the international and government affairs journal of
TRANSCRIPT
12.32%
12.17%
20.05%
0% 5% 10% 15% 20%
Delhi
Hyderabad
Mumbai
Additional capacity deployed (%)
+2,127 seats/week
+672 seats/week
+980 seats/week
Source: Emirates
enSThe International and
Government Affairs
Journal of Emirates
Issue 20 | November 2014
2 Frontier Economics Study: Emirates’ impact in the EU
The impact of the A380 on employment
3 Quantifying the value of Emirates’ unique connectivity
4 24.95 degrees North, 55.33 degrees East
5 New capacity on India network generates economic dividends
ACI Europe - Leading the way on connectivity
6 60 seconds with Clifford Winston from the Brookings Institution: The benefits of Open Skies
7 Lyon and the benefits of air connectivity
8 They said it best...
9 Investing in joint marketing to drive inbound traffic
10 Sector Insight... from a Chinese perspective
11 New Silk Road: Focus on Indonesia
12 To be unconnected is to fall behind
Fast Facts
4 hrs
8 hrs
Johannesburg
Seoul
Beijing
Shanghai
Nairobi
LagosAccra
Cairo
Mumbai
Delhi
Guangzhou
Paris
Emirates
Lufthansa
Air France
Frankfurt
Dubai
Adelaide
Durban
Brisbane
Ahmedabad
Kozhikode
Kolkata
Jakarta
Colombo
KochiPhuket
Hyderabad
Lusaka
Muscat
Melbourne
Manila
Perth
Seychelles
Sydney
Thiruvananthapuram
Entebbe
Baghdad
Dhaka
Dar es Salaam
Dakar
Erbil
Karachi
Khartoum
Lahore
Madinah
Peshawar
Sanaa
Ho Chi Minh City
Mauritius
Male
Dubai
IslamabadTehran
Stockholm
AthensBarcelona
Birmingham
Copenhagen
Dublin
Dusseldorf
Rome
Glasgow
Hamburg
LarnacaLisbon
Lyon
Madrid
Manchester
Milan
Nice
Newcastle
Prague
Venice
Vienna
Warsaw
$€¥
+ 3,779 seats/week
+US$ 42.3 million toIndia’s GDP
+ 4,324 jobsin India
+ 33,767 inbound visitorsper annum
+US$ 87.9 million Foreign ExchangeEarnings
=
=
=
=
YUGOSLAVIA
7,000 jobs€595 m GDP
5,000 jobs€325 m GDP
14,500 jobs€1.2 bn GDP
14,500 jobs€1.2 bn GDP
Emirates’ A380 fleet
= In service - 54 = On order - 86
In this issue …
199 ‘unique’one-stop connections for passengers in the EU
41,000 jobssupported by Emirates’ A380 deliveries in 2013
357tonnesEmirates weekly cargo capacity out of Indonesia
+US$42.3 mcontributed to India’s GDP by an additional 3,779 seats/week to India
2
With more than 700 passenger flights per week to and from 16 European Union (EU) Member States, Emirates has a relatively limited intercontinental footprint in comparison to some of the big European carriers. But the economic impact of this connectivity is at times underappreciated, and something that merits attention.
Frontier Economics, a leading European economic consultancy, will soon release a report which quantifies Emirates’ socio-economic impact in the EU in 2013.
Frontier’s report shows that the direct, indirect and induced impact of Emirates’ operations and the development of connectivity to secondary cities in particular, has a substantial impact on EU GDP. Frontier estimates that Emirates’ operations supported 85,000 direct, indirect and induced jobs across the EU in 2013, equivalent to €6.8 billion GDP, or 0.05% of the total EU GDP.
With a total of 140 aircraft ordered, Emirates is the largest purchaser of Airbus’ A380, accounting for more than 40% of the total A380 order book.
In 2013 Airbus delivered 13 A380s to Emirates which represented 50% of the total A380 deliveries that year. Whilst Emirates has been operating A380s for 6 years, after placing the original order more than 13 years ago, the employment generation in Frontier’s analysis is only calculated for 2013. This impact can however be projected for the duration of the delivery schedule.
Airbus estimates that Emirates’ A380 deliveries support the employment of 41,000 direct, indirect and induced jobs in Europe. 70% of these jobs are split equally between France and Germany, with the UK having 17% and the remaining 5,000 jobs in Spain.
According to Frontier these 41,000 jobs have a significant impact on the European economy, specifically as they are highly skilled roles and impact a high-value supply chain, creating a significant multiplier effect in countries where Airbus has aircraft production sites.
