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Emirates and Eithad debut in Tokyo and BA goes on strike again

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When the history of aviation is written in future years time this week will be remembered as the one in which Emirates Airline and Etihad opened their first-ever flights to Tokyo while British Airway cabin staff went on strike for a second time.

Cabin crew from Lufthansa and Alitalia are also planning strike action as the legacy carriers from Europe embark on what any business observer would have to acknowledge as suicide during the worst global economic downturn since the 1930s.

Tokyo debut

Abu Dhabi’s airline Etihad will operate five non-stop flights to Tokyo a week. The maiden Etihad flight arrived a day ahead of Dubai’s Emirates first flight into Tokyo’s Narita airport that will also offer five flights per week.

Direct flights from the two major cities of the UAE to Japan means the start of a whole new hub service for the Japanese capital routed through the UAE. There is also the associated prestige and publicity attendant on direct flight services.

Trade and trading relationships between the UAE and the world’s second largest economy are strong with $29 billion in trade annually. There are some 350 Japanese companies and 3,500 Japanese expatriates living in the UAE which is a hub for multinational distribution in the region.

Both airlines are also hoping to attract more high-spending Japanese tourists to visit Dubai and Abu Dhabi that have an impressive inventory of new luxury hotels and shopping malls as well as new cultural attractions.

What a contrast with the European airlines whose staff see themselves as royalty flying the world to indulge in long-stop overs with their friends also flown in at subsidized rates.

Younger staff

The future clearly lies with the Gulf carriers with more market orientated employment policies. That means giving young staff short contracts, and investing in modern aircraft rather than staff perks.

It also means getting on with expanding the airlines across the globe and not allowing customers to be upset by strike action by cabin staff who seem to have forgotten that they are only their to serve the airline and not vice-versa.

European legacy airlines have a tough enough job ahead of them competing in a globalized aviation market without their staff stabbing them in the back.

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Written by Peter Cooper

March 29, 2010 at 7:56 am

Posted in Aviation, Hotels, Travel

New Dubai airport to open June 27th for cargo only

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The first runway of the new Al Maktoum International Airport, near to Dubai’s massive Jebel Ali Free Zone, will open on June 27th for cargo planes only and will have an initial capacity of 250,000 tonnes.

This is the first phase in the creation of what will ultimately be the world’s largest airport, and understandably in the circumstances of the Dubai real estate crash the project is now moving ahead more slowly than before the crisis.

Big ambitions

Cargo capacity will be expanded to 600,000 tonnes as a first step. But this is part of the $33 billion Dubai World Central development and the full airport will handle 160 million passengers per annum and 12 million tonnes of cargo from 18 cargo terminals.

Between 2022 and 2030 the Maktoum International is planned to become the new hub for Emirates Airline. The existing Dubai International Airport is being expanded to handle 90 million passengers. But room to expand on the site is limited. Last year the airport handled 41 million passengers.

The Jebel Ali airport site has actually been earmarked for a couple of decades. Its position next to one of the world’s largest container ports is ideal for cargo transfers.

Clearly the phasing of this greenfield, actually sandy desert, development will depend on the pace of expansion of the aviation sector in Dubai, and any constraints placed on it by the availability of credit and the growth of global travel.

Past precedent

But ArabianMoney can recall when Dubai airport handled less than 10 million passengers, and articles then scoffed at the idea of a 30 million target. Dubai has always planned into the future and used a high-return business model based on zero-cost land, low-cost labour and state-of-the-art technology.

It would be foolish to think that what has worked in the past will not deliver results in the future. Recessions and debt crises come and go. The right business in the right place at the right time will always succeed.

Of all the mega projects to emerge from the boom of the 2000s actually the Maktoum International Airport is probably the most economically viable and will be the biggest success in the long-term, just like the Jebel Ali seaport that it so conveniently serves.

Written by Peter Cooper

March 24, 2010 at 10:07 am

Global political consensus unravels threatening economic recovery

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When the global financial crisis first struck 18 months ago there was a commendable consensus among the world’s politicians about the need to tackle the crisis, and the actions that followed have done much to offset a fall into an even deeper slump.

However, global governments do not usually work in harmony. National interests are competitive and usually work to undermine a consensus. That is what now appears to be happening. It will not aid what is only a very tentative global economic recovery. It could undermine it completely.

IMF and Greece

Consider the Greek debt crisis. Far from being resolved by Germany it now appears that Greece will be thrown into the arms of the IMF for an austerity package. Which countries from the European Union will follow? Spain, Portugal and Ireland? Italy perhaps?

Then there is also the simmering potential of a trade war between the US and China. Nobel prize winning economist Paul Krugman is calling for a 25 per cent tariff on Chinese goods if China fails to revalue its currency to rebalance global trade. Google is to exit China over censorship.

It is notable that both these cases involve creditor nations protecting their national interests, and refusing to pick up the bill for debtor nations. You can certainly understand the logic of not wanting to pay off the debts of another nation. Why should German pensioners retire late to pay for the Greeks to retire early?

