Institute of Air Transport and Airport Research. The Impact of Emirates Airline on the German Economy. Final Report

Transcription

1 The Impact of Emirates Airline on the German Economy May 2012

2 Cover Picture: Emirates Airbus 380 visiting ILA Berlin Air Show 2010 Photographer: Wolfgang Grimme, DLR

3 The Impact of Emirates Airline on the German Economy Tim Alers, Dr. Peter Berster, Prof. Dr. Hansjochen Ehmer, Monika Teresa Fuhrmann, Dr. Marc Gelhausen, Wolfgang Grimme, Stephan Horn, Hermann Keimel, Dr. Sven Maertens, Hendrik Nieße Deutsches Zentrum für Luft- und Raumfahrt e.v. in der Helmholtz-Gemeinschaft Release: 1.00 German Aerospace Center Institute of Porz-Wahnheide Linder Höhe Köln Head: Prof. Dr. Johannes Reichmuth Web: May 2012 Release: 1.00 Page 1

4 Document Control Information Institute Director: Responsible author: Additional author(s): Project / research task: Filename: Prof. Dr. Johannes Reichmuth Wolfgang Grimme Tim Alers, Dr. Peter Berster, Prof. Dr. Hansjochen Ehmer, Monika Teresa Fuhrmann, Dr. Marc Gelhausen, Stephan Horn, Hermann Keimel, Dr. Sven Maertens, Hendrik Nieße The Impact of Emirates Airline on the German Economy Emirates_Report_v1.00_ doc Release: 1.00 Save date: Total pages: 139 This study was conducted for Emirates Airline. 2012, DLR, Institute of, This document with all its parts is protected by copyright. Any use within or without the domain of the copyright act is illegal without a written consent of the DLR, and will be prosecuted. This applies in particular to copying, translations, microfilm reproductions or converting, processing and storing this information on digital systems. Release: 1.00 Page 2

5 Change Log Release Date Changed Pages or Chapters Comments April 2012 Final version Release: 1.00 Page 3

6 Content List of figures... 6 List of tables... 9 Executive Summary Introduction Overview The Emirates business model and Emirates current activities in Analysis of the effects of connectivity to the international aviation network due to Emirates presence in The importance of connectivity Connectivity for Non-stop connectivity Connectivity for itineraries with one stop / transfer Connectivity to the 100 largest airports in the Eastern Hemisphere Comparison of the route networks of Emirates and Lufthansa Connectivity for individual cities in Düsseldorf Hamburg Berlin Stuttgart Connectivity and Frequency Connectivity index for German airports Connectivity and capacity Intermediate conclusions Analysis of the effects of Emirates presence in on passenger flows Market development in Market development at individual airports Development of air fares Intermediate conclusions Analysis and quantification of economic effects for Effects of existing passenger and cargo services Direct, indirect and induced employment Catalytic effects Incoming tourism Outgoing tourism Air cargo Effects of new services Outlook for for New services to Berlin and Stuttgart Effects of the purchase of aircraft, engines, spare parts and equipment Discussion of the benefits of air transport market liberalisation for Consequences of the liberalisation of air transport markets Literature review of worldwide liberalisation Liberalisation s impact on different stakeholders Secondary and hub airports Airlines and alliances Passengers Release: 1.00 Page 4

7 7 Conclusions Annex Definition of regions used throughout this report Emirates Destinations Stakeholder Interviews Literature Release: 1.00 Page 5

8 List of figures Figure 2-1: Comparison of itinerary between two secondary airports with Emirates and competing airlines / alliances Figure 2-2: Specific fuel consumption in kg per aircraft-kilometre flown Figure 2-3: Comparison of operating costs for selected airlines Figure 2-4: Development of Emirates frequencies from German airports Figure 2-5: Development of Emirates passengers on flights between and Dubai (and vice versa) Figure 3-1: Destination regions of origin-destination passengers on Emirates flights from Figure 3-2: World regions to which Emirates provides connectivity for Figure 3-3: Non-stop destinations in the Eastern Hemisphere served by all airlines from in December Figure 3-4: Overview of destinations in Africa, Asia, Middle East and South West Pacific served non-stop from in December Figure 3-5: Number of seats provided on non-stop flights and frequencies to destinations in Africa, Asia, Middle East and South West Pacific served nonstop from in December Figure 3-6: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from with one stop/transfer in December Figure 3-7: Overview of non-stop services from to the 100 largest airports in Africa, Asia, Middle East and South West Pacific in December Figure 3-8: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from with one stop/transfer in December Figure 3-9: List of complementary and overlapping destinations of Emirates and Lufthansa in the Eastern Hemisphere Figure 3-10: Map of complementary and overlapping destinations of Emirates and Lufthansa in the Eastern Hemisphere Figure 3-11: Seats offered on non-stop flights to Southern/East Africa, Asia and the Middle East from German airports in December Figure 3-12: Seats offered on non-stop flights to Southern/East Africa, Asia and the Middle East from Berlin and Stuttgart with possible future daily services by Emirates Figure 3-13: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Düsseldorf non-stop or with one stop/transfer in December Figure 3-14: Map of destinations in Africa, Asia, Middle East and South West Pacific served from Düsseldorf non-stop or with one stop/transfer in December Figure 3-15: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Hamburg non-stop or with one stop/transfer in December Figure 3-16: Map of destinations in Africa, Asia, Middle East and South West Pacific served from Hamburg non-stop or with one stop/transfer in December Figure 3-17: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Berlin non-stop or with one stop/transfer in December Figure 3-18: Map of destinations in Africa, Asia, Middle East and South West Pacific served from Berlin non-stop or with one stop/transfer in December Figure 3-19: Perceived quality of connectivity from Stuttgart Release: 1.00 Page 6

