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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. 1
UAE-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. 2

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 highquality tourism and service-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. 3
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: favorable 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; favorable 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 transshipment point of the Middle East. 4

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. 5
Air transportation development was also supported by the growing air travel
and freight need of Dubai as the economy moved away from the oilexporting 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 labor 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
development. 6
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 behavior 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 behavior 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 period. 7