How Dubai Became One Of The Most Important Aviation Hubs In The World...

This story appears in the June 16, 2014 issue of Forbes Asia.

 

Photo credit: Kamran Jebreili/AP

From the balcony of Stewart Angus’ office overlooking Dubai International Airport it isn’t obvious why Dubai has become one of the world’s most important cities in aviation–and a dangerous rival to many of Asia’s premier airports and carriers. Sure, there’s the big, six-year-old terminal dedicated to Emirates Airlines. An Airbus A380 taxis to the gate. Cars speed along a highway while the city’s ever soaring skyline stretches in the distance.


But Dubai handled 66.4 million passengers last year, making it the seventh-busiest airport in the world. This year it should pass Tokyo, London’s Heathrow, Los Angeles and Chicago’s O’Hare, and climb to third place–behind only Beijing and Atlanta. As recently as 2006 it wasn’t in the top 30. “The success is Dubai’s location–it’s Europe’s most easterly hub and Asia’s most westerly hub,” explains Angus, a seasoned Brit who has worked for the Emirates Group for 19 years and oversees international business for the group’s Dnata ground-services unit.
Long an important stop on the 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. And that’s allowed government-owned Emirates Airlines, along with other Gulf carriers such as Qatar and Etihad, to shave off huge amounts of traffic from Singapore Airlines and Cathay Pacific. Today East Asia, Australia and New Zealand is Emirates’ biggest market, making up 29% of the airline’s revenue last year.

Last year Dubai International handled 66.4 million passengers, and it expects 75 million in 2015. (photo: Patrick Castillo, Emarat Al Youm/AP)

“In terms of charter traffic, 25% of Australia-to-Europe traffic has shifted from Hong Kong and Singapore to Dubai in the last couple of years,” says Daniel Tsang of Hong Kong consultancy Aspire Aviation. Adds Jon Conway, Dnata’s divisional senior vice president of Dubai airport operations: “I used to work in Hong Kong, and we thought we were pretty well placed geographically for all the China traffic, Southeast Asia and Northeast Asia. But Dubai is just such a convenient location.”
Indeed, the traditional linchpin of any international route system–the North America-Europe route–is being usurped by the overland route to Asia, a route that now usually goes through Dubai. “In the last ten years in aviation global business has shifted from being transatlantic to stretching toward Asia,” says Andrew Charlton, the Australian chief executive of Swiss consultancy Aviation Advocacy. “Any person who can link a country with Asia is in a better place than someone who can’t.”
On the vanguard with Emirates’ invasion of Asia is Dnata, or Dubai National Air Travel Agency, which is one of the world’s largest providers of airport services such as supplying onboard meals, handling cargo and staffing check-in counters. Emirates and Dnata learned from Singapore, basing their relationship on Singapore Airlines’ partnership with Singapore Airport Terminal Services, which helped turn Singapore into a major international hub. Since 2010 Dnata’s annual revenue has jumped 75% to $2.1 billion last year; SATS, meanwhile, has seen its revenue rise only 5.2% in the last three years to $1.45 billion. SATS remains Dnata’s biggest direct rival in Asia, though the Dubai outfit also competes with Cathay Pacific’s catering, cargo and ground-services businesses. “We would love more opportunities in Asia-Pacific, but we can’t find enough,” says Angus, a Dnata divisional senior vice president.
Just more than 40% of Dnata’s revenue now comes from Australasia, thanks in part to a carnivorous series of acquisitions–three in the last year. Its first international deal was a decade ago, when it bought Singapore ground-handling company CIAS. Dnata Singapore now gets a slice of the baggage-handling business at Changi Airport and also provides ground services at Guangzhou Baiyun International Airport. Another big chunk of Dnata’s Asia business comes from a joint venture that handles ground services at Xi’an Xianyang International Airport and ten smaller airports in western China.
With China planning to add more than 30 airports by the end of next year, the company expects to pick up more business on the mainland. Dnata now operates in four Asian countries, including the Philippines and Pakistan. “Dnata is looking at Asia as a massive growth area, and its expertise in a multitude of activities gives them an edge over domestic incumbents,” says Saj Ahmad, the London-based chief analyst of StrategicAero Research.
Dnata started with two employees when Dubai’s airport opened in 1959, recounts Angus, speaking from the company’s blue glass office in the city’s Garhoud neighborhood. When regional carrier Gulf Air decided to reduce the frequency of its flights to Dubai in 1984, the city’s ruling Al Maktoum family had a problem: It had serious expansion plans for the coastal emirate but was now faced with being isolated aerially. So it launched the country’s own airline, and last year the carrier generated $22.5 billion in revenue. As with Dnata, the airline is a unit of the Emirates Group, which is owned by the Investment Corp. of Dubai, an opaque, multibillion-dollar sovereign wealth fund. Research consultancy Oxford Economics estimates that aviation accounts for 250,000 jobs and 28% of Dubai’s gross domestic product.
The contest for Asian business may soon get tougher. An open-skies agreement, slated to take effect next year, will permit airlines based in the ten countries of the Association of Southeast Asian Nations to fly freely within the region without special permission and could bump Emirates out of routes in Asia’s secondary cities. Without Emirates as its core client, Dnata may not be able to afford to operate in smaller airports. And there are challengers closer to home: Abu Dhabi’s Etihad owns a 21% stake in Virgin Australia, a direct rival to Emirates-allied Qantas. Virgin Australia flies through Singapore, offering an Asian stop, as opposed to the Dubai-routed Qantas flights (Singapore Airways owns 20% of Virgin Australia). Etihad has also set up travel agent Hala Group, which could put pressure on Dnata’s $180 million travel services division.
One key target for Dnata is India, which is not in Asean. Dubai already sends 12.6% of its traffic there, and with the country planning to build another 200 airports by 2020, the demand for ground services will jump.
Back home, Dubai’s main problem is dealing with the rapid growth in traffic–next year it expects to handle 75 million passengers. “The reality is that the current airport here is now capacity-constrained,” says Conway, the Dnata airport-operations official, from inside the 16-year-old Terminal 2. “We can’t sustain the growth rates that we have here without developing somewhere else.”
But Dubai is quickly building a gigantic new airport, the five-runway Al Maktoum International Airport in the city’s Jebel Ali area that will be able to accommodate 160 million flyers a year after it’s completed in 2020. Part of the airport is already open for cargo planes and short passenger flights. Once it’s done Dnata will find itself operating the world’s largest air-freight facility, capable of handling 12 million tons of freight a year. (Hong Kong International Airport, now the world’s busiest air-cargo center, handled 4.12 million tons last year.)
But, of course, expansion is much easier in Dubai than in the dense, hemmed-in cities it competes with. “Compared with the major hub airports around the world–Frankfurt, Hong Kong, Seoul–here we’re reclaiming desert,” muses Conway. “Can you imagine the environmental impact assessment work required for London Heathrow to look at additional runway capacity? If you want to be in aviation, there’s probably one town you want to be in right now: Dubai.”