Originally Posted by
Mr_Ed
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.
Since Sheikh Mohammed is the Chairman of ICD and Sheikh Ahmed is a Director, I expect he will certainly be making the decision one way or another
There isn't an issue with EK having the capacity to deliver passengers to Dubai - arguably, the current short term issues are because expansion feasibility was underpinned on demographics on core markets (UK, Indian subcontinent, Americas) which have all shown weakness, either through political concerns (bilaterals in India, US politics) or economic (GBP devaluation from Brexit).
EK could reduce densities without constraining capacity on current load factors. I think their decisions will be based on whether they want to reduce cash outflow by slowing down deliveries/reinvestment into product, or double down on high capacity for when/if people come back.
As you say - build it and they will come is being tested quite thoroughly right now!