2015

Demand and
supply
analysis of
airline sector
in UAE.

TEAM MEMBERS
NIKHIL CHAUDHARY (152035)
POOJA SINGHI (152038)
PRAYRIT ARORA (152040)
 SHASHANK VARMA (152050)
SHIVANG SAH (152051)
SMITESH SHAH (152054)
Introduction

Background and objective

A constant debate happens in the air transport industry concerning the balance among the
supply and demand of capacity, denoted to, by some, as overcapacity. However, this time
itself is damaging to any valuation and in this document a complete perspective is
providing. To appreciate this topic one must first describe the possibility and dimensions
essential to assess the capacity. Often a too hardly definite viewpoint will over streamline
that more complex and hybrid issues and thus certain the conversation to an incomplete field
of deliberations when a wider view can more correctly place any valuation of the state of
volume balance in the context of the global viable aviation system.
It is usually unspoken that any business that underwrites and is focus to the macro economy
will knowledge the outgoing tide and flow of the economic atmosphere. As an essential part
of the global economy, the air transport business is focus to the ups and downs of the
exogenous macro environment and therefore accepts several states over time in reply to
deviations in the economic environment.

The commercial aviation industry is a multifaceted framework that comprises of, and is
impacted by, various segments, partners and frameworks, e.g.; carriers, governments,
controllers, travellers, aircraft original equipment manufacturers (OEMs), aviation supply
fabricating, airplane terminals, air traffic management (ATM) suppliers, aircraft renting
organizations, agents and financial specialists, different administrations and suppliers, and so
1
forth To get the most educated read on the condition of the industry, one ought to analyse
a lattice comprising of a progression of markers at the same time.

In this we endeavour to lay out an expansive arrangement of contemplations and proper

measures for evaluating the supply-request equalization over the industry. It is trusted that by
giving a comprehensive viewpoint and proposing key framework metrics, industry spectators
and investigators will be outfitted with extra data and instruments to consider with which to
make their elucidation of the condition of the industry.

Perspective

This paper talks about and endeavours to draw some qualification between how diverse
partners in the worldwide commercial aviation group see the industry limit supply and
request parity. One of the key purposes of comprehension the general photo of the limit parity
is to consider the point of view of the partner and the impact of the lens through which any
appraisal is seen. Likewise, time scale and market are additionally figures that can modify
one's point of view on the evaluation of limit equalization; and hence, thought of time and
geographic business sector components are essential.

1
http://www.boeing.com/resources/boeingdotcom/commercial/abo
ut-our-
market/assets/downloads/AirTransportCapacitySupplyDemandBal
ance.pdf

Demand and supply analysis of airline 1

sector in UAE.
 Status metrics

In measuring status, thought has been given to variables, influencers and potential causal
elements. In any case, to recognize the status of limit supply-request equalization, confining
the basic metrics that demonstrate status has been the managing guideline used to decide
significance. Additionally of worth to comprehension status is having the capacity to identify
when or where status change happens in conjunction with measuring the focuses or limits at
which that state happens as opposed to a counter-state.

REVIEW
The Commercial Aviation Product

Definition of the commercial aviation product

It is important to characterize the item we are considering, as this will figure out what we are
measuring in the appraisal of limit parity status. Partner point of view may be important in
characterizing the commercial aviation item. For instance, OEMs consider airplane creation
limit and volume, airports consider terminal traveller and cook's garment limit or runway
development limit, air traffic management (ATM) considers airways and control zone limit
and stream management, while airlines may consider their courses or network regarding lift
limit; i.e., what number of travellers and the amount of freight can be conveyed. The outline
beneath shows sector cooperation. Indeed, in these illustrations every partner represents a bit
of the worldwide limit. For common sense purposes, limit is most essentially characterized
regarding the airline network metric for traveller operations: framework wide available seat
kilometres (ASK) or available seat miles (ASM). In this paper we will focus on the
worldwide air traveller operation limit, however one ought to perceive that there are
commonly identical air payload limit contemplations and that communication in the middle
of traveller and load operations exist. Furthermore, there can be legitimacy in taking a
gander at the industry as a progression of associated, covering provincial markets. In any
case, the unpredictable cooperation between provincial markets and the way of airline
organizations, collusions, armada developments and exchanges are such that the worldwide
viewpoint is the most proper approach to see the general commercial aviation item.

Whichever partner one considers there is a principal item. For instance, aircraft OEMs give
seats (as aircraft), both to supplant out of date equipment and to develop their business
sectors. Airports give terminal and runway limit; this, be that as it may, means seats available
for originating and associating travellers on particular courses from or through their area.
Airlines give a network of seats, offering traveller administration alternatives crosswise over
geographical destinations and time measurements. Generally speaking, the key commercial
aviation item for the industry is ASK limit. This has offer on different levels in light of the
fact that information are promptly available and extensively appropriate, from traveller
network ability to airplane request.

