The Emirates Effect - The Economic Impact of Air Services

On September 1, 2012 exactly five years after it inaugurated flights between its Dubai International Airport hub and Newcastle International Airport in North East England, United Arab Emirates (UAE) operator Emirates Airline celebrated an upguage of capacity on the daily route, replacing its Airbus A330-200 with a Boeing 777-300ER. This is just one of many new routes, frequency increases and capacity enhancements that Emirates Airline has introduced in the current calendar year, but it is a great example of the impact a new long-haul service from a hub carrier can have on a region.

The initial announcement that Emirates Airline was to launch daily flights to the UK city of Newcastle from September 1, 2007 had surprised many. The carrier already had a strong presence in the UK, and although the route filled a market gap between its existing destinations of Manchester and Glasgow, Newcastle International Airport had little pedigree as a long-haul destination. When you consider that at this time Emirates hadn’t set course for destinations such as the Dutch capital Amsterdam, now an A380 service, you can understand why there was this level of surprise.

For Newcastle International it was a major coup. Having courted a year-round scheduled link to the west for many years, it had secured a valuable hub connection east and enhanced connectivity into Africa, Asia and Australasia. As a typical regional UK airport, Newcastle International was mainly providing domestic and European scheduled connectivity with a leisure programme supporting holiday traffic, including long-haul charter links to Canada and the US. Those wishing to travel long-haul had to connect via Amsterdam, London or Paris.

The arrival of Emirates Airline in North East England has certainly changed the travelling dynamics of the region and the success of the route shows how the carrier has helped stimulate the market. Initially flying a 278-seat A330-200, Emirates is now using a 428-seat 777-300ER, representing a 54 per cent increase in seat capacity each day and this will help bring further traffic to Newcastle International, but perhaps more importantly it will also enhance trade between the North East of England and international partners.

Since the route was launched, Emirates has carried around 750,000 passengers and more than 10 million kilos of cargo on its Newcastle service, helping companies across the North East of England to export their goods across the globe. Popular commodities being shipped include oil rig equipment, car parts, personal effects and pharmaceuticals and the use of the 777-300ER now means an almost doubling in bellyhold cargo capacity.

Speaking at an event to mark the arrival of the 777-300ER, Laurie Berryman, UK VP, Emirates Airline said: “The new service will be bigger and better. It is not only great news for all our customers in Newcastle, but also for North East PLC. It shows Emirates’ continued investment and support for the area since we launched the route exactly five years ago today. No-one can be in any doubt that growth remains a key objective for Emirates here in the North East.”

But can we quantify this value? Well, a UK Trade & Industry report suggests that since Emirates Airline made its debut in the region there has been a notable boost to exports and trade. The analysis shows a rise in trade from £150 million to £275 million between the North East and Australasia over the past five years. A study of the International Passenger Survey, UK Civil Aviation Authority (CAA) Passenger Survey and CAA Statistics also leads to an estimate that inbound passengers on the Dubai service will spend around £16.7 million in the North East of England this year, supporting around 230 jobs in the tourism industry. The airport also estimates that the Dubai service will facilitate business travel valued at around £7.2 million and will transport exports from the North of England with a value of around £150 million this year. The route will also raise around £8.5 million to the Government’s coffers through its controversial Air Passenger Duty.

Newcastle International Airport also recently commissioned consultancy York Aviation to analyse the journey time benefits derived from shorter travelling times for passengers and businesses and the produce benefits triggered by these. On the basis of 2012 traffic levels, the consultancy suggests the service will bring net economic benefits of £4.6 million to the North East or when considered across the five year live of the service, around £20.3 million since September 2007.

Speaking to The HUB at a lunch to celebrate the new regular 777-300ER service, Dave Laws, Chief Executive Officer, Newcastle International Airport, highlighted what the route means to the airport: “The Dubai service, with its extensive onward connections, has played an increasingly important role in the economy of the region. A recent study revealed the value of UK exports shipped via Newcastle Airport is £173.6 million, of which £150 million is carried on the Emirates service. Additionally, the airline provides worldwide connectivity for the business community in the North East which allows access to new markets and enables operations on a global stage.”

The success of the Emirates Airline route between Dubai and Newcastle has been more about flight connectivity than point-to-point demand. Without the carrier’s wider network from its Dubai International hub it is highly unlikely that the route would have been able to sustain itself on O&D demand alone. Official statistics shows that just 25.2 per cent of passengers travelling on the airline’s service end their journey in Dubai, the rest connect onto at least one other flight via the global gateway. In fact, the Emirates Airline service enabled passengers from Newcastle International to fly to 152 different destinations via Dubai, including single journeys to such locations as Mangalore, India; Saipan, the largest island of the Commonwealth of the Northern Mariana Islands and Manado and Yogyakarta in Indonesia.

The table highlights the estimated top ten destinations for passengers on Emirates Airline’s Newcastle – Dubai route. Interestingly, alongside the UAE city, the Thai capital Bangkok is the destination for a significant level of traffic on the service.

