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This was just in the Sunday Trib

 

 

http://www.chicagotribune.com/business/chi...1&cset=true

 

Dubai: Sky's no limit

Middle Eastern financial center aims to be a force in international travel with a huge new airport, rapidly growing airline and a layover playland at the world's crossroads

 

By Julie Johnsson

Tribune staff reporter

Published January 14, 2007

 

 

DUBAI, United Arab Emirates -- Tiny Dubai has big plans. Armed with riches seemingly as endless as its ambition, Dubai aims to exploit its Persian Gulf perch to become an aviation superpower.

 

Leaders of this booming Middle Eastern financial center have budgeted $82 billion to construct the world's largest airport on barren desert 30 miles from its downtown and make its home-town carrier, Emirates Airline, one of the biggest on the planet.

 

Dubai wants to make the most of its setting, a crossroads between Europe, Asia, and Africa and a natural link between new economic powers like China and India. Blessed with year-round sunshine, stunning beaches and azure gulf waters, Dubai also is pumping billions of dollars into turning itself into a layover playland.

 

Its plans threaten to redirect travelers from Europe's largest cities and upend American airline dominance of intercontinental travel.

 

"We want to be one of the biggest," said Sheikh Ahmed bin Saeed Al-Maktoum, who oversees Dubai's airport and is chairman, chief executive and co-founder of Emirates Airline. "Not only in size, but in being effective around the world."

 

But not if its next-door rival has anything to say about it.

 

The oil-rich capital of the United Arab Emirates, Abu Dhabi, is building a new airline, as well as an airport due to open in 2010, only a 90-mile drive from downtown Dubai.

 

Etihad Airways, the carrier that Abu Dhabi started a little more than two years ago, already flies to 35 cities, including New York, and has a fleet of more than 20 wide-body aircraft--with new planes arriving at the rate of about one per month.

 

Was Abu Dhabi driven to keep pace as Emirates started taking off as a global carrier?

 

"Of course, it played a role," said Geert Boven, vice president of commercial with Etihad.

 

But Abu Dhabi, too, believes that sufficient traffic will flow through the region to support another supercarrier. "That was one of the ideas of the government: We are an important financial center in the world, so let's connect the world to Abu Dhabi," said Boven.

 

Qatar, another tiny Persian Gulf state, harbors similar ambitions. In fact, the handful of carriers in that region account for nearly one-quarter of all the long-range airplanes on order at Boeing Co. and Airbus SAS. Some question whether the market will soon be glutted with aircraft and new airports.

 

"People are saying that this market is reaching its limits," said Habib Fekih, Airbus president for the Middle East. "I'm saying, check later and watch out."

 

Dubai is taking on plenty of risk in its bet. While Abu Dhabi has a financial cushion in that it sits atop one of the world's largest oil reserves, Dubai's oil is running out. Moreover, the airline industry is notoriously cyclical.

 

Oil shocks, terror attacks and war could all dampen demand for air travel in the gulf region, and especially hurt the economy of Dubai, the second-largest of the seven city-states that make up the U.A.E.

 

What's more, Dubai's aviation growth is timed, and designed to feed visitors into the mind-boggling welter of developments rising from the emirate's desert sands. Any turbulence at Emirates Airline sends ripples through Dubai's economy.

 

That's one reason why government officials were so angry at the well-publicized production snafus at Airbus. The delayed delivery of the A380 jumbo jets, which won't arrive until 2008, already have cut in half Emirates' planned growth for this year.

 

"You can imagine why the government is miffed," said Tim Clark, president of Emirates Airline.

 

 

 

Building broad-based economy

 

But Dubai continues its frenetic building, seemingly undaunted. In just 30 years, Dubai has morphed from sleepy port into a thriving business hub, with a diversified economy that other Arab cities covet.

 

It's hard to ignore the ready capital flowing into this emirate, known for its tolerance of Western culture and open markets.

 

More than 200 skyscrapers are rising around one project alone: a massive, man-made marina whose skyline mirrors, and dwarfs, downtown Vancouver. Rows of Jetson's-like skyscrapers already line Sheikh Zayed Road, Dubai's main drag.

 

Authorities in Dubai, which is home to a famous sail-shaped hotel, last week announced plans to build a 35-floor building shaped like a man wearing traditional gulf Arab garb. It would be the largest man-shaped structure in the world, another record the city, which is obsessed with its stature, hopes to set.

 

Dubai is also home to the three largest man-made islands in the world, visible from outer space. Dubailand, the world's largest theme park, will house 45 megaprojects such as the Snowdome, an indoor ski resort boasting a five-star hotel shaped like an icicle.

 

Dubai doesn't boast the world's tallest building, yet. But two towers under construction--their planned heights are closely held secrets--are dueling for that title.

 

Dubai is hinging its future economy on real estate, aerospace, technology and tourism. Because its oil reserves are small and rapidly dwindling, Dubai was forced to build a broad-based economy. Now other cities across the Middle East are following its model.

 

The strategy is the brainchild of Sheikh Mohammed bin Rashid Al Maktoum, Dubai's ruler.