Frontier Economics Study: Emirates’ impact in the EU
The impact of the A380 on employment
21 unique directconnections and199 unique one-stop connections to and from the EU
€4.3 billionEmirates spends onEU goods and servicesin 2013-14
85,000 jobs supported by Emirates’ operations in the EU* in 2013-14
$67 billionvalue of past and future investments on Emirates A380s
€6.8 billion GDP impact resulting from Emirates’ operations in the EU* in 2013-14
11.5 million annual passengers on Emirates flights to and from 16 EU Member States in 2013-14
Emirates’ A380 fleet
In service: 54 On order: 86
*Not including impact from Emirates’ Airbus purchases
Emirates’ A380 order creates employment in Europe
Impact on jobsIn 2013 Emirates’ Airbus deliveries supported 41,000 jobs in Europe**Airbus and Frontier Economics estimates
YUGOSLAVIA
7,000 jobs€595 m GDP
5,000 jobs€325 m GDP
14,500 jobs€1.2 bn GDP
14,500 jobs€1.2 bn GDP
Impact of Emirates’ A380 deliveries in 2013
Source: Airbus and Frontier Economics estimates
3
Adelaide
Durban
Brisbane
Ahmedabad
Kozhikode
Kolkata
Jakarta
Colombo
KochiPhuket
Hyderabad
Lusaka
Muscat
Melbourne
Manila
Perth
Seychelles
Sydney
Thiruvananthapuram
Entebbe
Baghdad
Dhaka
Dar es Salaam
Dakar
Erbil
Karachi
Khartoum
Lahore
Madinah
Peshawar
Sanaa
Ho Chi Minh City
Mauritius
Male
Dubai
IslamabadTehran
Stockholm
AthensBarcelona
Birmingham
Copenhagen
Dublin
Dusseldorf
Rome
Glasgow
Hamburg
LarnacaLisbon
Lyon
Madrid
Manchester
Milan
Nice
Newcastle
Prague
Venice
Vienna
Warsaw
Some of Emirates’ European competitors have in the past accused Emirates of overcrowding existing routes and stealing traffic, but the Frontier analysis paints a different picture.
Traditionally, international travel from Europe involved flying from or often backtracking to one of the big European hubs such as Amsterdam Schiphol, London Heathrow, Paris Charles de Gaulle and Frankfurt. This contributed to a connectivity gap for other major European cities, restricting their ability to develop trade and Foreign Direct Investment (FDI) opportunities.
Since launching services to Europe in 1987, Emirates has helped bridge this gap, by gradually and on the basis of demand, increasing services to major and secondary cities across Europe.
The Frontier analysis covered 29 destinations in 16 EU Member States, and identified 220 routes from Europe that are unique to Emirates. 21 of these are direct connections from European cities to Dubai, and the remaining routes are unique one-stop connections, via Dubai. Using any other airline or alliance on these unique routes would require an additional stop.
Frontier concludes that the connectivity provided through the 220 unique routes positively impacts FDI and trade by supporting the development of regional centres, increasing tourism and providing choice for the consumer. In addition to the 82,100 direct, indirect and induced jobs, they estimate that 2,900 jobs are facilitated through the catalytic impact of the 220 unique connections, equivalent to €215 million of GDP. The report also provides in-depth analysis of the number of routes where Emirates provides substantially greater connectivity. The report will soon be available on our website.
uantif ing the value of irates uni ue connectivit
Emirates offers 199 ‘unique’ one-stop connections for passengers in the EUWithout Emirates, passengers travelling on these routes
would require at least a two-stop connection.
All connections are routed via Emirates’ hub in Dubai.
Connectivity creates employment: The case of HamburgAccording to Frontier’s analysis, Emirates’ direct employment in Germany is one of the highest in the EU countries it operates to – leading to higher indirect and induced employment and ultimately a greater impact on GDP.
Among the four points Emirates serves in Germany, Hamburg has the least number of intercontinental destinations, and Emirates is the only operator to offer a direct connection to the Gulf Cooperation Council area (GCC).
By offering a unique direct connection from Hamburg, Emirates offers more than 17 unique one-stop connections between Hamburg and the rest of the world, via Dubai.
An estimated 155,000 passengers flew on these unique one-stop routes in 2013. In a ‘no Emirates’ scenario, these passengers would have been forced to use two-stop alternatives. By bridging this connectivity gap Emirates is positively impacting trade, tourism and FDI. Additionally, Emirates’ operations and Airbus purchases create a total of 25,540 jobs across Germany, further contributing to GDP.
4
Situated at the junction of trade routes connecting Europe, China, India and Africa, one third of the world’s population lives within 4 hours from Dubai, and two thirds are within 8 hours.
Connectivity plays a vital role in the growth of trade and foreign investment. Dubai realised that its geographic location could act as a conduit for this demand, and developed infrastructure with air and sea connectivity at the core. With minimal oil reserves, aviation and tourism became a key source of revenue for the emirate. Aviation has also benefitted from Dubai’s Open Skies policy that was introduced to support and encourage growth and competition. With over 130 airlines serving the airport, passengers have the benefit of choice.
In recent years, with strong economic performance in both Asia and Africa, the resurgence of the geographically superior Middle Eastern trade routes was inevitable. Exponential trade growth between the Middle East and Asia, as well as Asia and Africa, further cemented the need for connectivity between these regions.