Demand and supply analysis of airline

sector in UAE. 2
 2
fig: Significant flows of capacity supply and demand by key aviation sector stakeholders

Capacity planning complexity

Changes in global ASK capacity may be positive (additions of capacity) or negative
(reductions of capacity). Anytime, different positive and negative capacity changes happen.
For instance, pretty much as another aircraft is conveyed to one airline, another airline is
reducing flight recurrence on a course or pulling out of a city pair, reducing usage of its
armada. In the meantime, elsewhere in the network, an aircraft is being rented to include
capacity, another is being temporarily stopped, and still elsewhere an aircraft is being
resigned from commercial administration. Airlines' capacity planning likewise involves
multi-level evaluations of individual city pair courses, while possibly considering course
interactions and network availability both on-line (within their own particular network) and
inter-line (with their accomplices' networks), and in connection to competitors' networks.
This is particularly valid for the conventional network airlines. The minimal effort bearer
(LCC) airline business model has developed in ubiquity, particularly in the short-pull
showcases, and has made inroads into the customary network airline markets by increasing
point-to-point administrations and reducing expenses and admissions. The LCC model, by its
point-to-point nature, is less demanding to oversee from a capacity outlook because any
capacity irregularity is more clear, so capacity prerequisites can be tuned with minimal effect
contrasted with customary network transporters, where framework wide effects maybe more
unpredictable. It is the integration of a huge number of activities over the whole commercial
aviation industry, similar to those described above and the seemingly little capacity
alterations made by different partners over the industry in total that are maybe the biggest
contributor to framework self-regulation and capacity to accomplish nominal capacity
equalization. Those activities are eventually what determine the real capacity at any given
time. Essentially, this is the net number of seats in the business sector at the time.

2
https://www.eurocontrol.int/sites/default/files/article/content/documents/official-
documents/facts-and-figures/statfor/mitigating-challenge-2030.pdf

Demand and supply analysis of airline

sector in UAE. 3
Activities like those described above are generally arranged ahead of time and normally
reflected in the distributed airline plan. On the other hand, what's more, on any given day
there are spontaneous occasions, for example, climate, characteristic occasions, geopolitical,
specialized or framework issues, and so forth., that effect capacity available around then. In
some neighbourhood markets, there are constraints limiting capacity. For instance, certain
airports and air traffic management territories have limits on their capacity to extend or
contract capacity as far as space accessibility and utilization, in any event in the close term or
at certain periods, regularly or at particular times of day. Furthermore, some arrangement
issues, for example, two-sided air administrations assertions indicate constraints or approach
identified with ecological attentiveness toward outflows. Commotion regulations may
likewise make them breaking point influence on capacity crosswise over nearby, territorial or
dish local markets.

As such, the discourse in this segment just describes an outline of the supply of capacity; the
opposite side of the mathematical statement is the interest for capacity which additionally has
variable and unpredictable perspectives. Some are identified with the supply-based issues
talked about and some are most certainly not. Maybe, they are driven by various influences,
for example, financial, geographic, demographic, geopolitical, occasional, periodicity,
decision, rivalry, and so on, notwithstanding occasion driven issues that may affect interest
for air transportation administrations. A further far from being obviously true question is the
extent to which capacity interest is met by supply, contrasted with how much the capacity
supply determines and/or animates request a chicken or egg wrangle for an alternate paper
maybe! In any case, most commercial aviation eyewitnesses will surrender that there is a
component of idle request that is fortified by supply accessibility, in any event for a few
markets at certain times. Suffice to say, that planning capacity prerequisites is perplexing and
uncertain, even before one considers the focused business sector measurements, interactions
and network, or commercial and/or political goals of the different partners. The principal
point of capacity planning is to guarantee that capacity supply is not disengaged from the
interest. Given there is no critical decoupling of the supply with interest, an equalization can
be accomplishment.

Airlines' capacity to gauge, foresee and oversee capacity has become increasingly modern as the
science, innovation and operations examination has developed with complex algorithms
3
incorporated with operational management instruments. Income management in the airline
industry alludes to the key management of capacity and seat pricing for controlling the offer of
seats according to traveller request in order to augment profitability of courses in a given
network. The advances made in these ranges have essentially helped the overall development in
traveller burden factor over the industry. Airlines endeavour to guarantee that they surpass their
minimum make back the initial investment burden factor to maintain profitability. Initially,
income management strategies used linear programming models taking into account run of the
mill interest experienced over time. More as of late, enhancement methods have been favoured,
because of the stochastic way of the traveller interest and the increased capacity of PC
processing that is required to suit the streamlining routines. Be that as it may, even with the
benefits of such help, an overall all inclusive, exactly coordinated supply and request parity can't
be guaranteed. The continuously changing and aggressive nature of the

3
www.springer.com/cda/content/document/cda_downloaddocument/978146
1416074-c2.pdf%3FSGWID%3D0-0-45-1292477-
p174195275+&cd=2&hl=en&ct=clnk&gl=ae

Demand and supply analysis of airline 4

sector in UAE.
business environment in the airline industry can harbour amazements, meaning at any rate
that the management apparatuses oblige time to adjust.

Capacity planning in the air transport industry falls into planning periods that cover present,
close term and long haul prerequisites. Making judgments about future capacity needs can be
influenced by competitors' activities (to the degree they can be known or inferred) or by their
own capacity arranges; over-or under-estimating the future capacity prerequisite in an
element aggressive environment can have close term and long haul outcomes on any given
partner's business. Furthermore, depending on the business, business model and technique of
the partner, the planning of capacity relies on upon differing lead times, from setting goals
through usage and execution of a given arrangement, with each stride subject to potential
requirement for refinement in light of different varieties in circumstances and end results, and
supply and request.

