Institute of Air Transport and Airport Research. The Impact of Emirates Airline on the German Economy. Final Report

Transcription

1 Institute of The Impact of Emirates Airline on the German Economy May 2012

2 Cover Picture: Emirates Airbus 380 visiting ILA Berlin Air Show 2010 Photographer: Wolfgang Grimme, DLR

3 The Impact of Emirates Airline on the German Economy Tim Alers, Dr. Peter Berster, Prof. Dr. Hansjochen Ehmer, Monika Teresa Fuhrmann, Dr. Marc Gelhausen, Wolfgang Grimme, Stephan Horn, Hermann Keimel, Dr. Sven Maertens, Hendrik Nieße Deutsches Zentrum für Luft- und Raumfahrt e.v. in der Helmholtz-Gemeinschaft Release: 1.00 German Aerospace Center Institute of Porz-Wahnheide Linder Höhe Köln Head: Prof. Dr. Johannes Reichmuth Web: May 2012 Release: 1.00 Page 1

4 Document Control Information Institute Director: Responsible author: Additional author(s): Project / research task: Filename: Prof. Dr. Johannes Reichmuth Wolfgang Grimme Tim Alers, Dr. Peter Berster, Prof. Dr. Hansjochen Ehmer, Monika Teresa Fuhrmann, Dr. Marc Gelhausen, Stephan Horn, Hermann Keimel, Dr. Sven Maertens, Hendrik Nieße The Impact of Emirates Airline on the German Economy Emirates_Report_v1.00_ doc Release: 1.00 Save date: Total pages: 139 This study was conducted for Emirates Airline. 2012, DLR, Institute of, This document with all its parts is protected by copyright. Any use within or without the domain of the copyright act is illegal without a written consent of the DLR, and will be prosecuted. This applies in particular to copying, translations, microfilm reproductions or converting, processing and storing this information on digital systems. Release: 1.00 Page 2

5 Change Log Release Date Changed Pages or Chapters Comments April 2012 Final version Release: 1.00 Page 3

6 Content List of figures... 6 List of tables... 9 Executive Summary Introduction Overview The Emirates business model and Emirates current activities in Analysis of the effects of connectivity to the international aviation network due to Emirates presence in The importance of connectivity Connectivity for Non-stop connectivity Connectivity for itineraries with one stop / transfer Connectivity to the 100 largest airports in the Eastern Hemisphere Comparison of the route networks of Emirates and Lufthansa Connectivity for individual cities in Düsseldorf Hamburg Berlin Stuttgart Connectivity and Frequency Connectivity index for German airports Connectivity and capacity Intermediate conclusions Analysis of the effects of Emirates presence in on passenger flows Market development in Market development at individual airports Development of air fares Intermediate conclusions Analysis and quantification of economic effects for Effects of existing passenger and cargo services Direct, indirect and induced employment Catalytic effects Incoming tourism Outgoing tourism Air cargo Effects of new services Outlook for for New services to Berlin and Stuttgart Effects of the purchase of aircraft, engines, spare parts and equipment Discussion of the benefits of air transport market liberalisation for Consequences of the liberalisation of air transport markets Literature review of worldwide liberalisation Liberalisation s impact on different stakeholders Secondary and hub airports Airlines and alliances Passengers Release: 1.00 Page 4

7 7 Conclusions Annex Definition of regions used throughout this report Emirates Destinations Stakeholder Interviews Literature Release: 1.00 Page 5

8 List of figures Figure 2-1: Comparison of itinerary between two secondary airports with Emirates and competing airlines / alliances Figure 2-2: Specific fuel consumption in kg per aircraft-kilometre flown Figure 2-3: Comparison of operating costs for selected airlines Figure 2-4: Development of Emirates frequencies from German airports Figure 2-5: Development of Emirates passengers on flights between and Dubai (and vice versa) Figure 3-1: Destination regions of origin-destination passengers on Emirates flights from Figure 3-2: World regions to which Emirates provides connectivity for Figure 3-3: Non-stop destinations in the Eastern Hemisphere served by all airlines from in December Figure 3-4: Overview of destinations in Africa, Asia, Middle East and South West Pacific served non-stop from in December Figure 3-5: Number of seats provided on non-stop flights and frequencies to destinations in Africa, Asia, Middle East and South West Pacific served nonstop from in December Figure 3-6: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from with one stop/transfer in December Figure 3-7: Overview of non-stop services from to the 100 largest airports in Africa, Asia, Middle East and South West Pacific in December Figure 3-8: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from with one stop/transfer in December Figure 3-9: List of complementary and overlapping destinations of Emirates and Lufthansa in the Eastern Hemisphere Figure 3-10: Map of complementary and overlapping destinations of Emirates and Lufthansa in the Eastern Hemisphere Figure 3-11: Seats offered on non-stop flights to Southern/East Africa, Asia and the Middle East from German airports in December Figure 3-12: Seats offered on non-stop flights to Southern/East Africa, Asia and the Middle East from Berlin and Stuttgart with possible future daily services by Emirates Figure 3-13: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Düsseldorf non-stop or with one stop/transfer in December Figure 3-14: Map of destinations in Africa, Asia, Middle East and South West Pacific served from Düsseldorf non-stop or with one stop/transfer in December Figure 3-15: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Hamburg non-stop or with one stop/transfer in December Figure 3-16: Map of destinations in Africa, Asia, Middle East and South West Pacific served from Hamburg non-stop or with one stop/transfer in December Figure 3-17: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Berlin non-stop or with one stop/transfer in December Figure 3-18: Map of destinations in Africa, Asia, Middle East and South West Pacific served from Berlin non-stop or with one stop/transfer in December Figure 3-19: Perceived quality of connectivity from Stuttgart Release: 1.00 Page 6

9 Figure 3-20: Destinations with a need for improved non-stop or transfer connectivity, share of the number of mentioned destinations by region Figure 3-21: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Stuttgart non-stop or with one stop/transfer in December Figure 3-22: Map of destinations in Africa, Asia, Middle East and South West Pacific served from Stuttgart non-stop or with one stop/transfer in December Figure 3-23: Number of weekly itineraries to the 100 largest airports in the Eastern Hemisphere from selected German airports by airline Figure 3-24: Number of weekly itineraries to the 100 largest airports in the Eastern Hemisphere from selected German airports by airline Figure 3-25: Calculation of the connectivity index Figure 3-26: Map of destinations in Africa, Asia, Middle East and South West Pacific for which Emirates services reduce the number of stops / transfers from Hamburg Figure 3-27: Capacity contribution of Emirates on O&D relations from Hamburg to Southern and East Africa, Asia, the Middle East and South West Pacific (2011) Figure 3-28: : Potential capacity contribution of Emirates on O&D relations from Stuttgart to Southern and East Africa, Asia, the Middle East and South West Pacific (2011) Figure 4-1: Origin-destination passengers from to the Eastern Hemisphere and Emirates market share by region Figure 4-2: Origin-destination passengers from to Southern/East Africa, Asia, Middle East and South West Pacific, Figure 4-3: Origin-destination passenger growth by individual carriers in the market between and Southern/East Africa, Asia, Middle East and South West Pacific between 2005 and Figure 4-4: Origin-destination passengers from to Southern/East Africa, Asia, Middle East and South West Pacific between 2002 and 2010 in relative terms Figure 4-5: Origin-destination passengers from Hamburg to Southern/East Africa, Asia, Middle East and South West Pacific, Figure 4-6: Origin-destination passengers from Hamburg to Dubai, Figure 4-7: Origin-destination passengers from Hamburg to Dubai travelling on Lufthansa, Air France, British Airways and Turkish Airlines, Figure 4-8: Origin-destination transfer passengers from Hamburg to Southern/East Africa, Asia, Middle East and South West Pacific by first transfer point, Figure 4-9: Origin-destination passengers from Düsseldorf to Africa, Asia, Middle East and South West Pacific, Figure 4-10: Origin-destination transfer passengers from Düsseldorf to Southern/East Africa, Asia, Middle East and South West Pacific by first transfer point, Figure 4-11: Seats offered on non-stop flights by Lufthansa from to the Middle East and to India Figure 4-12: Comparison of air fares in business class of Emirates and Lufthansa from Hamburg to selected Asian destinations Figure 4-13: Comparison of air fares in economy class of Emirates and Lufthansa from Hamburg to selected Asian destinations Release: 1.00 Page 7

10 Figure 4-14: Comparison of average air fares in economy class from Frankfurt for a set of five major Asian destinations and four combinations for minimum stay / advance booking Figure 5-1: Differentiation of economic effects for coming from Emirates activities Figure 5-2: Exemplary chain of inputs and definition of direct and indirect effects Figure 5-3: Emirates expenditures in and the resulting direct and indirect employment effects for the fiscal year 2010/ Figure 5-4: Location decision of companies depending on time- and real estate costs Figure 5-5: Development of incoming tourism, measured in nights spent by travellers from Asia, Middle East and South West Pacific Figure 5-6: German National Tourist Board tourism growth forecast 2020 for incoming tourism from Asia, Middle East and South West Pacific Figure 5-7: Development of incoming tourism in Munich from selected countries, measured in nights spent Figure 5-8: Correlation between the number of seats offered on non-stop flights from the Middle East to and the number of nights spent by tourists from the Middle East in, Figure 5-9: Correlation between the number of origin-destination passengers between and destinations in Asia and the number of nights spent by tourists from Asia and South West Pacific in, Figure 5-10: Forecast on German exports for the manufacturing industry (constant prices, base year 2000) Figure 5-11: Development of air freight exports from to the UAE (in tons), Figure 5-12: Development of the air freight volumes of major airlines originating from German airports Figure 5-13: Market share of Emirates for outbound air freight originating in in 2010 for different IATA regions Figure 5-14: Emirates passenger growth potential to/from 2011/ Figure 5-15: Emirates expenditures in for the fiscal year 2011 and forecast for fiscal year 2012 in million Figure 5-16: Emirates fleet and order development Figure 5-17: Emirates aircraft on order as of 31st December 2011 (excluding options and letters of intent) Release: 1.00 Page 8

11 List of tables Table 2-1: Emirates operations in as of December Table 3-1: Comparison of frequencies and capacities to African, Asian and Pacific destinations on direct flights* of Lufthansa from with direct flights of Emirates from Dubai in December Table 3-2: Connectivity index for German airports due to Emirates services to Dubai and onward destinations in December Table 3-3: Total and Emirates (EK) used capacity on O&D s from Hamburg to Asia, Southern and East Africa, South West Pacific and the Middle East region (2011) Table 3-4: Estimated total and Emirates (EK) used capacity on O&D s from Stuttgart to Asia, Southern and East Africa, South West Pacific and the Middle East region (2011) Table 5-1: A simplified symmetric input-output table (product by product) Table 5-2: Summary of direct and indirect employment estimations for Emirates air services to and from Table 5-3: Expenditures by foreign tourists travelling on Emirates to Table 5-4: Traffic scenarios for Berlin and Stuttgart Table 5-5: Emirates expenditures for new services between Dubai and Stuttgart Table 5-6: Emirates expenditures for new services between Dubai and Berlin Table 5-7: Annual contribution of Emirates to the German aerospace industry Release: 1.00 Page 9

12 Executive Summary Since 1987, Emirates Airline has operated flights from Dubai to. As of December 2011, the Dubai-based carrier serves four points in (Frankfurt, Munich, Düsseldorf and Hamburg) with a total of nine daily passenger flights to and from Dubai. Additionally, Frankfurt and Düsseldorf are served regularly with freighters. The airline has contracted the Institute of at the German Aerospace Center (DLR) to examine the economic effects coming from the provision and use of existing passenger and cargo flights and the additional benefits that could be gained from potential new services to Berlin and Stuttgart. Currently, the bilateral air services agreement between the United Arab Emirates and allows Emirates to serve four points in with passenger flights. Furthermore, the analysis includes the impacts on the German economy due to Emirates orders for aircraft, engines, spare parts and maintenance services. Scope of the Study / Methodology In this study, the effects for the German economy have been analysed in the following areas: Connectivity impacts concerning airports that are currently being served by Emirates (pages 28ff.) Connectivity impacts resulting from potential new Emirates services from Dubai to Berlin and Stuttgart (pages 46ff.) Impacts of Emirates services on passenger flows, competing airlines and hubs (pages 67ff.) Direct, indirect and induced employment effects due to Emirates economic activity in connection with the operation of existing and potential new services (pages 83ff.) Direct, indirect and induced employment effects due to incoming tourists flying with Emirates to (pages 94ff.) Effects for shippers of air cargo concerning freight capacities and the accessibility of destinations (pages 103ff.) Direct, indirect and induced employment due to Emirates orders for new aircraft, engines, spare parts and maintenance services (pages 115ff.) The analysis of connectivity is based on schedules data for December Concerning the assessment of the impacts of Emirates services on passenger flows and capacity supply, data provided by Sabre Airport Data Intelligence, based on Market Information Data Tapes (MIDT) was analysed. Furthermore, data provided by the Official Airline Guide (OAG) on seat capacities and aircraft were used. Employment effects of Emirates activities in, coming from the provision of air transport services and from orders for aircraft, engines, spare parts and maintenance services were assessed by applying input-output analyses, which are based on input-output tables provided by the German Statistical Office and supplemented with data on expenditures provided by Emirates. The input-output methodology is well accepted for Release: 1.00 Page 10

13 impact assessments of the contribution of individual industries or activities to the economy and delivers sound and reliable results. For a qualitative assessment in areas where quantitative data was not available, stakeholder interviews with managers of tourism authorities, chambers of commerce and freight forwarders were conducted. Results The following paragraphs summarise the main findings of our investigation: Connectivity Impacts Secondary airports like Düsseldorf and Hamburg, which attract significant passenger volumes, but do not have a hub function improve their connectivity to the world regions Southern/East Africa, Asia, the Middle East and Southwest Pacific through Emirates services. The number of destinations that can be reached with a maximum of one intermediate stop or transfer increases. The number of flight segments required is reduced accordingly (pages 42ff.). Overall, this improves passenger comfort. The improvement, as measured by a specified connectivity indicator, can be as much as 12 % for Düsseldorf and Hamburg, when the 61 destinations served by Emirates in Southern/East Africa, Asia, the Middle East and Southwest Pacific are considered (pages 57ff.). Both passengers and shippers of air cargo benefit from dedicated capacities to Southern/East Africa, Asia, the Middle East and Southwest Pacific with better availability of seat and cargo capacities and more choice in departure times, frequencies, prices and transfer points. From the viewpoint of economic theory, Emirates displays a function as countervailing power against increased oligopolisation and monopolisation of markets through mergers and alliances. For, this applies particularly to the fortress hubs in Frankfurt and Munich, where Star Alliance has a share of 62 % and 65 %, respectively, in the number of seats offered on flights to Southern/East Africa, Asia and the Middle East. At the airports of Berlin and Stuttgart only very few intercontinental flights to Asia or the Middle East are offered, so passengers are required to transfer via a German or European hub for most trips, or to travel by car or train to nearby airports with a larger supply of long-haul flights. New Emirates services would broaden the choice in frequencies and enhance the accessibility of German regions. In Stuttgart, with a daily flight to Dubai, the number of weekly flight nonstop and onestop connections to the Eastern Hemisphere would increase by 14 %. In Berlin, a daily flight by Emirates would increase the number of connections to Southern/Eastern Africa, Asia, the Middle East and Southwest Pacific by almost 10 %. With a daily flight from Stuttgart and Berlin to Dubai, Emirates can generate 210 onestop connections per week in transfer window of up to 6 hours after arrival in Dubai. Release: 1.00 Page 11

14 In comparison, Qatar Airways generates currently only 66 weekly transfer connections from Stuttgart and 148 connections from Berlin via Doha. Impacts on Passenger Flows The analysis of passenger development shows that Emirates stimulates the demand for trips between and the Eastern Hemisphere. From this it can be concluded that passengers travelling on Emirates represent to a large extent additional demand, which has not been shifted away from other airlines or hubs. The number of transfer passengers travelling from Düsseldorf / Hamburg via Frankfurt and Munich remains constant or even grows, despite new or increasing competition from Emirates and other new entrants (pages 71ff.). The air transport market between and destinations in the Eastern Hemisphere (Southern and East Africa, Asia, the Middle East and South West Pacific) has grown by 30 % between 2005 and 2010 (+1.3 million passengers in absolute terms). Emirates market share increased in this period from 7.5 to 10.2 %, the market share of German carriers increased from 23 to 24.5 %. In the particularly important market -North Eastern Asia (1.4 million travellers in 2010; e.g. China, Japan and South Korea), Emirates market share is lowest with 3.5 %. Emirates market share is highest between and the South West Pacific region with 20 %. In this market, no German airlines operate. From a growing demand in air travel between and the Eastern Hemisphere many airlines benefit. Emirates share in the overall growth between 2005 and 2010 is +250,000 passengers, while Lufthansa s passenger numbers increased by +220,000, followed by Turkish Airlines and Air Berlin with +116,000 each (pages 69ff.). Even in markets particularly exposed to competition with new entrants, like Middle East and India, market leader Lufthansa has continued to grow substantially in terms of seat capacities offered (from 134,000 to 217,000 per month between 2003 and 2011) and also destinations offered (from 15 to 21 between 2003 and 2011, pages 77ff.). Based on the market analyses, we form the hypothesis that different market segments have evolved over the past years. On the one hand, time-sensitive travellers from Frankfurt and Munich continue to fly on non-stop services to Asia and passengers from secondary airports in continue to use connections via Frankfurt and Munich, which often have the shortest travel times compared to competing transfer itineraries. On the other hand, price-sensitive passengers prefer the offers of new entrants, with slightly longer travel times, but a competitive offer concerning value for money. As the route networks of Emirates and Qatar Airways are overlapping to a large extent and similar travel times on many origin-destination pairs are offered, it can be expected that competition will be much stronger between the two Gulf carriers than between Emirates and Lufthansa, once Emirates would start operations in Berlin and Stuttgart. Moreover, Emirates daily non-stop services with wide-body jets from Berlin and Stuttgart to Dubai, would be more attractive from passengers point view compared to Qatar Airways three-weekly service from Stuttgart to Doha and daily service with Release: 1.00 Page 12

15 narrow-body jets from Berlin to Doha. This limitation in the number of seats impedes the ability to stimulate traffic and hence for instance to stimulate incoming tourism. Overall, the growth of airlines like Emirates has not led to a reduction of existing nonstop / direct services of German carriers. On the contrary, the accessibility of has improved due to the new offers. Impacts of Emirates economic activity in In fiscal year 2010/11, Emirates spent million in for salaries of its employees and the purchase of goods and services required to operate passenger and cargo flights (pages 87ff.). In our definition, Emirates staff is defined as direct employment, while persons employed with suppliers delivering inputs to Emirates (e.g. ground handlers, crew hotels, fuel suppliers) are counted as indirect employees. This includes the full chain of inputs. Input-output analyses show, that besides 169 employees directly employed with Emirates, 2,271 indirect jobs are created both through Emirates expenditures e.g. for ground handling, catering, crew accommodation and airport charges, as well as through the expenditures of Emirates passengers (e.g. at airport retailing, parking and restaurants) and through the provision of public services (customs, border control). Moreover, through consumption expenditures of persons directly and indirectly employed, 712 jobs are induced. According to these results, the activities of Emirates for the provision of air transport services create in total approximately 3,200 direct, indirect and induced jobs across different industries and different skill levels. We have also applied an alternative methodology as found in the literature on economic impacts of aviation, using the relation between employment at airports and passenger/cargo traffic. This methodology results in about 3,600 direct, indirect and induced jobs (pages 90ff.). Impacts on Incoming Tourism Interviews in the tourism industry have confirmed that the regional availability of direct long-haul flights is a key factor to increase the attractiveness of a city or region for incoming tourists from Asia and the Middle East (pages 94ff.). On average, every additional arriving passenger increases the number of overnight stays of foreign tourists in by 0.8. Therefore, it is estimated that Emirates accounted for approximately 485,000 overnight stays by foreign tourists in 2010 (pages 95ff.). Expenditures of foreign tourists coming on Emirates to are approximately 76 million, creating almost 2,600 direct, indirect and induced jobs (pages 102ff.). The German National Tourist Board expects that incoming travellers from the Middle East region will become the second largest group of non-european travellers (estimation of 2.3 million nights in 2020) after those from the US (estimation of 5.9 million nights in 2020), when measured by the number of nights spent in. Release: 1.00 Page 13

16 This can be regarded as an indication also for further growth potentials for air transport between and the Middle East. The growth of incoming tourism from the Middle East is even more remarkable, when taking into account the relatively small population size of 39.2 million inhabitants. Based on the expected number of nights to be spent in per inhabitant, the propensity of Middle Easterners to travel to (58.7 overnight stays per thousand inhabitants) is about 35 times the one of the Chinese (1.6 overnight stays per thousand inhabitants), 3.2 times the one of the Americans (18.6 overnight stays per thousand inhabitants) and 2.3 times the propensity to travel of the Australians (25.7 overnight stays per thousand inhabitants, pages 96ff.). In order to guarantee the long-term attractiveness of for foreign tourists, availability of flights and low air fares are particularly important. Impacts of potential new services to additional points in Each additional flight to will create approximately 140,000 additional passengers for the respective airport, where such a flight will be operated (pages 112ff.). Each additional flight to will create about 200 direct, indirect and induced jobs from aviation-related activities (pages 113ff.). Each new Emirates flight will potentially increase incoming tourism by about 55,000 overnight stays. The expenditures related to this increase in incoming tourism amount to about 8.3 million annually, creating approximately 280 direct, indirect and induced jobs. With two daily flights, for each destination the number of additional passengers increases to about 360,000, the number of jobs to 440 and the number of overnight stays to 144,000. This incoming tourism effect creates approximately 730 additional jobs. Switching from any of the four points currently served to new points does not create any additional benefits for the German economy. With traffic rights for additional points to be served by Emirates, s overall global competitiveness for business relations, exports and incoming tourism will be improved. Impacts on the German aeronautical industry Emirates is one of the main customers of the German aeronautical industry. Between 1985 and 2011 Emirates took delivery of 84 Airbus aircraft, of which 65 were in service at the end of December 2011 (including 20 Airbus A380 valued at more than US$7 billion at list prices). As of December 2011, the carrier has 140 firm orders for Airbus aircraft to be delivered over the next 10 years ( ), with a contract value at list prices of US-$ 54.7 billion ( 41.4 billion; including spare parts and spare engines). Without considering investments in engines, the share for Airbus and German suppliers exceeds 10 billion. In total, this will protect and create more than Release: 1.00 Page 14