The growth in the middle class populations in these ‘New Global South’ countries also further bolsters the demand for air travel. IATA predicts that the Middle East and Asia-Pacific regions, followed by Africa, will see the strongest growth in passenger numbers. By 2016 one in four new air travellers will be Chinese, with an increase of 32.4 million new international travellers.In 2013 Dubai International Airport (DXB) served 66 million passengers. This growth saw DXB move up the ranks and place 7th in Airport Council International’s (ACI) world’s busiest airports, as well as being the only airport in the Middle East and North Africa to feature in the top 30.
degrees orth degrees ast
4 hrs
8 hrs
Johannesburg
Seoul
Beijing
Shanghai
Nairobi
LagosAccra
Cairo
Mumbai
Delhi
Guangzhou
Paris
Emirates
Lufthansa
Air France
Frankfurt
Dubai
Emirates Lufthansa Air France
Via Dubai Frankfurt Paris
Guangzhou - Lagos 19:35 26:10* (+6:35 hrs) 22:55** (+3:20 hrs)
Beijing - Johannesburg 19:25 23:25** (+4:00 hrs) 26:30*** (+7:05 hrs)
Shanghai - Cairo 15:45 18:20 (+2:35 hrs) 24:00** (+8:15 hrs)
Delhi - Lagos 12:25 18:35 (+6:10 hrs) 20:20 (+7:55 hrs)
Mumbai - Johannesburg 14:35 31:55** (+17:20 hrs) 25:50** (+11:15 hrs)
Mumbai - Accra 12:35 21:30 (+8:55 hrs) No services
Mumbai - Nairobi 11:50 No services 20:15** (+8:25 hrs)
Beijing - Nairobi 16:40 No services 24:00** (+7:20 hrs)
Seoul - Cairo 17:45 17:45 35:45** (+18:00 hrs)
* interline with China Southern, with one stop-over ** with codeshare partner *** with interline partner Source: Emirates Reservation System, September 2014
Facilitating the ‘New Global South’ traffic
5
Highlighting the direct impact of liberalisation and economic growth, India’s National Centre for Applied Economic Research (NCAER) has released an interim paper modelling the economic impact of Emirates’ product and service upgrades on its India network launched in the Summer 2014 Schedule.
The India-Dubai Air Services talks held in February 2014 delivered an incremental capacity of 11,000 seats per week, phased-in from Summer 2014 and the next two consecutive schedules.
Emirates deployed the first tranche of new capacity increase - 3,779 seats/week in the Summer Schedule via aircraft upgrades, delivering enhanced product and services on the Delhi, Hyderabad and Mumbai routes, including the launch of Airbus A380 services on the latter.
NCAER’s interim report includes a new baseline of Emirates’ economic impact on the Indian economy. Based on the latest macro-economic and jobs data from India, plus a long-run analysis of Emirates’ financial and operational data of its Indian network, NCAER found Emirates’ baseline contribution to India’s GDP to be US$782 million per annum and supporting 79,463 jobs.
NCAER’s modelling of the incremental increase of 3,779 seats deployed in the Summer Schedule through aircraft upgrades will boost India’s GDP by US$42.3 million per annum to US$824.28 million. While the number of services remained static, the additional capacity will support 4,324 jobs.
ew ca acit on ndia networ generates econo ic dividends
Airport Council International (ACI) Europe recently released a report measuring airport connectivity. It analysed the trends impacting European airport connectivity over the past 10 years and found that while European connectivity increased by 38%, other regions, for example the Middle East and Asia-Pacific, are performing stronger.
The report highlights the strength of Dubai International Airport, which was not present in the top 20 list of hubs for onward connections from Europe 10 years ago, but now is. Today, with more than 130 carriers serving the airport, Dubai provides a level of intercontinental connectivity equivalent to that offered by the three main European hubs. Despite this, the entire Middle East region, according to the report, only accounts for 4% of the total European airport connectivity, still less than any other region globally.
Most importantly for European airports and hubs, the report calls for decisive action on airport capacity to avoid a capacity crunch. Connectivity benefits national economies, by supporting trade, tourism and investment. ACI also calls on the EU to “up its game” and recognise the importance of airport capacity, liberalisation of market access, the lowering of navigation charges and aviation taxes and less burdensome economic regulation of airports - views also shared by Emirates.
Whilst some may be tempted to use this report’s findings as arguments to limit non-European competition and consumer choice, that would be unlikely to achieve any of the policy goals that ACI is proposing.
uro e eading the wa on connectivit
Airport capacity “The prospect of the top 20 European hub airports becoming fully
congested should be addressed as a priority as part of EU and National Aviation long-term strategic planning. Otherwise, further connectivity
loss or sub-optimal connectivity growth will be inevitable.”