Measuring commercial aviation status

For more than four decades, global airline industry development has been versatile in face of
a few auxiliary changes. From an industry focused on North America and Europe, it
transformed to a more geographically broadened industry; from the dominance of network
transporters it transformed with the blast of ease and option business-model bearers; from a
directed air administrations environment, it adjusted to an increasingly liberalized
environment; and from less proficient, less skilled advances, it advanced to more secure,
profoundly effective, more able aircraft and frameworks. This represents a test to those
attempting to gauge the industry, as it increasingly obliges one to examine the condition of
the airline industry with a systemic perspective. The test originates in the continuous changes
that outcome from a foundation of global development and basic, specialized, regulatory and
arrangement shifts with varying effect for the close and long haul, creating a dynamic
baseline against which one must gauge.

Furthermore, the expression "equalization" could suggest that there is a single point of
flawlessness at which supply and request are equivalent. Maybe the air transport industry is
in a consistent condition of modification, so defining such a point would be less than ideal. It
would be more meaningful to define equalization as a circumstance in which the important
metrics fluctuate within limits that take into consideration a dynamic congruity between
supply and request - a zone of parity. Adroitly, this is nominally adjusted supply and request,
and in this manner inevitably can leave space for some subjectivity in appraisals. This is
adequate as measurable examinations of frameworks with stochastic components in their
4
behaviour are intrinsically probabilistic.

In considering potential indicators of supply-request status, the run of the mill acknowledged
methodology is to pick a reference from the most current information and contrast it with a
nominal worth. The nominal quality may likewise be communicated as an extent or zone.
Appraisals can be made such that a quality outside of the reach will define the potential for a
lop-sidedness. Instantaneous present or future arrangement information are often of restricted
accessibility or subject to huge time slacks, depending on the way of the indicators and the
artner's capacity to get to convenient information or anticipate future qualities.

4
https://www.mindtools.com/pages/article/newSTR_69.htm

Demand and supply analysis of airline

sector in UAE. 5
Brief history about the aviation industry in UAE.

1970:

It was under the support of the late Sheik Zayed that the United Arab Emirates was made in
December 1971.

Before solidarity, the nation had been stepping into the quick creating aeronautics world. In
1959, Dubai government had effectively settled dnata, a little five-in number group giving
ground taking care of administrations at what might authoritatively get to be Dubai
International Airport in 1960. This set the ball moving for a whirlwind of air terminal
openings over the UAE. Abu Dhabi Airport opened in 1969, under its unique name of Al
Bateen Airport, and Ras al Khaimah airplane terminal trailed in 1976

1980:
5
Flanked by visionary authority, the UA E was starting to see enormous development
potential in the aviation business, not least because of its geological position as a passage
in the middle of East and West.

In 1984 Sheik Mohammed and Maurice Flanagan (then broad administrator of dnata) met
up with beginning up a national carrier for the emirate.

1990:

And in addition taking conveyance of six Boeing 777-200s, the bearer added a US$2 billion
request to its extensive rundown for 16 Airbus A330-200s in 1997.

More booked destinations were added to its system, including Manchester, Paris and the
genuine win for the any aircraft a pined for spot at the busiest worldwide centre point on the
planet, London Heathrow in 1991.

With traveller landings in Dubai International hitting an amazing 11 million, Dubai's

administration kept on emptying speculation into the district's flourishing flying division. The
US$500 million Terminal 2 was opened at the airplane terminal in 1998, trailed by the Sheik
Rashid Terminal a few years after the fact.

5
http://www.arabiansupplychain.com/article-6943-historical-overview-the-40-
year-rise-of-uae-aviation/1/print/

Demand and supply analysis of airline

sector in UAE. 6
2000:

Abu Dhabi Airports Company (ADAC) was framed in 2006 to work Abu Dhabi International
Airport and its eager multi-billion dollar development arrangement.

In 2006, the airplane terminal reported a year-on-year ascend in air ship developments by
14.2%, with 36.9% traveler development to 3.064 million travelers and cargo taking care of
expanding to 569,511 tonnes.

2010:

A year later than anticipated, Al Maktoum International Airport opened for load operations in
June 2010 with the traveller side anticipated that would initiate in 2012. The scale for the
US$33 billion airplane terminal is incredible. When completely finished, the improvement
will include five runways, four traveller terminals with a potential ability to suit a 160 million
entries a year, and 18 load terminals.

As the most recent year in the UAE's 40 year aeronautics venture, 2011 has kept on moving.
IATA (International Air Transport Association) has anticipated that the UAE will be the
second speediest development market for global traveller movement from 2009 to 2014
(simply behind China). Truth be told the nation has never been exceptional put to adapt to
this normal proceeded with development. Emirates Airline has officially posted a record
US$1.6 billion benefit. In a further indication of immense business sector certainty, a month
ago the bearer put in the biggest dollar request in Boeing's 95-year history, esteemed at a
stunning US$26 billion. Its closest opponent, Etihad likewise reported an increment in
income of 39% to US$1.1 billion in the second from last quarter of this current year, its most
6
astounding quarterly result ever with traveller numbers rising 18% to 2.25 million. On track
to breakeven in 2011, the transporter is sure of making a benefit one year from now and has
added six more air ship to its armada in the previous year.