9 Figure 3-20: Destinations with a need for improved non-stop or transfer connectivity, share of the number of mentioned destinations by region Figure 3-21: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Stuttgart non-stop or with one stop/transfer in December Figure 3-22: Map of destinations in Africa, Asia, Middle East and South West Pacific served from Stuttgart non-stop or with one stop/transfer in December Figure 3-23: Number of weekly itineraries to the 100 largest airports in the Eastern Hemisphere from selected German airports by airline Figure 3-24: Number of weekly itineraries to the 100 largest airports in the Eastern Hemisphere from selected German airports by airline Figure 3-25: Calculation of the connectivity index Figure 3-26: Map of destinations in Africa, Asia, Middle East and South West Pacific for which Emirates services reduce the number of stops / transfers from Hamburg Figure 3-27: Capacity contribution of Emirates on O&D relations from Hamburg to Southern and East Africa, Asia, the Middle East and South West Pacific (2011) Figure 3-28: : Potential capacity contribution of Emirates on O&D relations from Stuttgart to Southern and East Africa, Asia, the Middle East and South West Pacific (2011) Figure 4-1: Origin-destination passengers from to the Eastern Hemisphere and Emirates market share by region Figure 4-2: Origin-destination passengers from to Southern/East Africa, Asia, Middle East and South West Pacific, Figure 4-3: Origin-destination passenger growth by individual carriers in the market between and Southern/East Africa, Asia, Middle East and South West Pacific between 2005 and Figure 4-4: Origin-destination passengers from to Southern/East Africa, Asia, Middle East and South West Pacific between 2002 and 2010 in relative terms Figure 4-5: Origin-destination passengers from Hamburg to Southern/East Africa, Asia, Middle East and South West Pacific, Figure 4-6: Origin-destination passengers from Hamburg to Dubai, Figure 4-7: Origin-destination passengers from Hamburg to Dubai travelling on Lufthansa, Air France, British Airways and Turkish Airlines, Figure 4-8: Origin-destination transfer passengers from Hamburg to Southern/East Africa, Asia, Middle East and South West Pacific by first transfer point, Figure 4-9: Origin-destination passengers from Düsseldorf to Africa, Asia, Middle East and South West Pacific, Figure 4-10: Origin-destination transfer passengers from Düsseldorf to Southern/East Africa, Asia, Middle East and South West Pacific by first transfer point, Figure 4-11: Seats offered on non-stop flights by Lufthansa from to the Middle East and to India Figure 4-12: Comparison of air fares in business class of Emirates and Lufthansa from Hamburg to selected Asian destinations Figure 4-13: Comparison of air fares in economy class of Emirates and Lufthansa from Hamburg to selected Asian destinations Release: 1.00 Page 7

10 Figure 4-14: Comparison of average air fares in economy class from Frankfurt for a set of five major Asian destinations and four combinations for minimum stay / advance booking Figure 5-1: Differentiation of economic effects for coming from Emirates activities Figure 5-2: Exemplary chain of inputs and definition of direct and indirect effects Figure 5-3: Emirates expenditures in and the resulting direct and indirect employment effects for the fiscal year 2010/ Figure 5-4: Location decision of companies depending on time- and real estate costs Figure 5-5: Development of incoming tourism, measured in nights spent by travellers from Asia, Middle East and South West Pacific Figure 5-6: German National Tourist Board tourism growth forecast 2020 for incoming tourism from Asia, Middle East and South West Pacific Figure 5-7: Development of incoming tourism in Munich from selected countries, measured in nights spent Figure 5-8: Correlation between the number of seats offered on non-stop flights from the Middle East to and the number of nights spent by tourists from the Middle East in, Figure 5-9: Correlation between the number of origin-destination passengers between and destinations in Asia and the number of nights spent by tourists from Asia and South West Pacific in, Figure 5-10: Forecast on German exports for the manufacturing industry (constant prices, base year 2000) Figure 5-11: Development of air freight exports from to the UAE (in tons), Figure 5-12: Development of the air freight volumes of major airlines originating from German airports Figure 5-13: Market share of Emirates for outbound air freight originating in in 2010 for different IATA regions Figure 5-14: Emirates passenger growth potential to/from 2011/ Figure 5-15: Emirates expenditures in for the fiscal year 2011 and forecast for fiscal year 2012 in million Figure 5-16: Emirates fleet and order development Figure 5-17: Emirates aircraft on order as of 31st December 2011 (excluding options and letters of intent) Release: 1.00 Page 8

