Conclusion 366u18

Conclusion The relationship between air transportation and economic activity is complex. Over the last several decades, both air transportation usage and economic activity have been growing around the world. Between 1970 and 2005 the total number of air engers carried by the world’s airlines increased 6.5 times from 310 million to 2 billion engers. During the same time period, the world’s Gross Domestic Product (GDP) tripled from 12 to 36 trillion US$. As the air transportation usage grew, it came to play an important role in the global economy: in 2004, 40% of international tourists traveled by air while air cargo ed for 40% of inter-regional goods exports. Air transportation is the only feasible long-distance transportation mode for high-value perishable commodities and time-sensitive people and is often the only means of access for geographically isolated areas. The consumer benefits derived on top of that measured by expenditure on travel and shipments were about AED 77.9 billion for engers and AED 10.0 billion for shippers. Taxing air transport directly reduces the welfare of these UAE residents and UAE businesses. All airlines supplying services at UAE airports contribute to generating these wider economic benefits. These ‘supply-side’ benefits are hard to measure but are easily illustrated by the experience of the volcanic ash cloud, which closed much of European airspace for a week in early 2010. Travelers were stranded. Globalized supply chains and just-in-time manufacturing processes came to a halt. 1 UAE-based airlines were responsible for carrying 67% of engers and freight. The wages, profits and tax revenues created by these airlines flows through UAE economy, generating multiplier effects on UAE national income or GDP. The economic benefits for the UAE created by non- UAE airlines are to be found in customer welfare and in the part these airlines play in providing the connectivity infrastructure between the UAE and overseas cities and markets. Aviation has a significant footprint in the UAE economy, ing 6.2% of UAE GDP and 224,000 jobs or 7.1% of the UAE workforce. Including the sector’s contribution to the tourism industry, these figures rise to 14.7% of UAE GDP and 433,000 jobs, or 13.8% of the workforce. Also significant is the fact that these are high productivity jobs. The annual value added (or GVA) by each employee in air transport services in the UAE is AED 315,000, which 1 http://www.uae-icao.gov.ae/Contentviewer.aspx? ContentId=6&LinkPath=Home%20%3E%20THE%20UAE%20%3E %20AVIATION%20IN%20UAE

is approximately the same as the UAE average of AED 316,000. 2 All together these points demonstrate that aviation provides significant economic benefits to the UAE economy and its citizens, some of which are unique and essential to the operation of modern economies. The United Arab Emirates, and the Dubai emirate in particular, had some of the highest air enger growth rates over the last two decades. The emirate’s unique economic attributes consist of hydrocarbon assets; institutional framework which s business development through liberal and free market business policies; development and promotion of highquality tourism and service-oriented infrastructure; availability of sufficient investment funds on the part of government; government commitment to economic diversification; shortage of sufficient local labor resources to pursue the government’s economic diversification strategy. As a result of these attributes, air transportation plays an important role in contributing to the economy’s growth since the success of new business developments depends on having access to skilled and unskilled workers as well as the leisure engers. 3 The high air enger growth rates reflect in part the fact that over the years Emirates Airline could establish itself as a successful long-haul carrier. The airline operates from its hub in Dubai International Airport where almost half of its 14.5 annual engers make a connection. Several factors helped establish Dubai as a transcontinental hub: favorable geographic location; availability of sufficient investment funds on the part of government for aviation infrastructure and financial incentives for the national airline; availability of sufficient investment funds and ing institutional framework which resulted in the growth of the local economy and air travel demand; low operating costs compared to European and some East Asian. carriers; favorable institutional framework, including liberalized air service agreements; and the first-mover advantage on the part of the Emirates Airline. In addition to establishing itself as a enger hub, the Dubai airport became a major transshipment point of the Middle East. 4 2 http://www.thenational.ae/business/aviation/dubai-aviation-to-be-worth44bn-by-2020-says-oxford-economics 3 http://usuaebusiness.org/2014/12/emirates-oxford-economics-reporthighlights-aviation-industrys-impact-on-dubai-economy/ 4 http://www.arabianaerospace.aero/uae-aviation-industry-recorded-robustgrowth-in-q1-2015.html

Over the years, there were two large increases in the air enger growth rates: in the mid-1980s and after 2001. Several factors stimulated the first increase in the growth rate: government funds were provided to establish a flag carrier and to develop aviation infrastructure. In addition, liberal aviation regulatory framework established by the government helped the carrier grow its international network. The changes in the regulatory framework and aviation infrastructure investment reflected the government’s overall goal to move the economy away from oil-exporting activities toward development of the service-based industries. 5 Air transportation development was also ed by the growing air travel and freight need of Dubai as the economy moved away from the oilexporting activities. To promote this diversification of demand and global integration of Dubai’s economy, the government in the 1980s began sponsoring the development of ing business and tourism infrastructure and established a regulatory framework based on free-market principles which encouraged foreign investment. In the recent years, some of these infrastructure projects have been completed boosting the economy’s international profile and encouraging the inflow of labor and capital. The second growth phase was stimulated by the demand from the economy’s growing services sector and the rapidly expanding long-haul carrier Emirates Airline. To Emirates expansion strategy, the government continuously upgraded and expanded the local aviation infrastructure in anticipation of future demand. In addition to increasing the capacity of Dubai International Airport, the government invested into construction of a new major airport as part of the Dubai World Central development. 6 Since the early 1980s, 1982 was the only year when the UAE’s airlines ed a negative growth rate in air enger traffic. While the country’s recent economic growth has been strong, the country’s GDP was on average decreasing through the 1980s and reached its 1981 levels only in 1994. This decrease in the country’s GDP growth rates coincided with the decline in the world’s oil prices after their peak in 1980. In other words, the United Arab Emirates had positive air enger growth behavior while the economy’s GDP had a negative rate of growth. The government’s strategy, which focused on the development of the air transportation sector as part of overall 5 https://www.gcaa.gov.ae/en/szc/pages/dst.aspx 6 http://www.dubaiairports.ae/corporate/media-centre/fact-sheets/detail/daoxford-report-2013-2014

economic diversification strategy, was the primary reason behind this uncorrelated behavior between the two variables. In particular, the airline’s development was ed by government funds and regulatory and infrastructure reforms despite the declining government revenues during that time period. 7

7 http://www.dec.org.ae/about/secretariat/economic-policy-researchcenter.aspx