Yet the risk is that we deteriorate into a downward spiral for trade like in the 1930s. Both China and Germany have reason to pay attention as last year was their worst for trade since the Great Depression with export slumps of 16 and 18 per cent respectively.

Horrific trade slump

These are horrific export figures and the bounce back this year, to levels of trade still nowhere near pre-crisis levels is by no means secure.

The problem is that the creditor nations running export surpluses have been relying on the debtor nations to borrow more and more to fund their imports. Now that cycle has reached its limit or will so very soon as national debts grow bigger courtesy of stimulus package spending.

Ironically what the creditor nations say is right. There is no way out for debtor nations apart from austerity, default or devaluation and the latter is not open to eurozone countries. But this is not going to be good for the creditor countries either.

UAE case

To take the UAE as another example of a creditor nation. A business slump in developed countries will reduce demand for oil and hence the price and revenues. Then there will have to be a draw-down of savings to keep the economy going.

Where creditor nations theoretically win is that they can afford to buy things in a global liquidation sale. That might not be much compensation, however, if the world economy is shattered in the process.

In the meantime, we must hope that mutual self-interest triumphs on the global stage. But the omens are not good right now with nationalism on the rise. This sets the stage for a double dip global recession, not a recovery.

Written by Peter Cooper

March 22, 2010 at 9:58 am

How the BA strike is a gift to Emirates, Etihad and Qatar Airways

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All Emirates flights to London yesterday were full to the brim as British Airways cancelled one of its three daily flights from Dubai due to strike action by cabin crew. The airline’s only daily flight to Bahrain was also cancelled.

This suicidal strike is reminiscent of the coal miners’ strike in the 1980s. Then miners rose up for higher wages and against pit closures. Today very few people work in privatized British mines.

Lifer contracts

British Airways cabin staff have long been the envy of the industry with their jobs-for-life contracts, high pay and travel perks as well as generous pension plans. That these staff are striking because they are unable to adjust to changing circumstances in the global air travel market is a suicidal blow to British Airways, already struggling with big losses in the global business slump.

British Airways has been hit on short-haul flights by the upstart low-cost carriers. Now it is surrendering its profitable long-haul routes to the new giants of the sky like Emirates, Etihad and Qatar Airways.

These carriers do not suffer the legacy costs of BA staff. There is no attempt to pretend that being a member of cabin staff is a profession and not a glorified waiting service. Young, attractive staff are on short contracts to see the world, not to become old and tired in their job.

Needless to say the pension rights are also not the same. Virgin Atlantic says it abandoned any plan to bid for BA once it saw the pension fund shortfall.

BA might win its strike but it has damaged its reputation in the process, and even more in the six months leading up to this industrial action. How do passengers booking today know whether this dispute will still be rumbling on, or reemerge when they fly?

Gulf airlines

In the Gulf States travelers have a particularly good set of alternatives, even if the shortage of seats caused by the BA dispute has brought a sudden end to the bargains previously available on many routes.

Can BA survive this? Some would argue that bankruptcy is the only solution. Then it would be possible to sack all the staff on legacy contracts and engage new staff at competitive rates.

In the 1980s it was the miners who symbolized the battle to modernize Britain. Now it is the British Airways cabin staff. They behave as though their airline belonged to them and that it enjoyed a monopoly. Those days are long gone and the future lies with the Gulf carriers.

Written by Peter Cooper

March 21, 2010 at 9:25 am

Posted in Aviation, Banking, Travel

How could the population of Dubai have grown last year?

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When statistics appear that are totally out of synch with general opinion there are questions to be asked. What then are we to make of the 7.6 per cent growth in the population of Dubai in 2009 to 1.77 million now claimed by the official Dubai Statistics Center?

Lest we forget 2009 was the year that the biggest contributor to Dubai’s GDP, construction and real estate, crashed in spectacular style. The city is littered with half-built construction projects whose work forces and management have been sent home.

Real estate crash

The once high-profile real estate agents have also packed their bags and returned to their home countries. True the population of the Dubai prison has benefited from both these sectors in the aftermath of the crash. Otherwise it is hard to see where population growth might have come from in 2009.

Perhaps the Dubai Statistics Center could provide us with more of a sectoral breakdown. Have companies in the Jebel Ali Free Zone been adding staff? What about Emirates Airline, although they did have a recruitment freeze for most of the year?

Hotels bringing in people? Possible with new hotels still opening but many more running at lower staffing levels due to a slump in tourism. The Dubai Statistics Centre data shows total hotel guests falling from 1.62 million in the first quarter to 1.54 million in the fourth.

Retail is the only sector that certainly did employ more staff with the opening of several giant shopping malls. Commercial license renewals in Dubai fell from 17,346 in the first quarter to 15,900 by the fourth, although it is hard to see if this represents a net loss or even a gain.

Who else brought people into Dubai in 2009? The Dubai Metro, well yes. Perhaps that also explains what has happened to the city’s once legendary traffic jams that have curiously vanished.

Export slump

But then data published by the Dubai Chamber of Commerce and Industry showed total exports slumping by 16 per cent to $50.5 billion in 2009, the same annual percentage fall recorded by China, the world’s largest exporter, so business was definitely down.