11 List of tables Table 2-1: Emirates operations in as of December Table 3-1: Comparison of frequencies and capacities to African, Asian and Pacific destinations on direct flights* of Lufthansa from with direct flights of Emirates from Dubai in December Table 3-2: Connectivity index for German airports due to Emirates services to Dubai and onward destinations in December Table 3-3: Total and Emirates (EK) used capacity on O&D s from Hamburg to Asia, Southern and East Africa, South West Pacific and the Middle East region (2011) Table 3-4: Estimated total and Emirates (EK) used capacity on O&D s from Stuttgart to Asia, Southern and East Africa, South West Pacific and the Middle East region (2011) Table 5-1: A simplified symmetric input-output table (product by product) Table 5-2: Summary of direct and indirect employment estimations for Emirates air services to and from Table 5-3: Expenditures by foreign tourists travelling on Emirates to Table 5-4: Traffic scenarios for Berlin and Stuttgart Table 5-5: Emirates expenditures for new services between Dubai and Stuttgart Table 5-6: Emirates expenditures for new services between Dubai and Berlin Table 5-7: Annual contribution of Emirates to the German aerospace industry Release: 1.00 Page 9

12 Executive Summary Since 1987, Emirates Airline has operated flights from Dubai to. As of December 2011, the Dubai-based carrier serves four points in (Frankfurt, Munich, Düsseldorf and Hamburg) with a total of nine daily passenger flights to and from Dubai. Additionally, Frankfurt and Düsseldorf are served regularly with freighters. The airline has contracted the Institute of at the German Aerospace Center (DLR) to examine the economic effects coming from the provision and use of existing passenger and cargo flights and the additional benefits that could be gained from potential new services to Berlin and Stuttgart. Currently, the bilateral air services agreement between the United Arab Emirates and allows Emirates to serve four points in with passenger flights. Furthermore, the analysis includes the impacts on the German economy due to Emirates orders for aircraft, engines, spare parts and maintenance services. Scope of the Study / Methodology In this study, the effects for the German economy have been analysed in the following areas: Connectivity impacts concerning airports that are currently being served by Emirates (pages 28ff.) Connectivity impacts resulting from potential new Emirates services from Dubai to Berlin and Stuttgart (pages 46ff.) Impacts of Emirates services on passenger flows, competing airlines and hubs (pages 67ff.) Direct, indirect and induced employment effects due to Emirates economic activity in connection with the operation of existing and potential new services (pages 83ff.) Direct, indirect and induced employment effects due to incoming tourists flying with Emirates to (pages 94ff.) Effects for shippers of air cargo concerning freight capacities and the accessibility of destinations (pages 103ff.) Direct, indirect and induced employment due to Emirates orders for new aircraft, engines, spare parts and maintenance services (pages 115ff.) The analysis of connectivity is based on schedules data for December Concerning the assessment of the impacts of Emirates services on passenger flows and capacity supply, data provided by Sabre Airport Data Intelligence, based on Market Information Data Tapes (MIDT) was analysed. Furthermore, data provided by the Official Airline Guide (OAG) on seat capacities and aircraft were used. Employment effects of Emirates activities in, coming from the provision of air transport services and from orders for aircraft, engines, spare parts and maintenance services were assessed by applying input-output analyses, which are based on input-output tables provided by the German Statistical Office and supplemented with data on expenditures provided by Emirates. The input-output methodology is well accepted for Release: 1.00 Page 10

13 impact assessments of the contribution of individual industries or activities to the economy and delivers sound and reliable results. For a qualitative assessment in areas where quantitative data was not available, stakeholder interviews with managers of tourism authorities, chambers of commerce and freight forwarders were conducted. Results The following paragraphs summarise the main findings of our investigation: Connectivity Impacts Secondary airports like Düsseldorf and Hamburg, which attract significant passenger volumes, but do not have a hub function improve their connectivity to the world regions Southern/East Africa, Asia, the Middle East and Southwest Pacific through Emirates services. The number of destinations that can be reached with a maximum of one intermediate stop or transfer increases. The number of flight segments required is reduced accordingly (pages 42ff.). Overall, this improves passenger comfort. The improvement, as measured by a specified connectivity indicator, can be as much as 12 % for Düsseldorf and Hamburg, when the 61 destinations served by Emirates in Southern/East Africa, Asia, the Middle East and Southwest Pacific are considered (pages 57ff.). Both passengers and shippers of air cargo benefit from dedicated capacities to Southern/East Africa, Asia, the Middle East and Southwest Pacific with better availability of seat and cargo capacities and more choice in departure times, frequencies, prices and transfer points. From the viewpoint of economic theory, Emirates displays a function as countervailing power against increased oligopolisation and monopolisation of markets through mergers and alliances. For, this applies particularly to the fortress hubs in Frankfurt and Munich, where Star Alliance has a share of 62 % and 65 %, respectively, in the number of seats offered on flights to Southern/East Africa, Asia and the Middle East. At the airports of Berlin and Stuttgart only very few intercontinental flights to Asia or the Middle East are offered, so passengers are required to transfer via a German or European hub for most trips, or to travel by car or train to nearby airports with a larger supply of long-haul flights. New Emirates services would broaden the choice in frequencies and enhance the accessibility of German regions. In Stuttgart, with a daily flight to Dubai, the number of weekly flight nonstop and onestop connections to the Eastern Hemisphere would increase by 14 %. In Berlin, a daily flight by Emirates would increase the number of connections to Southern/Eastern Africa, Asia, the Middle East and Southwest Pacific by almost 10 %. With a daily flight from Stuttgart and Berlin to Dubai, Emirates can generate 210 onestop connections per week in transfer window of up to 6 hours after arrival in Dubai. Release: 1.00 Page 11