17 9,400 jobs at Airbus, its suppliers and through the consumption expenditures of employees (page 118). Emirates decision to equip its fleet of 90 Airbus A380 aircraft with Engine Alliance engines, in which German manufacturer MTU has a share of 22.5 % in development and production, has created almost 600 direct, indirect and induced jobs in. For the operation of its current fleet, Emirates spends annually almost 280 million with German suppliers of cabin interiors, ground support equipment, spare parts and repair services. These expenditures create more than 2,500 direct, indirect and induced jobs in. The total employment effect in the aeronautical industry, for its suppliers and through the spending of income of persons directly or indirectly employed in this industry exceeds 12,500 full time jobs. Our analysis does not include effects coming from deliveries of the German industry to Boeing, where Emirates has 97 aircraft on firm order. Boeing did not provide any information on the German content of Boeing aircraft. However, based on the list prices of the aircraft ordered by Emirates, we estimate that every percentage point of German participation in Boeing s aircraft programs creates 200 direct, indirect and induced jobs in. With total revenues in the order of 25 billion in the German aerospace industry Emirates would account for about 4 % of these revenues over the next 10 years. Release: 1.00 Page 15

18 Conclusion The study finds that more than 18,000 jobs in are dependent on the economic activities of Emirates. The total of direct expenditures by Emirates and indirect expenditures by incoming tourists travelling on Emirates exceed 1.6 billion per year. When two additional points in (Berlin and Stuttgart) would be allowed to be served on a daily basis, we expect an additional contribution of close to 1000 jobs through the aviation-related activities and incoming tourism. If both destinations were served twice daily, more than 2000 new jobs would be created. The following tables summarise the findings concerning expenditures and related employment effects: Scenario 1 one daily flight to Berlin and Stuttgart Existing flights + Employment Existing flights one additional daily flight to BER and Change STR each Provision of air services 3,152 3, % Incoming tourism 2,583 3, % Industry 12,558 -/- Total 18,293 19, % Expenditures Existing flights Existing flights + one additional daily flight to BER and Change STR each Provision of air services million million % Incoming tourism 76 million 92.6 million % Industry 1,399.9 million -/- Total 1,679.2 million 1,726.1 million % Scenario 2 two daily flights to Berlin and Stuttgart Employment Existing flights Existing flights + two additional daily flights to BER and Change STR each Provision of air services 3,152 4, % Incoming tourism 2,583 4, % Industry 12,558 -/- Total 18,293 20, % Release: 1.00 Page 16

19 Expenditures Existing flights Existing flights + two additional daily flights to BER and Change STR each Provision of air services million million % Incoming tourism 76 million million % Industry 1,399.9 million -/- Total 1,679.2 million 1,788.2 million % The example of Emirates shows that benefits from air transport liberalisation twofold: On the one hand through the economic effects of additional flights and on the other hand through the employment effects in the aeronautical industry due to the large number of aircraft. From the analyses and the data shown in this report, a further liberalisation of aviation markets with third countries is likely to be beneficial for a wide range of stakeholders, such as for employees being hired to handle additional traffic, for s airports, for the aeronautical industry, for shippers of air cargo and last but not least for passengers, who benefit from competitive prices, larger capacities and better connectivity. Overall, the analyses show that the German economy significantly benefits from the activities of Emirates in. Moreover, it has been shown that the economic benefits can be further increased when flights to additional German airports will be offered. Release: 1.00 Page 17

20 1 Introduction In recent years Emirates has grown considerably. Via the airline s hub in Dubai, Emirates provides connectivity to 103 destinations (as of December 2011) on all continents. Emirates growth trend is also reflected in the German market, despite limitations in traffic rights. From, Emirates has become the second largest carrier after Lufthansa in the supply of seats on long-haul flights to destinations in Southern/East Africa, Asia and the Middle East. Passengers can reach a total of 61 destinations in Southern/East Africa, Asia, the Middle East and the South West Pacific with Emirates from any one of the four airports in currently served. These destinations include Dubai as non-stop destination, 57 destinations to be reached with one transfer in Dubai and three destinations (Auckland, Christchurch and Entebbe/Kampala) with additional stops on the flight from Dubai. These numbers underline the importance of Emirates for the German air transport market, in terms of destinations served and seat capacity provided. Moreover, Emirates is an important customer to both Airbus and Boeing, as it operates a quickly growing fleet of long-haul widebody aircraft. The German industry has significant shares in both Airbus and Boeing commercial aircraft projects and delivers spare parts, aviation equipment and services to Emirates. In this study, the DLR Institute of undertakes research to quantify the effects generated for the German economy by passenger and cargo services operated by Emirates to and from, as well as the effects for the German aerospace industry, resulting from orders for aircraft, engines, components, spare parts and equipment. The geographical scope of the analysis is on the one hand in its entirety and, on the other hand, a particular focus is laid on the situation of Berlin and Stuttgart, where Emirates intends to offer new services. Emirates is currently constrained by the bilateral air services agreement between and the United Arab Emirates, as no passenger services to these cities can be established without giving up services to existing destinations. With passenger services, Emirates is permitted to serve four airports in and currently operates to Frankfurt, Munich, Düsseldorf and Hamburg. In this study, the effects for the German economy have been analysed in the following areas: Effects for passengers due to increased choice in the number of destinations, seat capacity, services, frequencies and increased competition between airlines Effects for shippers of air cargo due to an increase in freight capacities Effects for the aeronautical industry (employment, revenues) Effects on the tourism sector in The document is structured as follows: In the first part, a brief overview of Emirates in general and its activities in will be given. In the second part, the connectivity of in general, and Berlin and Stuttgart in particular, to the air transport system is analysed and the contribution of Emirates is shown. This analysis is based on flight schedules data for December Release: 1.00 Page 18

21 In the third part, impacts of Emirates services on passenger flows between and Africa, Asia and South West Pacific are analysed. This analysis is based on data provided by the German Statistical Office and Sabre Airport Data Intelligence. Sabre s Airport Data Intelligence information is based on bookings collected by the computer reservation systems (commonly known as market information data tapes/midt), but is further processed to account for airline direct sales not processed via CRS. To account for these effects, additional data sources, e.g. data from statistical offices, is used. The fourth area of the study deals with the impacts of Emirates on the German economy. This analysis is structured in two parts: On the one hand the effects coming from air services with regard to tourism, business travellers and air cargo are individually assessed. This part of the analysis will be conducted for the German economy in total, supplemented by estimations of the regional economic effects coming from potential future services to Berlin and Stuttgart. On the other hand the economic impacts of Emirates orders for aircraft, engines, spare parts, services and equipment for the German aerospace industry are analysed. Both the effects from air services as well as the purchase of aircraft, equipment and services from the German industry are investigated from a macroeconomic perspective, showing the employment generated by Emirates in, the contribution to the economy in terms of gross value added and the revenues of tax authorities and social security. The study concludes with a discussion on the benefits for with the liberalisation of air services agreements in general and the benefits of Emirates services to passengers, summarising the findings of the previous chapters. Release: 1.00 Page 19

22 2 Overview The Emirates business model and Emirates current activities in The growth strategy of Emirates is embedded in an overall plan for the economic development of Dubai. Dubai has become a role model for an Aerotropolis, a city which is located at a global hub that facilitates the exchange of people, goods and ideas (Kasarda/Lindsay, 2011). The economic policy of the emirate is focussed on the improvement of infrastructure, attracting foreign investment and highly skilled labour, for which the place is attractive due to its global connectivity and open immigration rules. In recent years, other airlines like Qatar Airways and Etihad Airways, but also Star Alliance member Turkish Airlines, are following Emirates business model of developing networks with global connectivity and a particular focus on traffic flows between Europe, Asia and Africa. The economic benefits of the aviation hub in Dubai are estimated by the Oxford Economics study (June 2011). It is estimated that aviation-related jobs account for about 19 % of total employment in Dubai and for about 28 % of Dubai s GDP. The total of 259,000 jobs related to aviation in Dubai splits into 58,000 persons directly employed in aviation-related businesses and 43,000 jobs created with companies delivering inputs to the aviation sector. A further 23,900 jobs are created as induced employment resulting from the spending of persons directly or indirectly employed in aviation. In addition to this, the tourism sector in Dubai benefits strongly from the improved connectivity provided by air services. The authors found that the employment effects in this area reach almost 134,000 jobs. Through the creation of a platform for global connectivity, benefits are not only created for the hub, but also for each spoke connected to each other point in the network. As of December 2011, 103 destinations were served with passenger flights. Including destinations only served by freighters, the number of points in the Emirates network increases to 116 on all continents. A multitude of aspects contributes to the success of Emirates, as shown by O Connell (2009). A key component in the success of the business model of Emirates is the geographic location of its hub in Dubai, roughly in the centre of the triangle London-Johannesburg- Tokyo, which allows serving a large number of intercontinental city pairs between Africa, Asia, Europe and the Middle East. In developing its network, Emirates follows the approach to connect primary and secondary airports in Europe via its hub in Dubai with primary and secondary airports in Africa, Asia and South West Pacific. This allows passengers from secondary airports in Europe to reach secondary airports in the Eastern Hemisphere with only one transfer, while itineraries with competing carriers often require at least two transfers (Brützel, 2006). This network structure is called secondary-hub-secondary in the literature, compared to the secondary-hub-hubsecondary network structure of competing airlines and alliances. From the passenger s perspective, the secondary-hub-secondary strategy offers benefits as one additional transfer can be avoided. The following figure shows the effect for the example of an itinerary from Hamburg to Perth in Australia. With Emirates, the itinerary has one transfer at the airline s hub in Dubai. Lufthansa offers for instance a routing via the hubs in Frankfurt and Singapore, oneworld via London-Heathrow and Singapore and SkyTeam via Amsterdam and Kuala Lumpur. Release: 1.00 Page 20

23 From this strategy various airports can take advantage, which formerly had no or only very few intercontinental flights, for instance Glasgow and Newcastle in the United Kingdom, Perth and Brisbane in Australia or Hamburg and Düsseldorf in. Figure 2-1: Comparison of itinerary between two secondary airports with Emirates and competing airlines / alliances Source: DLR. In its business model, Emirates benefits from various cost advantages. Concerning flight operations cost savings can be achieved due to the following effects: In the operation of wide-body passenger jets, fuel consumption per aircraft-kilometre flown initially decreases with longer flying distance, as the energy-intensive take-off and climb phase spreads over larger flying distances. However, fuel consumption per kilometre flown increases again at some point with increasing distances, as fuel to be burnt at later stages of flight has to be carried over long distances. Modern passenger jets, such as the Boeing 777 or Airbus A330 have their minimum fuel consumption per kilometre flown at distances between 3,000 and 6,000 km (Egelhofer et al. 2008), which are typical for Emirates operations between Dubai and Europe or South East Asia (see Figure 2-2). Release: 1.00 Page 21

24 Figure 2-2: Specific fuel consumption in kg per aircraft-kilometre flown Specific fuel consumption in kg/km Frankfurt-Dubai Frankfurt-Singapore Dubai-Singapore Source: Based on Egelhofer et al. (2008). Distance in km Therefore, a cost advantage is achieved over competitors, which operate non-stop (e.g. between Europe and South East Asia) with flight stages of 8,000 to 10,000 km. This relationship is shown in Figure 2-2. The unlimited operating hours of the airport in Dubai can be regarded as one element for the improvement of efficiency, too, as aircraft are not held artificially on the ground at the carrier s main hub. Contributing to Emirates increasing success is a strong brand image. Emirates relies to a large extent on sponsorship of sports teams and events, as shown by O Connell (2009). In, Emirates has increased its popularity through the support of the World Cup 2006 and as main sponsor of the Hamburger SV football team. The positive brand perception of passengers is also reflected in the results of Emirates inflight passenger survey for flights between and Dubai, where the reputation of the carrier and the perceived value for money are among the four most often mentioned reasons for choosing Emirates. Due to its ambitious growth strategy, it has achieved considerable volume discounts in its aircraft orders. From the high number of orders, like for the Airbus A380 or Airbus A350, not only Emirates benefits, but positive spill-over effects extend to other airlines buying the same types. With more orders, Airbus can distribute the development costs over a higher number of aircraft, leading to smaller development costs per aircraft delivered. Moreover, with larger quantities produced, economies of scale in purchasing and production can be realised, which are partly passed through to the airlines. Additionally, Emirates fleet decisions have a signalling effect for other airlines, which potentially has a positive effect on the manufacturers sales success. Also the resale value of aircraft potentially increases with the number of aircraft produced, as types become more common. This should be applicable particularly for the Airbus A380 with Engine Allliance engines, of which Emirates has ordered 90 units, while other carriers have only ordered 35 of this variant. Release: 1.00 Page 22

25 Like other airlines in emerging economies, such as in Singapore or in Turkey, Emirates can benefit from relatively lower wage levels for less skilled workers (e.g. employees in ground handling at the hub in Dubai) compared to incumbents in Europe. Lower tax rates make the UAE attractive for highly skilled labour (e.g. cockpit crews, engineers and management), for which a global market has developed. However, while not being obliged to contribute to mandatory social security systems as in Europe, Emirates provides healthcare, housing and children s education for management, pilots, engineers and other staff voluntarily to improve the attractiveness of Dubai. The costs incurred with these services exceed US-$ 500 million annually. The above mentioned factors concerning network structure, flight operations and locationspecific advantages contribute to comparably lower production costs, but are mostly not specific to the UAE, as they can also be found in other emerging economies. The following figure provides an overview of production costs (costs per available seat kilometre) for a number of airlines operating in the Asia-Europe long-haul market. Figure 2-3: Comparison of operating costs for selected airlines Source: Oxford Economics (2011). From an economists perspective, Emirates exploits a classical Ricardian comparative advantage in the services industry, pretty much the same way as consumer electronics are produced in China or textiles in Bangladesh, for the advantage of both the exporting and the importing country. The benefits from the international division of labour in the production and trading of goods are widely undisputed. Emirates has a long-standing relationship with. It started services to Frankfurt on 31 st July 1987 and will therefore celebrate its 25 th anniversary in The second destination Munich was added on 1 st November 1999, followed by Düsseldorf on 27 th March Hamburg, the fourth destination, was added starting on 1 st March Additionally, freighters are operated to and from the airports in Düsseldorf, Frankfurt and Hahn. The bilateral air services agreement between and the UAE allows Emirates to operate cargo-only flights to more airports than the four available airports for passenger services. Figure 2-4 shows the development of Emirates frequencies from German airports. Both Frankfurt and Munich started with seven flights per week, which increased to 14 flights per week in In Düsseldorf frequencies were increased to double daily in In Hamburg, Emirates started with a daily flight from Dubai, which was extended in October 2006 to New Release: 1.00 Page 23

26 York, but discontinued in In September 2011, Hamburg received a second and in December 2011 Frankfurt received a third daily frequency to Dubai. In Munich, one daily flight is operated by an Airbus A380. Figure 2-4: Development of Emirates frequencies from German airports Source: Own illustration based on data by OAG. Over time, services to all German destinations were increased, both in the number of frequencies as well as aircraft sizes. This reflects the growing demand for air travel between and the regions served by Emirates in Asia and the Middle East. The operational scheme from German airports as of December 2011 is shown in the following table. Release: 1.00 Page 24

27 Table 2-1: Emirates operations in as of December 2011 Airport Monthly Frequency (Departures) Aircraft Type Monthly seat capacity (upon departure) Monthly cargo capacity (in t upon departure) 44 Airbus A Düsseldorf 18 Boeing Boeing F** Frankfurt Hahn* 5 Boeing F** Frankfurt Rhein Main Int`l Hamburg Munich 31 Airbus A Boeing ER Boeing F** Boeing ER Boeing ER Airbus A Airbus A Source: Own representation based on data by OAG and Emirates SkyCargo. *) Cargo traffic rights only **) Freighter operations The following figure shows the development of passengers flown on Emirates flights between Dubai and (both directions) for the time frame The steady growth underlines the resilience of Emirates business model, even during the difficult years after the terrorist attacks in September 2001 and the global financial crisis after 2008, which has had serious impacts on passenger demand with regard to other airlines. The year 2011 saw a small decline of the passenger numbers. For 2012, however, another increase can be expected as capacities on some routes have been increased in winter 2011/2012. Release: 1.00 Page 25

28 Figure 2-5: Development of Emirates passengers on flights between and Dubai (and vice versa) Source: Own representation based on data by Emirates. In line with passenger growth, Emirates has achieved a positive recognition of its brand. The carrier s inflight passenger survey reveals that more than 60 % of passengers on flights to and from have flown on Emirates repeatedly. Primary reasons for customers to choose Emirates are the experiences made with the carrier before, the reputation and the value for money. Release: 1.00 Page 26

29 3 Analysis of the effects of connectivity to the international aviation network due to Emirates presence in 3.1 The importance of connectivity In developed economies the division of labour, and therefore a spatial separation in the value chain of nearly every good or service is a fact. This international system increasingly develops the need for international business contacts or the founding of international branches and subsidiaries and other aspects of trade. Economic development in a global economy is intertwined with growth of external trade making worldwide mobility a necessity. Moreover, there can be a substantial separation of working and living, if only at times, as well as living and leisure. Therefore, connectivity to the global aviation network is a key factor to the competitiveness of cities, regions and countries. Numerous studies (e.g. Button/Taylor, 2000; Santin, 2000; Harsche et al., 2008) have shown that accessibility by air transport has a wide range of regional economic effects, including an increase in foreign direct investment, job creation and an increase in incoming tourism. The existence of air services to a wide range of destinations and at affordable prices increases the attractiveness of locations for businesses and is an essential feature in the current economy that is based on global logistics chains, connections and speed. Therefore, an increase in air services with more destinations and frequencies is an effective measure to stimulate the economy and to participate in the globalisation process. On a regional level, in the catalogue of hard locational factors, the quality of the transport system is an additional criterion in the interregional competition of economic development (Santin, 2001). Thus, the economic development of a region is supported when the local industry appreciates and utilises the connection to a high quality transport network. Key elements for local businesses are time- and cost advantages creating improved possibilities to access international markets and strengthen business contacts (Santin, 2001). With increasingly global business ties, the network structure of the local air transport link is an important factor in this regard. Thus, a broad network and a high degree of accessibility of national, international and intercontinental destinations will increase the airport s attractiveness for the local economy. In this regard it is noteworthy that a higher level of economic capacity in the destination regions would benefit the local economy better. The linking of places of production and the marketplace is especially important concerning cargo traffic. Other criteria concerning economic impact for the region refer to the frequency of flight connections and the overall number of available seats. A high number of connections are desirable for flexible planning and short notice decisions on the sides of industry as they reduce schedule delay and associated costs. Finally, the number of available seats is an important measure to rate the overall impact of additional flights from the passenger perspective. Higher capacities give more people the opportunity to benefit from air transport and contribute to decreasing fares, allowing also passengers with a lower willingness to pay to fly. The supply of transport services is of importance for the region and the airport itself. The airport can increase its attractiveness by holding a sufficient supply of transport services and this way it can generate higher revenues through fees and income from non-aviation sources. In this regard international and intercontinental connections are of special interest Release: 1.00 Page 27

30 since larger aircraft generate higher fees and carry more passengers that spend more time and money at the airport (Doganis, 1992). Furthermore, an increased number of larger aircraft is especially important for capacity constrained airports like Düsseldorf, at which growth through an increase in the number of flights is hardly possible. Carriers with larger aircraft therefore contribute to a better use of a public infrastructure, which increases social welfare. Therefore, local economies can, to a large extent, benefit from the installation or expansion of intercontinental flight connections as Santin (2001) has illustrated. Thus the accessibility to the air transport network and an efficient international traffic structure is an important locational factor. 3.2 Connectivity for The following chapter will analyse the connectivity of to the international air transport system, with a special focus on the contribution of Emirates to the accessibility of destinations in Africa, Asia and South West Pacific. For the analysis of the integration of into the global air transport network and the role of Emirates we have used the following approach: First, we have identified the relevant market regions to which Emirates provides connectivity from. Based on data provided by Sabre ADI, in 2010, more than 50 % of origindestination passengers travelling on Emirates flights from were flying to destinations in Asia, followed by 32 % flying to the Middle East countries and 9 % flying to Southern or East Africa and South West Pacific respectively. All other world regions (West Africa, the Americas, Europe) account for only 0.3 % of all Emirates passengers on flights from. Figure 3-1: Destination regions of origin-destination passengers on Emirates flights from Source: Own representation based on Sabre ADI; Emirates online connections (defined below) only. Release: 1.00 Page 28