ACI calls for progress to be made on the
following policy issues:
ACI calls for progress ACI calls for progress ACI calls for progress ACI calls for progress ACI calls for progress to be made on the to be made on the to be made on the to be made on the to be made on the
following policy issues: following policy issues: following policy issues: following policy issues: following policy issues:
Air traffic liberalisation “Bilateral Air Services Agreements continue to limit the development of existing air services and the establishment of new air services. Opening market access through EU negotiated agreements with the main trading
partners of the EU should be another priority – given its ability to increase direct, indirect and hub connectivity.”
Operating costs & aviation taxes “Achieving cost efficiencies would improve the competitive position of European airports, with positive spill over effects to their connectivity.”
Airport charges “Rising non-European hubs are famed for their tight cooperation between airport and airlines, providing an additional competitive advantage in terms of service quality delivery and route network
development. While Europe will always remain different, more can be done to empower European airports and airlines to work together.”
$€¥
+ 3,779 seats/week
+US$ 42.3 million toIndia’s GDP
+ 4,324 jobsin India
+ 33,767 inbound visitorsper annum
+US$ 87.9 million Foreign ExchangeEarnings
=
=
=
=
Source: NCAER
700
720
740
760
780
800
820
840
Baseline Delhi Hyderabad Mumbai Total
782
10.967.52
23.80
824.28
GD
P /
US
$ m
illio
n
12.32%
12.17%
20.05%
0% 5% 10% 15% 20%
Delhi
Hyderabad
Mumbai
Additional capacity deployed (%)
+2,127 seats/week
+672 seats/week
+980 seats/week
Source: Emirates
Additional seats deployed by destination: Summer 2014
Incremental economic impact of additional capacity deployed: Summer 2014
6
How, in layman’s terms, did you conduct the analysis?
We obtained data on airline travel on the top 500 international airport pair routes, based on passengers, during 2005 to 2009. The data included fares for different fare classes, flight frequencies, characteristics of the routes, such as travellers’ incomes, and an indication of whether competition on the route was governed by an Open Skies agreement. Given competition on some routes was governed by an Open Skies agreement and competition on other
routes was not, we were able to use statistical techniques to estimate the effect of the presence of an Open Skies agreement on fares and flight frequencies, whilst holding other influences on fares and flight frequencies constant.
60 seconds with Clifford Winston from the Brookings Institution: The benefits of Open Skies
Clifford Winston
Clifford Winston is the Searle Freedom Trust Senior Fellow in the Brookings Institution Economic Studies programme. He specialises in the analysis of regulation and transportation. We asked him about his latest study on the effect of Open Skies agreements on the passenger What are the policy implications of your study?
Policymakers in the United States and abroad have taken decades to negotiate Open Skies agreements that our paper shows are enabling consumers to realise large gains from free trade in airline services. Surprisingly, the vast majority of the public is not even aware that this major policy success has occurred. Policymakers should continue their efforts to negotiate Open Skies agreements throughout the world because they will generate more benefits to travellers. Unfortunately, the U.S. Department of Transportation took a step backward when they recently made a decision not to open the U.S. skies to Norwegian Air International on a temporary basis. The spirit of our findings on Open Skies agreements indicates that officials should reverse that decision and stimulate additional competition on international routes, which would benefit travellers, by allowing a new entrant to provide service.
How do Open Skies fit in with your vision of the global airline industry?
Airlines are a global service and there is no reason why governments should limit which airlines can fly on which routes any more than they should limit which automakers can manufacture and sell cars in which countries. Certainly, the United States is better off because German and Japanese automakers, among others, are allowed to make and sell cars in the United States. Why not allow British and Irish airlines, among others, to serve U.S. air routes? The experience from countries deregulating their domestic airline markets has generally been very positive for travellers and the evidence in this paper shows that deregulating international airline travel between countries is also having positive effects. It is time for all governments to grant cabotage rights to foreign carriers, which along with Open Skies would allow airlines to serve any domestic and international route in the world. The result would be a fully deregulated global airline industry and the travelling public would be much better off for it.
You have just finished a study with Professor Jia Yan at Washington State University that will be published in the American Economic Journal: Economic Policy on the effect of Open Skies agreements on airline travellers. What were your key findings?
Our study measured the effects of Open Skies agreements on air travellers’ welfare accounting for changes in airline fares and flight frequency. We found that the agreements generated at least $4 billion in annual gains to travellers on our sample of U.S. international routes, which includes almost a 15% reduction in fares and amounts to roughly 20% of carriers’ annual revenues on those routes. Moreover, we found that travellers would reap another $4 billion annually if United States policymakers could overcome the political obstacles that have prevented them from negotiating Open Skies agreements with other countries that have a significant amount of U.S. international traffic. And we found that travellers on non-U.S. international routes gained from the agreements.
7
The positive economic effects of air connectivity can sometimes go unnoticed. In Lyon’s case – France’s second largest metropolitan area in the Rhône-Alpes region, with a catchment area of more than 6 million people – the effects should be recognised.
