’s key airlines, as well as airports, are undergoing substantial expansion aimed at increasing the overall capacity. Following the expansion, the country’s carriers will become better equipped at accommodating increased cargo and passenger traffic.

‘Mega airports’ for passenger and cargo traffic are established and expanding. Al Maktoum International Airport (which is part of the $33 billion USD Dubai World Central development in Jebel Ali) has the ambitious vision to become the world’s largest airport by 2022.

UAE companies and state agencies will invest over USD 136 billion in the aviation industry over the next decade to diversify the economy and make the country a global transport hub.

Ajman International Airport is a newly proposed project having USD 571 million budget and Al Maktoum International Airport Expansion project is undergoing construction at USD 33 billion budget.

Favourable demography:

Population growth of around 3 percent between 2013 and 2018 coupled with a high proportion of expatriates, who travel frequently to their native country, are likely to be key drivers for the UAE aviation sector.

The UAE has one of the highest levels of GDP per capita with USD 40,698 in 2017 in the Middle East. In the future, the income levels are likely to grow, resulting in the expansion of the ‘High Net Worth Individual’ segment.

Tourist influx:

The UAE’s growing recognition as a leading destination for leisure and business travellers will continue to draw a large number of visitors to the country. A total of 15.8 million tourists visited Dubai in 2017. In the first nine months of 2018, 11.58 million people traveled to Dubai.

Access to cheap aviation fuel

The GCC region has the largest proven oil reserves in the world. It has almost 500 billion barrels (bbl) of crude oil, representing more than one-third of the world’s crude oil reserves. The vast oil reserves ensure a stable supply of aviation turbine fuel for the region’s carriers at costs lower than that for their global competitors.

In general, air travel has a high price elasticity of demand (i.e. is highly sensitive to changes in price). The imposition of an additional form of green taxation on the price of air travel, in addition to the existing taxes, fees and charges already levied in many jurisdictions, means the overall demand for air travel is negatively impacted.

Accidents and crashes

In 2017, there were 4.1 billion passengers traveling by air worldwide. With a total of 50 fatalities for scheduled commercial departures, the year of 2017 had a global fatality rate of 12.2 fatalities per billion passengers, representing the safest year ever on the record for aviation.

The year-over-year accident statistics indicate an increase in both the total number of accidents as well as the accident rate.

In 2017, the number of accidents increased by 17 percent compared to 2016 with 88 accidents reported by States. With scheduled commercial international and domestic operations accounting for approximately 36.6 million departures, around 5 percent increase from 2016, the global accident rate also increased by 12 percent, from 2.1 accidents per million departures in 2016 to 2.4 accidents per million departures in 2017.

Industry Challenges

Jet Fuel Crisis

The first half of 20017 saw prices drift lower, but that trend was reversed in the year’s second half. Oil and jet fuel prices ended the year around 20% higher than at the beginning of the year. The impact of the increase, though, was not equal across the regions.

Jet fuel prices have continued to rise with oil prices and the base rate is forecasted on an average price of $84/b this year, and $70/b for the Brent crude oil price.

Fuel is such a large cost that it focuses intense effort in the industry to improve fuel efficiency, through replacing the fleet with new aircraft, better operations and efforts to persuade governments to remove the airspace and airport inefficiencies that waste around 5% of the fuel burned each year.

Shortage of skilled labor

The UAE-based airlines have major expansion plans to meet the growing demand for air travel. A key requirement for implementing these plans is a proportional increase in skilled labor in the form of pilots, cabin crew and maintenance personnel. However, the region is likely to face a shortage of labor in the coming years.

The regional aviation industry10 would require more than 35,000 new pilots and 50,000 new technical personnel over the next two decades.

The UAE aviation industry is heavily dependent on expatriates for skilled labor. In fact, almost 90% of pilots of major airlines, such as Etihad Airways and Emirates Airways, are expatriates. In addition to skilled expatriates, there is a need for skilled local people to increase their participation in the aviation sector to address recruitment-related challenges in the long term.