31 Although it is theoretically possible to fly with Emirates from via Dubai to South America, this itinerary is rarely chosen in reality, due to the increased travel time and detour factor involved compared to non-stop flights or transfer flights via hubs which are closer between and the destination regions. Therefore, our analysis of connectivity is focussed on the following world regions and countries, which are considered as relevant in the course of this study: Southern Africa (e.g. Angola and South Africa) East Africa (e.g. Ethiopia, Kenya, Tanzania, Mauritius and Seychelles) South Asia (e.g. Bangladesh, India, Pakistan and Sri Lanka) South East Asia (e.g. Indonesia, Malaysia, Singapore and Thailand) North East Asia (e.g. China, Japan and South Korea, excluding Russia) Middle East (e.g. Iran, Kuwait, Saudi Arabia and the UAE) South West Pacific (e.g. Australia and New Zealand) For these markets, Emirates provides connectivity for travellers to and from. Subsequently, when we mention in this study the terms Eastern Hemisphere or Africa, Asia and South West Pacific, we refer to the geographical regions defined above. The following figure provides an overview on the regions and countries involved. 1 Figure 3-2: World regions to which Emirates provides connectivity for Source: Own representation based on data by Emirates and Sabre ADI. In a second step, we have used Official Airline Guide (OAG) schedules data for the month of December 2011 to analyse the number of destinations served from non-stop, with one stop or with more than one stop. This analysis includes a discussion of the contribution 1 An overview of the countries assigned to each world region can be found in the annex of this report Release: 1.00 Page 29

32 of Emirates services from to the connectivity to the airports in the regions under consideration. In total, OAG reports 1,292 airports with scheduled passenger services in the geographical area defined above in December In our methodology, transfer itineraries will only be considered when both segments are operated by the same carrier (subsequently defined as online connection, or abbreviated O-O, showing that both flight segments in a one-stop itinerary are operated by the same carrier), or when both flight segments bear the flight number of one carrier, but one segment is operated by another carrier ( codeshare connection, subsequently abbreviated as N-O or O-N, showing that an operated and non-operated flight segment are combined for an itinerary). An example for an online connection is, for instance, a flight with Emirates from Hamburg to Dubai, which connects to another Emirates flight from Dubai to Bangkok. An example for a codeshare connection is for instance a Lufthansa operated flight from Frankfurt to Singapore, with a connection to a flight from Singapore to Sydney operated by Singapore Airlines under the code of Lufthansa. Theoretically, under the IATA interlining system, it is possible to combine any IATA airlines for a transfer itinerary. However, this system has become less relevant for passengers due to codesharing and airline alliances. IATA interlining typically involves relatively high fares, therefore being less attractive for travellers than code-share connections, where airlines often offer through fares and optimised connections. Thus, our analysis includes only online and code-share connections. Release: 1.00 Page 30

33 3.2.1 Non-stop connectivity In December 2011, a total of 54 destinations in the geographical region defined above were served from with non-stop flights. Lufthansa serves 33 destinations non-stop from, Air Berlin including its codeshare partners (Hainan Airlines and Royal Jordanian) 10. Figure 3-3: Non-stop destinations in the Eastern Hemisphere served by all airlines from in December 2011 Source: Own representation based on data by OAG. Release: 1.00 Page 31

34 Figure 3-4: Overview of destinations in Africa, Asia, Middle East and South West Pacific served non-stop from in December 2011 Source: Own representation based on data by OAG. While Emirates serves only a single destination (Dubai) among the 54 from in total, the share in number of seats offered is substantially higher. Actually, Emirates has become the second largest carrier operating from measured by the number of seats on long-haul flights to the Eastern Hemisphere. Release: 1.00 Page 32

35 Figure 3-5: Number of seats provided on non-stop flights and frequencies to destinations in Africa, Asia, Middle East and South West Pacific served non-stop from in December 2011 Source: Own representation based on data by OAG. This is due to Emirates strategy providing long-haul flights not only to the hubs Frankfurt and Munich, but unlike many other carriers, also to secondary airports in Düsseldorf and Hamburg, with currently two daily frequencies each. Generally, the supply of long-haul flights in is strongly concentrated on the hubs Frankfurt and Munich, while the secondary airports struggle to attract long-haul flights. Even the larger metropolitan areas in, such as Berlin, Düsseldorf or Hamburg have only a few intercontinental flights. The existing long-haul flights out of secondary airports in are to a large extent bound for North America and the Caribbean, with only rare examples of flights to Asia or the Middle East. In this regard, Emirates is an important airline for secondary airports not only in, but also in other European countries, providing at least daily long-haul flights to Dubai with subsequent onward connectivity Connectivity for itineraries with one stop / transfer When itineraries with one stop or transfer are considered, 429 destinations (out of the total of 1292 airports in the region) in the Eastern Hemisphere can be reached from (see Figure 3-6). This number of destinations can be reached when all available online or codeshare connections of all carriers serving are taken into account. Among the global alliances, Star Alliance provides the highest number of destinations from, with 240 destinations that can be reached with one transfer, followed by SkyTeam with 147 and oneworld with 78 destinations. If only online connections by individual carriers are looked at, Emirates provides more destinations than Lufthansa (57 vs. 40). However, if Lufthansa s Release: 1.00 Page 33

36 destinations served with codeshare services are also considered, the number of destinations increases to 89. Air Berlin, as second largest German airline, serves 8 destinations in the Eastern Hemisphere, and 15, respectively, including code-sharing partners. As the analysis is based on schedules data for December 2011, Air Berlin s new cooperation with Etihad Airways is not yet included. As a result of this cooperation, Air Berlin has started services from Berlin to Abu Dhabi in January with onward connections to 45 destinations in Southern/East Africa, Asia, the Middle East and South West Pacific currently served by Etihad. In consequence, the long-haul route network of Air Berlin has been restructured, with a discontinuation of non-stop-flights to a number of destinations (e.g. Dubai, Bangkok and Phuket). Three more destinations can be reached with Emirates from with one transfer, however, with additional stops on the flights from Dubai to the final destination: Entebbe/Kampala in Uganda with a stop in Addis Ababa, Auckland with stops in Sydney, Brisbane or Melbourne and Christchurch with stops in Bangkok and Sydney. In the shortterm, passengers from can benefit from extensions in Emirates route network, as Entebbe/Kampala is now served non-stop from Dubai starting 25 th March From June 2012, Emirates will open a new route from Dubai to Ho Chi Minh City in Vietnam, providing a further destination in an emerging economy in Asia. Additionally, Emirates has code-share agreements in place with Japan Airlines, which extend the route network with connections from Osaka to Sapporo and Tokyo-Haneda and Fukuoka, served from Tokyo-Narita. However, these services are only rarely used by travellers from. Other codesharing partners of Emirates are Jet Airways and Oman Air, as well as Star Alliance member Thai Airways and SkyTeam member Korean Air. These services, however, are operated to destinations only, which are also served by Emirates own aircraft and therefore do not contribute additional destinations to the network. Emirates also has non-reciprocal codeshare agreements in place on Emirates-operated flights, for instance with Air Malta, Air Mauritius, Philippine Airlines and Star Alliance member South African Airways. Release: 1.00 Page 34

37 Figure 3-6: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from with one stop/transfer in December 2011 Source: Own representation based on data by OAG. O-O both segments operated by the respective airline N-O first segment codeshare flight, second segment operated by the respective airline O-N - first segment operated by the respective airline, second segment codeshare flight Connectivity to the 100 largest airports in the Eastern Hemisphere While in the preceding chapter the connectivity to all airports in the Eastern Hemisphere has been analysed, this chapter shows the connectivity of to the 100 largest airports in Southern/East Africa, Asia, Middle East and South West Pacific. The size of an airport, here, measured in the numbers of seats offered on departing flights in December 2011, can be seen as a proxy for the importance of the respective city or region as a business and tourist destination. Therefore, this analysis is more focussed on the actual centres of gravity in economic importance and passenger demand. As can be seen in Figure 3-7, among the 100 largest airports in the Eastern Hemisphere, 39 are connected with non-stop flights to. 30 of the 100 largest airports can be reached with Star Alliance carriers, while the oneworld and SkyTeam alliances provide nonstop connectivity to only six destinations each. Lufthansa alone serves 29 of the 100 largest airports with non-stop flights. Release: 1.00 Page 35

38 Figure 3-7: Overview of non-stop services from to the 100 largest airports in Africa, Asia, Middle East and South West Pacific in December 2011 Source: Own representation based on data by OAG. From, 96 of the 100 largest airports can be reached with one transfer when all online and code-share connections are taken into account (see Figure 3-8). Star Alliance alone provides connectivity to all 96 destinations, while oneworld and SkyTeam both serve 74 destinations. Lufthansa, without taking into account their codesharing partners, offers 35 destinations, while Emirates serves 40 of the 100 largest airports in Africa, Asia and the South West Pacific. Lufthansa increases the route network, when their code-sharing partners are also taken into account, to 58 of the 100 largest airports. Release: 1.00 Page 36

39 Figure 3-8: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from with one stop/transfer in December 2011 Source: Own representation based on data by OAG. O-O both segments operated by the respective airline N-O first segment codeshare flight, second segment operated by the respective airline O-N - first segment operated by the respective airline, second segment codeshare flight Comparison of the route networks of Emirates and Lufthansa When comparing the network of Emirates and Lufthansa, we can observe both overlaps and complementarities. Lufthansa serves 40 destinations in Southern/East Africa, Asia and the Middle East. Out of these 40 destinations, 9 are not served by Emirates. Out of the 61 destinations served by Emirates, 30 are not served by Lufthansa. 31 destinations are served both by Lufthansa and by Emirates. The following Figure 3-9 shows in detail the airports served by Emirates and Lufthansa. Figure 3-10 displays the geographic location of the destinations discussed in this paragraph. Release: 1.00 Page 37

40 Figure 3-9: List of complementary and overlapping destinations of Emirates and Lufthansa in the Eastern Hemisphere *) Ho Chi Minh City will be served by Emirates from 4th June 2012 Source: Own representation based on data by OAG. Figure 3-10: Map of complementary and overlapping destinations of Emirates and Lufthansa in the Eastern Hemisphere Source: Own representation based on data by OAG. Release: 1.00 Page 38

41 The following table shows in detail the monthly frequencies and seat capacities of Lufthansa and Emirates in a direct comparison. Thirty destinations, which are not served by Lufthansa, can be reached from via Dubai on direct flights offered by Emirates. Among the destinations in the focus of Emirates route network are cities in India (e.g. Ahmedabad, Kozhikode, Kochi, Hyderabad or Thiruvananthapuram), which are served at least once daily from Dubai, but have no direct services from. Additionally, many destinations, which can be reached with Lufthansa between twice weekly and daily, can be reached with Emirates on a twice daily basis, thus providing more flight options to passengers. Among the destinations where Emirates provides more frequent services than Lufthansa are Kuala Lumpur (three times daily out of Dubai compared to 4 weekly flights by Lufthansa from ), Guangzhou (daily from Dubai compared to twice weekly from Frankfurt) and Jakarta (twice daily from Dubai compared to 6 weekly flights from Frankfurt). There are, however, also 9 destinations which can be reached from on Lufthansa-operated flights, which are not served by Emirates. Table 3-1: Comparison of frequencies and capacities to African, Asian and Pacific destinations on direct flights* of Lufthansa from with direct flights of Emirates from Dubai in December 2011 Lufthansa Emirates Airport Name IATA- Code Monthly Frequencies on direct flights from Monthly Seats on direct flights from Monthly Frequencies on direct flights from Dubai Monthly Seats on direct flights from Dubai Tel Aviv TLV Mumbai BOM Delhi DEL Dubai International DXB ** 90251** Tokyo Narita Apt NRT Shanghai Pudong International Apt PVG Singapore Changi Apt SIN Hong Kong International Apt HKG Seoul Incheon International Airport ICN Beijing Capital Apt PEK Riyadh RUH Jeddah JED Beirut BEY Abu Dhabi International Apt AUH Bangkok Suvarnabhumi Apt BKK Cape Town CPT Osaka Kansai International Airport KIX Muscat MCT Kuwait KWI Bengaluru BLR Johannesburg O.r. Tambo International JNB Chennai MAA Nagoya Centrair International Apt NGO Tehran Imam Khomeini Apt IKA Amman Queen Alia International Apt AMM Jakarta Soekarno-Hatta Apt CGK Bahrain BAH Doha DOH Addis Ababa ADD Pusan PUS Kuala Lumpur International Airport KUL Pune PNQ Release: 1.00 Page 39

42 Airport Name IATA- Code Monthly Frequencies on direct flights from Lufthansa Monthly Seats on direct flights from Monthly Frequencies on direct flights from Dubai Emirates Monthly Seats on direct flights from Dubai Asmara ASM Ho Chi Minh City SGN *** 0*** Kolkata CCU Dammam (SA) DMM Erbil EBL Nanjing NKG Guangzhou CAN Luanda LAD Auckland International Apt AKL Ahmedabad AMD Baghdad BGW Brisbane BNE Basra BSR Kozhikode CCJ Christchurch CHC Colombo Bandaranaike Apt CMB Kochi (IN) COK Dhaka DAC Damascus DAM Dar Es Salaam DAR Durban King Shaka International Apt DUR Entebbe/Kampala**** EBB Hyderabad Rajiv Gandhi Intl Arpt HYD Islamabad ISB Karachi KHI Lahore LHE Madinah MED Melbourne Airport MEL Male MLE Manila Ninoy Aquino International Apt MNL Mauritius MRU Nairobi Jomo Kenyatta International NBO A Perth t PER Peshawar PEW Sanaa SAH Mahe Island SEZ Sydney Kingsford Smith Apt SYD Thiruvananthapuram TRV *) A direct flight is defined as operation under one flight number, either non-stop or with one or more stops en-route **) Frequencies and seats on flights between and Dubai ***) Emirates will start daily services to Ho Chi Minh City on 4 th June 2012 ****) Emirates commenced non-stop services from Dubai to Entebbe/Kampala in March 2012 Source: Own representation based on data by OAG for December The main benefit Emirates provides in terms of connectivity for can be found in the area of a broader choice of frequencies to a wide range of destinations and the capacities provided with a larger number of available seats (see chapter 3.6 for an assessment of the capacity effects generated by Emirates). With this business model, Emirates has stimulated traffic, which will be shown in detail in subsequent chapters. Release: 1.00 Page 40

43 3.3 Connectivity for individual cities in While the preceding chapter has shown the connectivity to Southern/East Africa, Asia, the Middle East and South West Pacific in a summarised view for in general, the following chapter shows Emirates contribution to the connectivity of individual cities in. This includes Düsseldorf and Hamburg, where Emirates has already operated for several years, as well as the cities of Berlin and Stuttgart, where operations are likely to commence once traffic rights are granted. In our analysis, we concentrate on s secondary airports, as Emirates services contribute relatively less to the connectivity of the hubs in Frankfurt and Munich, which already have a large number of non-stop services to destinations in the Eastern Hemisphere and to hubs providing onward connectivity to these regions. Although is a poly-centric country with the economic strength and population being distributed among several strong metropolitan areas, non-stop flights to destinations in Africa and Asia are concentrated at the hubs Frankfurt and Munich, as shown in the following figure. Figure 3-11: Seats offered on non-stop flights to Southern/East Africa, Asia and the Middle East from German airports in December 2011 *) Berlin includes the airports of Tegel and Schönefeld Source: Own representation based on data by OAG. In consequence, this centralised structure results in the majority of travellers needing to use transfer itineraries for trips to Africa, Asia or the Middle East. In case Emirates were to operate a daily service to Berlin and Stuttgart, the shares in the number of seats would change as shown in the following figure. In Berlin, seats offered on Release: 1.00 Page 41

44 non-stop flights to Southern/East Africa, Asia and the Middle East would rise from 28,000 to 35,000, an increase by about one quarter. Figure 3-12: Seats offered on non-stop flights to Southern/East Africa, Asia and the Middle East from Berlin and Stuttgart with possible future daily services by Emirates. *) Berlin includes the airports of Tegel and Schönefeld Source: Own representation based on data by OAG Düsseldorf Düsseldorf lies in the middle of s most attractive airport catchment area with a high density region of around 10 million inhabitants. It is also part of the blue banana, the trans- European megalopolis that forms a corridor of urbanisation and industry agglomeration. The region displays a diverse economic structure of manufacturing and services and offers a dense rail and road transportation network plus four international airports including Düsseldorf s Rhein-Ruhr International Airport with 20.3 million passengers in The city of Düsseldorf is the regional administrative capital of the Land North Rhine-Westphalia which underlines a diverse economic structure and international relations. According to EUROSTAT, the regional GDP per capita in Düsseldorf was 32 % above European average in Düsseldorf is s number three airport when it comes to seat capacities on non-stop flights to the Eastern Hemisphere. However, apart from Emirates twice daily service to Dubai, the destination portfolio is largely oriented at leisure destinations such as Bangkok or Mombasa, served by Air Berlin between once and four times weekly. Other destinations include Beijing (Air China, three times weekly), Abu Dhabi (Etihad, twice weekly, from Release: 1.00 Page 42

45 summer 14x weekly with 7x Etihad and 7x Air Berlin) and Tehran (Mahan Air, five times weekly). Figure 3-13: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Düsseldorf non-stop or with one stop/transfer in December 2011 Source: Own representation based on data by OAG. Düsseldorf has a relatively high level of integration into the air transport network, with 178 destinations served either non-stop or with one stop/transfer. Particularly Star Alliance, with 150 destinations, contributes to this level of connectivity. Within Star Alliance, particularly Air China contributes with a large number of destinations in Asia, which could be reached with one transfer in Beijing. In total, 106 destinations can be reached from Düsseldorf via Beijing. However, the flight is operated only three times weekly. Emirates contributes with five destinations (Ahmedabad, Brisbane, Durban, Perth and Sana a), which could otherwise not be reached from Düsseldorf with one stop/transfer. Release: 1.00 Page 43

46 Figure 3-14: Map of destinations in Africa, Asia, Middle East and South West Pacific served from Düsseldorf non-stop or with one stop/transfer in December 2011 Source: Own representation based on data by OAG Hamburg The city of Hamburg and its surrounding boroughs encompass an urban area of 1.8 million inhabitants. The city s historical role as a wealthy merchant city and part of the Hanse has been supported by its port. Today, Hamburg is still among the leading port cities in Europe and the recent increase in significance of the port is due to reclaimed hinterland after the end of the Cold War. Hamburg constitutes a transport node in Northern. The city is an important centre of trade, manufacturing and service and its location as a port city has led to the development of an industry agglomeration along the river Elbe displaying the industry structure of a modern port. Hamburg is one of two main bases of Airbus as a major manufacturer and employer for the region. The region has after London, Luxemburg and Brussels the highest GDP per capita in Europe, which in 2008 was 88 % above the European average. Besides the twice daily Emirates service to Dubai, Hamburg is very limited in the number of flights to the Eastern Hemisphere, as only Iran Air (twice weekly service to Tehran) and China Eastern (twice weekly one-stop service to Shanghai via Frankfurt) operate from the main airport in Northern. Release: 1.00 Page 44

47 Figure 3-15: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Hamburg non-stop or with one stop/transfer in December 2011 Source: Own representation based on data by OAG. 94 destinations in the Eastern Hemisphere can be reached from Hamburg non-stop or with one-stop, when all carriers are considered. Star Alliance provides the broadest network with 62 destinations, followed by SkyTeam, which offers 51 destinations and oneworld, with 32 destinations, which are almost exclusively provided via London-Heathrow. Lufthansa (on LH operated flights) offers 33 destinations; including codeshare partners, the network increases to 35 destinations. Among the non-aligned carriers, which offer in total 65 destinations, Emirates provides the most extensive connectivity with 57 one-stop transfer destinations, plus Dubai as the non-stop flight. Without Emirates, the non-stop service to Dubai, currently used by more than 20,000 origindestination passengers between Hamburg and Dubai would not exist. Furthermore, 14 city pairs out of the 94 can be reached exclusively with Emirates with one transfer instead of two or more; therefore enhancing the integration of Hamburg into the air transport network considerably. The 14 destinations served exclusively by Emirates with one stop are: Ahmedabad (India) Brisbane (Australia) Dhaka (Bangladesh) Durban (South Africa) Jakarta (Indonesia) Kochi (India) Kozhikode (India) Lahore (Pakistan) Melbourne (Australia) Perth (Australia) Peshawar (Pakistan) Sana a (Yemen) Sydney (Australia) Thiruvananthapuram (India) Moreover, other destinations, which can be reached with competing airlines less than daily are connected on a daily basis with Emirates. This includes Addis Ababa, Guangzhou and Release: 1.00 Page 45

48 Kuala Lumpur. On other routes, the increase in frequencies and seat capacities considerably increases consumer choice. Figure 3-16: Map of destinations in Africa, Asia, Middle East and South West Pacific served from Hamburg non-stop or with one stop/transfer in December 2011 Source: Own representation based on data by OAG Berlin The metropolitan Berlin-Brandenburg comprising of the city of Berlin and its surrounding area is the largest urban agglomeration in with more than 4 million inhabitants in a radius of less than 100km around the city centre. Its significance derives from its historical role as s capital. Berlin represents a node of two traditional European transport axis in East-West and North-South directions. The city has formerly been served by three airports partly due to the city s divide during the Cold War. In future, Berlin will be served by one international airport only, Berlin Brandenburg Airport, scheduled to open in June 2012 on the site of Schönefeld airport. Economically, Berlin still is impacted by the consequences of the German division. It has the lowest GDP per capita of all German cities with more than one million inhabitants, at 99 % of the European average. Its economic focus lies on creative industry and tourism and also biotech, medical engineering, pharmaceutics and energy. In the tourism sector, Berlin has established itself as being among the top three city destinations in Europe. Probably due to the relative weak demand base from business travellers, Berlin has been widely neglected by airlines when it comes to long-haul flights. In December 2011, eight long-haul destinations in Asia and the Middle East were served from the Berlin airports Tegel and Schönefeld: 14 flights to Amman operated by Royal Jordanian; 9 flights to Damascus by Syrian Arab Airlines; 31 flights to Tel Aviv by El Al and Israir; 18 flights to Bangkok, 11 flights to Phuket and 16 flights to Dubai operated by Air Berlin; 10 monthly flights operated by Hainan Airlines to Beijing; and 31 flights by Qatar Airways to Doha. Although this results in Release: 1.00 Page 46