Emirates began operations in December 2012 when Lyon was, and still is, grossly underserved in terms of long-haul, intercontinental connectivity. Compared to other important and similar-sized regional centres in Europe - Lisbon has 23 long-haul destinations, Dusseldorf 18, Geneva eight - while Lyon has only two.
The benefits accrued so far for the city, region and even other airlines are tangible. Despite only operating five weekly flights, Emirates has allowed the Rhône-Alpes region to strengthen tourism and commercial ties with Dubai, the Middle East region and particularly countries such as Australia, Thailand, Philippines and India with an efficient, one-stop connection. According to Frontier’s analysis, Emirates’ unique direct connection from Lyon provides passengers with 18 unique one-stop connections between Lyon and the rest of the world, via Dubai.
Emirates’ operations have also stimulated the market to the benefit of other airlines. In the 12 months before Emirates commenced operations, approximately 19,000 Lyon outbound tickets were sold by local agents. 12 months after Emirates’ arrival in Lyon, 117% more outbound tickets were sold by local agents. More than 11,000 of these were for Emirates – meaning, other airline ticket sales increased almost 60% in one year.
The Middle East is a key segment in France’s broader global tourism inflows, with more than one million people travelling per year to France. According to Atout-France, the French Tourism Development Agency, approximately 50% of Middle East visitors spend more than €5,000 a day, with an average stay of approximately 11 days per trip – comparatively longer than many other global visitors. Considering that two thirds of the world’s population reside within eight flying hours of Dubai, Emirates plays an integral role in providing passenger traffic flows from markets often not served by other carriers.
In terms of cargo, Lyon airport has seen 27% year-on-year growth to 42,000 tonnes, partly attributable to Emirates SkyCargo’s weekly freighter service and increased capacity on the Dubai-Lyon passenger service following the upgauge to a Boeing 777 aircraft.
It has been a priority for Emirates to increase the five weekly flights to seven, in order to serve Lyon with one daily flight – a minimum for most of the Emirates network. From both cargo and passenger perspectives, it seems justified, but the decision rests with the French Government.
For example, on Thursdays and Sundays Emirates does not operate out of Lyon due to bilateral restrictions, so cargo has to be shipped to Nice and compete for space with consignments from other regions. Annually, those two extra flights would offer 1,000 tonnes of outbound belly cargo capacity for local exporters of the Rhône-Alpes region and beyond. In terms of passenger operations, daily services versus five per week would also increase the attractiveness of “Destination Lyon” abroad, while also increasing the potential for further economic development.
on and the enefits of air connectivit
Manila
Jakarta
KolkataMuscat
MelbourneAdelaide
Sydney
Brisbane
Perth
Thiruvananthapuram
Kozhikode
LahorePeshawar
Ahmedabad
Kochi Phuket
Lyon
Seychelles
Durban
Dubai
18 unique one-stop connections via Dubai
108,000 annual passengers to and from Lyon
9,500 tonnes
current Emirates cargo capacity from Lyon per annum
60 % increase in tickets sold in Lyon 12 months after Emirates operations commenced
1million Middle East travellers to France per annum
Weekly Emirates services to similarly sized markets:
BHX HAM MXP
14 14 21
Source: Frontier Economics
8
They said it best...
Open Sky brings you the best quotes on liberalisation, alliances, aeropolitical protection, free and fair trade, economic policy and global business.
“In Europe and in North America, governments are working to wind back past liberalising measures by imposing new regulation aimed at so-called ‘fair competition’, or new regulation to control consumer service standards. Against this emerging anti-competitive, pro-protectionism sentiment, Australia’s market-driven approach to liberalisation remains one of the most
open in the world.” – Mike Mrdak, Secretary of the Department of Infrastructure & Regional Development Canberra, Australia
“We have confidence in our product. We’ll be all right as long as we continue to expand our network and offer more direct flights.” – Ivan Chu, Cathay Pacific Airways Chief Executive responding to concerns about competition from Gulf carriers
“The three key ingredients for building an economically successful city are small businesses, smart people and connectivity.” – International Business Times
“Having witnessed first-hand the benefits of U.S. Open Skies policy, we can state unequivocally that it is one of the most successful, pro-consumer, pro-growth initiatives implemented by our government during the previous two decades. The underpinnings of our Open Skies agreements have been the opening of international aviation markets through air service agreements that remove restrictions on the destinations, the frequency and capacity of flights, and the fares that U.S. and foreign airlines may offer their customers.