Not long ago, Dubai Airport declared a US$7.8 billion extension plan to expand its yearly
traveller limit from 60 to 90 million travellers by 2018. As a component of this, the air
terminal's devoted A380 office, Concourse 3 is set to open in 2012 in the meantime as
monster Dubai World Central-Al Maktoum global starts its traveller administrations. Abu
Dhabi Airport keeps on executing its development arrangements, went for expanding
traveller limit from 20 to 40 million travellers by 2030. Take a shot at the enormous Midfield
Terminal Building is guaranteed to begin right away. Once opened in 2017, this 700,000
meter building will be home to Etihad Airways. Different emirates are likewise gunning up
their air terminals. Sufficiently sharp to value that seeking traveller and load movement with
Dubai and Abu Dhabi, Fujairah air terminal brags an official terminal and developing offer in
the UAE's business plane business sector. As opposed to vie for traveller and load income,
Fujairah has been putting intensely in base improvement to wind up the UAE's inside for air
ship disassembling. RAK Airport too has been encountering unfaltering development in both
traveller and load developments, with a 3769m long runway, two traveller terminal structures
and a freight terminal office.

Demand and supply analysis of airline

sector in UAE. 7
Forecast of Air traffic in UAE:

The following chart shows the future numbers possible

Aviation Contribution to Dubais GDP and Employment:

Direct Benefits:

Direct beneifts are the contribution to UAEs economy that are attributed directly to the
airport jobs like in-flight staff , ground activities , etc. In 2010, there were 58,200 direct jobs which
contributed to US $6.2 billion.7

Indirect Benefits:

To operate the flights, there required a lot of locally produced goods and service supplied by
the firms outside the aviation sector. In 2010, almost 43000 supported jobs were there contributing $
3.5 billion to GDP.

Induced benefits:

These benefits come from the leisure facilities at the airport. Induced benefits contribute
to 23,900 jobs and $2.0 billion to GDP.

Catalyst benefits:

Other sectors that are benefited by the aviation industry of UAE. There are two ways these
catalyst can benefit the UAe economy :-

Tourism : Because of the good avaiation industry it is easy for the traveller all around the
world to travel to the city and increase the tourism.

7
http://www.dubaiairports.ae/docs/default-source/Publications/oxford-
economics_explaining-dubai's-aviation-model_june-2011.pdf?sfvrsn=4

Demand and supply analysis of airline

sector in UAE. 8
 Connectivity : Because of the extra ordinary connectivity, It encourages exports and
foreign markets.

The UAE aviation market from 2008 to 2012:8

UAE accounts almost 63% of the total GCCs air traffic. Passenger traffic of airlines increased at
CAGR ( compound annual growth rate ) of 18.5 % and cargo traffic increased by 13.0% from year
2008 to 2012.

8
http://www.dubaiairports.ae/docs/default-source/Publications/oxford-
economics_explaining-dubai's-aviation-model_june-2011.pdf?sfvrsn=4

Demand and supply analysis of airline

sector in UAE. 9
 Passenger Kilometres performed on Freight tonnes Kilometres
schedule Performed on
schedules services by the UAEs
service by the UAEs carriers carrier

10
Key driving variables for UAE avionics industry .

Favourable demography: A population development of around 3% somewhere between 2013

and 2018 combined with high extent of proportion, who make a trip every now and again to their
local nation, are liable to be key drivers for the UAE aviation division.
Rising salary levels: The UAE has one of the most elevated amounts of GDP per capita in the
Middle East. In the future, the salary is expected to rise resulting in expansion of high net
worth individual segment. This betokens well for both business and leisure sections.

Growing reputation as a global aviation hub: With its key area and unmatched air terminal
framework, the UAE is ready to exploit developing air movement between the eastern and
western parts of the world.

Tourist influx: The UAE's developing acknowledgment as a main destination for relaxation and
business explorers will keep on drawing an expansive number of guests to the nation. This
betokens well for the nation's flying part.

Expansion initiatives: The UAE's key carriers and in addition airplane terminals are experiencing
generous development went for expanding the limit. After the development, the nation's carriers
will turn out to be better prepared at pleasing expanded freight and traveller.

9
http://www.dubaiairports.ae/docs/default-source/Publications/oxford-
economics_explaining-dubai's-aviation-model_june-2011.pdf?sfvrsn=4
10
http://www.rvo.nl/sites/default/files/2015/04/Aerospace%20and%20Aviation%20in
%20the%20Gulf.pdf
Demand and supply analysis of airline
sector in UAE. 10
Methodology

An introduction to the economic impact analysis

11
An economic impact assessment identifies three standard channels impact arising from an activity:
The first channel of impact is the direct effect. In the case of aviation in UAEThis covers the activity
generated by local operations.

The second channel of impact - indirect effect - encapsulates the activity supported in the supply
chain in the aviation as a result of its acquisition of supplies of goods and services sector. It should be
noted that this impact supply chain, refers only to the running costs. This channel includes the impact
of supply chain behind sector operations in United Arab Emirates

The last channel captures the impact of the staff employed in the aviation spend their wages on goods
and services produced locally, along with the expense of those who work for suppliers to the aviation
sector (relative to the corresponding proportion of his salary). This activity supports the entire
spectrum of consumer goods and services and their supply chains. This channel of the impact end is
known as the induced effect. According to standard economic impact assessments of the magnitude of
the impact of industry is measured using two key metrics:

Gross value added - The gross value added (GVA) is the contribution of an institution, company or
industry makes the gross domestic product (GDP) 0.3 GVA sum of the contributions of all
organizations in the UAE is - with minor adjustments for taxes - equal to United Arab Emirates GDP.
GVA is more simply understood as turnover (ie sales value) less the cost of purchased goods and
services used in the production process.