14 In comparison, Qatar Airways generates currently only 66 weekly transfer connections from Stuttgart and 148 connections from Berlin via Doha. Impacts on Passenger Flows The analysis of passenger development shows that Emirates stimulates the demand for trips between and the Eastern Hemisphere. From this it can be concluded that passengers travelling on Emirates represent to a large extent additional demand, which has not been shifted away from other airlines or hubs. The number of transfer passengers travelling from Düsseldorf / Hamburg via Frankfurt and Munich remains constant or even grows, despite new or increasing competition from Emirates and other new entrants (pages 71ff.). The air transport market between and destinations in the Eastern Hemisphere (Southern and East Africa, Asia, the Middle East and South West Pacific) has grown by 30 % between 2005 and 2010 (+1.3 million passengers in absolute terms). Emirates market share increased in this period from 7.5 to 10.2 %, the market share of German carriers increased from 23 to 24.5 %. In the particularly important market -North Eastern Asia (1.4 million travellers in 2010; e.g. China, Japan and South Korea), Emirates market share is lowest with 3.5 %. Emirates market share is highest between and the South West Pacific region with 20 %. In this market, no German airlines operate. From a growing demand in air travel between and the Eastern Hemisphere many airlines benefit. Emirates share in the overall growth between 2005 and 2010 is +250,000 passengers, while Lufthansa s passenger numbers increased by +220,000, followed by Turkish Airlines and Air Berlin with +116,000 each (pages 69ff.). Even in markets particularly exposed to competition with new entrants, like Middle East and India, market leader Lufthansa has continued to grow substantially in terms of seat capacities offered (from 134,000 to 217,000 per month between 2003 and 2011) and also destinations offered (from 15 to 21 between 2003 and 2011, pages 77ff.). Based on the market analyses, we form the hypothesis that different market segments have evolved over the past years. On the one hand, time-sensitive travellers from Frankfurt and Munich continue to fly on non-stop services to Asia and passengers from secondary airports in continue to use connections via Frankfurt and Munich, which often have the shortest travel times compared to competing transfer itineraries. On the other hand, price-sensitive passengers prefer the offers of new entrants, with slightly longer travel times, but a competitive offer concerning value for money. As the route networks of Emirates and Qatar Airways are overlapping to a large extent and similar travel times on many origin-destination pairs are offered, it can be expected that competition will be much stronger between the two Gulf carriers than between Emirates and Lufthansa, once Emirates would start operations in Berlin and Stuttgart. Moreover, Emirates daily non-stop services with wide-body jets from Berlin and Stuttgart to Dubai, would be more attractive from passengers point view compared to Qatar Airways three-weekly service from Stuttgart to Doha and daily service with Release: 1.00 Page 12

15 narrow-body jets from Berlin to Doha. This limitation in the number of seats impedes the ability to stimulate traffic and hence for instance to stimulate incoming tourism. Overall, the growth of airlines like Emirates has not led to a reduction of existing nonstop / direct services of German carriers. On the contrary, the accessibility of has improved due to the new offers. Impacts of Emirates economic activity in In fiscal year 2010/11, Emirates spent million in for salaries of its employees and the purchase of goods and services required to operate passenger and cargo flights (pages 87ff.). In our definition, Emirates staff is defined as direct employment, while persons employed with suppliers delivering inputs to Emirates (e.g. ground handlers, crew hotels, fuel suppliers) are counted as indirect employees. This includes the full chain of inputs. Input-output analyses show, that besides 169 employees directly employed with Emirates, 2,271 indirect jobs are created both through Emirates expenditures e.g. for ground handling, catering, crew accommodation and airport charges, as well as through the expenditures of Emirates passengers (e.g. at airport retailing, parking and restaurants) and through the provision of public services (customs, border control). Moreover, through consumption expenditures of persons directly and indirectly employed, 712 jobs are induced. According to these results, the activities of Emirates for the provision of air transport services create in total approximately 3,200 direct, indirect and induced jobs across different industries and different skill levels. We have also applied an alternative methodology as found in the literature on economic impacts of aviation, using the relation between employment at airports and passenger/cargo traffic. This methodology results in about 3,600 direct, indirect and induced jobs (pages 90ff.). Impacts on Incoming Tourism Interviews in the tourism industry have confirmed that the regional availability of direct long-haul flights is a key factor to increase the attractiveness of a city or region for incoming tourists from Asia and the Middle East (pages 94ff.). On average, every additional arriving passenger increases the number of overnight stays of foreign tourists in by 0.8. Therefore, it is estimated that Emirates accounted for approximately 485,000 overnight stays by foreign tourists in 2010 (pages 95ff.). Expenditures of foreign tourists coming on Emirates to are approximately 76 million, creating almost 2,600 direct, indirect and induced jobs (pages 102ff.). The German National Tourist Board expects that incoming travellers from the Middle East region will become the second largest group of non-european travellers (estimation of 2.3 million nights in 2020) after those from the US (estimation of 5.9 million nights in 2020), when measured by the number of nights spent in. Release: 1.00 Page 13