These international agreements have been an economic generator of jobs and opportunity here at home, increased America’s global competitiveness, and strengthened our domestic aviation industry.” – from a letter to the U.S. Congress by former Secretaries of Transportation Andy Card, Norm Mineta and Mary Peters
“As a unique aviation group, the Lufthansa Group will also be devoting sizeable resources to further developing its various service companies. World market leaders Lufthansa Technik and LSG Sky Chefs are also benefiting from the expansions of numerous Lufthansa competitors, especially the Gulf-based carriers, and thus serve as a natural “hedge” in the global competitive landscape.” – Lufthansa press release
“Lufthansa looks sure in future to harden its longstanding defensive attitude towards further market liberalisation now that it is committed to Air India. Incoming Lufthansa CEO Carsten Spohr has quickly moved to show he is no peacemaker, making crystal clear his future strategy as head of the airline, again invoking that mystical beast the “level playing field” as an iconic weapon to fend off the Gulf carriers. The Gulf governments are receptive to the value of aviation and do all they can to support its growth - whether by home grown or foreign airlines.
On any terms, Emirates is massively profitable and highly efficient; even allowing for (arguable) advantages in aircraft financing, the airline can hardly be said to rely on external protection, operating in a completely Open Skies marketplace.” – Centre for Aviation (CAPA)
“When I look at Emirates, they are providing better services but also better hubs to connect to.” – Fredrick Piccolo, Chairman, ACI World, on the role of Airports in Globalisation during a panel discussion of the Paris Air Forum
“We are now going to step up development of Transavia, the Air France-KLM Group’s low-cost airline in order to compete with our rivals on a level playing field.” – from a letter to Air France and KLM passengers by Chairman and CEO of Air France Frédéric Gagey and Chairman and CEO of Air France-KLM Alexandre de Juniac
“Eurocontrol predicts that by 2035, the twenty largest airports will have a level of congestion equivalent to that of London Heathrow. This will amount to what can only be described as an operational nightmare, with increasing numbers of delays and cancellations.” – Olivier Jankovec, CEO of ACI Europe
Calin Rovinescu President and Chief Executive Officer of Air Canada acknowledging the strategic value of Emirates’ and KLM’s hub models, and how he intends to follow suit with Air Canada
“Turning Pearson into an international hub is all part of Air Canada’s strategy to compete with the biggest airlines in the world. This may seem difficult to do from a relatively tiny country like Canada, but airlines like the Netherlands’ KLM or the Dubai-based airline Emirates prove that it’s possible - provided Air Canada can keep its costs comparable.”
Willy Walsh CEO of International Airlines Group (IAG) on the ‘Gulf carriers’
“I think their business model is very smart and absolutely fine from my point of view. I don’t buy into this artificial support that some airline CEOs claim they have. I don’t see any evidence of that and we are happy to compete with them and co-exist.”
9
A central pillar of aviation’s economic value chain is inbound tourism; it is a driver of export income and a core component of the services sector.
As a connector of people and places serving 147 destinations in 84 countries, Emirates is a strategic partner in providing connectivity into new and existing markets.
In this issue of Open Sky we highlight the latest modelling from India’s National Council of Applied Economic Research (NCAER). They found that the recent incremental capacity increase deployed by Emirates in the Summer 2014 Schedule to Delhi, Hyderabad and Mumbai will generate 33,767 new international visitors and increase foreign exchange earnings from tourism by US$87.9 million.
In markets like India, capacity constraints stifle the tourism sector’s potential growth. In more mature inbound markets including the UK, Australia, Malaysia and South Africa, destination marketing agencies are working closely with Emirates to stimulate demand and grow their tourism exports. In 2013/14 Emirates invested US$4.5 million in joint-marketing and advertising campaigns to stimulate inbound visitors from key markets.
Emirates has joined up with a combination of both long-term and tactical partners across its global network. In 2012, Emirates signed a A$14.3 million marketing partnership with Tourism Australia, the largest of its kind, focused on stimulating traffic from key European markets and New Zealand. The latest analysis from Tourism Australia indicates their tourism marketing spend generates A$15 of economic return for every dollar invested.
Joint marketing is an effective strategy as it builds a cohesive alignment between two strong brands – ‘the destination’ and ‘the journey’. Combining well researched destination campaigns with Emirates’ existing brand presence, and tactical fares, accelerates the decision making process.
Typically the joint marketing campaigns are funded 50:50 between the destination marketing agency and the airline.
A key feature of Emirates’ partnership with Visit Britain is extending the focus to points beyond London - a natural fit with Emirates’ one-stop connectivity to five cities in the UK.
nvesting in oint ar eting to drive in ound traffic
“South Africa provides a great value proposition for any tourist and we believe by working together with Emirates we can further broaden this appeal and encourage tourists to visit and experience what our country has to offer.” – Thulani Nzima, Chief Executive Officer at South African Tourism
Visit the Scottish highlands and fall in love with nature
emirates.com
Fly Emirates to Glasgow History is everywhere you turn in bonnie Scotland. Turreted castles and ancient villages cluster in spectacular landscapes of mountains and valleys. Iconic scenery with a warm welcome.