49 little more than two daily long-haul flights on average, with these services, Berlin is in 4 th place in in terms of the number of seats offered on flights to Asia and the Middle East. With one stop / transfer, 141 destinations in Southern/East Africa, Asia, the Middle East and South West Pacific can be reached from Berlin. 66 destinations can be reached with Star Alliance, 51 with SkyTeam and 47 with oneworld. Lufthansa provides services with one stop / transfer to 33 destinations. There are no Lufthansa flights to other Star Alliance hubs than Frankfurt and Munich. Travellers wishing to travel on Lufthansa flights therefore need to accept two or more transfers to a relatively large number of destinations in the Eastern Hemisphere. It becomes apparent that a high number of destinations can be reached from Berlin with one transfer only by non-aligned airlines. Contributing to this is the connectivity provided by Hainan Airlines via Beijing as 42 destinations in Far East Asia can be reached via this city. However, the number of frequencies is limited, as Berlin-Beijing is operated only twice weekly. 56 destinations can be reached via Doha on the daily service by Qatar Airways. In this case it has to be mentioned that the seat capacity on the flights to Doha is limited, as Qatar Airways operates with A319/A320 narrow-body aircraft and an average seat capacity of 143 seats per flight. This limitation in the number of seats impedes the ability to stimulate traffic and hence for instance to stimulate incoming tourism. Figure 3-17: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Berlin non-stop or with one stop/transfer in December 2011 Source: Own representation based on data by OAG. In December 2011, it was announced that Etihad Airways will become the largest shareholder in Air Berlin. Associated with this investment is an integration of the networks of Release: 1.00 Page 47

50 both carriers, which has started in January Air Berlin operates flights to Abu Dhabi with onward connections to 45 destinations with Etihad Airways. At the same time, Air Berlin has discontinued non-stop flights to Bangkok and has discontinued the service to Dubai in March In future, Phuket, which is currently served non-stop from Berlin, will be operated with a stop in Abu Dhabi. If Emirates would start operations between Berlin and Dubai, four additional destinations could be reached from Berlin with only one transfer, which currently require two or more stops. The four additional destinations are Durban in South Africa and Brisbane, Perth and Sydney in Australia. From the perspective of benefits for the city of Berlin coming from the increase in connectivity it is important to mention that Australian tourists play an important role for the economy of Berlin. Between 2007 and 2011, the number of nights spent by Australian tourists in Berlin has increased from 104,000 to 188,000. It can be expected that this trend can be further supported with an improvement in the air transport connections between Berlin and Australia. Figure 3-18: Map of destinations in Africa, Asia, Middle East and South West Pacific served from Berlin non-stop or with one stop/transfer in December 2011 Source: Own representation based on data by OAG. A comparison between the routes of Emirates and Qatar Airways shows a considerable level of overlap for the markets served by both carriers simultaneously. As shown in the figure above and assuming Emirates service to Berlin, Emirates and Qatar Airways serve 57 and 56 destinations from Berlin with one transfer, respectively, plus Dubai and Doha as non-stop destinations. Among these destinations are 47 served by both Emirates and Qatar Airways, 10 are exclusively served by Qatar Airways and 11 are served exclusively by Emirates. Therefore it is likely that in the case of market entry by Emirates substantial competition with Qatar Airways will develop for itineraries to and from Berlin. It is reasonable to assume that the competition between Emirates and Qatar Airways will be more intense than the Release: 1.00 Page 48

51 competition between Emirates and Lufthansa, as travel times between Emirates and Qatar Airways are similar to a majority of onward destinations in the Far East, due to the geographically similar location of the hubs in Dubai and Doha. Even with new flights to Dubai, travel times will not be reduced significantly from the journey times realised today with high-frequency services and short connection times offered by Star Alliance in Munich and Frankfurt. Even though transfers from Berlin to the Far East via Frankfurt initially require some degree of back-tracking, the level of circuity (defined as the relative distance of a transfer itinerary to the direct great circle distance) is less for the majority of city pairs with a transfer in west-central Europe than in the Gulf. From the perspective of passengers, the impacts of more airlines serving the market between and Asia are expected to have particularly positive impacts on air fares. A series of studies conducted by InterVISTAS came to the conclusion that market access liberalisation will result in an average fare reduction in international markets of between 7 and 30 % (InterVISTAS, 2009a, 2009b and 2009c). Moreover, more flights in the market bring broader choice to passengers in terms of departure times and the availability of seats Stuttgart Stuttgart is the centre of the Stuttgart metropolitan area with 2.7 million inhabitants in the city and the five adjacent counties. This area is rather large and multipolar and not as densely populated as the other areas introduced here. Like Düsseldorf, Stuttgart is part of the blue banana, the trans-european megalopolis that forms a corridor of urbanisation and industry agglomeration. Stuttgart itself is a rail and road transport node in the South-West of. It is part of the wider east-west transport corridor Munich-Stuttgart-Strasbourg- Paris. The city of Stuttgart is the regional administrative capital of the Land Baden- Württemberg. Stuttgart displays a highly specified industry structure with a high proportion of highly qualified employees. The automobile industry including suppliers is among the most prominent. Stuttgart has the highest export rate of all German cities. Stuttgart reaches in terms of regional GDP per capita a value that is 39 % higher than European average. Stuttgart, despite being in an economically and demographically strong region of, has not had any direct services to Southern/East Africa, Asia or the Middle East before The proximity to the hubs of Frankfurt and Munich, combined with high frequency, quick railway access (1:15 hrs to Frankfurt airport) and traffic rights restrictions have led to the decision of airlines not to connect Stuttgart with Asian destinations directly. Over the year 2011, the situation in Stuttgart has changed due to the opening of a new route to Doha, operated by Qatar Airways. However, this service is operated as of December 2011 only three times weekly, and only with an A319, offering only limited seat capacities with 110 seats per flight. In the course of this study, in cooperation with the Chamber of Commerce and Industry of the Stuttgart region a survey among companies based in and around Stuttgart about their perception of the quality of connectivity and the needs for improved accessibility of destinations was conducted. Main findings of the survey can be summarised as follows: 85 % of the business trips by air start from the airport in Stuttgart, which is an indication for the preference of business passengers to use an airport that is located close to their home or office. Only 12 % have used Frankfurt, with the remaining 3 % split among airports such as Munich, Zurich or Karlsruhe. This is a relatively strong difference to passengers travelling for leisure purposes, where airport choice is much more distributed over different airports, as parking fees and air fares have a higher influence on airport choice than the convenience of departing from an airport located in the immediate vicinity. Release: 1.00 Page 49

52 Being asked why travellers chose a different airport than Stuttgart for their trips, 48 % responded that the destination is not offered from Stuttgart and 19 % each that other airports offered more frequencies or better departure times. While destinations in (18 %) and Europe (62 %) account for the majority of trips, Asia has developed into the most important destination region outside Europe among the companies participating in the survey, with 16 % of the total number of trips in the sample going to Asia. 73 % of the companies answered that employees are not allowed to book a ticket substantially more expensive to save time on intercontinental trips, which is an indication that even in the business travel segment price sensitivities have increased. Concerning the perceived connection quality, strong differences can be observed, when different regions are analysed. Figure 3-19 shows an excerpt from the survey, comparing the perceived connection quality to regions in Europe, the Middle East and Asia. Figure 3-19: Perceived quality of connectivity from Stuttgart Source: Own illustration based on data from Stuttgart region airport survey. While the flight offers from Stuttgart to Europe are perceived as relatively good, with almost three quarters of respondents giving a good, satisfactory or fair rating, connectivity to the Middle East and Asia is rated as being insufficient. For flight offers to Asia, only roughly a quarter of respondents gave a good, satisfactory or fair rating. Flight offers to the Middle East were rated only by about 10 % of respondents as fair. Nevertheless, it has to be mentioned that throughout the survey, the rate of respondents concerning the quality of intercontinental connections was relatively low, with % non-respondents. This is an indication that a relatively large number of companies do not have any business trips to Asia or the Middle East. Nevertheless, the survey updates and confirms earlier findings made by the Chamber of Commerce and Industry of the Stuttgart region in 2007 (Reichardt / Götz, 2007) that the accessibility of intercontinental destinations still lacks quality and choice from the perspective of the companies located in the region, which use air services to the Middle East and Asia. Companies were also asked for their requirements regarding new destinations, being served either non-stop or with improved transfer connections. Release: 1.00 Page 50

53 Figure 3-20: Destinations with a need for improved non-stop or transfer connectivity, share of the number of mentioned destinations by region Source: Own illustration based on data from Stuttgart region airport survey. The answers to this question are consistent with the results shown above. Asia and the Middle East have gained in overall importance and as the connection quality is perceived as being relatively weak, the demand for new destinations in Asia and the Middle East is relatively high. Almost 60 % of the mentioned destinations companies would like to see improvements in connectivity are in Asia or the Middle East. The following figure shows the connectivity with non-stop / one-stop itineraries from Stuttgart. Overall, 88 destinations in the Eastern hemisphere can currently be reached with one transfer, Doha is the only destination that can be reached directly (the non-stop Qatar Airways service has recently been replaced by a direct service with a stop in Zurich). Among the three global alliances, Star Alliance provides the best connectivity with 60 destinations, followed by SkyTeam with 40 destinations and oneworld with 32. Lufthansa provides services to 33 destinations on flights operated by the German airline and 35 if also Lufthansa codeshare flights operated by other airlines are taken into account. If Emirates was permitted to operate to Stuttgart, it would serve 57 destinations in Africa, Asia, the Middle East and South West Pacific with one transfer and Dubai as non-stop destination. Release: 1.00 Page 51

54 Figure 3-21: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Stuttgart non-stop or with one stop/transfer in December 2011 *) Qatar Airways operates three weekly services to Stuttgart. Source: Own representation based on data by OAG. In January 2012, Qatar Airways announced it will discontinue the three-weekly non-stop service from Stuttgart to Doha and replace it with a service Stuttgart-Zurich-Doha from March For Stuttgart, the additional stop means that the one-stop connectivity Qatar Airways currently provides on three days of the week has been lost entirely. This causes a reduction in the number of destinations that can be reached with one stop or transfer from Stuttgart by 15 from 88 to 73 destinations. If Emirates were to start services between Dubai and Stuttgart, 10 destinations previously served by Qatar Airways could be reached with one stop again: Ahmedabad (India) Dhaka (Bangladesh) Jakarta (Indonesia) Kochi (India) Kozhikode (India) Lahore (Pakistan) Melbourne (Australia) Peshawar (Pakistan) Sana a (Yemen) Thiruvananthapuram (India) Release: 1.00 Page 52

55 Figure 3-22: Map of destinations in Africa, Asia, Middle East and South West Pacific served from Stuttgart non-stop or with one stop/transfer in December 2011 Source: Own representation based on data by OAG. While the Emirates route network overlaps with the network of Qatar Airways with 10 destinations, further effects of a daily Emirates service to Stuttgart can be identified. Firstly, origin-destination passengers from Stuttgart to Dubai will benefit from time savings offered by a non-stop flight. In 2010, almost 8,000 passengers have flown on transfer itineraries on their way from Stuttgart to Dubai. It is likely, that additionally a large number of travellers from the Stuttgart region have used other modes of transport to access airports offering non-stop flights to Dubai (e.g. Frankfurt, Munich, Zurich), involving substantially increased travel times associated with the indirect journeys. Secondly, four additional destinations will be connected to Stuttgart with only one transfer: Durban in South Africa and Brisbane, Perth and Sydney in Australia. This will create travel time benefits for more than 1,000 passengers, which travelled to these destinations from Stuttgart in Thirdly, as shown below, the number of non-stop services offered between the Middle East and increases the attractiveness of for incoming tourism. In case the correlation between the number of seats and the number of nights spent by incoming tourists holds in future, a daily Emirates service could result in additional 25,000 nights spent by tourists from the Middle East in and additional effects from tourists coming from markets served by Emirates, such as India, China and Australia. Therefore we conclude that the main effects of a potential new Emirates flight between Stuttgart and Dubai can be found in an improvement in the accessibility for a total of 14 destinations, compared to the situation that will be the case after Qatar Airways schedule change in March Passengers will be able to reach these destinations with a reduced Release: 1.00 Page 53

56 number of transfers, resulting in reduced journey times. The additional seat capacity of a potential new service between Stuttgart and Dubai is likely to cause similar traffic stimulation effects as it was the case in Hamburg and Düsseldorf, analysed in this report in chapter Connectivity and Frequency Up to this point, our analysis focused on the number of destinations that can be reached from German airports non-stop or with one transfer. However, an important quality criterion in air transport is the number of frequencies offered. With more frequencies available to passengers and shippers of air cargo, schedule delay, i.e. the difference between published and preferred departure time can be minimised. Moreover, choice for passengers concerning service quality and fares increases, when several airlines offer connections between the same city pairs The following Figure 3-23 shows the weekly number of nonstop and one-stop itineraries from Frankfurt, Munich, Düsseldorf, Hamburg, Berlin and Stuttgart to the 100 largest airports in the Eastern Hemisphere, as measured by the number of seats offered upon departure (see chapter 3.2.3). Figure 3-23displays the number of weekly connections offered by the 10 airlines, which in total offer the highest number of non-stop and one-stop connections from the six German airports under consideration. Figure 3-23: Number of weekly itineraries to the 100 largest airports in the Eastern Hemisphere from selected German airports by airline Source: Own illustration based on data provided by OAG. For an itinerary to be considered, it must meet the following criteria: It must be a nonstop flight or a one-stop online or codeshare connection offered in a transfer window between 45 Release: 1.00 Page 54

57 minutes and 6 hours after arrival. In case multiple feeder flights connect within the transfer window to one onward flight, only the itinerary with the shortest overall journey time is counted. Not considered are itineraries, which consist of one or two non-operated codeshare flight segments. Therefore, an itinerary like Stuttgart-Frankfurt-Singapore where the two flight segments are operated by Lufthansa, but also bear the marketing code of Singapore Airlines is not considered for the marketing carrier, as this itinerary is already counted for the operating carrier. Furthermore, connections are only accepted, when the total distance of a two segment-itinerary does not exceed 1.5 times the shortest flight distance offered on the respective city pair. With this step, commercially irrelevant connections, such as Frankfurt- Tokyo-Dubai are filtered. The analysis shows that Lufthansa offers the highest number of weekly non-stop or one-stop itineraries, with more 2,600 non-stop and connection services to the 100 largest airports in the Eastern Hemisphere. Emirates is second, with more than 1,700 itineraries in December In case Emirates will be allowed to operate a daily flight from Stuttgart and Berlin, this could increase to almost 2,200. For Stuttgart and Berlin, we have assumed hypothetical flight schedules with daily departure times at 3:20pm and arrivals at 11:35pm in Dubai. For Stuttgart and Berlin, respectively, a daily Emirates flight to Dubai could create 217 additional weekly flight connections, i.e. seven non-stop flights to Dubai and 210 onward connections from Dubai in Emirates network. As Lufthansa has a broad domestic feeder network and basically every long-haul flight from Frankfurt and Munich can be reached from any other German airport, Lufthansa s number of connections offered is very high for each German airport (368 from Stuttgart, 380 from Berlin, 399 from Düsseldorf and 403 from Hamburg). From Frankfurt, the German carrier offers 574 weekly connections. This includes Lufthansa-operated non-stop flights, one-stop connections within the Lufthansa network (e.g. via Munich) and codeshare connections, where one flight is operated by Lufthansa. The highest number of weekly itineraries from one individual airline at one airport is 712, offered by Air China from Frankfurt. The reason for this is that we find 32 airports in China among the 100 largest airports in the Eastern Hemisphere. The following figure shows the contribution of Emirates and Lufthansa to the total number of weekly itineraries offered from the six German airports considered here. Release: 1.00 Page 55

58 Figure 3-24: Number of weekly itineraries to the 100 largest airports in the Eastern Hemisphere from selected German airports by airline Source: Own illustration based on data provided by OAG. The figure shows that the relative contribution of Emirates at s secondary airports is higher than at the hubs. The twice daily services from Düsseldorf and Hamburg create 17.0 % and 18.2 % of all weekly itineraries to the Eastern Hemisphere from these airports, respectively. In Frankfurt, Emirates offers 7.7 % of all itineraries and in Munich 11.1 %. With potential new flights to Berlin and Stuttgart, both airports will receive a considerable improvement in the number of weekly itineraries. In Stuttgart, the number of weekly connections would increase by more than 14 % from 1,547 to 1,764. In Berlin, flights will increase by about 9.8 %, from 2,221 to 2,438. The analysis of the number of weekly itineraries also shows the benefits of a daily long-haul flight and the high number of onward connections offered at the hub in Dubai in comparison to the offers of other Gulf carriers. While Qatar Airways currently offers 69 weekly itineraries from Stuttgart and 154 from Berlin, Emirates would offer with one daily flight from the two German airports 217 itineraries. Also at other German airports, benefits of two (Düsseldorf, Hamburg, Munich) and three (Frankfurt) daily services can be shown. For instance, Emirates offers 494 weekly itineraries from Frankfurt, while Qatar Airways provides 305, Turkish Airlines 230 and Etihad 218. Release: 1.00 Page 56

59 3.5 Connectivity index for German airports A frequently used indicator for the quality of connectivity is the connectivity index (CI), which is the average shortest path length (SPL) required for reaching all other airports in a predefined airport network (Malighetti et al., 2008). SPL is defined as the number of flight stages required to reach another airport in the network. The lower the CI, the better an airport is connected to the air transport system, as passengers can reach their destinations with fewer stops or transfers. In case all destinations in question can be reached with nonstop flights, the value of the indicator would be 1, in case all relevant destinations can be reached with one transfer, the indicator value would be 2. A theoretical example of the calculation of the connectivity index is shown in the following figure. Figure 3-25: Calculation of the connectivity index Source: Own representation based on Malighetti et al., For our analysis, we calculate the CI for the German airports of Berlin, Düsseldorf, Frankfurt, Hamburg, Munich and Stuttgart. The air transport network for which the CI will be calculated includes all Emirates destinations in Southern and East Africa, Asia and South West Pacific. From the view of the German point of origin this includes Dubai as non-stop destination and 57 one-stop destinations. Two destinations in Emirates route network can be reached from with two stops (Entebbe/Kampala, until 24 th March 2012, when this destination will be served non-stop from Dubai, and Auckland) and three stops (Christchurch), respectively. The CI is then compared for each of the airports in the following three flight schedule situations: The complete flight schedule, including Emirates services to Dubai and onward connections Release: 1.00 Page 57

60 The complete flight schedule, excluding Emirates services to Dubai and onward connections Emirates flights services to Dubai and onward connections only From a comparison of the values for the CI we can assess the contribution of Emirates to the connectivity of each airport. Moreover, it is possible to compare how well each airport is integrated into the aviation system. The results of the CI are shown in the following table. A lower CI is better, as it is a measurement for the average number of flight stages required to reach the 61 destinations analysed. Table 3-2: Connectivity index for German airports due to Emirates services to Dubai and onward destinations in December 2011 Airport Connectivity Index = average shortest path length to the 61 Emirates destinations in Southern/East Africa, Asia and South West Pacific CI all airlines, with Emirates CI all airlines, without Emirates CI Emirates flights only Connectivity improvement due to Emirates Berlin 1.95* * Düsseldorf Frankfurt Hamburg Munich Stuttgart 2.00* * Stuttgart (after * Qatar Airways schedule change) *) Theoretical value in case Emirates had operated flights to Dubai from Berlin and Stuttgart Source: Own representation, based on data by OAG. For the secondary airports in, Emirates presence improves their connectivity to the selected destinations, while in case of Frankfurt and Munich, no connectivity gains can be found by the CI measurement. These airports are already so well integrated into the air transport system, both due to non-stop long-haul flights as well as connections to other hubs, that Emirates services do not reduce the number of flights stages to any of the 61 analysed destinations. A closer look at the secondary airports reveals the following aspects: For Berlin, the CI would improve from 2.02 to 1.95 if Emirates was allowed to operate from the German capital. The improvement in connectivity comes from the reduction of transfers required to reach Brisbane, Perth and Sydney in Australia and Durban in South Africa from two in the current situation to one in a situation where Emirates is permitted to operate from Berlin to Dubai. It is worthwhile to mention that although Emirates own CI is worse than the CI of all airlines currently operating, Emirates will contribute to an improvement in the CI with the reduction in the number of transfers to the four aforementioned destinations. Emirates CI is worse than the CI of all airlines currently operating, as some destinations are currently served from Berlin non-stop (Amman, Bangkok, Doha and Beijing) or with one stop (Entebbe) which improves the CI. To these destinations, new Emirates services do not directly improve the connectivity, but only indirectly with more seat capacity and more frequencies on transfer itineraries. However, even an airline with an overall worse CI Release: 1.00 Page 58

