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LONDON, U.K. – June 9, 2010 – Governments around the world could learn from Dubai’s aviation model to stem the flow of red ink and improve the financial sustainability of an industry that generates 8% of global GDP.
“Airlines worldwide have lost some $50 billion since 2001,” said Paul Griffiths, CEO, Dubai Airports in a speech delivered to the U.K. Aviation Club today. “It’s clear the current model is completely and utterly broken. As we work to repair it, Dubai’s approach can provide some valuable insight.”
Dubai has a thriving aviation sector that features the third busiest airport for international passenger and cargo traffic, the world’s largest single airport retail operation and one of the fastest growing and most profitable airlines on the planet. Last year while global aviation recorded the worst demand decline in post-War years, Dubai International recorded 9.2% passenger traffic growth making it the world’s fastest growing major international airport in 2009. Annual passenger numbers are forecast to grow from 41 million in 2009 to 98 million in 2020 and 150 million passengers by 2030.
Griffiths cited three factors behind Dubai’s success – pro-aviation government policy, industry-government partnership and a vision that embraces the changing industry dynamics driven by globalisation.
Pro-aviation PolicyAviation generates 25% of Dubai’s GDP a fact that has led to its inclusion in the Emirate’s strategic plan and a long-standing Open Skies policy. "Most governments around the world treat aviation as a pariah and choke its growth with costly, misdirected regulation and parasitic forms of taxation whose revenues usually flow straight out of the sector,” said Griffiths. “Sadly the UK Government is top in class in this regard. The Air Passenger Duty serves only to pad the Treasury’s coffers. And its recent decision to stop the construction of a third runway at Heathrow effectively snuffs out the considerable economic growth aviation can drive in an already beleaguered economy. Dubai has done the exact opposite."
Griffiths noted critics often confuse Dubai’s pro-aviation policies with subsidisation. "Allegations of a tax free environment are indeed correct – but we aren't the only tax free environment in the world and the policy applies to all companies operating in Dubai,” he clarified. “Emirates Airline is run as a fully commercial business and is treated like any other airline operating into Dubai International in terms of airport and landing charges. The airport is government owned, however, it is run efficiently, it is cash positive and revenues generated are reinvested into infrastructure.”
Government/Cross-Industry PartnershipGriffiths pointed out that the alignment of government agencies and industry partners has also boosted growth and efficiency as resource planning, facility investment and expansion are coordinated and supportive of airline growth strategies and fleet acquisition plans.
Griffiths added that greater collaboration, information sharing and use of existing technologies across the aviation value chain is also needed to streamline airport processes, improve the customer experience and boost retail revenues.
“Almost 50% of the time a customer spends at an airport is absorbed by cumbersome and non-commercial processes - at an opportunity cost as high as US$35 billion per annum,” said Griffiths. “This lost revenue ultimately stems from a chronic lack of trust and cooperation between airlines, airports and retailers. It’s high time for all parties to acknowledge their inter-dependence and leverage their strengths. This could lead to an environment where the travel retail industry records greater profits, airports fund themselves entirely from non-aeronautical income, and airlines are relieved of the burden of airport charges."
Global PerspectiveIn the UK and other mature European markets limited space, congestion and a stifling regulatory environment have all but capped airport expansion. By contrast, in just three airports in the Middle East, investment in airport infrastructure is expected to reach US$39bn over the next 10 years.
"Efficient logistics and communication infrastructure have conspired to make the world a smaller place. Demand for airline passenger journeys will more than double from under 2.5 billion now to 5 billion by 2027 and the global network must evolve in response to an increasingly liberalised environment," said Griffiths. "Middle Eastern airlines with young fleets based in efficient, geocentric airports with room to grow are well positioned to take on less profitable transfer traffic that is ill-suited for mature markets with congested airports. Dubai is at the forefront of this movement."
Griffiths concluded that while the formula for change is apparent, a lack of trust often impedes progress. “Industry partners must learn to cooperate and coordinate activities to better bring their individual strengths to the table,” he said. “Governments must adopt policies that support liberalisation and sustainable growth. And both must commit to developing a lasting partnership that recognises the changing face of our industry and seeks the greatest efficiencies from an evolving global network."
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