Technology Trends

Companies across the sector are collaborating to reduce emissions using a four-pillar strategy of new technology, efficient operations, improved infrastructure and market-based measures to fill the remaining emissions gap.

Precisely, modern jet aircraft are 75% quieter than the models that first entered service, and each new generation of aircraft continues this downward trend.

Digital guest innovation

To accelerate the delivery of the next generation Digital Guest Experience, airlines are collaborated with Digital companies to support the design and delivery of the solution.

By virtualizing main contact centers and migrating all subsidiaries to the solution in partnership led to an improved guest experience as the call waiting times reduces significantly.

Core airline services

Companies are identifying opportunities for technology standardization across the value chain and its equity partners to reduce cost, improve efficiency, and drive value.

The activities involve migrating from the current Revenue Management application to the cloud solution, delivering significant financial and business benefits through a common cloud platform.

Virtual display

Airlines are incorporating cutting-edge technology, for instance, Emirates’ new fully enclosed private suites have brought several world-firsts to market, including: ‘virtual windows’ in the middle aisle using real-time fiber-optic camera technology, a NASA-inspired ‘zero gravity’ seating position, and a personal video call service for the First Class customers.

Design details such as personalized lighting and climate control features within the suite were inspired by the luxury automotive brand Mercedes-Benz

Pricing Trends

Basic fare includes only flight service while Value fare offers baggage, meal, and seat options. And Extra fare covers modification and cancellation.

Analysing the yearly trends, overall, there has been a slight change of 7% in fuel price in 2018. In January, the jet fuel price went up from USD 1.82 to USD 1.95. Then the price went down near the previous month’s rate and leveled off during February and March. After that, there was a dramatic surge in oil price and hit USD 2.16.

In the next four months market saw a slight increase in price followed by an insignificant price down in July. The rate touched the peak of USD 2.25 in October before going down drastically in November.

Regulatory Trends

Airline operations globally produced 859 million tonnes of carbon dioxide (CO2) in 2017, just fewer than 2% of the total human carbon emissions of around 40 billion tonnes. To minimize the environmental risks, aviation are required to commit cap on its net carbon emissions while continuing to grow to meet the needs of passengers and economies.

Global:

In 2016, the International Civil Aviation (ICAO) Assembly adopted a global Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Under CORSIA, aircraft operators will be required to purchase offsets, or “emission units”, for the increase in CO2 emissions above 2020 levels covered by the scheme.

The UAE made a surprise announcement that will allow full foreign ownership of companies and grant-long term visas to select investors and professionals.

Market Size and Forecast

Aviation makes up the largest part of Dubai’s economy. According to industry reports, the industry accounts for almost 20 percent of the workforce and 28 percent of the Emirate’s GDP. The contribution of the new airport to GDP is expected to grow to 35 percent at full expanded capacity. In Abu Dhabi, the contribution of the aviation sector to GDP is 2.9 percent (USD 19.45 billion).

International passenger traffic is expected to grow at 5.8% over the next two decades. Revenue Passenger Kilometres (RPKs) grew 5% in 2018. The Middle East constitutes 9.5% of the world air passenger market.

The air transport supports on average 6, 90,000 jobs.

The aviation sector is a crucial economic pillar for Dubai, accounting for more than 27 percent of Dubai’s GDP, or USD 26.7 billion, according to Oxford Economics. In total, the combined aviation segment of Dubai and Abu Dhabi contributes USD 46.15 billion to the economy.

Fleet size of major players: The combined fleet size of the four UAE airlines reached 502, including Emirates fleet of 268, Etihad Airways 120, FlyDubai’s 61 and Air Arabia’s 53.

Market Outlook

In the Dubai Airshow 2017, Boeing accounted for an estimated 65 percent of new order value over Airbus. Emirates made a deal to buy new forty (787-10) Dreamliners. The current list price for the deal is USD 15.1 billion.

