Originally Posted by
eternaltransit
I definitely agree that Dubai has a history of longer term projects, but I don't think EK and Jebel Ali are comparable.
Jebel Ali was built in response to Port Rashid's success and to try and relieve pressure from it. It was not really a success story until the 90s when the government had to incentivize shipping lines to use Jebel Ali over Port Rashid, and the firing of the management contracts at both ports (and the creation of Dubai Ports Authority).
In fact, imho, the success of Jebel Ali is more about the success of the Jebel Ali Free Zone (freedom from municipal laws, ownership rights etc.) attracting companies to set up business there which the government could charge fees/rent to, rather than the port itself.
The problem for EK is that its "infrastructure" - the hard product, the connecting experience, etc., - does not seem to be attracting customers as well as it was before, and that EK cannot really afford short term hits because it is highly leveraged, with future commitments in the next couple of years (i.e. aircraft deliveries).
I think that means a decision has to be made at the ICD level whether they are going to ride it out and try to mitigate losses, or change strategy (with the capital investment that would require - i.e. more debt).
Good points but there a couple of other things to put into the mix. Firstly, decisions around investment decisions in Dubai are often made directly by Sheikh Mohammed and his tendency has always been to push for growth even if it is counter to trends and/or commercial advice. Sometimes this works and sometimes it doesn't (think 2008/9 real estate crash for example). This is especially the case for EK IMO given that he set up the airline.
Second, Dubai is building by far the largest airport in the world, the first major tenders for which we can expect to see awarded in the next month. If Dubai wasn't intending to keep pushing Emirates to keep growing at an accelerated rate there would be little need to build such a massive aviation complex and associated Dubai South new city.
Moreover, there is huge pressure for Dubai to hit its own 20 million tourist target by 2020 (I think it's about 16 million now). We saw today yet another mega project announced in the form of the $2bn Marsa Al Arab aimed at tourists which joins a long list such as the Six Flags theme park, safari park, Jumeirah Central etc. These projects and many others are all predicated on continuing tourism growth. Add in the substantial pressure from existing tourist-based investments such as the Dubai Parks theme park, the retail sector, and the hotel industry which have all performed well below expectations in the last 18 months and there is a huge expectation on EK to deliver and deliver soon. This isn't necesarily compatible with a slowdown in its expansion plans.
As I see it EKs growth is an integral component of ensuring whether all these above objectives are met. Whether or not this will end up being the right decision or not is of course another issue entirely.
I completely agree on Jebel Ali port.
However the legend around its creation and the 'build it and they will come' mantra is becoming a grindstone around Dubai's neck which has in my experience in the past caused decisions to be made based on emotion rather than purely commercial terms. It will be interesting to see how much all of this will play out in the decision making around EK's future direction.