16 This can be regarded as an indication also for further growth potentials for air transport between and the Middle East. The growth of incoming tourism from the Middle East is even more remarkable, when taking into account the relatively small population size of 39.2 million inhabitants. Based on the expected number of nights to be spent in per inhabitant, the propensity of Middle Easterners to travel to (58.7 overnight stays per thousand inhabitants) is about 35 times the one of the Chinese (1.6 overnight stays per thousand inhabitants), 3.2 times the one of the Americans (18.6 overnight stays per thousand inhabitants) and 2.3 times the propensity to travel of the Australians (25.7 overnight stays per thousand inhabitants, pages 96ff.). In order to guarantee the long-term attractiveness of for foreign tourists, availability of flights and low air fares are particularly important. Impacts of potential new services to additional points in Each additional flight to will create approximately 140,000 additional passengers for the respective airport, where such a flight will be operated (pages 112ff.). Each additional flight to will create about 200 direct, indirect and induced jobs from aviation-related activities (pages 113ff.). Each new Emirates flight will potentially increase incoming tourism by about 55,000 overnight stays. The expenditures related to this increase in incoming tourism amount to about 8.3 million annually, creating approximately 280 direct, indirect and induced jobs. With two daily flights, for each destination the number of additional passengers increases to about 360,000, the number of jobs to 440 and the number of overnight stays to 144,000. This incoming tourism effect creates approximately 730 additional jobs. Switching from any of the four points currently served to new points does not create any additional benefits for the German economy. With traffic rights for additional points to be served by Emirates, s overall global competitiveness for business relations, exports and incoming tourism will be improved. Impacts on the German aeronautical industry Emirates is one of the main customers of the German aeronautical industry. Between 1985 and 2011 Emirates took delivery of 84 Airbus aircraft, of which 65 were in service at the end of December 2011 (including 20 Airbus A380 valued at more than US$7 billion at list prices). As of December 2011, the carrier has 140 firm orders for Airbus aircraft to be delivered over the next 10 years ( ), with a contract value at list prices of US-$ 54.7 billion ( 41.4 billion; including spare parts and spare engines). Without considering investments in engines, the share for Airbus and German suppliers exceeds 10 billion. In total, this will protect and create more than Release: 1.00 Page 14

17 9,400 jobs at Airbus, its suppliers and through the consumption expenditures of employees (page 118). Emirates decision to equip its fleet of 90 Airbus A380 aircraft with Engine Alliance engines, in which German manufacturer MTU has a share of 22.5 % in development and production, has created almost 600 direct, indirect and induced jobs in. For the operation of its current fleet, Emirates spends annually almost 280 million with German suppliers of cabin interiors, ground support equipment, spare parts and repair services. These expenditures create more than 2,500 direct, indirect and induced jobs in. The total employment effect in the aeronautical industry, for its suppliers and through the spending of income of persons directly or indirectly employed in this industry exceeds 12,500 full time jobs. Our analysis does not include effects coming from deliveries of the German industry to Boeing, where Emirates has 97 aircraft on firm order. Boeing did not provide any information on the German content of Boeing aircraft. However, based on the list prices of the aircraft ordered by Emirates, we estimate that every percentage point of German participation in Boeing s aircraft programs creates 200 direct, indirect and induced jobs in. With total revenues in the order of 25 billion in the German aerospace industry Emirates would account for about 4 % of these revenues over the next 10 years. Release: 1.00 Page 15

18 Conclusion The study finds that more than 18,000 jobs in are dependent on the economic activities of Emirates. The total of direct expenditures by Emirates and indirect expenditures by incoming tourists travelling on Emirates exceed 1.6 billion per year. When two additional points in (Berlin and Stuttgart) would be allowed to be served on a daily basis, we expect an additional contribution of close to 1000 jobs through the aviation-related activities and incoming tourism. If both destinations were served twice daily, more than 2000 new jobs would be created. The following tables summarise the findings concerning expenditures and related employment effects: Scenario 1 one daily flight to Berlin and Stuttgart Existing flights + Employment Existing flights one additional daily flight to BER and Change STR each Provision of air services 3,152 3, % Incoming tourism 2,583 3, % Industry 12,558 -/- Total 18,293 19, % Expenditures Existing flights Existing flights + one additional daily flight to BER and Change STR each Provision of air services million million % Incoming tourism 76 million 92.6 million % Industry 1,399.9 million -/- Total 1,679.2 million 1,726.1 million % Scenario 2 two daily flights to Berlin and Stuttgart Employment Existing flights Existing flights + two additional daily flights to BER and Change STR each Provision of air services 3,152 4, % Incoming tourism 2,583 4, % Industry 12,558 -/- Total 18,293 20, % Release: 1.00 Page 16

19 Expenditures Existing flights Existing flights + two additional daily flights to BER and Change STR each Provision of air services million million % Incoming tourism 76 million million % Industry 1,399.9 million -/- Total 1,679.2 million 1,788.2 million % The example of Emirates shows that benefits from air transport liberalisation twofold: On the one hand through the economic effects of additional flights and on the other hand through the employment effects in the aeronautical industry due to the large number of aircraft. From the analyses and the data shown in this report, a further liberalisation of aviation markets with third countries is likely to be beneficial for a wide range of stakeholders, such as for employees being hired to handle additional traffic, for s airports, for the aeronautical industry, for shippers of air cargo and last but not least for passengers, who benefit from competitive prices, larger capacities and better connectivity. Overall, the analyses show that the German economy significantly benefits from the activities of Emirates in. Moreover, it has been shown that the economic benefits can be further increased when flights to additional German airports will be offered. Release: 1.00 Page 17

