International Policy Digest

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Business /21 Apr 2020
04.21.20

When Dubai is Back in Business the World can Take to the Air

The COVID-19 pandemic has grounded two-thirds of the world’s commercial airliners and reduced air travel to a trickle. The effects of the pandemic are visible at Washington Dulles International Airport outside Washington, D.C., which has only a handful of daily international arrivals, few guests at the airport hotel, and fleets of parked rental cars and aircraft.

As important as Dulles is to Washington, D.C., what happens at Dubai International Airport in the United Arab Emirates (UAE) matters more to the rest of the world. The airport is the fifth busiest in the world, and the number one hub for international passengers, moving over 86 million in 2019. And Dubai International makes money not just when passengers are moving, but also when they are at rest. In 2019, Dubai Duty-Free rang up over $2 billion in sales.

But financial challenges may slow Dubai’s quick revival. Middle East-based airlines are expected to lose $19 billion this year and though the emirate has promised support for its airline, Emirates, it didn’t commit to a firm amount. And those parked aircraft still require a lot of maintenance, so, for now, it’s all “money out” for Emirates.

Dubai has little oil compared to its Persian Gulf neighbors and its reserves should be exhausted by 2030, so its economy is based on services, tourism, real estate, and transport (passenger and cargo).

To move people and boxes too – and through – the emirate, Dubai has two major airports: Dubai International Airport (mostly commercial passenger traffic) and Dubai World Central (mostly cargo and private aviation), though on April 1, Emirates shifted cargo movements back to Dubai International and suspended operations at Dubai World Central.

Due to the mix of its economy, Dubai needs air travel to rebound as fast as possible, so it has started rapid, on-site medical screening of passengers. Speed is important as passengers already arrive three hours before flights and, even a capacious venue like Dubai International can’t afford long queues of passengers waiting for tests while social distancing.

The Expo 2020 Dubai, which was to open in October 2020 and attract 25 million visitors and over $30 billion in spending, has delayed opening to October 2021. In the meantime, Dubai can productively use the time to further refine its new visitor screening protocol.

The COVID-19 pandemic and low oil prices also will give Dubai an opportunity to rationalize its economy.

Before the pandemic, there was intensive residential and commercial real estate development in anticipation of the Expo, but some developers had gone through several restructurings, and the sector was under pressure. This is an opportunity for the emirate’s government to encourage the developers to stop projects and avoid a repeat of the 2010 real estate collapse. Dubai will face significant unbudgeted pandemic expenses without adding a developer bailout if the expected Expo traffic fails to appear.

The repatriation of guest workers, including Expo construction workers as project completion draws near, will reduce Dubai’s population and thus the number of people at risk of COVID-19. Unfortunately, the process has slowed as the workers’ home countries have halted inbound travel and may not have adequate quarantine facilities.

In 2004, Dubai established the Dubai International Financial Centre, a financial free zone with independent English-language common law courts, 100 percent foreign ownership, and a friendly (meaning “low”) tax regime. The UAE’s insurance market is the largest in the GCC and Dubai plays a leading role, as well as in the growing Islamic finance sector.

Transport, tourism, real estate, and finance form a virtuous circle, but the key is the quick and secure movement of investors, residents, travelers, and cargo.

Dubai’s hub and spoke arrangement is the most efficient path between Europe and Asia. This efficiency will encourage airlines to add flights via Dubai at the earliest opportunity which will attract travelers who just want to go somewhere, which is everyone at this point. However, the airlines will be reluctant to introduce slack in the system, so delays or cancellations will quickly ripple through the network.

Dubai relies on the transport system for more than passenger and cargo revenue and attracting tourists and investors. Though the UAE has grown the non-oil sector of its economy in recent years, it imports 80 percent of its food, along with most clothing and textiles, construction materials, and most of the luxury goods it sells to travelers and vacationing shoppers.

Dubai’s transport efficiency now rests on its ability to quickly and accurately medically screen over 80 million travelers a year. This is an opportunity for Dubai to be a leader in a collaborative process to develop a standard screening protocol for travelers and help get the world’s goods and travelers moving again.