What is the next step for Newcastle International? Well, while the upguage of capacity is a massive growth for the market, the next logical step will be the introduction of a second frequency. This remains some way off but is a target the airport believes is achievable. “I believe that it took Glasgow just over eight years to move from a single to double daily Emirates operation. I think it may take us a little longer to achieve this but it is certainly a future goal for the route,” said Laws.

According to sources, the initial loads on the first two 777-300ER flights into Newcastle provide positive reading. The September 1, 2012 flight was fully-booked but arrived minus around 40 passengers who missed the connection in Dubai due to bad weather, while the September 2, 2102 flight was operated by a full aircraft configured in a higher-density arrangement with seating for 442 passengers. In fact, with eight infants onboard the jet arrived with 450 onboard, the largest ever passenger load to arrive at Newcastle International on a single aircraft.

The HUB spoke to James Ramsbotham, Chief Executive Officer, North East Chamber of Commerce to learn more about what air service development can mean for those outside of the aviation business. “Emirates is a prestigious global brand and the new aircraft will only add to the positive impact that it has already made in the region,” he said.

“It is no coincidence that trade from the North East to Australasia has increased by more than 65 per cent since Emirates began operating the route and with improved access to markets, export operations will continue to flourish. Connectivity is a key issue in our region and this increase in passenger capacity will provide a major boost to the region’s economic growth. This additional cargo capacity can now be carried overseas helping companies in the region export their goods across the globe,” he added.

According to James Ramsbotham, international links are of significant importance to the North East of England as it is the only major of the UK not connected to the rest of the country by a motorway. “International links really matter to a trading region like the North East of England to enable us to sell our goods across the world. Across the UK around 19 per cent of everything we make is exported, while in our region that figure stands at 30 per cent, showing the importance of international connectivity,” he explained.

“This Emirates route has opened up the eastern world to our region. Although trade with Australia is up around 300 per cent since the route was launched we are also seeing growth in other markets like India, China, Korea and Japan. A major Thai business recently invested in the steelworks in the area, Hitachi will be opening its first train manufacturing factory outside of Japan in Newton Aycliffe, County Durham and this route has facilitated this all,” he added.

Following the success of Emirates Airline’s link to Dubai, the North East Chamber of Commerce is now pushing to secure a long-awaited route to the west and a regular link to a major US hub. “The regional priority is to secure a transatlantic route,” said James Ramsbotham. “Seeing what Emirates has done to the east, we now need to replicate to the west. Newcastle will never be a major hub airport but people would use the connectivity from a US operator to fly across the Americas. Across the North East of England around five per cent of total exports are to the US, our second biggest trading partner after Europe and a number of major US companies operate in the region including Procter & Gamble, General Electric and Caterpillar,” he added.

Newcastle International has been campaigning for a US route for a number of years and actually came close to launching a New York service with American Airlines in 2006 but it was dropped ahead of its inauguration. In the past few years the airport has again come close to securing a transatlantic link but fast-changing economic conditions have meant that discussions have not got over the finishing line. “We will get a transatlantic link from Newcastle, but only when the time is right,” CEO, Dave Laws explained. “There are a number of factors that need to come together for this to work in a sustainable manner and issues such as exchange rate fluctuations and APD in particular have made this difficult. It is tough situation as we know a route would work from Newcastle.”

As highlighted in the traffic table above, India is a key market for passengers from the North East of England with four of its airports among the top 25 destinations for passengers on the Emirates Airline flight from Newcastle. This is another market where we can ascertain the economic impact of the airline’s operations following a study by the National Council of Applied Economic Research (NCAER) on the economic impact of Emirates Airline’s operations on the Indian economy.

The ‘Emirates in India – Assessment of Economic Impact and Regional Benefits’ study was released earlier this year and highlights the links between the civil aviation sector with other sectors in the economy and how it helps generate income and employment. The estimates suggests that Emirates has contributed $596 million to the Indian Economy - $274 million in the Air Transport sector; $76 million in the Petroleum and Chemicals sector; $62 million in the Manufacturing sector; $39 million in the Trade, Banking and Insurance sector and $145 million in other sectors of the economy.

It suggests that for every $1 that Emirates contributes in the Indian air transport sector, it generates an additional $1.176 in the Indian economy. The airline directly employs 1,045 staff in India and supports a total of 72323 jobs in India through its operations – with 9,304 jobs being direct employment impact and 63,019 jobs being indirect employment impact. On the tourism front, Emirates has brought in 529,928 foreign tourists into the country in FY 2010-11 with an estimated contribution of $1,153 million to the economy as Foreign Exchange Earning (FEE).

“A well-managed civil aviation infrastructure and efficiently-run, competitive airlines are a must in today’s globalised world,” said Dr Shekhar Shah, Director General, NCAER. “This study quantifies airlines’ impact on the economy.”

As highlighted in the Newcastle example, the study points out that Emirates connects non-hub airports to a significant number of points in India which would otherwise not be directly linked to these airports. This highlights the connectivity Emirates provides, as well as emphasising their role in enhancing air transport and tourism. The study also suggests that Emirates’ expansion to four additional points: Amritsar, Pune, Mangalore and Trichy would benefit the Indian economy by $ 106 million and would also lead to the creation of 13,011 jobs.