20 1 Introduction In recent years Emirates has grown considerably. Via the airline s hub in Dubai, Emirates provides connectivity to 103 destinations (as of December 2011) on all continents. Emirates growth trend is also reflected in the German market, despite limitations in traffic rights. From, Emirates has become the second largest carrier after Lufthansa in the supply of seats on long-haul flights to destinations in Southern/East Africa, Asia and the Middle East. Passengers can reach a total of 61 destinations in Southern/East Africa, Asia, the Middle East and the South West Pacific with Emirates from any one of the four airports in currently served. These destinations include Dubai as non-stop destination, 57 destinations to be reached with one transfer in Dubai and three destinations (Auckland, Christchurch and Entebbe/Kampala) with additional stops on the flight from Dubai. These numbers underline the importance of Emirates for the German air transport market, in terms of destinations served and seat capacity provided. Moreover, Emirates is an important customer to both Airbus and Boeing, as it operates a quickly growing fleet of long-haul widebody aircraft. The German industry has significant shares in both Airbus and Boeing commercial aircraft projects and delivers spare parts, aviation equipment and services to Emirates. In this study, the DLR Institute of undertakes research to quantify the effects generated for the German economy by passenger and cargo services operated by Emirates to and from, as well as the effects for the German aerospace industry, resulting from orders for aircraft, engines, components, spare parts and equipment. The geographical scope of the analysis is on the one hand in its entirety and, on the other hand, a particular focus is laid on the situation of Berlin and Stuttgart, where Emirates intends to offer new services. Emirates is currently constrained by the bilateral air services agreement between and the United Arab Emirates, as no passenger services to these cities can be established without giving up services to existing destinations. With passenger services, Emirates is permitted to serve four airports in and currently operates to Frankfurt, Munich, Düsseldorf and Hamburg. In this study, the effects for the German economy have been analysed in the following areas: Effects for passengers due to increased choice in the number of destinations, seat capacity, services, frequencies and increased competition between airlines Effects for shippers of air cargo due to an increase in freight capacities Effects for the aeronautical industry (employment, revenues) Effects on the tourism sector in The document is structured as follows: In the first part, a brief overview of Emirates in general and its activities in will be given. In the second part, the connectivity of in general, and Berlin and Stuttgart in particular, to the air transport system is analysed and the contribution of Emirates is shown. This analysis is based on flight schedules data for December Release: 1.00 Page 18

21 In the third part, impacts of Emirates services on passenger flows between and Africa, Asia and South West Pacific are analysed. This analysis is based on data provided by the German Statistical Office and Sabre Airport Data Intelligence. Sabre s Airport Data Intelligence information is based on bookings collected by the computer reservation systems (commonly known as market information data tapes/midt), but is further processed to account for airline direct sales not processed via CRS. To account for these effects, additional data sources, e.g. data from statistical offices, is used. The fourth area of the study deals with the impacts of Emirates on the German economy. This analysis is structured in two parts: On the one hand the effects coming from air services with regard to tourism, business travellers and air cargo are individually assessed. This part of the analysis will be conducted for the German economy in total, supplemented by estimations of the regional economic effects coming from potential future services to Berlin and Stuttgart. On the other hand the economic impacts of Emirates orders for aircraft, engines, spare parts, services and equipment for the German aerospace industry are analysed. Both the effects from air services as well as the purchase of aircraft, equipment and services from the German industry are investigated from a macroeconomic perspective, showing the employment generated by Emirates in, the contribution to the economy in terms of gross value added and the revenues of tax authorities and social security. The study concludes with a discussion on the benefits for with the liberalisation of air services agreements in general and the benefits of Emirates services to passengers, summarising the findings of the previous chapters. Release: 1.00 Page 19

22 2 Overview The Emirates business model and Emirates current activities in The growth strategy of Emirates is embedded in an overall plan for the economic development of Dubai. Dubai has become a role model for an Aerotropolis, a city which is located at a global hub that facilitates the exchange of people, goods and ideas (Kasarda/Lindsay, 2011). The economic policy of the emirate is focussed on the improvement of infrastructure, attracting foreign investment and highly skilled labour, for which the place is attractive due to its global connectivity and open immigration rules. In recent years, other airlines like Qatar Airways and Etihad Airways, but also Star Alliance member Turkish Airlines, are following Emirates business model of developing networks with global connectivity and a particular focus on traffic flows between Europe, Asia and Africa. The economic benefits of the aviation hub in Dubai are estimated by the Oxford Economics study (June 2011). It is estimated that aviation-related jobs account for about 19 % of total employment in Dubai and for about 28 % of Dubai s GDP. The total of 259,000 jobs related to aviation in Dubai splits into 58,000 persons directly employed in aviation-related businesses and 43,000 jobs created with companies delivering inputs to the aviation sector. A further 23,900 jobs are created as induced employment resulting from the spending of persons directly or indirectly employed in aviation. In addition to this, the tourism sector in Dubai benefits strongly from the improved connectivity provided by air services. The authors found that the employment effects in this area reach almost 134,000 jobs. Through the creation of a platform for global connectivity, benefits are not only created for the hub, but also for each spoke connected to each other point in the network. As of December 2011, 103 destinations were served with passenger flights. Including destinations only served by freighters, the number of points in the Emirates network increases to 116 on all continents. A multitude of aspects contributes to the success of Emirates, as shown by O Connell (2009). A key component in the success of the business model of Emirates is the geographic location of its hub in Dubai, roughly in the centre of the triangle London-Johannesburg- Tokyo, which allows serving a large number of intercontinental city pairs between Africa, Asia, Europe and the Middle East. In developing its network, Emirates follows the approach to connect primary and secondary airports in Europe via its hub in Dubai with primary and secondary airports in Africa, Asia and South West Pacific. This allows passengers from secondary airports in Europe to reach secondary airports in the Eastern Hemisphere with only one transfer, while itineraries with competing carriers often require at least two transfers (Brützel, 2006). This network structure is called secondary-hub-secondary in the literature, compared to the secondary-hub-hubsecondary network structure of competing airlines and alliances. From the passenger s perspective, the secondary-hub-secondary strategy offers benefits as one additional transfer can be avoided. The following figure shows the effect for the example of an itinerary from Hamburg to Perth in Australia. With Emirates, the itinerary has one transfer at the airline s hub in Dubai. Lufthansa offers for instance a routing via the hubs in Frankfurt and Singapore, oneworld via London-Heathrow and Singapore and SkyTeam via Amsterdam and Kuala Lumpur. Release: 1.00 Page 20