61 improves the connectivity of an airport, in case when at least some destinations can be reached with a lower number of flight segments are served better in a situation with than without this airline. The difference in the situation with and without Emirates for Berlin is also relatively small, as the same destinations, which are currently in Emirates route network, can already be reached with one transfer from Berlin due to services operated by Qatar Airways and Turkish Airlines, for instance Basra, Baghdad, Dar-es-Salam, Medina or Melbourne. Düsseldorf gains through Emirates services substantially in connectivity, as Qatar Airways does not serve the capital of North-Rhine Westphalia. Therefore, a range of destinations which would be served in parallel by Qatar Airways and Emirates from Berlin and Stuttgart are served from Düsseldorf exclusively by Emirates. Hamburg gains the highest connectivity benefit due to Emirates services. The airport has no other services to Southern/East Africa, Asia and the Middle East apart from Iran Air s flights to Tehran, which does not provide a high level of onward connectivity. Therefore, in a situation without Emirates, passengers had to rely on hubs like Amsterdam, Frankfurt, Istanbul, London-Heathrow and Paris-CDG. Without Emirates, connectivity to 15 destinations out of 94, which can be reached today either non-stop or with one transfer would worsen. The rather abstract improvement in the CI value can be visualised, as shown in the following figure. Figure 3-26: Map of destinations in Africa, Asia, Middle East and South West Pacific for which Emirates services reduce the number of stops / transfers from Hamburg Source: Own representation based on data by OAG. Figure 3-26 shows the 15 destinations which can be reached with Emirates with one transfer less than with other airlines. For most of these destinations the reduction in the number of transfers also causes a reduction in travel times (denoted in the figure e.g. with -3:20 = Release: 1.00 Page 59

62 Emirates offers a 3 hours, 20 minute faster connection than the fastest competitor). The travel time gain is particularly striking with destinations in India, which are not yet included in the (codeshare) destination portfolio of many other airlines operating from Hamburg. Benefits in travel time reductions can also be found for Dubai as non-stop destination and for destinations in Australia. For other destinations, the reduction in the number of transfers does not bring travel time reductions (Durban, Sana a and Jakarta), as the detour via Dubai in combination with relatively long waiting times at the hub offset the travel time reduction of one less transfer. Finally, in Stuttgart, we see again a relatively large overlap with Qatar Airways, although the overall connectivity gain with Emirates services would be substantially higher than in Berlin. This is due to the currently non-existing non-stop flights to other Asian destinations from Stuttgart, while in Berlin the non-stop flights to Amman, Bangkok, Beijing, Doha and Dubai help to improve the CI. If frequencies were also considered in our model, the connectivity gain for Stuttgart would be even higher, as Qatar Airways operates only three times weekly into Stuttgart. The airline is not supposed to be allowed to increase this number of flights in the foreseeable future, as the bilateral air service agreement between and Qatar allows for only a limited number of weekly services. Moreover, the non-stop flight to Doha has been replaced by a service with an intermediate stop in Zurich, resulting in increased travel times for itineraries to Doha and beyond. If Emirates were allowed to operate to Stuttgart, the connectivity of the airport as measured by the CI would improve to a level of Hamburg and would be only slightly lower than currently in Düsseldorf or Berlin. 3.6 Connectivity and capacity Above analyses concentrate on the connectivity gain, as measured by the number of destinations that can be reached non-stop or with transfer connections and the average number of flight segments required to reach destinations in Asia, South West Pacific or Southern and East Africa. However, the attractiveness of an airport s flight schedule does not only depend on the number of destinations and frequencies, but also on the actual capacity supplied, i.e. the number of available seats. In other words: Even in cases in which an airport is well connected to the most important European hubs, the actual capacity available to certain final destinations might be rather limited. Aircraft operating on intra-german or intra-european feeder services are usually relatively small narrow-body aircraft typically with less than 200 seats and a significant share of the segment capacity is used by local passengers that terminate their trips at the respective hubs. Hamburg, for example, is connected with Frankfurt, Munich, London, Paris, Copenhagen, Stockholm, Vienna, Zurich and Prague, but all flights to these hubs are operated by narrowbody aircraft only. Consequently, the actual daily supply of seats available for each indirect origin-destination relation departure airport German/European Hub African/Asian destination can be quite low. This observation is especially valid for lower-priced fare classes. Then, if demand exceeds supply, different forms of crowding-out can occur, including those in the following examples: Release: 1.00 Page 60

63 First, an incoming tourist from Asia that wished to fly via Frankfurt to Hamburg could be crowded out by a business traveller with a higher willingness to pay for a particular flight between and Asia. While for the individual airline, under a profit-maximizing behaviour, it is logical to allocate seats to travellers with the highest willingness to pay; this does not necessarily bring the best results for the German economy. Second, a local O&D passenger flying from Hamburg to Frankfurt on a business trip could purchase a seat which would otherwise have been sold to a tourist flying from Hamburg via Frankfurt to Asia or vice versa, if capacity on the intra-german flight is limited. Third, a passenger flying from the US via Frankfurt to Asia could crowd-out a passenger wishing to fly from Hamburg via Frankfurt to Asia, if capacity on the flight to Asia is scarce. Consequently, given this limited capacities on indirect services, the inauguration of direct long-haul services from secondary airports in Europe to hubs overseas can yield in a significant increase in O&D capacity between the European departure airport and the respective destination region. In this chapter, we use a simple but sound methodology to roughly estimate the capacity effects of the existing Emirates services to Hamburg and of a potential new service to Stuttgart, for these two airports. Sabre ADI data from 2011 is referred to in order to determine the actual number of passengers from Hamburg and Stuttgart to destinations in Asia (without CIS states), Southern and East Africa, Middle East (without Turkey) and South West Pacific, on the carrier level. For Hamburg, the total used capacity on O&D relations to the above regions in 2011 is shown in the following table and figure. Table 3-3: Total and Emirates (EK) used capacity on O&D s from Hamburg to Asia, Southern and East Africa, South West Pacific and the Middle East region (2011) FROM TO Outbound Passengers Growth by EK Market All carriers EK Share EK HAM Middle East 96,115 30, % 32 % HAM Southern & East Africa 32,803 7, % 21 % HAM Asia (w/o CIS) 157,027 46, % 30 % HAM South West Pacific 17,169 8, % 50 % Sum all regions 303,114 93, % 31 % Source: Own calculations based on Sabre/ADI data. Release: 1.00 Page 61

64 Figure 3-27: Capacity contribution of Emirates on O&D relations from Hamburg to Southern and East Africa, Asia, the Middle East and South West Pacific (2011) Source: Own calculations based on Sabre/ADI data. It shows that the Emirates capacity share on these relations varies between 21 % (for O&D traffic from Hamburg to Southern and East Africa) and 50 % (for O&D traffic to South West Pacific). The capacity increase generated by Emirates calculated under the assumption that the supply of Emirates has not resulted in any demand decreases with the other carriers is in the range between 27 % for Africa and 100 % for the South West Pacific region. On relations to Asia, the biggest of these O&D markets from Hamburg, Emirates had a capacity share of 30 % in 2011, which stands for an increase in capacity by 42 %. These figures and our connectivity analyses illustrate that the market entry of Emirates in Hamburg has not primarily led to a higher level of connectivity in terms of flight length, frequencies or the number of stops, but rather to a significantly increased supply in seats, which per se yields in higher levels of competition, better availability, lower fares and hence more choice for the consumer. In the following paragraphs, we look in more detail at the potential capacity effect of a possible inauguration of services by Emirates from Stuttgart to Dubai. Used capacity of existing carriers serving the regions Asia (without CIS states), Southern and East Africa, Middle East (without Turkey) and South West Pacific for the year 2011 has again been derived from Sabre/ADI. We assume that passenger figures of the existing carriers would not have declined if Emirates has already inaugurated services. In order to look at the potential capacity and demand effects of a new Emirates service for Stuttgart, we simulate that a daily flight with a 237-seater aircraft which equals the smallest aircraft in Emirates fleet had already happened in Such a daily flight leads to an Release: 1.00 Page 62

65 additional 12-months capacity of 86,505 departing seats, or an expected number of 69,204 additional passengers, if the average load factor of Emirates services into is taken as reference. In a final step, the simulated number of 69,204 passengers is allocated to the four world regions on the assumption that the existing geographic distribution of Emirates passengers out of would also be valid for Stuttgart: Asia (without CIS states) 50.5 %, Southern and East Africa 8.6 %, Middle East (without Turkey) 31.9 % and South West Pacific 8.6 % (see Figure 3-1 in chapter 3.2). The resulting total estimated used capacity on O&D relations from Stuttgart to the above regions in 2011 under the assumption that Emirates would already operate is shown in the following table and figure. Table 3-4: Estimated total and Emirates (EK) used capacity on O&D s from Stuttgart to Asia, Southern and East Africa, South West Pacific and the Middle East region (2011) Outbound Passengers 2011 status Additional Total incl. Growth quo (no passengers assumption induced by Market FROM TO REGION Emirates) EK* for EK* EK Share EK STR Middle East 31,136 22,076 53, % 41 % Southern & East STR Africa 13,527 5,952 19, % 31 % STR Asia (w/o CIS) 66,212 34, , % 35 % STR South West Pacific 2,130 5,952 8, % 74 % Sum all regions 113,005 69, , % 38 % *) Assumption for Emirates passengers: 237 seats per day, 80 % load factor, same geographical distribution with regard to final destination than -wide in 2010 (Middle East 31.9 %, Southern/East Africa 8.6 %, Asia 50.5 %, South West Pacific 8.6 %) Source: Own calculations based on Sabre/ADI data. Release: 1.00 Page 63

66 Figure 3-28: : Potential capacity contribution of Emirates on O&D relations from Stuttgart to Southern and East Africa, Asia, the Middle East and South West Pacific (2011) Source: Own calculations based on Sabre/ADI data. In Stuttgart, the overall capacity effect of a potential daily Emirates service would be even larger than in Hamburg. The corresponding graph shows that the potential Emirates capacity share on the relevant relations would lie between 31 % (for O&D traffic from Stuttgart to Southern and East Africa) and 74 % (for O&D traffic to South West Pacific). The capacity increase generated by Emirates calculated under the plausible assumption that the supply of Emirates would not result in any demand decreases with the other carriers is in the range between 44 % for Africa and 279 % for the South West Pacific region. On relations to Asia, the biggest of these O&D markets from Stuttgart, Emirates would gain a capacity share of 35 %, which stands for an increase in capacity by 53 %. Release: 1.00 Page 64

67 3.7 Intermediate conclusions From the results shown in this chapter, we can draw the following intermediate conclusions: is already strongly integrated into the global aviation system with connectivity provided by airlines and hubs based in and Europe. However, particularly the secondary airports like Hamburg and Stuttgart and the passengers travelling from these points benefit from current or potential future services with Emirates, by new destinations, additional frequencies and additional capacities for passengers and cargo. Emirates offers more destinations in Africa, Asia and South West Pacific than Lufthansa with their own (non-codeshare) flights. Emirates has already become the second largest carrier in terms of seats offered on non-stop long-haul flights to the Eastern Hemisphere from. Thus, the services provided by Emirates give passengers a wider choice, on the one hand by additional destinations, which could be reached without Emirates only with one or two additional transfers en-route and on the other hand by additional frequencies. We have shown in this context that Emirates has developed into the second largest provider of seat capacities on long-haul flights to the Eastern Hemisphere from. From the perspective of German secondary airports, Emirates and other carriers from emerging aviation markets provide opportunities for these airports to have long-haul flights, which other carriers do not intend to offer. While airports like Berlin and Stuttgart already enjoy a high level of integration into the global aviation network with connections to European hubs, these flights are for various reasons not optimal for connections to Asia. The majority of the hubs are in Western Europe (e.g. Amsterdam, London and Paris), which requires a feeder flight in westerly direction against the overall direction of travel to the east. For this, psychological barriers exist. Moreover, from the perspective of cargo transport, Emirates provides relatively large capacities, as only wide-body aircraft are operated. Particularly for a strongly export-oriented region as Stuttgart, this could provide time benefits, when trucking to European hubs can be reduced and cargo is loaded directly on intercontinental flights close to the point of origin. The comparison of Berlin with Stuttgart shows that already a single added destination can provide a substantially increased onward connectivity, as the case of Hainan Airlines to Beijing shows. This service alone adds 46 destinations that can be reached from Berlin on an itinerary with one transfer, which could otherwise only be reached with two or more transfers. The benefits of Emirates services for passengers originating in the regions of secondary airports in can be found particularly for itineraries to secondary destinations in Asia and for ultra-long-haul routes to Australia and on direct flights, although with additional stops en-route to New Zealand. These destinations can be reached with Emirates with one transfer, instead of two transfers, as offered by competing alliances. When we take a look at the route networks and travel times of the different Gulf carriers and compare them to incumbent carriers currently operating from, we conclude that particularly in the cases of Stuttgart and Berlin, Emirates would compete to a large extent more with Qatar Airways than with Lufthansa, as the route networks of the two Gulf carriers overlap at 47 destinations and similar journey time durations. Lufthansa remains on nearly all city pairs between and the Eastern Hemisphere the carrier with the fastest journey times. This is due to a combination of the high number of frequencies from s secondary airports to the hubs in Frankfurt and Munich and the low detour factor. Based on these findings, we form the hypothesis that Lufthansa and Emirates operate to a large extent in two separate markets. Lufthansa is particularly strong in the area of high-yield business Release: 1.00 Page 65

68 travel, where passengers have a high value of time. Emirates, in turn, stimulates the market with added capacities and competes for less time-sensitive travellers against airlines, such as Etihad Airways, Qatar Airways or Turkish Airlines. Release: 1.00 Page 66

69 4 Analysis of the effects of Emirates presence in on passenger flows 4.1 Market development in According to data provided by Sabre ADI, 5.6 million origin-destination passengers travelled from to a destination in Southern and East Africa, Asia, the Middle East or the South West Pacific in The data shows that Emirates had a market share of about 10.2 % in these markets. However, the market share of Emirates is very much dependent on the geographical location of the destination, as shown in the following figure. Figure 4-1: Origin-destination passengers from to the Eastern Hemisphere and Emirates market share by region Source: Own representation based on data by Sabre ADI. Among the geographical markets analysed, Emirates has the highest market share in origindestination traffic from to both the South West Pacific and South Asia with slightly more than 20 %. Particularly low market shares can be found for traffic from to North East Asia (3.5 %) and Southern Africa (6.2 %). The conclusions that can be drawn from the data are the following: Emirates has established itself as a major carrier in the traffic from to India and Australia, due to the location of its hub, the beneficial schedule (particularly to Australia with only one stop) and the wide choice of destinations offered in the respective countries. Nevertheless, the analysis also shows that in the particularly high volume market -North East Asia with 1.4 million passengers in 2010, Emirates has Release: 1.00 Page 67

70 remained on a low market share. Apparently, passengers are demanding more direct routings between and China, Japan and Korea. Sabre ADI data on origin-destination passenger flows dates back to the year Therefore, a time series on the development of Emirates in and the effects of the presence of Emirates on competitors can be shown. Figure 4-2 presents the total number of origin-destination passengers from to Africa, Asia, Middle East and South West Pacific for and the number of passengers that have flown either non-stop or on the first two flight segments with Emirates or Lufthansa, which are the two largest carriers in this market. In absolute terms, the number of travellers between and the regions analysed increased by 2.3 million, from 3.3 million passengers in 2002 to 5.6 million passengers in Both Lufthansa and Emirates have continuously increased the number of origin-destination passengers from to destinations in Africa, Asia, Middle East and South West Pacific 2. A bit surprisingly, given the strong competition on routes to the Middle East, the market -Middle East has more than doubled for Lufthansa from about 140,000 origin-destination passengers in 2002 to more than 300,000 in This is an indication for the traffic stimulation effects as a result of increased competition, from which all carriers in the market and the passengers benefit. In turn, from the data provided by Sabre ADI we cannot observe a shift away from German airlines and German hubs towards new competitors. Figure 4-2: Origin-destination passengers from to Southern/East Africa, Asia, Middle East and South West Pacific, Source: Own representation based on data by Sabre ADI. 2 Lufthansa does not serve any destinations in the South West Pacific region as operating carrier, but passengers have used Lufthansa services for one or two flight segments to a hub in South East Asia, continuing the itinerary on codesharing partner airlines. Such an itinerary is for instance Bremen- Frankfurt-Bangkok on Lufthansa and Bangkok-Sydney on Thai Airways. Release: 1.00 Page 68

71 The following figure highlights which carriers have participated in the absolute growth of 1.3 million passengers in the market from to Southern/East Africa, Asia, Middle East and South West Pacific between 2005 and The analysis includes origin-destination passengers which used a non-stop flight from or an online connection (i.e. transferring between two flights of the same carrier) on the first two flight segments of their journeys. The totals shown in the figure accounts for an increase of about one million passengers. The remaining net growth of 300,000 passengers can be attributed to non-stop and online connections with other carriers and interlining. Figure 4-3: Origin-destination passenger growth by individual carriers in the market between and Southern/East Africa, Asia, Middle East and South West Pacific between 2005 and 2010 Source: Own representation based on data by Sabre ADI. Emirates has the highest growth in absolute passenger numbers, with about +250,000. Second highest growth was achieved by Lufthansa with +220,000 passengers, followed by Air Berlin and Turkish Airlines with a growth of +116,000 passengers each. This analysis shows that Emirates has captured less than 20 % of the growth of the - Africa/Asia/Middle East/Pacific market between 2005 and The figure also shows the airlines which have declining passenger numbers. In the first place, we see traditional European network carriers, which have declined in the German market. Among these are Austrian Airlines, Swiss, Air France-KLM and British Airways. It is reasonable to assume that travellers bound for Asia from prefer the offers from new entrants, which have established themselves as carriers with a relatively high service quality and value for money. Another factor contributing to the development shown is most probably the capacity reduction on feeder flights of Air France and British Airways. The two carriers have reduced Release: 1.00 Page 69

72 their seat capacities on flights from to their hubs Paris and London between 2005 and 2011 by 1.2 % (Air France) and 4.3 % (British Airways). The development of the aviation market between and the Eastern Hemisphere can also be shown in relative terms. Figure 4-4 represents the indexed development of originating passengers between and the Eastern Hemisphere between 2002 and 2010 (2002 = 100). Figure 4-4: Origin-destination passengers from to Southern/East Africa, Asia, Middle East and South West Pacific between 2002 and 2010 in relative terms Source: Own representation based on data by Sabre ADI. The overall market has increased by about 70 % in eight years. For comparison, the indexed development of Emirates (EK, red dashed line) and German airlines (primarily Lufthansa, Air Berlin/LTU and Condor; dark blue dashed line) is displayed. Here the market development as a whole (dark red solid line) serves as a benchmark. Average market growth was 6.6 % per year (compounded annual growth rate, CAGR). In comparison, Emirates passenger numbers have grown by 13.9 % (CAGR). But also the growth of German airlines was slightly above market average with 6.8 % (CAGR). German airlines have defended, respectively slightly increased their market share. Over the total period, German airlines market share increased from 24.2 % in 2002 to 24.5 % in 2010, whereas the market share in 2010 was 1.5 percentage points higher than in The average market share of Emirates between 2002 and 2010 increased from 6.0 % to 10.2 %. From the data shown we conclude that a wide range of airlines have benefited from the growing market in, with Emirates and Lufthansa as the two main beneficiaries of this development. Release: 1.00 Page 70

73 4.2 Market development at individual airports The effects of Emirates market entry on passenger demand and on the competing airlines can also be shown on the level of individual German airports. For such an analysis, particularly the airports of Düsseldorf and Hamburg are suitable, as these cities have only a limited supply in non-stop flights and passengers wishing to travel to long-haul destinations have in most cases no alternative to connecting flights via a hub. The development of origin-destination passengers from Hamburg are shown in the following figure. Figure 4-5: Origin-destination passengers from Hamburg to Southern/East Africa, Asia, Middle East and South West Pacific, Source: Own representation based on data by Sabre ADI. Figure 4-5 shows the development of passengers departing from Hamburg airport and travelling to the Middle East / Asia region between 2002 and The solid dark orange line depicts the overall market development, where an increase in demand from 180,000 in 2002 to 320,000 in 2010 can be observed. Emirates offers non-stop flights from Hamburg airport to Dubai since By offering non-stop flights, Hamburg airport instantly became a much more attractive choice for travelling to the Eastern Hemisphere, especially to the non-stop destination Dubai. Emirates strongly participated in the overall market growth with almost 100,000 origin-destination passengers in 2010, out of the total increase of about 140,000 passengers since Emirates market share in intercontinental traffic to destinations in the Eastern Hemisphere from Hamburg reached 29 % in Lufthansa, in turn, has grown, too, from 39,000 passengers in 2002 to more than 54,000 passengers in Lufthansa s market share was almost constant from 2002 to 2009 (slight decline from 22 % to 21 %, so Lufthansa s growth rate approached the market average. Only in 2010, Lufthansa s market share dropped according to Sabre ADI data to 17 %. Release: 1.00 Page 71

74 In the following figure, we go further into detail and analyse the market Hamburg-Dubai. Figure 4-6: Origin-destination passengers from Hamburg to Dubai, Source: Own representation based on data by Sabre ADI. The results are quite similar to those of Figure 4-5 from a qualitative point of view, however intensified. This is primarily due to the fact that we now look at competition between non-stop flights (Emirates) and connecting flights (Lufthansa). Not surprisingly, since the introduction of the non-stop flights by Emirates, the market has developed much more dynamically compared to Figure 4-5, and consequently, Emirates has gained a larger market share. Lufthansa s market share in Hamburg-Dubai traffic reached a peak in 2003 with 40 % and began to decline already before Emirates market entry in With the introduction of the non-stop flight, Emirates market share immediately increased to more than two thirds for the first and subsequent years of operation. With the inauguration of the non-stop flight, the demand for Dubai as a destination jumped immediately from about 12,000 origin-destination travellers to more than 25,000 in the first year of operation. Before Emirates entered the market in March 2006, about 3,500 origin-destination passengers travelled on Lufthansa via Frankfurt and Munich to Dubai (2005). Immediately after the market entry, transfer passenger numbers declined to about 2,000 for the year In the following years, however, transfer passenger numbers increased again and in 2009 and 2010 Lufthansa carried more passengers between Hamburg and Dubai than in the years before Emirates non-stop flights. This phenomenon is particularly remarkable, as Emirates offers a travel time advantage of more than two hours with its non-stop flight compared to the transfer itinerary via Frankfurt or Munich with Lufthansa. Based on these observations, we conclude that Lufthansa can benefit from increased demand for Dubai as a destination after Emirates has stimulated the market and that obviously air fares in the Release: 1.00 Page 72

