Institute of Air Transport and Airport Research The Impact of Emirates Airline on the German Economy
Final Report
May 2012
Cover Picture: Emirates Airbus 380 visiting ILA Berlin Air Show 2010 Photographer: Wolfgang Grimme, DLR
Institute of Air Transport and Airport Research
The Impact of Emirates Airline on the German Economy
Final Report
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
Release: 1.00 Deutsches Zentrum German Aerospace Center für Luft- und Raumfahrt e.V. in der Helmholtz-Gemeinschaft
Institute of Air Transport and Airport Research May 2012 Porz-Wahnheide Linder Höhe 51147 Köln Germany Head: Prof. Dr. Johannes Reichmuth Web: http://www.dlr.de/fw
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Document Control Information
Institute Director: Prof. Dr. Johannes Reichmuth Responsible author: Wolfgang Grimme Additional author(s): Tim Alers, Dr. Peter Berster, Prof. Dr. Hansjochen Ehmer, Monika Teresa Fuhrmann, Dr. Marc Gelhausen, Stephan Horn, Hermann Keimel, Dr. Sven Maertens, Hendrik Nieße Project / research task: The Impact of Emirates Airline on the German Economy Filename: Emirates_Report_v1.00_180412.doc Release: 1.00 Save date: 2012-04-18 Total pages: 139
This study was conducted for Emirates Airline.
© 2012, DLR, Institute of Air Transport and Airport Research, Germany
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Change Log
Release Date Changed Pages or Chapters Comments 1.00 18 April 2012 Final version
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Content
List of figures ...... 6 List of tables ...... 9 Executive Summary ...... 10 1 Introduction ...... 18 2 Overview – The Emirates business model and Emirates current activities in Germany ...... 20 3 Analysis of the effects of connectivity to the international aviation network due to Emirates’ presence in Germany ...... 27 3.1 The importance of connectivity ...... 27 3.2 Connectivity for Germany ...... 28 3.2.1 Non-stop connectivity ...... 31 3.2.2 Connectivity for itineraries with one stop / transfer ...... 33 3.2.3 Connectivity to the 100 largest airports in the Eastern Hemisphere ...... 35 3.2.4 Comparison of the route networks of Emirates and Lufthansa ...... 37 3.3 Connectivity for individual cities in Germany ...... 41 3.3.1 Düsseldorf ...... 42 3.3.2 Hamburg ...... 44 3.3.3 Berlin ...... 46 3.3.4 Stuttgart ...... 49 3.4 Connectivity and Frequency ...... 54 3.5 Connectivity index for German airports ...... 57 3.6 Connectivity and capacity ...... 60 3.7 Intermediate conclusions ...... 65 4 Analysis of the effects of Emirates’ presence in Germany on passenger flows ...... 67 4.1 Market development in Germany ...... 67 4.2 Market development at individual airports ...... 71 4.3 Development of air fares ...... 78 4.4 Intermediate conclusions ...... 80 5 Analysis and quantification of economic effects for Germany ...... 82 5.1 Effects of existing passenger and cargo services ...... 83 5.1.1 Direct, indirect and induced employment ...... 83 5.1.2 Catalytic effects ...... 91 5.1.3 Incoming tourism ...... 94 5.1.4 Outgoing tourism ...... 103 5.1.5 Air cargo ...... 103 5.2 Effects of new services ...... 110 5.2.1 Outlook for Germany for 2012 ...... 110 5.2.2 New services to Berlin and Stuttgart ...... 111 5.3 Effects of the purchase of aircraft, engines, spare parts and equipment ...... 115 6 Discussion of the benefits of air transport market liberalisation for Germany ...... 119 6.1 Consequences of the liberalisation of air transport markets...... 119 6.2 Literature review of worldwide liberalisation ...... 121 6.3 Liberalisation’s impact on different stakeholders ...... 122 6.3.1 Secondary and hub airports ...... 122 6.3.2 Airlines and alliances ...... 123 6.3.3 Passengers ...... 125
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7 Conclusions ...... 128 Annex ...... 131 Definition of regions used throughout this report ...... 131 Emirates’ Destinations ...... 133 Stakeholder Interviews ...... 135 Literature...... 136