12
Basic Airline Profit Equation
RPM x Performance - ASM x Unit Cost (Income) - (operating expenses)
The use of any of the individual terms as indicators of success can be misleading airline
High Performance is undesirable if ALF is too low
Low unit cost is of little value if the revenues are weak
High ALF may result from the sale of a large proportion of low-fare seats.

11
http://www.dubaiairports.ae/docs/default-
source/Publications/oxford_economics_quantifying_the_economic_impact_of_aviation_in_dubai
_november_ 2014_final(1)cc4dc38b5d08685a9b2fff000058806b.pdf?sfvrsn=0
12
http://catsr.ite.gmu.edu/SYST660/Chap3_Airline_Economics[2].pdf

Demand and supply analysis of airline

sector in UAE. 11
Airline profit maximizing Strategies in the U.A.E

Intended benefits Strategy Pitfalls

Cutting Fares/Yields Stimulate demand The price cut must generate a
disproportional increase in total demand
Increasing Increase revenue The price increase can be revenue
Fares/Yields positive if demand is inelastic
Increase Flights Stimulate demand Increases operational costs
Decrease Flights Reduce Lower frequency may lead to lower
operational costs market share
Improve Passenger Stimulate demand Increases operational costs
service quality
Reduce Passenger Reduce Effective cuts can reduce market share
service quality operational costs and demand

Simple market demand function

Multiplicative model OD travel demand per period: D = M x P x Tb where:
M = size parameter (constant) representing the underlying market population and interaction between
cities
P = average price of air travel
T = total travel time, reflecting changes in the frequency
a, b = time price and demand elasticity's

We can estimate values of M, A and B sample historical data D, P and T to the same market: -
Previous observations of the levels of demand (D) under different combinations of prices (P) and total
time travel (T)

Total Trip Time and Frequency

T = t(fixed) + t(flight) + t(schedule displacement)
Fixed time elements include access and egress, airport processing
Flight time includes aircraft block times plus connecting times

Schedule displacement = (K hours / frequency), meaning it decreases with increases in frequency of

departures
This model is useful in explaining why:
Nonstop flights are preferred to connections (lower flight times)

Demand and supply analysis of airline

sector in UAE. 12
 More frequent service increases travel demand (lower schedule displacement times)
Frequency is more important in shorthaul markets (schedule displacement is a much larger proportion of total T)

Many connecting departures through a hub might be better than 1 nonstop per day (lower total T for the average passenger)

Operational Strategies
The global aviation industry is facing strong challenges through the recession while Emirate Airlines
in the United Arab Emirates face the same challenges that used their experience in this field very
clearly and continue to take delivery of new aircraft, also invest in their brand, spend network, that
was a surprise to all other competitor airlines, as was opposed prevailing theory of industry in
increasing contraction. Cost containment strategy used to keep organizational costs within a certain
budget and to restrict spending to meet the financial goals of the organization or project. To address
this challenge was a before and got up initiatives at all levels to deliver savings. Internal audit
initiatives designed to underpin cost containment include the introduction of the concept of Self
Control in all remote. This strategy was balanced with the need to safeguard jobs and maintain staff
costs at significantly lower levels than many of its competitors.

Value chain of the airline industry in U.A.E

Demand and supply analysis of airline

sector in UAE. 13
DEMAND
Abu Dhabi, capital of the UAE witnessed an impressive growth of 18% in passenger traffic 13
during the first three quarters of the year, a total of 17,473,063 passengers.

The top ten busiest routes of the first nine months of 2015 include the UK, USA, Saudi Arabia,
Australia, Qatar, Thailand and Germany.
The total aircraft traffic also rose 14.3% in the first three quarters of the year, which facilitated
successful AUH 129.703 aircraft movements.

Increased global connectivity remains an important contributor to our overall success, and we are
seeing a dramatic increase in demand by the vast majority of destinations served from AUH ".
Growth year-to-date on specific routes included a 44% increase in passengers traveling between Abu
Dhabi and the US, a 27.3% increase in traffic to and from Australia, and 24, 8% and 17.2% increase
in flights between the UK and Germany respectively.
Airport 621.191 metric tons of cargo moved in the first nine months of the year, with a total cargo
traffic up 7.2%.

Supply
Aircraft movements in the airspace UAE increased to 1.62 million in 2030, with aircraft movements
numbering 4,400 per day compared to the current 2,200 aircraft movements 14.
"The UAE has made significant strides in growth in the field of aviation in recent years. UAE has one
of the most advanced facilities of aviation infrastructure.

The GCC region is witnessing a massive growth in the aviation industry. Airlines based in the Middle
East now account for 8% of world air transport industry, as stated by the Arab Air Carriers
Organization (AACO), and are collectively growing at 10% a year, twice the world average 5%.

Airports in the region point to holiday for 400 million passengers in 2020. This unprecedented growth
is reflected in the huge investments and expansions at airports in the region.