23 From this strategy various airports can take advantage, which formerly had no or only very few intercontinental flights, for instance Glasgow and Newcastle in the United Kingdom, Perth and Brisbane in Australia or Hamburg and Düsseldorf in. Figure 2-1: Comparison of itinerary between two secondary airports with Emirates and competing airlines / alliances Source: DLR. In its business model, Emirates benefits from various cost advantages. Concerning flight operations cost savings can be achieved due to the following effects: In the operation of wide-body passenger jets, fuel consumption per aircraft-kilometre flown initially decreases with longer flying distance, as the energy-intensive take-off and climb phase spreads over larger flying distances. However, fuel consumption per kilometre flown increases again at some point with increasing distances, as fuel to be burnt at later stages of flight has to be carried over long distances. Modern passenger jets, such as the Boeing 777 or Airbus A330 have their minimum fuel consumption per kilometre flown at distances between 3,000 and 6,000 km (Egelhofer et al. 2008), which are typical for Emirates operations between Dubai and Europe or South East Asia (see Figure 2-2). Release: 1.00 Page 21

24 Figure 2-2: Specific fuel consumption in kg per aircraft-kilometre flown Specific fuel consumption in kg/km Frankfurt-Dubai Frankfurt-Singapore Dubai-Singapore Source: Based on Egelhofer et al. (2008). Distance in km Therefore, a cost advantage is achieved over competitors, which operate non-stop (e.g. between Europe and South East Asia) with flight stages of 8,000 to 10,000 km. This relationship is shown in Figure 2-2. The unlimited operating hours of the airport in Dubai can be regarded as one element for the improvement of efficiency, too, as aircraft are not held artificially on the ground at the carrier s main hub. Contributing to Emirates increasing success is a strong brand image. Emirates relies to a large extent on sponsorship of sports teams and events, as shown by O Connell (2009). In, Emirates has increased its popularity through the support of the World Cup 2006 and as main sponsor of the Hamburger SV football team. The positive brand perception of passengers is also reflected in the results of Emirates inflight passenger survey for flights between and Dubai, where the reputation of the carrier and the perceived value for money are among the four most often mentioned reasons for choosing Emirates. Due to its ambitious growth strategy, it has achieved considerable volume discounts in its aircraft orders. From the high number of orders, like for the Airbus A380 or Airbus A350, not only Emirates benefits, but positive spill-over effects extend to other airlines buying the same types. With more orders, Airbus can distribute the development costs over a higher number of aircraft, leading to smaller development costs per aircraft delivered. Moreover, with larger quantities produced, economies of scale in purchasing and production can be realised, which are partly passed through to the airlines. Additionally, Emirates fleet decisions have a signalling effect for other airlines, which potentially has a positive effect on the manufacturers sales success. Also the resale value of aircraft potentially increases with the number of aircraft produced, as types become more common. This should be applicable particularly for the Airbus A380 with Engine Allliance engines, of which Emirates has ordered 90 units, while other carriers have only ordered 35 of this variant. Release: 1.00 Page 22

25 Like other airlines in emerging economies, such as in Singapore or in Turkey, Emirates can benefit from relatively lower wage levels for less skilled workers (e.g. employees in ground handling at the hub in Dubai) compared to incumbents in Europe. Lower tax rates make the UAE attractive for highly skilled labour (e.g. cockpit crews, engineers and management), for which a global market has developed. However, while not being obliged to contribute to mandatory social security systems as in Europe, Emirates provides healthcare, housing and children s education for management, pilots, engineers and other staff voluntarily to improve the attractiveness of Dubai. The costs incurred with these services exceed US-$ 500 million annually. The above mentioned factors concerning network structure, flight operations and locationspecific advantages contribute to comparably lower production costs, but are mostly not specific to the UAE, as they can also be found in other emerging economies. The following figure provides an overview of production costs (costs per available seat kilometre) for a number of airlines operating in the Asia-Europe long-haul market. Figure 2-3: Comparison of operating costs for selected airlines Source: Oxford Economics (2011). From an economists perspective, Emirates exploits a classical Ricardian comparative advantage in the services industry, pretty much the same way as consumer electronics are produced in China or textiles in Bangladesh, for the advantage of both the exporting and the importing country. The benefits from the international division of labour in the production and trading of goods are widely undisputed. Emirates has a long-standing relationship with. It started services to Frankfurt on 31 st July 1987 and will therefore celebrate its 25 th anniversary in The second destination Munich was added on 1 st November 1999, followed by Düsseldorf on 27 th March Hamburg, the fourth destination, was added starting on 1 st March Additionally, freighters are operated to and from the airports in Düsseldorf, Frankfurt and Hahn. The bilateral air services agreement between and the UAE allows Emirates to operate cargo-only flights to more airports than the four available airports for passenger services. Figure 2-4 shows the development of Emirates frequencies from German airports. Both Frankfurt and Munich started with seven flights per week, which increased to 14 flights per week in In Düsseldorf frequencies were increased to double daily in In Hamburg, Emirates started with a daily flight from Dubai, which was extended in October 2006 to New Release: 1.00 Page 23

