Insight and opinion from The National’s editorial leadership
June 08, 2023
When Dubai International Airport first opened, in 1960, it was little more than a sandy airstrip with a small terminal building, a fire station and a control tower. Today, after decades of expansion, DXB is the busiest airport in the world. In a world rebounding from pandemic-era paralysis, its three passenger terminals and concourses, two cargo “mega-terminals”, expo centre, maintenance hub and metro stations are bustling.
And soon, the emirate’s aviation stakeholders expect, they will be brimming. The airport is nearing capacity, with 80 per cent of its runway slots in use. Its operator, state-owned Dubai Airports, forecasts it will accommodate 90 per cent of its 100-million-passenger capacity this year.
Physical expansion, at this stage, is difficult. DXB’s prime location in northern Dubai’s heavily populated urban core is a reason for its success, but has now also become a constraint for any plans to build outwards.
Technology could go some way towards solving the problem. At this year’s International Air Transport Association (Iata) meeting in Istanbul, Paul Griffiths, Dubai Airports’ chief executive, told The National that investments in biometric technology could raise capacity by a further 20 million passengers.
But Dubai’s immense popularity – as a tourism destination, commercial hub and place of residence – shows little sign of abating, raising expectations that, eventually, the emirate will need to outgrow its reliance on DXB.
All of this, to some extent, was foreseen more than a decade ago. In 2010, Dubai opened its second international airport, Al Maktoum International (DWC), located in the emirate’s southern Jebel Ali area, and aviation industry watchers believe it is about to come into its own. Authorities recently approved ambitious plans to redevelop the neighbourhood, building up the Palm Jebel Ali (a twin to the famed Palm Jumeirah) to accommodate 35,000 families.
The Dubai government, Dubai Airports and local airlines are in discussions over how to proceed with expansion of DWC, part of a $33 billion plan set out in 2014 to eventually transform it from a six-runway facility into one of the world’s biggest airports. Enlarging the airport and giving it a more prominent place in Dubai’s aviation landscape is “definitely needed”, Mr Griffiths says, but the timeline remains up in the air.
Firming up a schedule requires nailing down the projected needs of Emirates, flydubai and other airlines, and evaluating what is the most affordable path for addressing short-term needs. While DWC operates a busy schedule of flights, it lacks the facilities of DXB, meaning new investment will need to be comprehensive and carefully considered.
The dividends of such an investment, however, are likely to be high. Emirates is already the world’s biggest long-haul airline company, but it is expanding its fleet further in anticipation of growing demand. The company enjoyed record profits in the latest financial year, leading to generous bonuses to all of its staff.
Given that level of success, airport expansion is not only prudent, but necessary.
“We are in the market for buying quite a few more aircraft,” Emirates’ president, Tim Clark, told journalists at the Iata meeting in Istanbul. They will need to be housed somewhere.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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