Future prospects:
In 2016, contracts in the region is expected to reach $ 119bn. This is bringing global enterprises -
builders manufacturers airports airline - in hordes to the region in the development of the airport
remains a priority for governments.
Airport expansion will continue in the coming years as many destinations in the Gulf rival to provide
the best air transportation hub.
UAE: The UAE airports are investing up to US $ 50 billion in new and expanded projects in the next
15 years, which will provide an additional capacity of 200 million passengers per year

13
http://www.uaeinteract.com/docs/Abu_Dhabi_International_Airport
%E2%80%99s_passenger_boom_contin ues/71990.htm
14
http://www.arabianaerospace.aero/uae-aviation-industry-recorded-robust-growth-in-q1-
2015.html

Demand and supply analysis of airline

sector in UAE. 14
 Price cuts and its effect:
Airline keep few empty seats. They have eliminated about 200,000 seats per day by zapping
routes and grounding planes.

15
Translation : Supply fell.

The reduction was supposed to give airlines room to raise fares. But sales suggest that airlines
are struggling to fill their planes.

Translation: demand has fallen even farther.

And where there is empty seats, there are discounts, which allows travellers to compare
prices among Web sites.

Translation: Creating a surplus which leads to falling prices.

Aviation Industry opening doors for employment in UAE

According to Oxford Economics 2011 report16, the aviation industry directly employs 58,000
people and contributes $ 6.2 billion to the GDP of Dubai. In addition, the aviation industry
indirectly supports 43,000 jobs and contributes $ 3.5 billion to the GDP of Dubai, through their
purchases of goods and services from local businesses.
The aviation sector is compatible with other 23,900 jobs and contributes $ 2 billion to the GDP of
Dubai, through the spending directly and indirectly employed people in the aviation sector. In total,
the current economic footprint of the aviation industry supports more than 125,000 jobs and
contributes $ 11.7 billion to the GDP of Dubai.

15
http://www.env-econ.net/2008/11/demand-and-supp.html
16
http://www.arabiangazette.com/uae-aviation-policies-praised/

Demand and supply analysis of airline

sector in UAE. 15
Channels of Economic Impact:
Induced
impact
Final impact

Direct Indirect Contribution

Impact impact Spending of to
Consumer: GDP
UAE aviation Food
sector Recreation
Purchase of
inputs from
UAE Clothing Employment
based suppliers
Utilities Supported

Purchases made from overseas suppliers (leakages from UAE economy)

16
An economic impact assessment identifies three standard channels of impact
Direct benefits17:
This includes the activity generated by local operations. Tthe contribution to the economy of the
United Arab Emirates that are directly attributable to the jobs of the staff of airports and in the air,
land activities, etc. In 2010, there were 58,200 direct jobs that contributed to US $ 6.2 billion.

Indirect benefits:
It is supported activity in the supply chain of the aviation industry as a result of its acquisition
of supplies of goods and services
To operate flights, it requires a lot of locally produced goods and services provided by companies
outside the aviation sector. In 2010, nearly 43,000 jobs were supported work there contributing $ 3.5
billion to GDP.

Induced benefits:
The last channel captures the impact of the staff employed in the aviation spend their wages on goods
and services produced locally, along with the expense of those who work for suppliers of aviation
These benefits come from the leisure facilities at the airport. Induced benefits contribute to 23,900
jobs and $ 2.0 billion to GDP.

With and Without an Aviation Presence

The composition of UAE-based jobs with and without an aviation presence

% of workforce Actual No aviation Difference

Agriculture 0.1% 0.1% 0.0%

Mining 0.1% 0.1% 0.0%

Manufacturing 14.3% 15.7% 1.4%

Energy supply & water 0.4% 0.4% 0.0%

Construction 19.5% 21.6% 2.1%

Wholesale & retail 22.8% 24.7% 1.9%

Hotels & restaurants 4.2% 4.6% 0.4%

Aviation-related catering & retail 1.2% 0.0% -1.2%

Core airline operations 4.1% 0.0% -4.1%

Other aviation support services 0.8% 0.0% -0.8%

Other transport & communication 8.4% 9.0% 0.6%

Business services 11.3% 9.9% -1.4%

Social & personal services 2.9% 3.2% 0.3%

Finance 1.5% 1.5% 0.0%

Government 3.8% 4.1% 0.3%

Domestic service 4.6% 5.1% 0.5%

17
http://www.dubaiairports.ae/docs/default-
source/Publications/oxford_economics_quantifying_the_economic_impact_of_aviation_in_dubai
_november_ 2014_final%281%29cc4dc38b5d08685a9b2fff000058806b.pdf?sfvrsn=0

Demand and supply analysis of airline

sector in UAE. 17
This analysis shows the importance of aviation by including the impact of tourism expenditure related
to aviation. This obviously benefit from employment in the sector of hotels and restaurants
disproportionately, and in the absence of aviation the share of employment in the entire economy with
the support of these activities would also be reduced, resulting in an even greater dependence in
wholesale and retail trade, manufacturing and construction.

Anticipating is crucial part in today's business surroundings. As the imost vital part of a figure is to
anticipate load request, whether in volume, armada use, or framework use, a great estimate of interest
permits the association to put just in offices, hardware, staffing, and base as required.