26 York, but discontinued in In September 2011, Hamburg received a second and in December 2011 Frankfurt received a third daily frequency to Dubai. In Munich, one daily flight is operated by an Airbus A380. Figure 2-4: Development of Emirates frequencies from German airports Source: Own illustration based on data by OAG. Over time, services to all German destinations were increased, both in the number of frequencies as well as aircraft sizes. This reflects the growing demand for air travel between and the regions served by Emirates in Asia and the Middle East. The operational scheme from German airports as of December 2011 is shown in the following table. Release: 1.00 Page 24

27 Table 2-1: Emirates operations in as of December 2011 Airport Monthly Frequency (Departures) Aircraft Type Monthly seat capacity (upon departure) Monthly cargo capacity (in t upon departure) 44 Airbus A Düsseldorf 18 Boeing Boeing F** Frankfurt Hahn* 5 Boeing F** Frankfurt Rhein Main Int`l Hamburg Munich 31 Airbus A Boeing ER Boeing F** Boeing ER Boeing ER Airbus A Airbus A Source: Own representation based on data by OAG and Emirates SkyCargo. *) Cargo traffic rights only **) Freighter operations The following figure shows the development of passengers flown on Emirates flights between Dubai and (both directions) for the time frame The steady growth underlines the resilience of Emirates business model, even during the difficult years after the terrorist attacks in September 2001 and the global financial crisis after 2008, which has had serious impacts on passenger demand with regard to other airlines. The year 2011 saw a small decline of the passenger numbers. For 2012, however, another increase can be expected as capacities on some routes have been increased in winter 2011/2012. Release: 1.00 Page 25

28 Figure 2-5: Development of Emirates passengers on flights between and Dubai (and vice versa) Source: Own representation based on data by Emirates. In line with passenger growth, Emirates has achieved a positive recognition of its brand. The carrier s inflight passenger survey reveals that more than 60 % of passengers on flights to and from have flown on Emirates repeatedly. Primary reasons for customers to choose Emirates are the experiences made with the carrier before, the reputation and the value for money. Release: 1.00 Page 26

29 3 Analysis of the effects of connectivity to the international aviation network due to Emirates presence in 3.1 The importance of connectivity In developed economies the division of labour, and therefore a spatial separation in the value chain of nearly every good or service is a fact. This international system increasingly develops the need for international business contacts or the founding of international branches and subsidiaries and other aspects of trade. Economic development in a global economy is intertwined with growth of external trade making worldwide mobility a necessity. Moreover, there can be a substantial separation of working and living, if only at times, as well as living and leisure. Therefore, connectivity to the global aviation network is a key factor to the competitiveness of cities, regions and countries. Numerous studies (e.g. Button/Taylor, 2000; Santin, 2000; Harsche et al., 2008) have shown that accessibility by air transport has a wide range of regional economic effects, including an increase in foreign direct investment, job creation and an increase in incoming tourism. The existence of air services to a wide range of destinations and at affordable prices increases the attractiveness of locations for businesses and is an essential feature in the current economy that is based on global logistics chains, connections and speed. Therefore, an increase in air services with more destinations and frequencies is an effective measure to stimulate the economy and to participate in the globalisation process. On a regional level, in the catalogue of hard locational factors, the quality of the transport system is an additional criterion in the interregional competition of economic development (Santin, 2001). Thus, the economic development of a region is supported when the local industry appreciates and utilises the connection to a high quality transport network. Key elements for local businesses are time- and cost advantages creating improved possibilities to access international markets and strengthen business contacts (Santin, 2001). With increasingly global business ties, the network structure of the local air transport link is an important factor in this regard. Thus, a broad network and a high degree of accessibility of national, international and intercontinental destinations will increase the airport s attractiveness for the local economy. In this regard it is noteworthy that a higher level of economic capacity in the destination regions would benefit the local economy better. The linking of places of production and the marketplace is especially important concerning cargo traffic. Other criteria concerning economic impact for the region refer to the frequency of flight connections and the overall number of available seats. A high number of connections are desirable for flexible planning and short notice decisions on the sides of industry as they reduce schedule delay and associated costs. Finally, the number of available seats is an important measure to rate the overall impact of additional flights from the passenger perspective. Higher capacities give more people the opportunity to benefit from air transport and contribute to decreasing fares, allowing also passengers with a lower willingness to pay to fly. The supply of transport services is of importance for the region and the airport itself. The airport can increase its attractiveness by holding a sufficient supply of transport services and this way it can generate higher revenues through fees and income from non-aviation sources. In this regard international and intercontinental connections are of special interest Release: 1.00 Page 27