75 Hamburg-Dubai market are attractive enough for Lufthansa to allocate seats on its flights from Frankfurt and Munich to Dubai to a growing number of passengers from Hamburg and not to passengers from any other origins. However, a shift effect of transfer traffic due to new services can be observed for some airlines and their hubs. When we again look at the example Hamburg-Dubai, we can see that the demand on Air France and British Airways has declined from 2005 to This resembles the findings shown in Figure 4-3 for the whole market in. However, in the same timeframe, Turkish Airlines has increased passengers from less than a hundred to close to 2,000. So, even in a highly competitive market with non-stop services, carriers offering transfer connections can increase passenger numbers. Figure 4-7: Origin-destination passengers from Hamburg to Dubai travelling on Lufthansa, Air France, British Airways and Turkish Airlines, Source: Own representation based on data by Sabre ADI. Taking a look at the choice of hubs for transfer itineraries from Hamburg to Southern/East Africa, Asia, the Middle East and South West Pacific the following observations can be made: The overall market between Hamburg and Asia/Middle East/South West Pacific has grown from about 167,000 passengers in 2002 to about 280,000 passengers in About 92,000 passengers flew via the German hubs in Frankfurt and Munich in 2010, which is an increase by about 16,000 passengers compared to 2002 and about the same level as in the two years before Emirates operations began in Hamburg in It is worthwhile to mention that transfer passengers from Hamburg in Frankfurt and Munich had actually grown to almost 125,000 in 2009 and only in 2010 the data shows a year of decline. Emirates has now about 71,000 transfer passengers originating in Hamburg. The fourth most important hub for traffic to the Eastern Hemisphere is Istanbul with about 31,000 passengers Release: 1.00 Page 73

76 from Hamburg in In 2002, before Turkish Airlines embarked on a dedicated growth strategy, less than 5,000 passengers from Hamburg used Istanbul as a hub on trips to destinations in the Eastern Hemisphere. The West European hubs London-Heathrow, Amsterdam-Schiphol and Paris-Charles de Gaulle remained more or less on the same level in 2010 as in the years before. Among the other hubs, Helsinki is among the largest winners, with a growth from less than 2,000 transfer passengers in 2002 to roughly 8,000 passengers per year in Figure 4-8: Origin-destination transfer passengers from Hamburg to Southern/East Africa, Asia, Middle East and South West Pacific by first transfer point, Source: Own representation based on data by Sabre ADI. This analysis supports earlier findings (Grimme, 2011). According to these, the number of passengers travelling via German hubs has not declined in absolute terms. In fact, a growing market can be observed, in which most airlines and hubs can participate. Similar effects as shown for Hamburg in the preceding paragraphs can also be observed in Düsseldorf. Here, Emirates has been operating since The overall market for intercontinental air trips to the Eastern Hemisphere from Düsseldorf has grown from about 280,000 in 2002 to more than 450,000 in While the number of passengers using Emirates has nearly tripled in this timeframe, the overall market grew stronger in absolute terms (+170,000 travellers) than the additional passengers flown by Emirates alone (+90,000 travellers). This is a further indication of the stimulation of traffic as a result of increased supply and competition. The number of travellers that have flown on Lufthansa has increased from 2002 to 2010 by 2,000. Emirates has captured a market share of about 33 % in 2010 for trips from Düsseldorf to the Eastern Hemisphere. Emirates market share has gradually increased, with a substantial Release: 1.00 Page 74

77 boost between 2005 and 2006, when a second daily flight was introduced. Since 2005, Lufthansa s market share is almost constant between 10 % and 12 %. Figure 4-9: Origin-destination passengers from Düsseldorf to Africa, Asia, Middle East and South West Pacific, Source: Own representation based on data by Sabre ADI. While a substantial number of passengers use Emirates and Dubai as their point of transfer for trips to the Eastern Hemisphere, incumbent hubs in have increased the number of transfer passengers from Düsseldorf to Southern/East Africa, Asia, the Middle East and the South West Pacific, as shown in the following figure. Release: 1.00 Page 75

78 Figure 4-10: Origin-destination transfer passengers from Düsseldorf to Southern/East Africa, Asia, Middle East and South West Pacific by first transfer point, Source: Own representation based on data by Sabre ADI. Despite the new choices of direct services offered by Air Berlin and transfer itineraries of Emirates via Dubai, the number of passengers travelling from Düsseldorf via a German hub to the Eastern Hemisphere has increased from 71,000 to about 86,000 between 2002 and From this analysis we conclude that the home carrier, despite new competition, can successfully retain customers in its home market. Although we cannot disprove the claim that transfer traffic of Lufthansa via the hubs in Frankfurt and Munich would have grown at a higher rate without competition from new entrants, like Emirates and Turkish Airlines, it is very likely that much of the growth that can be observed in traffic from to the Eastern Hemisphere exists only because of the presence of new competitors with their on average lower air fares and additional capacities, also allowing for an increase in sales by tour operators. In our view it is therefore incorrect to believe that all of the additional travellers in the market would have flown on incumbent carriers, in case the new entrants would not have entered the market. In the case when incumbents react on new competition by lowering their own air fares, then even passengers who continue travelling on incumbent carriers benefit from new competition. Therefore, it is possible to say that new competitors affect the market with a positive externality for all consumers, which benefit from lower fares, irrespective of the carrier they ultimately choose. Release: 1.00 Page 76

79 The overall strong position Lufthansa has in the market between and Asia is also reflected in the development of seat capacities and the number of destinations offered from. Lufthansa itself claims that the Lufthansa Group airlines have Europe s largest offer to Asia with 778 weekly flights as of July 2011, with a growth of 15 % compared to 2010 (Lufthansa, 2011). The same is true when taking a long-term look at the development of seats offered on Lufthansa flights between and the Middle East and and India, as shown in the following figure. Over the 8-year period from 2003 to 2011, seats offered between and India and between and the Middle East have grown by more than 50 %, despite that these markets are most probably strongly exposed to new competition. This development allows concluding that not only Gulf carriers benefit from the overall growth of the market, but also well managed incumbents. Already in 2006, it was assumed that while in the markets for connecting traffic from European secondary airports Emirates will shift away traffic from incumbent network airlines and hubs, the competitive position of national carriers in non-stop markets, where the local brand image and the travel time advantage matter, will continue to be strong (Brützel, 2006). Half a decade later, empirical evidence seems to support this view. Figure 4-11: Seats offered on non-stop flights by Lufthansa from to the Middle East and to India Source: Own representation based on data by OAG. Release: 1.00 Page 77

80 4.3 Development of air fares Concerning the development of air fares, we can observe the following effects. Sabre ADI data available from 2002 to 2011 provides a good overview for the effects of Emirates market entry in Hamburg, which was in March So we have a time series with 4 years before Emirates market entry ( ) and five years ( ) after. The following figure shows an air fare comparison for business class passengers from Hamburg to three major destinations in Asia (Hong Kong, Shanghai and Singapore) from 2002 to The air fare shown is for the one-way segments from Hamburg to the respective destination, quoted in US-$. The analysis takes into account only two-segment itineraries with Emirates and Lufthansa as operating carrier on both flight segments. Figure 4-12: Comparison of air fares in business class of Emirates and Lufthansa from Hamburg to selected Asian destinations. Source: Own representation based on data by Sabre ADI. We can see that the long-term trend of an increase in Lufthansa s business class air fare was not broken due to Emirates presence in the markets between Hamburg and Asia. The downturn in fares in the year 2009 is most likely caused by the global recession, which led to a decline in business travel demand. Overall, we find that Emirates business class fares are about 30 % lower than the fares offered by Lufthansa. On the demand side, this probably reflects the longer journey times with Emirates, as well as the lock-in effect achieved by Lufthansa s frequent flyer programme. On the supply side, the production cost advantages discussed in chapter 2 might play a role, too. In economy class, the differences between Lufthansa and Emirates are smaller. The data set shows that in 2011, Emirates and Lufthansa have charged, on average, about the same fare level for these destinations. Release: 1.00 Page 78

81 Figure 4-13: Comparison of air fares in economy class of Emirates and Lufthansa from Hamburg to selected Asian destinations. Source: Own representation based on data by Sabre ADI. As the air fares in business class do not seem to converge, we conclude that the flights offered by Emirates and Lufthansa are not seen by the passengers as homogeneous, substitutable services. It is reasonable to assume that two separate markets have developed. In Figure 4-14, the average fares in economy class for a set of five Asian destinations (Hong Kong, Singapore, Shanghai, Mumbai and Dubai) and four combinations for minimum stay (including / excluding Saturday rule) and advance booking (7 days / 90 days) are shown. We find that, on average, Lufthansa is most expensive among the airlines considered here. The average lowest fare offered by a carrier from the EU is almost 30 % lower than Lufthansa s. As price leaders among the EU carriers, we relatively often find Finnair, but also airlines in the Lufthansa Group, such as Austrian Airlines. In our sample, Emirates is substantially more expensive than the price leaders among the non-eu-airlines. Lowest fares are typically offered by Oman Air, Aeroflot and for destinations in North Eastern Asia the Chinese carriers China Eastern and Air China. Release: 1.00 Page 79

82 Figure 4-14: Comparison of average air fares in economy class from Frankfurt for a set of five major Asian destinations and four combinations for minimum stay / advance booking Source: Own representation based on data by Kayak.com. 4.4 Intermediate conclusions From the analyses shown in this chapter, we draw the following conclusions: Over the last decade, Lufthansa continued to grow in the market between and Asia/Middle East, both in terms of seat capacity as well as the number of destinations offered. The reasons for this development can be seen in Lufthansa s strong brand image in its home market, the customer retention through frequent-flyer programmes and the highfrequency / low travel time itineraries to major destinations in Asia and the Middle East. Therefore, our hypothesis is that to a certain extent a segmentation of markets has occurred Lufthansa serves time-sensitive travellers and/or travellers which are locked in by frequent flyer programme, while Emirates stimulates traffic for price sensitive demand, which would not have flown otherwise, or, to other destinations. Moreover, with capacity expansion in Frankfurt and, most likely, also in Munich, Lufthansa can further extend its intra-european network with the opportunity to feed its long-haul flights. Emirates has stimulated the demand for trips to Asia and the Middle East from and the growth observed at airports in Düsseldorf and Hamburg to these destinations would not have happened without the new services. Here the special role of emerging carriers like Emirates, Qatar Airways, Etihad Airways and Turkish Airlines for the travel industry should be mentioned again. Tour operators, who had to purchase seats at relatively high fares on charter / holiday carriers to destinations like the Maldives, Thailand and the Seychelles have now the opportunity to purchase large quantities of seats on the new entrants, whose dense schedules allow for a flexible combination of outbound and inbound flights for flexible trip durations. Release: 1.00 Page 80

83 However, the data also shows some declining transfer passenger figures for traffic between, foreign hubs and the Eastern Hemisphere. We observe in some markets declining transfer passengers for Air France, British Airways and KLM, among others. Hubs like London-Heathrow or Paris-Charles de Gaulle are not ideally located for transfer traffic from to Asia, as the westbound feeder flight is a psychological barrier and increases the journey time. Moreover, transfers at the hubs in London or Paris are considered as relatively inconvenient. Release: 1.00 Page 81

84 5 Analysis and quantification of economic effects for In this chapter we estimate the economic effects of Emirates services for the German economy. We follow the approaches applied in previous studies, such as in the study conducted by ECAD (Harsche et al., 2008) and INFRAS (2011) with a differentiation of effects as shown in the following figure. Figure 5-1: Differentiation of economic effects for coming from Emirates activities Source: Own illustration based on Harsche et al. (2008) and INFRAS (2011). The analysis contains two main areas. We examine both the passenger and cargo services provided by Emirates to and the impacts of Emirates orders for aircraft, engines, spare parts, equipment and services on the German aeronautical industry. In the focus of our analysis is the impact on employment, due to the jobs created directly with Emirates and through Emirates expenditures for goods and services. We also take into account jobs created due to the spending of incoming tourists, which have been generated by additional seat capacity on Emirates flights. The more diffuse effects, such as the improvement in location quality through an improved accessibility with intercontinental air services, are discussed on a qualitative level, supported with a literature review and stakeholder interviews. Finally, it has to be considered that air transport is an important sector to the economy, not only because of the effects for the division of labour, international trade and globalisation, but also due to the employment effects in the air transport sector itself. Being a service industry, it is relatively labour intensive and provides jobs over the whole range of skills and education levels. Moreover, due to aviation growth and only limited opportunities for the automation of processes in the air transport value chain, the sector has been continuously creating new jobs, both in the manufacturing industry and the provision of air transport services. Release: 1.00 Page 82

85 5.1 Effects of existing passenger and cargo services Direct, indirect and induced employment For the assessment of direct, indirect and induced employment effects, we have modified the classical input-output analysis to the particular situation of Emirates in. Input-output-tables are edited by the German Federal Statistical Office. Input-output tables show the interdependencies between different branches of a national economy and between branches of different economies. For the assessment of the indirect employment effects of air transport, a classic input-output analysis is applied. This modelling approach, originally formulated by Nobel Prize laureate Wassily Leontief, allows the estimation of the indirect effects of the economic activity of a certain industry, such as the aviation branch, on employment over the whole chain of inputs. The inputs Symmetric input-output tables provide the data used for the calculation of indirect effects. A symmetric input-output table is a product by product or industry by industry matrix describing the domestic production processes and transactions in products of the national economy in great detail. So, in a symmetric input-output table either a product or an industry classification is employed for both rows and columns (see Table 5-1 as example). For each product, total supply (= the sum of demanded intermediate consumption, value added and imports) matches total use (= the sum of supplied intermediate consumption, exports, final consumption expenditure and gross capital formation). Table 5-1: A simplified symmetric input-output table (product by product) USE Industries Final consumption expenditure Gross capital formation Rest of the World Total SUPPLY (1) (2) (3) (4) (5) Final Gross Intermediate Products (1) consumption capital Exports consumption expenditure formation Components of value added Rest of the World Total (4) Total use by product (2) Value added (3) Imports Total supply by product Source: Own representation based on Eurostat (1996) Total supply = Total use Statistical information can be obtained for homogenous branches. It indicates what types of products each sector has produced and sold, and what types of products have been bought and used as inputs for production. Homogenous branches are defined as sectors in which similar products are produced. For instance, it is differed between the nutrition industry, the wholesale & trade sector, the healthcare and social assistance sector and so on. Release: 1.00 Page 83

86 The model In order to estimate the economic effects of a product or other economic activity throughout the whole chain of its required inputs including those inputs (intermediate consumption) that are necessary for other inputs we apply an open statistic Leontief model. The following example illustrates how a chain of inputs is defined: In order to produce and sell an aircraft, inputs from other sectors, such as iron & steel, fabricated metal products, electrical machinery, energy, consulting, and many more, are needed. In order to fabricate metal products, in turn, certain machinery & equipment is required. For the fabrication of machinery & equipment, then, energy, among others, is required, and so on. Hence, the construction of aircraft generates jobs in all these upstream sectors. The degree of these effects is quantified by a Leontief model. The Leontief model could be described as the linkage between a series of input-output-tables relating to the economic activity driven by a product, with the degree of impact of each input-output table quantified by the Leontief model. In the first stage of the model, we estimate the economic effects of interrelations between the aerospace industry and its direct suppliers from different sectors. Next, we calculate the direct supply interrelations of the first-stage supplying sectors (e.g. the fabricated metal products sector). In theory this process is run continuously, which would result in an infinite number of calculations. A so-called Leontief inverse provides a mathematical approximation of the output of the infinite process. The complete Leontief model used contains a combination of the Leontief inverse and labour intensities. Labour intensity is defined as the relative proportion of number of employees compared to value added or production output. As an example, we show in the following paragraph the application of the Leontief model to the estimation of the indirect effects of air transport services in. According to German input-output tables in 2007 in, German and foreign carriers employed 56,000 direct employees, generating an industry output of 26.5 billion. In the generation and production of air transport services, these airlines received products and services from upstream sectors worth 20.8 billion. This was comprised of goods and services; 11.9 billion of which came from domestic suppliers and 8.9 billion came from third countries (Source: Federal Statistical Office of, German input-output tables 2007). All supplying sectors, in turn, also require supply (intermediate consumption) from their respective upstream sectors. We use sector-specific labour intensities to estimate all indirect labour effects. Sector-specific labour intensities can be calculated from the number of employees by industry and the value added or production output by industry. Both values can be obtained from the statistical offices. In total, airlines contributed 56,000 direct and 130,000 indirect jobs in the German national economy in Availability of data The classification of economic activities which was the basis for the input-output tables is, however, currently undergoing a global revision. This revision of the statistical data has been driven by the emergence of new industries in recent years, whilst others have vanished. For example, the economic activities of important sectors, such as the IT industry, is still not shown separately but included in various branches. It is not yet known when the program of revisions will be complete. Due to these on-going revisions to the data structure, input-output Release: 1.00 Page 84

87 tables for the years 2008 and onwards are not available for use in this study. We therefore have estimated data for the years 2008 onwards under the assumption that the structure of intermediate consumption remains as it was in The application of input-output analyses to the air transport sector The air transport system, as categorised by national accounts, consists of the production branch of air transport services, service activities incidental to air transportation (airports and air traffic management), and aerospace industry. Within the input-output tables, however, only air transport services are reported at the top level. The manufacture of air- and spacecraft is contained within the manufacture of other transport equipment production branch (i.e. including all transportation equipment, not aircraft alone). Service activities incidental to air transportation are grouped similarly broadly, as they are part of the warehousing and support activities for transportation production branch. In order to estimate the economic effects of the latter two areas, the original input-output tables are further differentiated in order to distinguish the production of aircraft and the service activities as homogenous branches. To generate these categories, data on the structural analysis of manufacturing, transport and storage from the German Statistical Office have been used. These extended input-output tables form the new basis for the Leontief model in our methodology. Throughout this chapter, we use the following definitions for the analysis of employment effects, generated by Emirates passenger and cargo services. The input-output analysis can show the direct, indirect and induced employment and gross value added effects, but not the benefits derived from an increase in connectivity. Direct employment includes all employees on Emirates payroll in. However, Emirates contribution to the German economy goes far beyond the persons employed with the carrier directly. Passenger and cargo traffic by Emirates creates jobs in a wide area of services related to air transport, such as ground handling, warehousing, catering, aviation security, customs and border control. Indirect employment, as the term is used here in this study, includes all employees, which are not on Emirates payroll, but whose jobs depend on the orders of goods and services required by Emirates to operate passenger and cargo services from and to. We differentiate indirect employment in two levels. The first level describes the employment effect at companies, which have a direct business relation with Emirates. This includes for instance hotels for the crew accommodation, catering providers for inflight meals and drinks or the airport operators as providers for infrastructure. A second level constitutes the chain of inputs, required by the companies that deliver inputs. Induced effects are defined as the economic activity generated by the consumption of income generated from direct and indirect aviation activities. The induced effects can therefore be considered as the multipliers of income of persons directly and indirectly employed in the aviation sector. Induced effects are estimated from the compensation of employees in the air transport sector and their consumption, differentiated by products. However, we suggest being rather cautious in the interpretation of the results for induced employment, for the following reason: in case aviation would cease to exist, the consumption of employees formerly being directly or indirectly employed in the aviation sector would be reduced but would not vanish completely from the economy. Part of the employees formerly working in the aviation industry Release: 1.00 Page 85

88 would find jobs in other sectors, albeit maybe at lower wages. Others would become unemployed and reduce their consumption to the level that the income from social security payments (or income from capital reserves) allows. Therefore, the effect of aviation-induced employment on the economy is largely dependent on the difference in consumer spending between the situation when a person is employed in aviation and the alternatives (employment in other sectors, unemployment benefits). The application of input-output analysis to the case of Emirates Basis for the assessment of the induced effects of the economic activities of Emirates in are, as in the case of direct and indirect effects, empirical input-output tables, which are used to conduct an input-output analysis with an open static Leontief model. Our approach includes the following assumptions: In the first place, consumption depends on disposable income, of which compensation of employees are only a part. Therefore, we assume that the share of compensation of employees directly or indirectly employed in the aviation sector is the same as in other sectors. Furthermore, we assume that the average propensity to consume is the same for employees in the aviation sector as in other sectors. Figure 5-2: Exemplary chain of inputs and definition of direct and indirect effects Source: Own illustration. The indirect employment effect for each sector can be estimated by calculating the coefficients for employees per output unit (based on the figures of the overall economy) and multiplying this coefficient by Emirates expenditures. In our definition, we slightly deviate from past studies. Klophaus (2008), for instance, defined direct employment as all employees which are directly employed on-site at the airport. In order to capture the effects specific to the economic activities, we have supplemented the macroeconomic analysis by a bottom-up approach as outlined by Santin (2001). For this purpose, data provided by Emirates on the spending of the carrier in has been used. The elements of spending include for instance: Salaries of Emirates employees in Release: 1.00 Page 86