Elements required for forecasting:

Future levels of air load movement and related action for a specific air terminal (or set of air
terminals) will be influenced by different request and supply components as they apply for a
predefined gauge period. An air load estimate requires some comprehension of how these components
decided movement levels in the past and how changes in those elements may influence what's to
come. Pattern estimates certainly expect that past patterns popular and supply components will
proceed into the future, while econometric determining endeavors to expressly measure the impact of
particular variables. In either case, it is essential that a forecaster be aware of how request and supply
attributes deliver a total level of payload and air ship activity.

Payload stream interest for a specific air terminal is an accumulation of all the different shipments that
travel that air terminal, each with an one of a kind timing, beginning and destination focuses,
merchandise sort, bundling, shipment size and administration prerequisites (e.g., fancied travel time or
perishability). Air payload administrations (supply) incorporate the accessible directing choices for
those shipments and ordinarily ought to incorporate that of contending air terminals and methods of
transportation. Air load administrations incorporate air terminal to-air terminal transportation and in
addition supporting ground administrations (e.g., trucking, taking care of and stockpiling), and can be
thought about as far as expense, travel time and level of administration. The air freight supply
segment additionally incorporates on-and off-airplane terminal offices and base (e.g., runways and
access streets).

Determining aeronautics interest is not a precise science where the same methodology can be
connected at all air terminals. Every airplane terminal shows its own particular interesting
arrangement of variables that should be considered. So as to venture aeronautics request, numerous
components should be investigated including current flight industry and payload patterns (especially
those suitable to the air terminal), catchment territory financial information, authentic air
administration and freight activity patterns, benchmark information, and contending air
administrations at exchange air terminals.

Demand and supply analysis of airline

sector in UAE. 18
Economic Analysis:

Econometric investigation comprises of various examination using the relationship between the reliant
variable (i.e., freight movement) and an arrangement of free financial, demographic, and operational
variables (i.e., value, individual wage).

Indicate Independent Variables Prior to selecting a model, a forecaster must figure out what free
variables ought to be considered in the conjecture. Legitimate free variables can be chosen by
figuring out which components are liable to have the best impact on activity development.

Typically, these variables include:

Population
Economic O/P
Total or Per capita personal income
Employment

Once data for each of the independent and dependent variables is collected, need to decide the
model to be used , best describes the relationship between the dependent and independent variables.

Linear : Y= B0 + B1X1 + B2X2 .Equation 1

Multiplicative: Log Y = Log (B0) +B1 Log(X1) + B2 (LogX2). Equation 2

Equation 1 Equation 2

Y= Log(B0) + B1 Log(X1) + B2 Log(X2) for every model single set of constant coefficient (B0)

Demand and supply analysis of airline

sector in UAE. 19
AIR TONNAGE FORECAST:
Year AIR Annual % Change Real GDP Annual % Change
Actual
1998 44,549 17,188
1999 43,745 -1.8% 18,223 6.0%
2000 52,152 19.2% 19,520 7.1%
2001 58,026 11.3% 20,307 4.0%
2002 68,481 18.0% 21,367 5.2%
2003 87,143 27.3% 22,171 3.8%
2004 94,203 8.1% 24,027 8.4%
2005 1,12,374 19.3% 26,016 8.3%
2006 1,40,922 25.4% 28,420 9.2%
2007 1,65,488 17.4% 31,189 9.7%
2008 1,77,712 7.4% 34,023 9.1%
2009 1,59,386 -10.3% 36,094 6.1%
2010 1,70,900 7.2% 38,412 6.4%
Forecast
2015 3,26,600 12.9% 56,216 8.6%
2020 5,28,600 7.7% 84,180 7.0%
2025 7,44,000 6.7% 1,14,985 6.1%
2030 9,75,700 5.2% 1,50,799 5.2%

CAGR
1998-2010 11.9% 6.9%
2010-2020 12.0% 8.2%
2020-2030 6.3% 6.0%
2010-2030 9.1% 7.1%

Example:

Clarifying why the cost of a round-excursion air ticket Dubai-US, worked by Emirates, falls by
over AED 1100 after the end of school get-away in September. This happens in spite of the way that
by and large intensifying climate builds the expense of working flights, and Emirates thusly lessens
the quantity of flights at any given cost.

Commented that adjustments sought after will prompt a movement in the whole request bend. For this
situation, it appears to be obviously that there are a few elements impact the interest amount of the air
tickets. In any case, as the theme specified that the time was after the end of school excursion, along
these lines, the interest of the tickets clearly diminished. This is on the grounds that understudies have
as of now flight back to class and the quantity of voyaging individuals declined. In the second place,
when the climate gets to be compounding, individuals will probably stay at home as opposed to going
out. In the third place, the awful climate, for example, down-pouring, thundering would build the
danger of taking a flight which additionally may prompt a lessening of interest amount. Subsequently,
a decrease in flight tickets will move the interest bend from D to D' (Figure 1). Besides, on the off

Demand and supply analysis of airline

sector in UAE. 20
chance that we demonstrate the business sector on premise that the supply side is not influenced for
this situation, than we can see from the Figure2 that the new balance value Pb is lower than the first
cost; and the new harmony amount Qb is lower than the first amount too.