Book now at emirates.com
10
Professor Li Xiaojin
Dean of the Air Transportation Economics Institute at the Civil Aviation University of China
Professor Li Xiaojin is the Dean of the Air Transportation Economics Institute at the Civil Aviation University of China, and is an expert committee member of the Civil Aviation Administration of China (CAAC). He shares his thoughts with us on civil aviation in China.
What is the impact of civil aviation in China today?
China’s civil aviation industry, without counting foreign carriers, directly contributes in the range of RMB 380 billion (US$62 billion) to the country’s economy every year. Despite being such a large number, the industry in fact has a limited direct impact on the nation’s GDP growth, instead delivering value indirectly through the development of related industries such as manufacturing, tourism, and cargo transportation.
We have calculated that the investment to return ratio for civil aviation in China is in the range of 1:8, which means that investment in aviation is being amplified and grown to account for economic impact of over RMB 3 trillion (US$500 billion). This growth is in four areas: direct vendors, service suppliers, catalytic contribution (including domestic and overseas tourism and related industries), and induced contributions (including indirect vendors and service suppliers). What we are also seeing is that the impact of investment in aviation is growing and changing over time. In recent years we have seen the return ratio rise from 1:4 to 1:8, while in more developed regions and markets the impact can be even more pronounced. We have measured the impact in Beijing to be as high as 1:12, while Shanghai is the highest at 1:15.
What are the major challenges that China faces as the aviation market develops?
There are two major challenges – high speed rail and air space management. Competition from the development of the high-speed rail network will continue to have a disruptive impact on China’s domestic aviation market. In June 2011, a high-speed rail link opened between Beijing and Shanghai. Rail became a viable substitute for rapid transport between China’s busiest hubs. Flights between the cities took 4 hours, while rail transit was 6 hours at $100 – half the price of air travel. After only a single month of competition, air passenger volume on the route dropped by 30% while fares were reduced by 20%. Over the next ten years, the development of a dense network of high-speed rail will continue to apply pressure to airlines and airports.
In the skies, the pressure of limited civil airspace resources will continue to increase. As is now widely understood, only 20% of airspace is allocated for civilian use, far less than is needed to meet rapidly increasing demand. For various reasons, there are as yet no signs of a quick resolution to this problem.
What is your view on the role of Chinese carriers in global civil aviation, and the role of foreign carriers in China? What can be learned, and where are their opportunities for cooperation?
In China, the demand for international civil aviation has grown at a sprint, as shown by the annual reports published by the CAAC since 2000. In 2013, approximately 98.19 million Chinese passengers took flights abroad. The Chinese carriers are paying close attention to the needs of such passengers (which are mainly Chinese), particularly through the development of connecting transportation between domestic hubs.
Foreign carriers in China have many opportunities to carry passengers (again mainly Chinese) from China to international destinations, including through a multitude of code share agreements with Chinese carriers. The growth of foreign carriers with direct routes into China’s second and third-tier cities is also opening a new market as they offer more choices to passengers from these cities.
The relationship between Chinese and foreign carriers is destined to be much more than simply competitors. Most Chinese airlines are State-Owned Enterprises (SOE), which have their advantages and disadvantages. Unfortunately, many of the state carriers are only discovering their disadvantages through competition with stronger foreign carriers. While code share can be a route for Chinese carriers to expand their network ahead of fleet and capacity growth, I expect that in the future we will see more interest-cooperation, including joint-stock and joint-venture companies, between foreign and local carriers.
What is the role of aviation in developing China’s economy and connecting China to the world?
From an economic point of view, aviation will continue to play a role for China in two aspects. First, aviation is a driver for China’s economy as it transitions from traditional industries (such as textiles and agriculture) to modern industries (including mechanics, electronics, and modern services) - as happened decades ago in Japan and Korea. Second, the growth in civil aviation is being fed by rising Chinese demand for high technology materials and services from the rest of the world. If we simply look at air cargo transport, we can see that high-value cargo and on-time delivery are part of a major shift in China’s industry towards producing iPhones or Intel and Lenovo equipment.
Sector Insight
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... from a Chinese perspective What is the future of aviation and airspace liberalisation for China?
The trend towards the liberalisation of China’s aviation market will continue to grow, fed by competition and cooperation between Chinese and international carriers and airports. The advance of newer and better aviation technologies and the steady rise of aviation fuel prices are also speeding up the process of
liberalisation. China is coming closer to the world, and the world is coming closer to China.
I think that airspace liberalisation is part of a developing global trend in aviation, but I don’t see any major shifts in the near term for China. The first reason is that the current political environment prioritises national security over aviation development. So long as this
generation of government leaders keep their eyes on national security, there is little hope that the air force will reallocate air space and give the industry the resources it needs to grow. The second reason is that high-speed rail presents an attractive alternative for government decision makers, allowing them to meet domestic transportation demand without the necessary reliance on imported aircraft, aviation technologies, and aviation fuel.