89 Rents for offices and airport locations (counters, lounges) Airport fees, catering, fuel, air navigation service charges Payments for hotel accommodation for crews Further goods and services obtained for the operation of Emirates, e.g. advertisement The direct, indirect and induced effects can be calculated in more detailed and accurate manner with this approach, than by solely relying on the input-output tables. For the estimation of the effects, Emirates provided financial data for the fiscal year 2010/11. Figure 5-3: Emirates expenditures in and the resulting direct and indirect employment effects for the fiscal year 2010/11 Source: Own representation. In fiscal year 2010/11, the overall expenditures of Emirates in related to the operation of passenger and cargo services amounted to million million are spent directly as salaries and social security payments for the employees on Emirates payroll. Emirates itself employs in 169 persons, in the areas of passenger and cargo sales, marketing, operations and administration. The largest expenditure block consists of airport, handling and navigation charges, with 67.7 million. In the system of national accounts, this area is defined as Other supporting air transport activities. Based on the employment coefficients of this sector, the employment generated at airports, ground handlers and air traffic control can be estimated at 154 jobs. If we also take into account the employment created by the inputs delivered to the airport operators, ground handlers and air navigation service provider Deutsche Flugsicherung (DFS), overall 292 jobs are generated in this area. Included in this category are the en-route charges paid by Emirates to air navigation service provider DFS for overflights of German territory by services operating to/from Western Europe (predominantly Netherlands and United Kingdom) and North America (occasionally flights to/from New York cross German airspace). This results in en-route charges of about 9.8 million annually. Release: 1.00 Page 87

90 The second largest expenditure block of Emirates in is the one for fuel bought in, with 62.8 million. In the system of national accounts, we find a relatively low level of gross value added in the oil sector, as a large share of the value of the final product is determined by the value of inputs, which is mainly crude oil. The labour intensity per revenue unit is therefore relatively low and the employment effect is limited to 3 jobs. Taking into account the chain of inputs required by the oil industry (transportation, energy, etc.), the employment effect is 18 jobs. Another major area of Emirates expenditures in is services, such as the rental of offices, IT services, advertising and sports sponsoring. This expenditure was in fiscal year 2010/ million, generating 491 jobs over the full chain of inputs. Emirates spent 18.2 million for crew accommodation and catering. This sector is summarised in the system of national accounts as hotels and restaurants. The sector is highly labour intensive, as a large share of the gross value added is created domestically or even locally. The employment generated by Emirates expenditures is 504 jobs over the full chain of inputs. Finally, Emirates spends about 0.9 million on transit checks during the stops at airports. This creates an employment of 13 jobs. Summarising the findings in our Emirates-specific input-output analysis, we estimate the number of jobs dependent on Emirates economic activities in at 1,797, which includes 169 persons directly employed at Emirates and 1,628 persons employed either by contractors in direct business relation with Emirates or being employed with companies active in the downstream chain of inputs. So far, our analysis included the employment effects directly linked with the economic activities of Emirates. Further employment effects are originating from the passenger traffic related to Emirates services, such as non-aviation activities at airports (retailing, parking) or the employment at public authorities (e.g. border control or customs). These indirect employment effects can be quantified in the order of 643 jobs. Therefore, we estimate the sum of direct and indirect employment is at 2,440 jobs created by Emirates air transport activities in. Further effects, due to the spending of foreign travellers, are analysed in chapter on incoming tourism. Besides the employment effects in hotels and restaurants, this also includes the effects of retailing expenditures and the effects along the chain of inputs of the tourism and retailing industries. The induced employment effect, resulting from the spending of personal incomes generated by Emirates direct and indirect activities, is estimated at 570 jobs. If we also take into account that for instance employees working in airport retailing or public authorities are dependent on Emirates activities, we estimate that the extended effect of induced employment creates up to 712 jobs in. Summing up direct, indirect and induced effects for Emirates, its suppliers, the non-aviation business at airports and public authorities, 3,152 jobs are created. While the approach shown above is a solid, well-accepted methodology for comparison, we also show the results in case other methodologies for the estimation of employment effects of Emirates activities are applied. In the scientific literature we find several examples, where Release: 1.00 Page 88

91 the correlation between the direct employment at airports and the volume of air cargo and the passenger numbers handled at airports is analysed. For instance, Klophaus (2007 and 2008), undertook a regression analysis showing the dependency of direct employment at airports on the airports traffic. He considered both passengers and cargo, which were translated in workload units (WLUs) representing the airports traffic in a single measurement. In the workload unit calculation, each 100 kg of cargo and each passenger equals 1 WLU. Running a simple regression, Klophaus found a direct employment effect of 862 jobs per million WLUs. In Klophaus definition, direct employment includes all jobs, independently of the economic activity or sector, which are directly based at the airports. This includes airlines, the airport operator, public authorities and services/retailing at the airport. For the present study, the methodology used by Klophaus was adapted to the situation of Emirates in. As Emirates employs a large number of staff (flight deck and cabin crew, maintenance, management) in Dubai, the application of an employment coefficient which includes employment effects of airlines based in would result in biased results. Therefore, in the regression the number of employees based at the airport excluding airline employees is used as dependent variable. Data published by the German airports operator association (Arbeitsgemeinschaft Deutscher Verkehrsflughäfen, 2005) shows employment at German airports separately for airport operators, public authorities, airlines and others. As independent variables, passengers handled and cargo volumes are used. It is important to consider the effects of air cargo explicitly in the calculations, as in the area of long-haul air services, air cargo plays an important role in traffic and revenue generation. The coefficients calculated in the regressions show that each million passengers handled created 494 direct jobs and each 100,000 t of cargo generated 222 direct jobs. In fiscal year 2010/11, Emirates carried 1.43 million passengers and 145,000 t of cargo to and from German airports. Based on the employment coefficients shown for passenger and cargo traffic the direct employment effect of Emirates at can be estimated at jobs, including 169 employees on Emirates payroll (Methodology 2 in Table 5-2). For the estimation of indirect (i.e. in this context jobs based outside the airport) and induced jobs, Klophaus applies a multiplier. This approach is commonly applied also in other studies on economic effects of aviation. The multiplier for the estimation of indirect and induced employment in methodology 2, applied by Klophaus with a value of 2.0, is about the average of multipliers that can be found in other airport-related economic studies. A collection of multipliers for the employment effects at German airports is shown by ECAD (2008), where the values range from 1.1 to Therefore, if the multiplier of 2 is applied, 2,395 indirect and induced jobs can be calculated, or 3,593 jobs including direct employment. The range of total employment in case the multipliers found by ECAD would be applied vary between 2,515 and 4,839 jobs. A multiplier of 1.5 applied in methodology 2 would result in virtually the same employment figures as with the application of the input-output analysis in methodology 1b. As particularly airlines due to their high share of inputs have a relatively high multiplier and for Emirates, this effect rather occurs in Dubai than in, the selection of a multiplier smaller than 2 for the situation of Emirates in seems to be suitable. Therefore, the results seem to be consistent and plausible for the application of different methodologies. The following table summarises the approaches and findings of the two methodologies applied here for the estimation of direct and indirect employment. Release: 1.00 Page 89

92 Table 5-2: Summary of direct and indirect employment estimations for Emirates air services to and from Short description Definition of direct employment Definition of indirect employment Direct employment Indirect employment Induced employment Sum of direct, indirect and induced employment Limitations Methodology 1a Methodology 1b Methodology 2 Input-output analysis, supplemented with Multiple regression of Input-output analysis, bottom-up approach employees based at supplemented with on Emirates German airports (without bottom-up approach expenditures in airline jobs, dependent on Emirates, including variable) and cargo and expenditures in employment effects of passenger WLUs as non-aviation activities independent variables (airport retailing and public authorities) Employees on Emirates payroll Employees at companies delivering inputs to Emirates, including full chain of inputs Employees on Emirates payroll Employees at companies delivering inputs to Emirates, including full chain of inputs and employees benefitting from Emirates activities (e.g. airport retailing and public authorities) Employees with workplace based on the airport Employees with workplace based outside the airport ,198 1,628 2, ,395 (using a multiplier of 2.0) 2,367 3,152 3,593 Does not account for employees in nonaviation areas (retailing, services by public authorities offered free of charge to aviation, such as customs or border control) No clear distinction between direct and indirect employment in the systematic of national accounts, not taking into account offairport employment (e.g. city ticket office). Multiplier of 2.0 empirically questionable Source: Own representation. Release: 1.00 Page 90

93 5.1.2 Catalytic effects The economic impact of airports and the air transport industry can be divided into several effects, as has been shown. The direct, indirect and induced effects, as explained in the preceding chapter, are in the immediate relation with the production of air transport services. However, in addition to the more obvious direct and indirect effects associated with the production of air transport services, complex interdependent effects come from the use of air transport services, from which regional, national and global economic development benefits. Consequently it can be argued that (ATAG, 2005): Air transport industry s most important economic contribution is through its impact on the performance of other industries and as a facilitator of their growth. It affects the performance of the world economy, improving the efficiency of other industries across the whole spectrum of economic activity referred to as catalytic or spin-off benefits. In the literature, catalytic effects are defined as investment, production, income and employment by economic activities through aviation-related activities for which air transport links are a significant locational factor (Harsche et al., 2008 and Frey, 1979). Catalytic effects can be distinguished in business- and passenger-related effects (INFRAS, 2011). Businessrelated effects are caused by aviation, when location decisions of companies are influenced by air transport services. In this perspective, air transport can be seen as a production factor, which is used to increase productivity and to improve the accessibility of resources and markets. This influence is methodically difficult to quantify, although several studies (e.g. Button/Taylor, 2000) have shown for the US, that metropolitan regions with intercontinental air transport links have a higher employment in industries, which can be seen as relatively air transport-intensive, such as high-tech and services. Button and Taylor conclude that more international air transportation is likely to stimulate further growth in the new economy. Button and Taylor argue that both the number of destinations and the quality of service have an impact on the location quality for businesses and that the marginal benefit of additional air services declines. It is therefore reasonable to conclude that already few intercontinental services to main economic centres and/or air transport hubs can generate positive impacts for regions. This is particularly true for s secondary airports, which currently have no or only very few intercontinental air services, as shown in Figure Passenger-related catalytic effects are generated mainly by leisure and business travellers using air transport and their subsequent expenditures (Harsche et al., 2008 and Frey, 1979). In our study, we follow the approach of INFRAS (2011), to quantify the passenger-related catalytic effects in the area of incoming tourism (see the following chapter 5.1.3), while further effects related to the quality of locations are qualitatively discussed in this chapter. Air transport and locational factors Airports are the nodes of air traffic and contribute to increase the mobility of goods and people (Harsche et al., 2008). In terms of economic development, air traffic allows companies to uncover new distribution channels and open up markets and as a result increases sales, increases productivity and reduces cost. Locational factors are the reasons for site selection of companies. Firstly, there are general location factors that apply to all businesses in a defined region and secondly specific factors Release: 1.00 Page 91

94 that apply only to a limited number of companies or industries (Harsche et al., 2008). In this context, companies with a certain affinity to or necessity for air transport shall lie in the focus. By applying the fundamental approach of location theory, cost- and distance relations of airports and businesses can be analysed. While this theory is usually applied for the assessment of the distance between the site of production and a central market place, it can also be used to present the relation between internationally active companies and the airport as a supplier of transport services or gateway to international channels of supply and distribution. It is assumed that the costs of land decrease with increasing distance to the airport while the time costs increase. From this model it becomes obvious that businesses with high time costs prefer a location that is relatively close to an airport, which provides connections to the relevant markets for this business. Typically, these industries can be found in the sector of high-tech and services, as shown by Button and Taylor (2000). Figure 5-4: Location decision of companies depending on time- and real estate costs Source: Own representation. Strictly neoclassical theory referring mainly to transport costs is not sufficient to explain regional economic development though. A complex interregional and international connected economy is subject to several influences and aspects like industry- and regional specific history and characteristics. An analysis of regional economic development demands the examination of socio-economic structures from an evolutionary perspective. A combination of locational factors might produce competitive advantages in a region and lead to business concentration and clustering. In its study, ECAD conducted a survey among 100 multinational corporations operating within close proximity to an airport concerning the importance of air transport links. The survey found that the quality of air transport links is among the most prominent location Release: 1.00 Page 92

95 factors to support international investment within the region. This has the highest relevance among companies operating in the fields of sales, distribution and marketing. Especially contacts to parent- and sister companies and a strengthening of sales, distribution and marketing necessitate direct personal contact. An expansion of business travel is anticipated by companies interrogated in the study. Consulting the ECAD study, the analyses concerning the relation of air transport and location- and investment behaviour of multinational corporations suggests positive effects of aviation on long-term regional and macroeconomic development in terms of productivity, investment, value added-, income- and employment effects. Assuming that air transport links lead to an increase of productivity and to a reduction of costs for some of the regional companies then this leads ceteris paribus to an increase of competitiveness of these enterprises in the region (Harsche et al., 2008) This would have a positive long-term impact on a regional level of production or concerning the regional economic structure and would result in a support of existing jobs in the region and actually increase the total number of jobs. However, not all companies are in the same way reliant on air transport. But especially highly internationally orientated and integrated companies will only be able to a very limited degree to substitute air transport links. The importance of air transport becomes obvious when taking into account the economic structure of the major metropolitan areas in, with a high share of finance and consulting services in Frankfurt and high-tech engineering in and around Stuttgart as examples. In terms of regional economic development and according to theoretical and empirical research, a high degree of international interaction promotes the exchange, the development and the spatial diffusion of ideas, technological progress, process- and product innovations. The accessibility of regions with intercontinental air services is, as previous studies have shown, in times of globalization a decisive factor to maintain competitiveness and to strengthen exports. Access to air transport supports foreign direct investment into the region. Positive effects are expected for regional but also national productivity. In general, the provision of international air transport connections is a prerequisite for engagement of international purchasing power and investment in the region and thus a requirement for long-term competitiveness of the German economy. Aviation is one of the most prominent locational factors of international enterprises in. The global economy holds high demands on modern transportation systems in terms of destinations, link frequencies and punctuality. To summarise, ATAG states that: Air transport boosts productivity across the global economy: improved transport links expand the market in which companies operate. As a result, companies are better able to exploit economies of scale thereby reducing costs, and to specialise in areas of comparative advantage. By opening up markets, air services expose companies to stiffer competition, encouraging them to become more efficient. Air transport improves the efficiency of the supply chain, for example, many industries use air transport to shorten delivery times as part of their just-in-time delivery systems, enabling them to deliver products to clients quickly and reliably and to reduce costs. Air transport is an enabler of investment both into and out of countries and regions: viable air transport links are one of the key considerations that influence where international companies choose to invest. (ATAG, 2005) Similar to the positive business-related catalytic effects of aviation, the proximity of an airport with intercontinental air transport links will have positive impacts on the private households Release: 1.00 Page 93

96 mobility options. It is assumed that such benefit increases the shorter the distance to the airport or the shorter the time needed to reach the airport. These effects are particularly relevant for the attractiveness of a region for incoming tourism. Obviously a region is much more easily accessible for international business or leisure and thus more attractive if direct access to the air transport network is provided (Harsche et al., 2008). A region will benefit from tourism since inbound tourists in the region will consume local cultural and service offerings or the gastronomic service facilities. This said it is obvious that the level of value-added contribution brought by tourists entering the country depends largely on the prosperity of the origin of tourists as well as their length of stay. A quantification of the effects coming from Emirates air service for is conducted in the following chapter Incoming tourism Incoming tourism is an important sector for the German economy. In a study published by the Federal Ministry for the Economy (BMWi, 2012), the share of tourism-related activities was 4.4 % of the total gross value added in (direct effect). When also the indirect and induced effects are taken into account, the share in the gross value added of the German economy increases to 9.7 %. The direct, indirect and induced employment effect of tourism is estimated in the study at 4.9 million jobs (12 % of the total employment in ). The authors of the study conclude that the tourism industry has a higher importance for than for instance the automobile industry or the financial services sector. Incoming travellers from Asia and Southern Africa have already achieved a significant share in the number of arrivals and nights spent in of foreign tourists. According to data published by the German National Tourist Board (Deutsche Zentrale für Tourismus), travellers from Southern Africa, Asia and South West Pacific spent 4.8 million nights in in 2010, which is a share of 8 % of all nights spent by foreigners in (DZT, 2011a). Figure 5-5 shows the development of incoming tourism, measured by the number of nights spent by travellers from the respective countries of origin in for a selected range of countries/regions which are connected to via Emirates hub in Dubai. The development shows a high growth dynamic. Particularly high growth rates in the number of travellers to can be found in markets served by Emirates, such as the Middle East, India and China. Since 2001, average annual growth rates were exceeding 10 % for the Middle East and China and about 9 % for Australia, New Zealand and South West Pacific. Tourism from India, for which data is available since 2006, has grown even by almost 15 % per year. Annual growth rates between 2009 and 2010 for individual markets, such as Middle East, China even have exceeded 25 %. The German National Tourist Board estimates the further growth potentials at around 75 % for the next 10 years, which makes Southern Africa/Asia/South West Pacific the region with the highest growth rate of all incoming areas. Release: 1.00 Page 94

97 Figure 5-5: Development of incoming tourism, measured in nights spent by travellers from Asia, Middle East and South West Pacific Source: Own representation based on data by the German Statistical Office. The outlook for the year 2020, conducted by the German National Tourist Board and presented in Figure 5-6, is similarly positive, as the development was in the past. It is expected that the number of nights spent by foreign travellers from Asia, Middle East and the South West Pacific will increase from 4.6 million in 2010 to 8.4 million in 2020 (+82 %). The German National Tourist Board expects that incoming travellers from the Middle East region will become the second largest group of non-european travellers (estimation of 2.3 million nights in 2020) after those from the US (estimation of 5.9 million nights 2020), when measured by the number of nights spent in. This can be regarded as an indication also for further growth potentials for air transport between and the Middle East. The growth of incoming tourism from the Middle East is even more remarkable, when taking into account the relatively small population size of 39.2 million inhabitants 3. Based on the expected number of nights to be spent in per inhabitant, the propensity of Middle Easterners to travel to (58.7 overnight stays per thousand inhabitants) is about 35 times the one of the Chinese (1.6 overnight stays per thousand inhabitants), 3.2 times the one of the Americans (18.6 overnight stays per thousand inhabitants) and 2.3 times the propensity to travel of the Australians (25.7 overnight stays per thousand inhabitants). 3 The German National Tourist Board applies a relative narrow definition of the Middle East countries Release: 1.00 Page 95

98 Figure 5-6: German National Tourist Board tourism growth forecast 2020 for incoming tourism from Asia, Middle East and South West Pacific Source: Own representation based on data by the German National Tourist Board (DZT, 2011). In order to attract foreign travellers, the availability of flights and low air fares are particularly relevant. This view is supported by the tourism managers we have interviewed for this study (Ostendorf, 2011). In a comparison between Berlin and Munich, the lack of non-stop flights and capacities on transfer flights is considered as a competitive disadvantage in the tourism development of Berlin. The strong positive effects on the growth rates of incoming travellers of new long-haul flights can be seen in the case of Munich over the past decade. In Munich, tourists from the Middle East have become the fourth largest tourist group overall and the second largest group of intercontinental tourists after those from the USA. Among the tourist originating countries with highest growth rates, we find also countries, for which Emirates provides connecting services, e.g. from India and Australia. Release: 1.00 Page 96

99 Figure 5-7: Development of incoming tourism in Munich from selected countries, measured in nights spent *) 2011: Estimated based on data from January to October Source: Own representation based on data by the Munich Tourism Office. In Berlin, growth from tourists from the Middle East was 7.8 % between 2007 and 2011, in Munich 10.1 %. The data, however, also shows some regional specific preferences of foreign travellers. Hamburg, for instance has not benefited from Emirates services disproportionately in terms of tourists from the Middle East, which have grown only 1.3 % on average per year between 2007 and 2011, while a substantial increase in the number of tourists arriving from India can be observed with an average annual growth rate of 18.3 % in the number of nights spent. A stakeholder interview with the Hamburg Chamber of Commerce conducted in the course of this study delivered some explanations for this development. While Hamburg does not promote tourism opportunities in the Gulf to a large extent, the aeronautical industry in Hamburg employs a relatively large number of engineers of Indian descent, which has intensified the relations between India and Hamburg also in terms of tourism. New long-haul flights generally increase the visibility of a city or region in the global tourism market. A good example for this is the Hainan Airlines non-stop flight from Beijing to Berlin. Since this flight has started, Chinese tour operators have started including Berlin in their German and European tours. Before the operation of this long-haul route, other European cities, which were better accessible by long-haul flights, such as Munich and Frankfurt, were preferred as origin or destination points of package tours. The view that long-haul flights strongly support incoming tourism is not only held by German tourism managers, but can also be found in other studies. For instance, in the study A new airport for London authors argue that the lack of flights between London and China is a major reason for the the UK s Release: 1.00 Page 97

