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Dubai - Friday, July 25, 2014 7:22 PM

Press releases


09 May 2011
Speech to Aerospace Forum Asia – Hong Kong

Good afternoon. It is a pleasure to be in Hong Kong again. I spent four wonderful years in this great city as part of the team that forged the then start-up Dragonair. At that time aviation in Hong Kong and China was in its relative infancy. Dragonair was pushing outward Cathay was doing all it could to expand its intercontinental reach.

Over twenty years later the global aviation landscape has changed dramatically. Once dominated by transatlantic traffic and the established carriers of Europe and North America, aviation is now gravitating towards emerging economies in Asia, Latin America and the Middle East.

Airlines in this country are growing at a phenomenal rate. And billions are being spent on infrastructure to support the tremendous growth. In fact some 78 new airports are to be built in China by 2020 compared to just 5 in Europe over a similar timeframe. The Middle East in general, and Dubai in particular, has seen similar dramatic expansion in terms of fleet, network and infrastructure.

Sadly, what has not changed in the past 20 years is the industry’s inability to be consistently profitable. The airline industry has been in the red for seven of the past ten years. Even for those carriers who have managed to avoid drowning red ink, margins are razor thin. With oil prices firmly seated above US$100 per barrel, the industry is projected to record US$6.8 billion in profits on revenues of over US$550 billion. That is a margin of 1.4%. And I think we can all agree it is nothing investors will get terribly excited about.

What are the sources of this malaise? Simply put, the current industry model is an anachronism. It is built on an outdated bilateral system that remains irrationally anchored to the 1940s when airlines were tools for national diplomacy. It restricts market access and limits consolidation. It is beset by governments that treat it as a source of tax revenue instead of a facilitator of trade, an engine for growth and significant contributor to GDP. And it is plagued by mistrust and contention due to the fundamental misalignment of cost and benefit across the value chain whereby those taking the most risk reap the smallest reward.

So how do we escape this cycle of poverty and create a more sustainable model? In Dubai, I believe we have benefited from a different approach that breaks free of past mistakes.

What have we done differently? First and fundamentally is the Dubai Government’s recognition of the considerable economic and social benefits generated by aviation and its inclusion in the strategic plan for Dubai. Dubai has emerged as a regional epicentre for trade, commerce and tourism, reinforced by the quality of its infrastructure, political stability and, of course, its progressive attitude towards the aviation sector. It is home to the regional headquarters of some 10,000 global enterprises and to 1.8 million people from 185 nationalities. With a GDP of over $80 billion, 25% of which is supported by aviation-related activity, the development of the aviation sector in Dubai has been treated as a strategic imperative propelled by a singular and compelling vision.

And the results to date have been nothing less than impressive. Some 50 years ago Dubai’s first airport opened with a compacted sand runway with seven airlines and a few thousand annual passengers. During the past half century, over 400 million passengers have passed through our doors, at an average annual growth rate of 15.5%. Over the past five years alone, international passenger numbers at Dubai International have virtually doubled from 24.8 million in 2005 to 47.2 million in 2010. More than 150 airlines operate into DXB serving some 220 destinations. Today it is the world’s fourth busiest airport for both international passengers, hot on the heels of Hong Kong International at number three, and fourth for freight.

It is also home to Emirates, an airline whose passenger numbers have increased six-fold over the course of a decade making it the largest airline in the world in terms of international revenue passenger kilometers. It features Dubai Duty Free which has become the biggest single airport retail operation in the world in terms of turnover with revenues of US$1.27 billion in 2010. And let’s not forget flydubai which is the world’s fastest growing start-up airline and quickly emerging as a force to be reckoned with among low-cost carriers in the region.

The prospects for future growth are equally auspicious. The combination of rallying tourism, Dubai’s geocentric location which can effectively connect any major cities on the globe, our proximity to the massive markets of India and China, and the emirates’ established role as a trading hub linking economies in the Far East, Europe, Africa and North America, will drive continued growth.

Over the next decade passenger traffic will climb 7.2% annually to 98.5 million while cargo volumes will increase at an annual average of 6.7% to 4.1 million tonnes. The share of passenger traffic from China to and through Dubai is also on the upswing. Over the past two years O&D traffic has grown at 33% annually. Transfer traffic from Guangzhou, A380 destinations Hong Kong, Beijing and Shanghai to onward destinations in Western Europe, Africa and the Middle East is expanding 35% annually. With increasing investments from China in these regions that growth is very likely to continue.

Based on these projections, Dubai International should become the busiest airport in the world for international passenger traffic as early as 2015 passing other renowned airports such as London Heathrow, Paris Charles De Gaulle and Hong Kong International. As a result, we have recently set out our plans for capacity expansion for the next 20 years and plan to finalise them in the next several weeks.

Yes I said weeks…not years. And not to a myriad of consultative committees that will have to debate and hypothesise for a decade on the smallest detail. This is the single biggest difference between the fractured silos of the aviation sector in most parts of the world versus the single minded approach we take in the Middle East. Getting all the key decision makers in the entire aviation sector in most countries would require a venue of the scale and grandeur of this very room. In Dubai, we need a very small room indeed. We meet often and decisions are made quickly.