As the largest in Southeast Asia, and ranked 16th among the world’s largest economies, Indonesia continues to record strong growth. As well as being the world’s largest exporter of coal, Indonesia also exports a range of other goods including minerals, fuels, rubber, oils, foodstuffs and electronics.
In 2013 the UAE ranked 2nd in the Middle East and 20th among export countries for Indonesia. Goods worth $1.6 billion were exported to the UAE with total bilateral trade reaching $3.4 billion.
Indonesia has been a part of the Emirates network for over 22 years. Emirates currently operates a B777-300ER aircraft three times daily to Jakarta, offering a cargo capacity of 357 tonnes per week.
Over 14,000 tonnes of goods were carried on Emirates from Jakarta in 2013/14, a growth of 6.3% over the previous year. Goods carried included fruits to Dubai, electronics bound for Frankfurt, chilled fish for restaurants in New York, textiles for Delhi and vaccines for Luanda. During the recent FIFA World Cup special consignments of over 120 tonnes of branded clothes, merchandise and shoes were transported from Jakarta to Viracopos via Dubai.
New Silk Road: Focus on Indonesia
Luanda
Delhi
Jakarta
New York
Frankfurt
Dubai
New Silk Road
Electronics toFrankfurt
Fruits toDubai
Textiles toDelhi
Vaccines toLuanda
Chilled fishto New York
357 tonnes Emirates’ weekly cargo capacity out of Indonesia
14,000 tonnes
cargo carried on Emirates flights from Indonesia in 2013/14
Emirates’ Indonesia operations:
3 times daily passenger service Dubai-Jakarta
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Please visit our website for more information on Emirates’ International, Government and Environment Affairs department www.emirates.com or write to us [email protected]
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Passenger RoutesFreighter RoutesPassenger & Freighter Routes
Route MapNovember 2014
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Middle East Network
The McKinsey Global Institute report “Global Flows in a Digital Age” investigates the changing nature of global flows, and their effect on the wider economy. The analysis focuses on the global traffic flows of people, data, goods, services, and money across 195 countries from 1990-2013.
The study finds that flows actively contribute to growth, with connected economies seeing up to 40% more benefit than those less connected. McKinsey estimates that global flows in people, goods, and data annually contribute between $250 billion and $450 billion to world GDP.
The complexity of global flows belies the story that bigger is better. China ranks as the 25th most connected country in the world, five places higher than it was in 1995, yet its overall rise masks critical imbalances. Ranked highly for goods and financial flows, fifth and sixth respectively, China performs much worse in terms of people (93rd). According to McKinsey, language barriers, complex immigration procedures, and transport (including aviation connectivity) constraints are among factors limiting its potential.
Growing and capturing the value of global flows presents a challenge for policy makers around the world. With ageing populations, countries such as China and South Korea need to encourage skilled immigrants - either
physically or virtually through data services – to bolster the workforce. Other countries, such as the United States, have large but unevenly distributed flows that present questions about development planning and connectivity.
The countries that can recognise and participate in global flows as conduits, connectors, and facilitators of exchange, stand to benefit immensely from appropriate policy choices. To remain unconnected, means to fall behind.
Air travel has a critical role to play in facilitating global flows. As aviation growth in the developed world slowed to 3%, year on year from 2000-2012, the emerging world continued to grow at 7%, reflecting the importance of flows from and between the global south. The UAE, China and Turkey, collectively accounted for 27% of the emerging market flight growth over the same period.
With ever-greater volumes of air traffic, the “Global Flows” report highlights the importance of megahubs like Dubai in facilitating the exchange of people and ideas. While 51% of long-haul traffic occurred between megacities in 2012, that number will jump to 75% by 2032. As one of only six cities globally that function as a hub for four of the five major flow categories, Dubai stands ready to channel the global flows of the future.
o e unconnected is to fall ehindEmerging markets are driving growth in air travel, particularly in the United Arab
Emirates, China, and Turkey
Aircraft in fleet 232No. of destinations 147Passengers* 44.5 millionCargo* 2.3 million tonnesPassenger Seat Factor* 79.4%Employees - Airline* 52,000Emirates flights daily 420
Financial Auditor PwCFinancials (Airline)* Revenue $22.5bn, profit $887mFuel Costs (Airline)* $8.4bnFirst flight 25 October 1985New passenger routes (2014-15) Abuja, Brussels, Budapest, Chicago and OsloA380 fleet 54 (on order 86)Boeing fleet 144 (on order 204)
ast acts
McKinsey Global Institute examines the explosion in global flows and their vital relationship with growth and trade.
* Measured by passenger seats.Source: OAG; McKinsey Global Institute analysis
United ArabEmirates
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73Otheremerging
6 Turkey
China10
Share of emerging-market flightcapacity growth*%
Emerging
Developed
2012
1.6
42
58
2010
1.4
40
60
2005
1.1
35
65
2000
0.9
32
68
Total flight capacity, developed vs. emerging%; billion passenger seats
Compoundannual growth rate, 2000–12%
3
7
*2013-14