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List of figures Figure 2-1: Comparison of itinerary between two secondary airports with Emirates and competing airlines / alliances ...... 21 Figure 2-2: Specific fuel consumption in kg per aircraft-kilometre flown ...... 22 Figure 2-3: Comparison of operating costs for selected airlines ...... 23 Figure 2-4: Development of Emirates’ frequencies from German airports 1996-2012 ...... 24 Figure 2-5: Development of Emirates passengers on flights between Germany and Dubai (and vice versa) 2000-2011 ...... 26 Figure 3-1: Destination regions of origin-destination passengers on Emirates flights from Germany ...... 28 Figure 3-2: World regions to which Emirates provides connectivity for Germany ...... 29 Figure 3-3: Non-stop destinations in the Eastern Hemisphere served by all airlines from Germany in December 2011 ...... 31 Figure 3-4: Overview of destinations in Africa, Asia, Middle East and South West Pacific served non-stop from Germany in December 2011 ...... 32 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 Germany in December 2011 ...... 33 Figure 3-6: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Germany with one stop/transfer in December 2011 ...... 35 Figure 3-7: Overview of non-stop services from Germany to the 100 largest airports in Africa, Asia, Middle East and South West Pacific in December 2011 ...... 36 Figure 3-8: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Germany with one stop/transfer in December 2011 ...... 37 Figure 3-9: List of complementary and overlapping destinations of Emirates and Lufthansa in the Eastern Hemisphere ...... 38 Figure 3-10: Map of complementary and overlapping destinations of Emirates and Lufthansa in the Eastern Hemisphere ...... 38 Figure 3-11: Seats offered on non-stop flights to Southern/East Africa, Asia and the Middle East from German airports in December 2011 ...... 41 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...... 42 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 ...... 43 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 ..... 44 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 ...... 45 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 ...... 46 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 ...... 47 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 ...... 48 Figure 3-19: Perceived quality of connectivity from Stuttgart ...... 50 2012-04-18 Release: 1.00 Page 6
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Figure 3-20: Destinations with a need for improved non-stop or transfer connectivity, share of the number of mentioned destinations by region ...... 51 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 ...... 52 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 ...... 53 Figure 3-23: Number of weekly itineraries to the 100 largest airports in the Eastern Hemisphere from selected German airports by airline ...... 54 Figure 3-24: Number of weekly itineraries to the 100 largest airports in the Eastern Hemisphere from selected German airports by airline ...... 56 Figure 3-25: Calculation of the connectivity index ...... 57 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 ...... 59 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) ...... 62 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) ...... 64 Figure 4-1: Origin-destination passengers from Germany to the Eastern Hemisphere and Emirates market share by region ...... 67 Figure 4-2: Origin-destination passengers from Germany to Southern/East Africa, Asia, Middle East and South West Pacific, 2002-2010 ...... 68 Figure 4-3: Origin-destination passenger growth by individual carriers in the market between Germany and Southern/East Africa, Asia, Middle East and South West Pacific between 2005 and 2010 ...... 69 Figure 4-4: Origin-destination passengers from Germany to Southern/East Africa, Asia, Middle East and South West Pacific between 2002 and 2010 in relative terms ...... 70 Figure 4-5: Origin-destination passengers from Hamburg to Southern/East Africa, Asia, Middle East and South West Pacific, 2002-2010 ...... 71 Figure 4-6: Origin-destination passengers from Hamburg to Dubai, 2002-2010 ...... 72 Figure 4-7: Origin-destination passengers from Hamburg to Dubai travelling on Lufthansa, Air France, British Airways and Turkish Airlines, 2002-2010 ...... 73 Figure 4-8: Origin-destination transfer passengers from Hamburg to Southern/East Africa, Asia, Middle East and South West Pacific by first transfer point, 2002- 2010 ...... 74 Figure 4-9: Origin-destination passengers from Düsseldorf to Africa, Asia, Middle East and South West Pacific, 2002-2010 ...... 75 Figure 4-10: Origin-destination transfer passengers from Düsseldorf to Southern/East Africa, Asia, Middle East and South West Pacific by first transfer point, 2002- 2010 ...... 76 Figure 4-11: Seats offered on non-stop flights by Lufthansa from Germany to the Middle East and Germany to India ...... 77 Figure 4-12: Comparison of air fares in business class of Emirates and Lufthansa from Hamburg to selected Asian destinations...... 78 Figure 4-13: Comparison of air fares in economy class of Emirates and Lufthansa from Hamburg to selected Asian destinations...... 79 2012-04-18 Release: 1.00 Page 7