Over the course of the next 20 years we will be building the world’s busiest airport … twice! The first part of the plan sets out a growth strategy for our existing hub for the next ten years. Currently Dubai International can handle 60 million passengers and 2.5 million tonnes of freight per year. At the end of 2012, we are adding the world’s first dedicated A380 facility, Concourse 3, which will allow passengers to board by class of service, which will increase that to 75 million passengers. We are finalising a host of further initiatives to boost capacity and service quality that will allow Dubai International to accommodate 90 million passengers by 2018. At the same time we will continue our programme of construction of the world’s largest airport – Dubai World Central– some 35km south of Dubai International. The site for the airport is 148 square kilometres – difficult to imagine, even when I tell you that is the same size as 19,200 football pitches. When you compare it to Hong Kong International today, it gives you an idea of the immensity of the project.

The first phase, which opened last year for cargo, features one runway and a single passenger terminal, with a capacity of 5million passengers and 250,000 tonnes of freight. We expect to create enough capacity to handle 80m passengers by the mid 2020’s, when it will be possible to move the entire Emirates operation to Dubai World Central. When complete, Dubai World Central will feature five runways and will be capable of handling 118 aircraft movements per hour with capacity for 12 million tonnes of freight and 160 million passengers, 100 million of whom are expected to be connecting to another destination.

This rapid progress is what happens when you join together all the elements to form a modern, efficient aviation enterprise where all the moving parts are working in harmony. This is in sharp contrast to the approach seen elsewhere. Not only is the political will to achieve such progress sadly lacking, but most governments around the world treat aviation as a pariah, choking its growth with costly, misdirected regulation, instead of adopting policies that recognise its considerable socio-economic benefits and support its sustainable growth. They then compound the problem with parasitic forms of taxation that usually flow straight out of the sector. As a final nail in the coffin, some countries continue to cling to an outdated bilateral system that ultimately supports growing industry debt and a future of diminishing returns. This is nursing the dinosaur.

Markets such as the UAE espouse an Open Skies policy, which allows unfettered access to airports. Dubai has now attracted some 150 airlines from around the globe and has doubled the number of destinations served from 110 to 220 in just 10 years. It’s the alignment of national ambition, coupled with liberal government policies and a lack of intervention in the commercial operations of the companies in the sector that has created the environment for tremendous growth.

Additionally in Dubai we are fortunate to have very close integration between airline, airport, ground handler and retail partner, all under a single ownership structure. That’s not to say that everything is perfect. We have challenges of service delivery and carry legacies in process and technology that are common to all. But at least we are able to work to resolve them in an open, fully cooperative and single-minded manner. And yes, in Dubai many components of the aviation supply chain are government owned – but let’s draw a clear distinction between ownership and subsidy. The former…certainly. The latter…most certainly not. Emirates, Dubai Airports and all the other associated businesses may be government owned but they are operated as distinct, efficient and profitable commercial entities. Further these profits are directly reinvested into the infrastructure growth necessary to generate still more profits. This approach is also why, despite our significant investment in infrastructure, aeronautical charges in Dubai are very competitive.

By contrast in other parts of the world, cumbersome bureaucracy, endless approvals and fickle political will grind progress to a virtual standstill. For example, it has taken decades to get incremental improvements at London’s major airports. Terminal 5’s inexorable gestation period of 16 years is a clear example. Heathrow’s third runway has been axed indefinitely as the latest victim of political myopia.

Closer to home, I understand in-depth discussions surrounding the proposed third runway at Hong Kong International are about to begin in earnest. I sincerely hope the outcome of this undertaking has a happier ending and the balance of benefit and impact is carefully considered. Opportunities for growth are fleeting and the competition for traffic is intense and global.

In closing, an exciting future awaits. Global demand for airline passenger journeys will more or less double to 5 billion by 2028 as increased access to air transport awakens the wanderlust that lies within us all. Unsurprisingly, demand for air travel in the Middle East and Asia Pacific will grow at the fastest rate. The challenge for governments and aviation stakeholders will be to capture the full value of this tremendous opportunity.

In a global context, the mindset and approach in the aviation industry must change to achieve this. Industry partners must learn to cooperate and coordinate activities to better bring their individual strengths to the table. Governments must adopt policies that support liberalisation and sustainable growth. And both must commit to developing a lasting partnership that seeks to maximise the socio-economic benefits of aviation, recognise the changing face of our industry and apply the greatest efficiencies to a sustainable business model. If we do everyone wins…the sector, its investors, national economies and our customers.

This is without doubt an exciting and dynamic industry in which I am proud to play a part - in an enterprise which I believe is at the leading edge of technical and socio-economic development.

However, we are only scratching the surface of what’s possible. If we work closer together around the globe that we are all making so much more accessible, across all aspects of our industry, we might just surprise ourselves. Thank you.

Paul Griffiths, CEO, Dubai Airports

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