 

The Maktoums provided $10 million to get Emirates Airline off the ground in 1985. While the airline quickly established itself as a leading regional carrier, it didn't start charting a global strategy until about seven years ago, said Sheikh Ahmed, the airline's American-educated chairman and chief executive.

 

"One day [sheikh Mohammed] called me up and said, `You know, Ahmed, I want to see 15 million hotel guests in Dubai by 2010,'" said Sheikh Ahmed, interviewed in an office overlooking the giant customs hall at Dubai International Airport. In his reception area, the U.A.E.'s transportation minister and other dignitaries waited for an audience with the laconic executive, who is a member of the royal family.

 

Sheikh Mohammed's directive was startling, Sheikh Ahmed said, because Dubai drew only 3 million tourists per year then. "I said, `Your highness, how can we come up with 15 million?' ... I said, `Maybe, 6 [million]?' He said, `No. I want you to go try to work it out with your people at the airline.'"

 

After crunching numbers, Emirates' team concluded: "It's not completely impossible," Sheikh Ahmed recalled.

 

Now it's happening.

 

The emirate drew about 30 million air travelers in 2006, up from 13.5 million five years ago. And it's building facilities capable of handling more than 200 million passengers by 2015--nearly three times the capacity of Chicago's O'Hare International Airport.

 

"They're going for it, no question," said Paul O'Connor, executive director of World Business Chicago, a non-profit focused on economic development. "That's the thing that's not well appreciated, especially by the government of the U.S."

 

What's more, Emirates is spending $30 billion on planes capable of flying halfway around the world. With such aircraft, Dubai is no more than 15 hours from key cities globally.

 

Emirates is growing as it connects cities never previously linked and by poaching travelers who formerly were forced to take circuitous routes through Europe to reach destinations in Asia or Africa.

 

Within weeks of launching service in October between Dubai and Beijing, for example, Emirates' flights were sold out. The passengers, researchers quickly discovered, were traveling from Africa.

 

"If they can get from Dar es Salaam [Tanzania] to Beijing with two hours on the ground in Dubai? Hell, they're going to do it," said Clark, the Emirates Airline president.

 

As Dubai's importance grows, it threatens to cannibalize traffic that traditionally has flown into Europe's largest cities such as London, Amsterdam, Paris and Frankfurt, Germany.

 

Emirates Airline is among a handful of carriers catering to the speeding forces of globalization. It, along with Singapore Airlines, Germany's Lufthansa AG, Hong Kong's Cathay Pacific Airways and Australia's Qantas Airways Ltd., is scrambling to serve the huge new middle class emerging in Asia, Africa and Eastern Europe.

 

"We are a threat to the European airlines and far eastern airlines, as well," said Etihad's Boven.

 

"We're setting up a new transportation system in the Middle East that has never been there before."

 

American carriers, which have dominated intercontinental travel since the days of Lindbergh, also are at risk of being eclipsed.

 

"The American carriers are still the world's biggest. But that's going to change," predicted airline analyst Vaughn Cordle.

 

America's airlines, finally emerging from the global market downturn that followed the Sept. 11 terrorist attacks, have been slow to order the next generation of jets that would make them competitive globally.

 

"In terms of service quality and profitability," Cordle said, American carriers have already fallen behind carriers like Emirates and Singapore Airlines.

 

U.S. aviation hubs, like Chicago, could also be left behind.

 

"A lot of these traffic flows don't touch the United States and we're not going to get those," said economist Daniel Kasper, managing director with LECG LLC, an economic and financial consulting firm based in Massachusetts.

 

 

 

Banking on long-range flights

 

Long-haul planes are integral to the future of both Dubai and its Emirates Airline. Emirates already is the largest customer of Airbus' A380, accounting for nearly one-third of total orders.

 

Dubai is counting on the supersize aircraft, capable of seating up to 644 passengers, to feed tourists to the multitude of new attractions opening in Dubai in the next two years and to fill the 100,000 hotel beds that will be added by 2010.

 

Officials even timed the opening of a new wing at Dubai International Airport for 2007, when the double-decker planes were due to arrive in force.

 

But now Emirates won't see its first A380 until August 2008 because of production snags.

 

As a result, the airline's capacity will grow by 15 percent in 2007, less than half the 35 percent officials had planned, said Emirates' Clark. "We've taken a big hit," he said.

 

The carrier has ordered 45 Airbus A380s, as well as 46 of the new, long-range Boeing 777s capable of flying the 7,247 miles from Dubai to Chicago without refueling.

 

It has already added 23 new 777s to its fleet in 2006. When the new planes arrive, they will triple Emirates' capacity and make it the largest long-haul network carrier in the world by 2012, according to a recent Boston Consulting Group report.

 

Other cities around the Middle East are moving to emulate Emirates and Dubai's strategy, mindful of the dollars, euros, rubles and rupees aviation is pumping into Dubai's economy.

 

Orders for aircraft around the region took off in 2003 and 2004, as oil prices rose, said Lee Monson, Boeing's vice president of sales for the Middle East and Africa.

 

"The petro-dollar has clearly been a huge impact on their ability to purchase airplanes," Monson said. "The region is working to get out of the model of being strictly an oil producer. They want opportunities for tourist travel, enhancement of a more broad-based business sector."

 

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