x Abu Dhabi, UAEMonday 22 January 2018

Dubai's recovery on the wing during world economic turbulence

The aviation sector is helping to keep the emirate aloft in the downturn, as pilots and crew fill empty apartments and villas and short-stay stopover tourism.

Dubai's burgeoning aviation sector is filling hotels, malls and housing developments as the economy maintains its course of expansion. Karim Sahib / AFP
Dubai's burgeoning aviation sector is filling hotels, malls and housing developments as the economy maintains its course of expansion. Karim Sahib / AFP

Emirates Airline flight 425 from Perth has just landed in Dubai. It is not yet lunch time but already 123 Emirates passenger jets have touched down at Terminal 3.

Margaret Peterson and Rod Cardinal are looking forward to a city tour and desert safari on their two-day stopover. The Australians expect to spend about A$1,000 (Dh3,821) on their first visit to the city, breaking their onward journey to London.

"We've heard lots of good things about Dubai," says Mr Cardinal. "We also now get to use the points with Qantas."

Such stopover visitors are helping Dubai fly its way out of four years of economic turbulence with some 57 million people expected to have passed through the airport this year.

The city's burgeoning aviation sector is filling hotels, shopping malls and housing developments as the economy keeps course to expand at the fastest rate since its 2009 recession.

Emirates Airline is driving that growth, shuttling millions of passengers through Dubai on their way to destinations worldwide and channelling more of them into the city's glitzy malls and hotels.

"Dubai's success is to a great extent driven by it becoming a global aviation hub," says Ahmed Ismail, the chief executive of Majid Al Futtaim (MAF) Ventures, part of a US$10 billion (Dh36.73bn) retail conglomerate that brought snow to the desert with its vast indoor ski slope at the Mall of the Emirates. "Every single sector has benefited from Dubai becoming the global hub that it is today."

Mr Ismail does not know them, but Margaret and Rod from Perth will be staying just yards away at the Novotel, which forms part of MAF's City Centre headquarters in the city. They will be shopping and spending in his mall during their short stay like thousands of other stopover visitors to Dubai this year.

In the wake of the 2008 financial crisis, Dubai switched tack from frenetic property-fuelled speculation to focus on trade, tourism and transportation. But of these resurgent economic pillars, it is the aviation sector that has witnessed the most remarkable growth - replenishing government coffers, boosting hotel occupancy and filling empty apartments, villas and staff accommodation with pilots, engineering crews and shop assistants.

The huge influx of new tourists carried by Emirates and other airlines from destinations such as China and Russia has transformed the way retailers and hoteliers operate in the city - from hiring more Mandarin-speaking waiters to selling clothes that reflect the seasons and climates in other countries. Today the best-selling item at Dubai Duty Free is the Chunghwa brand of cigarettes from China.

The rapid expansion of Emirates helped Dubai pull out of what threatened to be an economic nosedive after a 60 per cent fall in property prices and the $25bn debt restructuring of Dubai World, one of its largest conglomerates.

As building sites were abandoned and banks were forced to absorb billions of dollars in soured loans, the emirate's economic prospects looked bleak.

But the huge growth in the number of people breaking their journeys in the city on stopovers between onward flights is transforming the economy in a way that has surprised economists and travel-industry experts alike as growth forecasts are rapidly revised upwards.

"We have certainly seen an increase in Emirates Airline flights with Dubai stopovers," says Shane Mallon, the general manager of Capricorn Travel in London.

He estimates there has been a 15 per cent increase alone this year in the number of bookings with a short break in Dubai.

"The average stop is two to three days for those travelling onwards to the Indian Ocean or Asia. We have also seen our Abu Dhabi traffic increase by a fairly similar margin but from a much lower base than Dubai.

"Both Emirates and Etihad have excellent reputations in the UK market and are seen as sound commercial entities by the travelling public."

More than 4.9 million passengers passed through Dubai International Airport in October alone - or about 615,000 more than in the same month last year.

This has led Dubai Airports to predict that it will exceed by 500,000 its initial full-year passenger traffic forecast of 56.5 million.

Dubai hotels have been the most obvious winners from this trend, welcoming 590,000 more guests in the first nine months of the year compared to the same period last year.

That boosted hotel revenues in the emirate by 19 per cent to more than Dh10.9bn through September as occupancy rose to among the highest in the world.

Aviation already supports about 125,000 jobs in the city, according to an Oxford Economics report commissioned by Emirates. It expects the industry to account for 32 per cent of Dubai's economic output by the end of the decade when it is predicted to support more than one in five jobs.

Emirates posted a 68 per cent leap in profits to Dh1.3bn for the six months to the end of September compared to a year earlier. It hired about 5,000 more staff over the period, helping to fill housing developments across the city, which is now home to some 16,000 Emirates cabin crew and 3,000 pilots.

Communities on the outskirts of the city, such as Dubai Silicon Oasis, have seen rents and prices surge by more than 30 per cent as the airline has snapped up properties to accommodate staff according to Samir Munshi, the managing director of Orion Holdings, a property investment company.

"Emirates have moved a lot of staff into Dubai Silicon Oasis. Majan is another development that was half empty - now a lot of occupancy is coming from Emirates," said Mr Munshi.

At the Discovery Gardens development in the south of the city, Dubai Duty Free accommodates staff in more than 700 apartments.

It has hired an extra 1,200 people in the past two months to work at a new concourse due to open next year, says Colm McLoughlin, the company's executive vice chairman and a 29-year veteran of the city.

Rising profitability at Emirates and at Dubai Duty Free is also helping Dubai to reduce a $113bn debt pile amassed in large part from property speculation and shelved mega-projects such as the Arabian Canal, Palm Deira and Dubai Waterfront.

Both Emirates and Dubai Duty Free are owned by Investment Corporation of Dubai (ICD) - part of a trio of conglomerates jointly referred to in the financial community as Dubai Inc.

The network of Dubai Inc companies, many of them heavily in debt, has been watched closely by ratings agencies and credit analysts since the 2009 Dubai World debt restructuring focused investor attention on the emirate's government-related companies and whether some of them risked defaulting on their debts.

Now as Emirates and Dubai Duty Freesend more profits to ICD, the credit outlook for the entire emirate has also received a boost. "It is helping ICD fill its coffers, improve its balance sheet and deleverage over time as well as indirectly benefiting the rest of the Dubai Inc complex," said Ghassan Chehayeb, the regional research director at Exotix, an investment company.

"The expansion of Emirates has been a major contributing factor to the hospitality and retail rebound."

As hotels and shopping malls gear up for another bumper holiday week, the aviation industry will bring more festive cheer to the rebounding Dubai economy.

Back at Terminal 3, Margaret and Rod are collecting their itinerary from a tour operator as more passengers from Brisbane and then Bangkok stream through the doors of the arrival hall on their way to hotels throughout the city.

"We see it more as a short break than as a destination," says Margaret Peterson.

It may be just a short break for them. But the stopover is rapidly becoming a cornerstone of Dubai's economic rebound.