Yet according to the Dubai Statistics Center the number of mobile telephones rose from 2.94 million in the first quarter to 3.05 million in the fourth quarter. Then again mobile phones have become so cheap and just a fashion item that multiple phone ownership is common, and this indicator is not that useful anymore.

All that can be usefully said is that the population growth claim requires some more solid evidence if it is to be accepted as a realistic figure, and any statistical organization ought to be able to back up its figures with reams of unquestionable evidence.

Written by Peter Cooper

March 16, 2010 at 8:21 am

Qatar economic miracle flies into turbulence

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Qatar Airways kept up a bullish front at the Hyderabad International Exhibition and Conference on Civil Aviation yesterday. But all is not well in the emirate which last month sacked 40 staff from its high profile Qatar Financial Centre, including its brilliant PR chief Steve Martin.

The euphemistic talk is of a reassessment of budget priorities. The talk in Doha is of over-expansion without due regard to commercial good sense. And the big whisper is that gas prices are down, and that the outlook for gas revenues may be far below expectations.

Gas dependent

Who knows how much gas the now depressed economies in the UK and USA will actually require from Qatar. Certainly the previous plans linked to far faster rates of global economic growth will have to be reassessed.

In the meantime, the huge investments in liquefied natural gas infrastructure still have to be paid for and their massive loans serviced. There has been no indication that debt is a problem just yet in Qatar. But the credit crunch has already been manifest in a slowdown in finance for local property projects, many of which are now on a go slow or have stopped.

The new airport is said to be around two years behind schedule and over budget, so planes queue up on the tarmac at the overwhelmed original Doha airport, and a new luxury hotel is bang in the flight path.

Is the order backlog from Qatar Airways therefore as secure as its executives proclaim? The airline has 220 aircraft on order worth some $40 billion. By 2013 its fleet will grow from 80 aircraft today to 120 and its network jump from 86 to 120 destinations.

Over the past five years Qatar Airways has doubled its fleet and invested in five-star service standards that are the envy of the industry. Passengers also enjoy discounted fares courtesy of gas-subsidies. The airline has never made a profit. Is this not over-expansion?

Thin commercial logic

Without a domestic tourism industry like nearby Dubai the logic for creating a massive airline based in Doha has always been thin on commercial grounds. Bringing tourists into a city creates local spending that boosts the overall value of an airline to a local economy. Transit passengers do not have the same value.

Advertising expenditure can only go so far in any business model. Ask the now sharply cutback Qatar Financial Centre that has spent many millions on some superb adverts.

No at the end of the day any business has to stand on its own two feet and make a profit. State subsidies can fund a start-up and maintain a loss-making business. Ask Gulf Air. But there is no substitute for sound business economics and that is a fact many Gulf States are now starting to appreciate.

Written by Peter Cooper

March 8, 2010 at 8:54 am

New Bahrain visa rules not friendly to some GCC expatriates

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Bahrain has changed its visa rules to make it mandatory for low-level expatriates from other GCC countries to obtain a visa in advance before entering the country.

The move appears to be aimed at stemming a possible tide of unemployed workers from Saudi Arabia crossing the causeway looking for work in Bahrain. But it is the latest action that is unfriendly to expatriates who are still essential to this country’s economy.

Long-term expats

Only last week a familiar refrain from the Labour Ministry warned that Gulf countries risked being taken over in the long run if they did not focus on developing their own national talent. Bahrain has also been behind suggestions that GCC expatriates should be limited to a maximum six-month stay, ignoring the obvious value of long-term expats to any business.

Visas will still be available at the border for GCC residents with professional status on their residency visas, from managers to bankers, doctors and engineers and their families. Previously all holders of valid GCC residency permits received automatic on-arrival visas.

Bahrain is already among the poorest of the GCC countries, and has fallen behind cities like Doha and Dubai in the recent oil boom. Ironically ‘Business friendly Bahrain’ was a big sponsor of the World Economic Forum in Davos this year.

Yet you have to practice what you preach. Expatriate labour is vital to most businesses in the Gulf where the local skill sets are just not up to the standards demanded by global business whose job is not to act as a training and employment agency but to make money in a highly competitive world.

Training investment

Bahrain should be keeping its doors open while investing more money in training its own nationals to compete on a level playing field with labour from other countries. The simple loss of productivity involved in advancing nationals to the detriment of expatriates cannot be afforded by one of the least well off Gulf nations.

Indeed, if Bahrain persists in this approach then it is going to lose even more business to other cities in the Gulf with a more liberal and tolerant approach to expatriates. It will not be the Gulf that suffers from an expatriate takeover, but Bahrain that suffers an exodus of expatriates and damage to its fragile economy if this is kept up.

For the winners of the future in the Arabian Gulf will be those countries who embrace the best of modernity and train their nationals, not countries who make irreplaceable workers unwelcome. Or is the intention to replace low-level expatriates with Bahrainis and leave the expatriate managers to run things?

Written by Peter Cooper

February 11, 2010 at 10:14 am

Posted in Aviation, Banking, Travel