100 currently meagre record in attracting famously high-spending Chinese tourists to visit (Greater London Authority, 2011). Given the optimistic growth forecasts, we do not expect that with new long-haul services to secondary airports in tourism in Munich or Frankfurt will decline, as the overall market grows at the rates shown above. On the contrary, new points for entry and exit can increase the overall attractiveness of as a travel destination, as it is possible to set up tours more flexibly. Although non-stop flights to the Far East are preferred as means of stimulating incoming tourism from this region, transfer itineraries with added capacities are also seen as positive. So far, the service from Berlin to Doha, operated by Qatar Airways, and its connectivity to onward destinations, is seen by the tourism administration in Berlin as a positive first step; resulting in additional interest in Berlin, but the stimulation effect is limited due to the relatively small aircraft (A319/A320) operated on the route. In this regard, a daily service from Berlin to Dubai operated by Emirates with wide-body aircraft is likely to create higher benefits than the existing service by Qatar Airways. Also the tourism authority in Stuttgart views new intercontinental air services as beneficial to the development of incoming tourism. Currently, business travellers are the largest group of visitors from abroad in the Stuttgart region. Main purposes for coming to the area are trade shows, congresses and visits at German companies. While Stuttgart is well connected to European hubs in Frankfurt, Munich and Zurich by a combination of air services and ground access (e.g. high speed train to Frankfurt), new intercontinental air service can improve the accessibility of the region, as business travellers are perceived preferring to arrive by air directly at the final destination, without requiring an additional train ride after a long intercontinental flight. In the segment of leisure tourism, the Stuttgart tourism authority expects that growth potentials in the area of individually booked tours can be exploited, particularly for travellers from India. For this segment, the visibility of the city, e.g. in the timetable of airlines or in internet flight search engines and travel websites is expected to improve the competitive position compared to the blockbuster destinations like London or Paris. In comparison to the most prominent European cities which are better known to Asian travellers, it is more difficult for the majority of cities in Europe to attract incoming tourism from Asia. Stuttgart sees itself in a favourable geographical location, enabling travellers to reach a number of destinations particularly interesting for foreign travellers by a day-trip, such as Munich, Heidelberg, Rothenburg ob der Tauber and even Paris with the recently opened high-speed railway line. The managers of the Stuttgart Marketing GmbH have confirmed the observation made by their colleagues from Berlin that with intercontinental air services, a destination is more likely to become a gateway, i.e. in this context a location in which tours will start or end, which leads to an increase in the average length of stay compared to a destination that is an intermediate stop. In other words: if a city is not served by long-haul flights, for instance due to restrictive traffic rights as it is the case with Emirates and Stuttgart, it may have a competitive disadvantage compared to those cities with long-haul flights. Finally, the Stuttgart region hopes to stimulate health / medical tourism, a segment that has already developed strongly in the area around Munich. This segment is interesting as the average length of stay is longer than for leisure trips. Moreover, the travellers in this segment require a high level of convenience for their trip, strongly supported by direct air services. Harsche et al. (2008) analysed the potential of medical tourism for the Stuttgart region. Stakeholder interviews conducted by Harsche el al. (2008) indicate that while the medical infrastructure in Baden-Württemberg is relatively good, further growth can be expected with a new direct air service from the Middle East. Overall, German consulates in the Middle East issued visas for 10,000 trips with medical treatments as the main purpose in Release: 1.00 Page 98

101 Assessing the contribution of Emirates for incoming tourism in For assessing the contribution of Emirates to incoming tourism in, we have analysed the correlation between the origin-destination passenger volume and the seat capacity offered and the nights spent by foreigners in. Our hypothesis is that with an increasing number of origin-destination passengers on a city or country pair, the number of incoming travellers increases, as among the total number of passengers on a route, we find both outgoing and incoming travellers. Based on data provided by the German Statistical Office (tourism statistics, number of seats offered on flights from ) and Sabre ADI (origin-destination passengers), we can show a high correlation between both the seat capacity offered as well as the passenger volumes between and Asia/South West Pacific and the nights spent by incoming travellers from these regions in. In the following figure, we correlate the number of seats offered on non-stop flights from the Middle East to with the number of nights spent in by travellers from this region. With a higher number of non-stop seat capacity, the attractiveness of as a destination for leisure and business trips, as the country can be reached quicker, more conveniently and, in case of decreasing air fares due to increasing intensity of competition with new offers also at a lower cost. Figure 5-8: Correlation between the number of seats offered on non-stop flights from the Middle East to and the number of nights spent by tourists from the Middle East in, Source: Own representation based on data by the German Statistical Office. Release: 1.00 Page 99

102 The analysis shows that statistically for every four seats offered on a flight from the Middle East to, travellers from this region stay one night in. Based on this finding it can be argued that Emirates, which offered in 2010 about 860,000 seats to, generated about 215,000 overnight stays by tourists from the Middle East in. Particularly for Munich, we can observe a strong correlation between the increase in number of air services from the Middle East and the number of incoming tourists. The number of incoming tourists from the Middle East has increased by 10.1 % on average per year from 2007 to 2011, while the number of seats offered on direct flights between cities in the Middle East and Munich has grown by about 12.5 % over the same timeframe. As already explained above, tourists from the Middle East are important to the German economy, as this region provides above-average growth prospects. Moreover, tourists from this region coming to are affluent and their length of stay is above average. While the average Asian tourist stays 2.3 nights per arrival, travellers from the Middle East stay on average 2.9 nights (German Statistical Office). The reason for this development can probably be found in the trip purpose. A growing segment in the incoming business in are travellers from the Middle East coming to for medical treatment, which, almost automatically, requires a longer stay than a trip for sightseeing. The correlation between origin-destination passenger volume between and destinations in Asia is equally strong as the correlation between the number of seats offered and the number of overnights stays, as shown above. Figure 5-9: Correlation between the number of origin-destination passengers between and destinations in Asia and the number of nights spent by tourists from Asia and South West Pacific in, Source: Own representation based on data by the German Statistical Office and Sabre ADI. Release: 1.00 Page 100

103 As shown in Figure 5-9, we find that on average for each additional passenger transported on a country pair, the number of nights spent by foreigners in increases by about 0.8. Emirates, with 608,000 passengers from to Dubai, could therefore be attributed about 485,000 nights spent by foreigners from Asia and South West Pacific in. We estimate the economic impact for from these travellers as follows: the German National Tourist Board provides figures for the average daily spending of foreign travellers from each country in. We assume that the share of days spent by foreign travellers equals the share of origin-destination passengers by country/region on Emirates flights from. The results are shown in the following table. Release: 1.00 Page 101

104 Table 5-3: Expenditures by foreign tourists travelling on Emirates to Country / Region Total spending Expenditures per day Share of days Total no. of days Middle East 24.7 million % 154,646 China and Hong Kong 11.7 million % 33,597 India 8.6 million % 56,467 Australia, New Zealand and South 5.0 million 120* 8.6 % 41,946 West Pacific Korea 3.6 million % 20,384 Japan 1.4 million % 4,292 Other countries in Southern/East Africa and Asia 20.8 million 120* 35.8 % 173,668 Total 76.0 million % 485,000 *) Estimated Source: Own calculations, based on data provided by the German National Tourist Board and Sabre ADI. In the first look, it may seem counterintuitive that affluent tourists from the Middle East spend much less per day than tourists from China or Japan. However, this can be explained by the fact that tourists from the Middle East stay on average with a total of 19 nights almost twice as long in as tourists from China (8.8 nights) or Japan (8 nights). Therefore, expenditures on souvenirs or brand products Made in distribute over a larger number of days, leading to the smaller daily expenditure figure. Overall, we estimate the expenditures of incoming tourists who travelled on Emirates to at about 76 million. Based on the input-output methodology described above, this expenditure creates 2,583 direct, indirect and induced jobs. However, we suggest being cautious with the causality implied by the calculation. We have not studied the alternatives of incoming travellers to flying on Emirates. Without Emirates services, the travellers either could have switched their destination to another country or could have flown to on another airline. However, as discussed above, it is unlikely that all the tourists would have visited if Emirates flights had not been available. The chapter on passenger flows has shown that Emirates has stimulated traffic with new capacities at competitive fares. Similar conclusions can be reached, when we analyse the correlations between the number of seats on non-stop flights offered and the nights spent by tourists in. With an increasing number of non-stop flights, the attractiveness of as a destination for private and business trips increases, due to a higher level of convenience, time savings and lower fares resulting from increased competition. Release: 1.00 Page 102

105 5.1.4 Outgoing tourism While benefits strongly from incoming tourism, the net balance of payments in the tourism sector is negative for the German economy. The income from tourism for was 26.2 billion in 2010, while the expenditure by German tourists abroad was 58.6 billion, resulting in a negative balance of payments of 32.4 billion (DZT, 2011b). However, from the negative balance of payments it should not be concluded that aviation in general or additional services is negative for s welfare. For the individual traveller, each additional offer can be regarded as positive, as the choice of travel options increases and a stimulation of competition has positive effects on product quality and prices. The same is true for tour operators. With the rise of the Gulf carriers and Turkish Airlines, additional seat capacities became available for European tour operators, which have relied in the past to a large extent on legacy network carriers and holiday / charter airlines. Flexibility also in terms of the length of trip and the day of departure has increased, as flights are operated daily in contrast to formerly offered weekly flights only. For the impact of individual air routes and offers on outgoing tourism no empirical data is available. It is reasonable to assume that new air services will most probably lead to a shift in destination choice of tourists, but not to a complete change in behaviour and attitudes. Since for instance Emirates offers services from Hamburg to Dubai, it is likely to assume that tourists from the Hamburg area are now more likely to travel to Dubai for vacation. But it is also very likely that these tourists would have travelled to Cuba, the Dominican Republic, Egypt or Tunisia, if the air service to Dubai had not existed. At the same time, it is relatively unlikely that tourists with a preference for the North Sea or Baltic from the Hamburg area have switched their destination to the UAE. So the hypothesis is that new air services to a large extent do not significantly increase the negative balance of net tourism spending for. However, this issue would require more fundamental research before final conclusions can be drawn Air cargo Air cargo has played for a long time an important role for the transportation of goods over long distances. The main advantages are speed and safety, while the relatively high costs compared to sea transport make air transport viable usually only for high-value goods. With these characteristics, air cargo is a pillar for the success of the German economy in international trade. The German economy is characterised through a relatively high level of openness, i.e. imports and exports have, in international comparison, an above average share in the economic activity. In 2010, the share of exports in the German GDP was 47 %, with exports valued at 1,160 billion, making the number two behind China in international trade (Statistisches Bundesamt, 2012). While the most important trade partners are located within the European Union, the emerging markets in Asia have gained in importance over the past years and so has air cargo, as a means to serve customers in these countries. Most important trade partners in Asia and the Middle East are China, with exports valued at 53.8 billion in 2010, followed by Japan with 13.1 billion, South Korea with 10.3 billion and India with 9.3 billion. Exports to the UAE were valued at 7.6 billion in 2010, making the country s fifth most important trade partner in Asia (Statistisches Bundesamt, 2011). Long-term forecasts for s manufacturing sector predict that the exports will grow significantly. However, not all branches of manufacturing are equally air freight affine. Release: 1.00 Page 103

106 Therefore, Figure 5-10 shows the long-term export outlook for various manufacturing branches for which the use of air freight is very likely to a certain extent based on the characteristics of the goods produced. The graph is based on data of Prognos Deutschland Report 2030 issued in the year 2006 with the consequence that the economic crisis of the years 2008/2009 is not incorporated in the forecast. However, having the long-term perspective in mind, Figure 5-10 shall primarily illustrate the general market and export development expected in the future. It is shown that branches, such as vehicle manufacturing, mechanical engineering and the various sub-branches of manufacture of electrical and optical equipment, are assumed to more than double their exports measured in billion Euros from 2000 to Considering the fact that approximately 25 % of s external trade, based on the value of goods, is being exported by air and this is on a very similar scale also true for the exports to the UAE and Asia for instance, one can hypothesize that air freight volumes will prosper as well. Figure 5-10: Forecast on German exports for the manufacturing industry (constant prices, base year 2000) Source: Own representation based on data by Prognos (2006). Hence, taking into regard on the one hand the overall predicted growth of air cargo demand between Europe and Middle East with an annual average growth rate of 6.0 % and Europe to Asia with 6.5 % (eastbound)/6.7 % (westbound) between 2010 and 2029 based on the base scenarios of Boeing s World Cargo Forecast (Boeing, 2010) and on the other hand the industry-specific export forecast in, it can be assumed that air freight services and respective capacities on these routes have to develop accordingly to accommodate the projected increase in demand. Release: 1.00 Page 104

107 Figure 5-11: Development of air freight exports from to the UAE (in tons), Source: Own representation based on data by EUROSTAT. The gain in importance of the UAE in trade relations with is also reflected in the volume of air cargo between the two countries. While imports from the UAE to are still relatively small, export of goods by air from to the UAE has increased steadily in the period from 2000 to 2010, except a decline in volumes in 2002 and 2003, as shown in Figure Surprisingly, the economic downturn of the years 2008 and 2009 did not seem to have a negative impact on the German-UAE air freight market based on the analysis of Eurostat s foreign trade statistics (Eurostat, 2012). This picture is contrary to the development of the global and especially European air freight market during that time, which was hit by the crisis much harder resulting in a decrease of demand for air freight transport. In 2010, accounted for 25 % of the total air freight exports of the EU-27 member states to the UAE. In consequence, based on a total volume of nearly 41,700 tons, forms the leading air freight exporting country to the UAE among the EU-27 countries. Taking into consideration the overall foreign trade of, the UAE have become the 5 th most important trading partner in Asia from an export perspective. These figures reflect the rising importance of the UAE as export market for s manufacturing industry and mirror the positive economic development of the UAE as well. The analysis of the composition and structure of the goods reveals that in particular machinery and mechanical appliances, electrical machinery and equipment, metal products, chemicals/plastics, automotive products and parts as well as optical and precision instruments, e.g. medical, surgical and measuring equipment, can be identified as the major air freight relevant goods being exported from to the UAE. These industries form the backbone of the German economy and contribute to a large extent to s position as one of the leading exporting countries worldwide. Hence, the provision of reliable, highperforming, efficient transport systems, including air freight transport, connecting to Release: 1.00 Page 105

108 emerging markets, such as the UAE and beyond to Asia, South America etc., is crucial for s industry in international trade and influences its competitive position. Like in the market for passenger transport, also in the air cargo market Emirates has developed into a major player in. As Emirates operates wide-body aircraft with relatively high belly cargo capacities, supplemented by several freighter services, it has become the third largest carrier for air cargo in, according to data provided by IATA s Cargo Accounts Settlement Systems (CASS). Figure 5-12: Development of the air freight volumes of major airlines originating from German airports Source: Own representation based on data by IATA Cargo Accounts Settlement Systems (CASS). Emirates air cargo market shares by region reported by the IATA Cargo Accounts Settlement Systems (CASS) are comparable to the developments shown above for passenger traffic. Relatively high market shares are reported for the South West Pacific and South Asia, most probably due to the high number of destinations and frequencies to these regions. Relatively small market shares can be observed for Japan and South Korea, which might be due to the more indirect routing via Dubai, compared to competitors with direct flights. The overall market share of Emirates of all cargo reported by IATA CASS from was about 5 % in Release: 1.00 Page 106

109 Figure 5-13: Market share of Emirates for outbound air freight originating in in 2010 for different IATA regions Source: Own representation based on data by IATA Cargo Accounts Settlement Systems (CASS). In order to gain insights on the position of Emirates in the German air cargo market, the project team has conducted a series of stakeholder interviews with the renowned freight forwarders Schenker and Panalpina. The main effects coming from Emirates services in the cargo business outlined by the interview partners can be summarized as follows: Emirates is a preferred carrier for many major freight forwarders, as the service quality is considered very high. Emirates has, according to the interview partners, a high reliability in terms of the flown-to-booked-ratio, which is a key performance indicator in the air cargo industry. The flown-to-booked ratio indicates the level of fulfillment, as it shows how much of the cargo an airline actually has accepted for transportation has been flown as agreed. A further benefit of Emirates services is the network, which includes destinations, which are not served by other airlines on a daily basis. This includes, among others, destinations in Pakistan or Africa. With several departures from German airports per day, express services can be realized, which otherwise could not be offered in the same quality. This has led, at least in one case, to the demand for medical products from, which could otherwise not be exported under a temperature-controlled environment to Africa. In this regard, the high number of frequencies from s central air cargo hub in Frankfurt with three daily passenger flights with substantial capacity for belly cargo and a daily freighter service positively supports the service quality offered. For the Rhein-Main area around Frankfurt airport, the services of Emirates are also of value, because with three passenger flights to Dubai distributed over the day (current departure times 9:40am, 2:25pm and 8:15pm) express cargo services to Asia can be offered without the need for night flights. Release: 1.00 Page 107

110 The use of cargo services from other airports in depends on the individual logistical network of the forwarder. Some forwarders have argued that they only use services from Munich or Hamburg for large single shipments, while smaller shipments are consolidated at their hub in Frankfurt. Others have positively argued that with the provision of additional cargo capacities at secondary airports in, trucking to Frankfurt can be avoided up to a certain extent. This reduces costs and decentral cargo capacities also provide advantages concerning the service quality, as freight forwarders and shippers have more options in case of high capacity utilization at the hubs. The interview partners reported that Emirates (and other Gulf carriers) generally do not significantly undercut the rates of incumbent carriers. One interview partner even noted that Emirates often charges more than comparable carriers, including competitors from and other EU member states, taking its excellent service quality into account. It seems that the price level in the cargo segment is pretty similar among the carriers operating in a particular market and that the quality of services is besides the cargo rate a key driver for the decision for or against a particular airline. It is reported that on main markets air cargo rates have declined in line with the increase in capacity, but that in niche markets (such as Pakistan or destinations in Africa), rates are still significantly higher. For these markets, Emirates offers a new and reliable way of shipping air cargo. The Chamber of Commerce in Hamburg reported that Emirates cargo services are used by several companies in Hamburg for sea-air transport logistics chains, which combine the speed of air transport with the cost-efficiency of sea transport. Shipping is used to transport cargo from the Far East to Dubai and air cargo for the leg from Dubai to Hamburg. These logistics chains are not only used for the import of goods, but also for export. For instance, a company doing business in the area of spare parts for ships distributes its parts from Dubai to different Asian destinations and parts are shipped daily by air from Hamburg to Dubai. These delivery chains are largely owed to the provision of a direct air link between Hamburg and Dubai. Similarly, it was reported that Airbus and Lufthansa Technik are using Emirates air cargo capacities from Hamburg to Dubai and beyond to deliver time-critical spare parts to aircraft operators in Asia. In general, the growing capacity of Gulf carriers in the cargo market is seen from the perspective of shippers and freight forwarders as positive. While in the short run, due to business cycles and the difficult situation after the financial crisis sometimes overcapacities exist, in the long run almost certainly additional capacities will be required to keep up with the expected growth in exports. As freight forwarders (and with them the shippers of air cargo) benefit from increased capacities and competition in the air cargo market, the stakeholders we contacted were positively minded concerning further liberalisation of traffic rights. When taking a look at the effects of potential new services from Berlin and Stuttgart, the following can be concluded: Both in Berlin and Stuttgart, up to now only very few wide-body aircraft operate from these airports. The air cargo centre in Berlin scheduled to open with the new airport provides modern facilities for air cargo handling, however, with only few airlines that operate with wide-body aircraft to s capital, the utilisation of this facility for air cargo remains to be seen. In Stuttgart, the existing cargo center at the airport is used to a large extent as a point for commissioning cargo shipments, which will be trucked to other airports and flown from there. From Stuttgart, currently no regular services with wide-body aircraft to Asia or the Middle East operate from the airport. The situation for air cargo in Stuttgart can be expected - in the Release: 1.00 Page 108

111 absence of Emirates services - not to improve, also because of the prevalence of low cost carriers, which usually do not carry cargo aboard their flights. Release: 1.00 Page 109

112 5.2 Effects of new services Outlook for for 2012 Starting at the end of 2011, Emirates has further extended the number of frequencies and seat capacities between Dubai and the German airports it currently serves. Both Frankfurt and Hamburg received an additional daily frequency, bringing the number of daily flights in Frankfurt to three and in Hamburg to two. In Munich, Emirates replaced one daily service with an A380 aircraft, therefore becoming the first foreign carrier bringing the A380 to a German airport. The Emirates flight is the only regular A380 service to the Bavarian capital. Services to Düsseldorf remain unchanged for the moment. If we assume that the average seat load factor will remain constant, the additional services to Frankfurt and Hamburg and the increase in aircraft size to Munich has the potential to generate 380,000 additional passengers at the three airports. Figure 5-14: Emirates passenger growth potential to/from 2011/2012 Source: Own calculation. Associated with the growth in passenger numbers is a further growth in expenditures as shown in the following figure. Release: 1.00 Page 110

113 Figure 5-15: Emirates expenditures in for the fiscal year 2011 and forecast for fiscal year 2012 in million Source: Own calculation. The total expenditures under the assumption that the flight schedule remains unchanged for the year 2012, are expected to rise to almost 220 million, up from million in the previous year. The largest increase comes from the purchase of fuel, but also the increase in airport, handling and air navigation charges will be substantial, as well as the expenditures for crew accommodation and catering. A smaller contribution comes from additional staff hired in the areas of administration, operations and passenger services and the additional expenditures for maintenance services. We assume that the costs for IT, rents, advertisement and other services remain constant. However, the picture could change, when traffic rights will be granted and additional new services will be offered. The effects of additional services to new destinations in are discussed in the following paragraph New services to Berlin and Stuttgart For the analysis of the macroeconomic impacts of additional Emirates flights to, we have set up traffic scenarios for Stuttgart and Berlin, which are evaluated with the same methodology as described for in total in chapter 5.1. The traffic scenarios reflect Emirates strategy to operate on a newly opened route initially with one daily service. This case is shown in scenario 1 for both Berlin and Stuttgart. As it was the case for Düsseldorf, Frankfurt, Hamburg and Munich, Emirates usually increases both frequencies and aircraft size, when a market has developed. In order to reflect this development, in the second scenario it is assumed that Emirates operates a twice daily service. The following table summarises the estimated traffic figures of the two scenarios for Berlin and Stuttgart. Release: 1.00 Page 111