Emirates will receive the medium twin-aisle plane from 2022. Likewise, Azerbaijan Airlines placed a new order for five earlier models of the same aircraft, the 787-8 Dreamliner with the deal valued USD 1.9 billion.

Moreover, Ethiopian Airlines signed a contract to buy four 777 freighters. The list price for that deal was USD 1.3 billion. Also, Flydubai made a deal for two hundred twenty-five 737 MAX planes, holding a list price of $27 billion. Finally, Kazakhstan’s SCAT Airlines made an agreement for the purchase of six Boeing 737 MAX 8s. That deal is valued at USD 674 million.

Airbus on the other hand, Golden Falcon Aviation signed a memorandum of understanding (MoU) for 25 of Airbus’s popular A320neo aircraft. Although the contract value was not unveiled, the list price for one A320neo is approximately $108 million, giving a total order of $2.7 billion.

After that, Airbus turned its order of 430 jets from the A320 family, worth a list price total of $49.5 billion. Airbus signed off at Dubai with a $500 million deal to sell Air Senegal two A330neo wide-body aircraft. That makes total list price of USD 47.6 billion for Boeing and Airbus made commercial deals in Dubai tallying up to USD 52.7 billion.

Distribution Chain Analysis

Airports

The three major airports of the UAE, Dubai International Airport, Abu Dhabi International Airport and Sharjah International Airport handled approximately 123 million passengers in 2017.

This growth is concurrent with the expanding passenger seat capacity of local airlines, a large inflow of tourists, and the country’s increasing importance as a global transit hub.

Manufacturing and MRO

Mubadala and Boeing signed a USD 2.5 billion agreement in which Mubadala, through Strata, will supply advanced composites and machine metals to the US planemaker.

These components will be used in the new Boeing 787 Dreamliner and the 777X. Boeing will support Strata in developing production facilities of desired quality. This will allow the UAE economy to further evolve in the aerospace manufacturing and technology industry, which creates jobs for trained Emirati.

Airlines

The total of 13 airlines companies with the combined fleet size of the four major carriers reaching 502 connects the UAE with the rest of the world.

Indirect Industries

Indirect industries are simply defined as the aviation supply chain, which includes businesses such as fuel suppliers, construction companies, and a host of professional service providers.

Competitive Landscape

The four major carriers of the UAE are Emirates Airline, Etihad Airways, Air Arabia, and Flydubai. The first two are full-service carriers (FSCs), while the last two are low-cost carriers (LCCs). Emirates Airline is Dubai-based while Etihad Airways is based in Abu Dhabi. Both airlines enjoy local government support as well as strong brand recognition due to their high service standards and international connectivity.

To strengthen their global presence Emirates and Etihad continues to augment their flight frequency along existing routes while embarking on new ones. Both carriers have plans to expand their fleet size aggressively in the future. Emirates Airline is the leading customer of Airbus A380, the world’s largest passenger aircraft.

The leading LCCs in the Middle East, Air Arabia, and Flydubai, are also UAE-based and are gradually increasing their share in the short- and medium-haul passenger traffic segment. The operational performance of the country’s LCCs has been impressive in the recent past.

Air Arabia’s sound market positioning in the short and medium-haul passenger traffic segment is highlighted by a robust growth in its number of passengers. Like Air Arabia, flydubai demonstrated strong growth since the commencement of its operations. It has carried a total of 10.4 million passengers since its launch.

The UAE accounted for around 70 percent of the GCC’s airfreight volume in 2018. Almost 59% of the total fleets operated by Emirates are Boeing.

Competitive Factors

Branding: After setting up all values an airline has to maintain the same standards and to deliver promises, airline companies are making an airline trustworthy and build a relationship with a customer.
Service Delivery: Modern fleet, luxurious designs in a premium cabin, beautiful lounges and modern shower spa’s on board are the distinctive advantage that major players are competing on. For example, For the customer flying in First Class cabin, Emirates prepared the own private suits. Their passengers can enjoy seats that convert to a fully flat bed with mattress and blankets.