In any case, when the for the most part intensifying climate build the expense of working flights, as
per perspective that anything changes creation expenses will move the supply bend. Consequently, the
supply bend for flight up and to one side (from S to S', please see Figure3). Besides, the diagram
likewise demonstrates that at the specific cost, for example, P0, when the supply bend move left the
organization wish to offer less

As the 'get-away/Vacation ' impact and terrible climate condition diminish the interest amount, and expand
expense lead organization are all the more ready to lessen the quantity of flights. What will happen to the
balance cost and amount? Give us a chance to take a gander at the Figure4 and 5 underneath, the first
supply and request bend are signified by S and D, while the new bends are meant by S' and D'. In both
boards, the movements lead to a decrease in the harmony amount of flight numbers. In any case, the
impact of the movements on balance cost can't be resolved without knowing their relative extents.
Independently, the interest movement causes a decrease in balance cost, though

Demand and supply analysis of airline

sector in UAE. 21
the supply move causes an increment in balance cost. Consequently, we can see that the net impact of
the two movements relies on upon which of the individual impacts is bigger. In Figure 4, the interest
movement rules, so the balance value goes down. While in Figure 5, the supply move commands, so
balance cost increment.

In the Emirates case, the ticket cost falls AED 1100 in spite of the way that for the most part
exacerbating climate expands the expense of working flights, and Emirates in this way decreases the
quantity of flights at any given cost. This is on account of when the interest bend and supply bend
both changed, and the interest movement rules, the new harmony cost and amount are lower than
the first ones. Henceforth, the organization brings down its flight tickets and in addition diminishing
the quantity of flights at any given cost.

Besides, the amount interest of flight ticket is extremely touchy to changes in cost. That implies a
little change in cost will prompt a bigger change in amount. For example, if the cost of air ticket is to
twofold, the vast majority would adjust their utilization of it. In this manner, the organization's
approach to diminish the cost can be more effective than lessen the quantity of flights.

Taking everything into account, the organization falls its cost not just in light of the fact that the new
balance cost is lower than the first one, additionally changes in cost can be more productive.

Demand and supply analysis of airline

sector in UAE. 22
 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 passengers carried by the worlds airlines increased 6.5
times from 310 million to 2 billion passengers. During the same time period, the worlds 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 accounted 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 passengers 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. 18UAE-based airlines were
responsible for carrying 67% of passengers 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, supporting 6.2% of UAE GDP and 224,000
jobs or 7.1% of the UAE workforce. Including the sectors 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 is approximately the same as the UAE
average of AED 316,000.19
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 passenger
growth rates over the last two decades. The emirates unique economic attributes consist of
hydrocarbon assets; institutional framework which supports business development through liberal and
free market business policies; development and promotion of high-quality tourism and service-

18
http://www.uae-icao.gov.ae/Contentviewer.aspx?ContentId=6&LinkPath=Home%20%3E
%20THE%20UAE%20%3E%20AVIATION %20IN%20UAE

19
http://www.thenational.ae/business/aviation/dubai-aviation-to-be-worth-44bn-by-2020-
says-oxford-economics

Demand and supply analysis of airline

sector in UAE. 23
 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 governments economic diversification strategy. As a result of these attributes, air
transportation plays an important role in contributing to the economys growth since the success of
new business developments depends on having access to skilled and unskilled workers as well as
the leisure passengers. 20

The high air passenger 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 passengers make a connection. Several
factors helped establish Dubai as a transcontinental hub: favourable 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 supporting
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; favourable 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 passenger hub, the Dubai airport became a
major transhipment point of the Middle East. 21

Over the years, there were two large increases in the air passenger 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
governments overall goal to move the economy away from oil-exporting activities toward
development of the service-based industries. 22Air transportation development was also supported by
the growing air travel and freight need of Dubai as the economy moved away from the oil-exporting
activities. To promote this diversification of demand and global integration of Dubais economy, the
government in the 1980s began sponsoring the development of supporting 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 economys international profile and encouraging the inflow of labour and
capital.

The second growth phase was stimulated by the demand from the economys growing services sector
and the rapidly expanding long-haul carrier Emirates Airline. To support 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

20
http://usuaebusiness.org/2014/12/emirates-oxford-economics-report-highlights-aviation-
industrys-impact-on-dubai-economy/
21
http://www.arabianaerospace.aero/uae-aviation-industry-recorded-robust-growth-in-q1-
2015.html
22
https://www.gcaa.gov.ae/en/szc/pages/dst.aspx

Demand and supply analysis of airline

sector in UAE. 24
 development. 23

Since the early 1980s, 1982 was the only year when the UAEs airlines registered a negative growth
rate in air passenger traffic. While the countrys recent economic growth has been strong, the
countrys GDP was on average decreasing through the 1980s and reached its 1981 levels only in
1994. This decrease in the countrys GDP growth rates coincided with the decline in the worlds oil
prices after their peak in 1980. In other words, the United Arab Emirates had positive air passenger
growth behaviour while the economys GDP had a negative rate of growth. The governments
strategy, which focused on the development of the air transportation sector as part of overall
economic diversification strategy, was the primary reason behind this uncorrelated behaviour between
the two variables. In particular, the airlines development was supported by government funds and
regulatory and infrastructure reforms despite the declining government revenues during that time
period24.

23
http://www.dubaiairports.ae/corporate/media-centre/fact-sheets/detail/da-oxford-report-
2013-2014
24
http://www.dec.org.ae/about/secretariat/economic-policy-research-center.aspx

Demand and supply analysis of airline 25

sector in UAE.