Key Market Players

The major commercial airlines of the UAE region include Emirates Airline, Etihad Airways, Air Arabia, and flydubai.

Emirates Airline

Emirates is the world’s largest operator of wide-body aircraft, and it also operates a sister company under the brand flydubai. During 2015-16, Emirates added a record 29 new aircraft to its fleet while retiring nine older aircraft to maintain the average fleet age at a youthful 74 months, compared to the industry average of 140 months.

Emirates remains the most valuable airline brand for the 5th year consecutively and is worth US$ 7.7 billion according to Brand Finance. It operates the world’s largest fleets of Airbus A380 and Boeing 777 aircraft.

In 2015-16, Emirates carried 51.9 million passengers and 2.5 million tonnes of cargo across 151 destinations in 80 countries from Dubai.

It operates the fleet of 269 all wide-bodied aircraft that connect people and opportunities across its global network of 157 destinations in 84 countries. Also, Emirates SkyCargo continues to lead the global air cargo industry as the world’s largest international cargo airline measured by freight tone kilometers flown (FTKMs).

Emirates is worth USD 5,336 million in terms of brand value.

Emirates Airline has been named ‘Airline of the Year’ at the 2018 Air Transport Awards. It has also won World’s Best Inflight Entertainment award for the 14th year in a row at the prestigious Skytrax World Airline Awards 2018.

Other awards won:

Middle East’s Leading Airline
Middle East’s Leading Airline Brand
Middle East’s Leading Business Class Airport Lounge
Middle East’s Leading Cabin Crew

Etihad Airways

Etihad Airways posted a record net profit of USD 103 million in 2015. The profit grew up by 41% from the previous year’s profit. Similarly, it witnessed 18.9% increment in passengers carriage in 2015 from 14.8 million passengers carriage in 2014. It added 11 aircraft in a single year in 2015 to make the total aircraft reach 121 while there was an insignificant addition in the number of destinations in 2015.

In 2015, Etihad Cargo accounted for 88 percent of the air cargo imports, exports, and transfers at Abu Dhabi International Airport. It operates in more than 55 countries.

Etihad is worth USD 1,393 million in terms of brand value.

Some of the Awards won by Etihad Airways during 2015 includes:

Air Transport World Awards
Airline of the Year
World Travel Awards
World’s Leading Airline (seventh consecutive year)
World’s Leading Airline – First Class
World’s Leading Airline – Inflight Entertainment
World’s Leading Cabin Crew
World Travel Awards Middle East
Middle East’s Leading Airline
Middle East’s Leading Cabin Crew
Middle East’s Leading Airline – First Class
The Aviation 100 Awards
Airline of the Year
Cargo Airline of the Year
Best Airport Lounge in the Middle East

Air Arabia

It is a low-cost airline operating from the UAE. The airline operates scheduled services to 151 destinations in the Middle East, North Africa, the Indian subcontinent, Central Asia and Europe to 22 countries from Sharjah, 28 destinations in 9 countries from Casablanca, Fez, Nador and Tangier, 11 destinations in 8 countries from Ras Al Khaimah, and 6 destinations in 4 countries from Alexandria. Air Arabia’s main base is Sharjah International Airport. Air Arabia’s current fleet consists of 53 new Airbus A320 aircraft.

Strategic Conclusion

The aviation sector plays an important role in the UAE’s economy by providing connectivity through the only rapid worldwide transport network. In doing so, the direct and wider impact on jobs and GDP is enormous. Moreover, the industry has a direct impact on other industries by facilitating growth and supporting functions such as tourism as the most impactful sector.

Aviation sector will transform the oil-dependency of Emiratis towards a service economy in the long run.

Driven by a highly-focused ambition to make the world’s leading aviation ecosystem in delivering an innovative and world-class experience, the UAE has made huge strides to ensure its air transport stable and robust.