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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 ...... 80 Figure 5-1: Differentiation of economic effects for Germany coming from Emirates activities ...... 82 Figure 5-2: Exemplary chain of inputs and definition of direct and indirect effects ...... 86 Figure 5-3: Emirates’ expenditures in Germany and the resulting direct and indirect employment effects for the fiscal year 2010/11 ...... 87 Figure 5-4: Location decision of companies depending on time- and real estate costs ...... 92 Figure 5-5: Development of incoming tourism, measured in nights spent by travellers from Asia, Middle East and South West Pacific 2001-2011 ...... 95 Figure 5-6: German National Tourist Board tourism growth forecast 2020 for incoming tourism from Asia, Middle East and South West Pacific ...... 96 Figure 5-7: Development of incoming tourism in Munich from selected countries, measured in nights spent 2007-2011 ...... 97 Figure 5-8: Correlation between the number of seats offered on non-stop flights from the Middle East to Germany and the number of nights spent by tourists from the Middle East in Germany, 2001-2010 ...... 99 Figure 5-9: Correlation between the number of origin-destination passengers between Germany and destinations in Asia and the number of nights spent by tourists from Asia and South West Pacific in Germany, 2002-2010 ...... 100 Figure 5-10: Forecast on German exports for the manufacturing industry (constant prices, base year 2000) ...... 104 Figure 5-11: Development of air freight exports from Germany to the UAE (in tons), 2000-2010 ...... 105 Figure 5-12: Development of the air freight volumes of major airlines originating from German airports ...... 106 Figure 5-13: Market share of Emirates for outbound air freight originating in Germany in 2010 for different IATA regions ...... 107 Figure 5-14: Emirates passenger growth potential to/from Germany 2011/2012 ...... 110 Figure 5-15: Emirates’ expenditures in Germany for the fiscal year 2011 and forecast for fiscal year 2012 in million € ...... 111 Figure 5-16: Emirates fleet and order development 1985-2011 ...... 116 Figure 5-17: Emirates aircraft on order as of 31st December 2011 (excluding options and letters of intent) ...... 116
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List of tables Table 2-1: Emirates operations in Germany as of December 2011 ...... 25 Table 3-1: Comparison of frequencies and capacities to African, Asian and Pacific destinations on direct flights* of Lufthansa from Germany with direct flights of Emirates from Dubai in December 2011 ...... 39 Table 3-2: Connectivity index for German airports due to Emirates services to Dubai and onward destinations in December 2011 ...... 58 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) ...... 61 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) ...... 63 Table 5-1: A simplified symmetric input-output table (product by product) ...... 83 Table 5-2: Summary of direct and indirect employment estimations for Emirates’ air services to and from Germany ...... 90 Table 5-3: Expenditures by foreign tourists travelling on Emirates to Germany ...... 102 Table 5-4: Traffic scenarios for Berlin and Stuttgart ...... 112 Table 5-5: Emirates expenditures for new services between Dubai and Stuttgart ...... 113 Table 5-6: Emirates expenditures for new services between Dubai and Berlin ...... 113 Table 5-7: Annual contribution of Emirates to the German aerospace industry ...... 118
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Executive Summary
Since 1987, Emirates Airline has operated flights from Dubai to Germany. As of December 2011, the Dubai-based carrier serves four points in Germany (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 Air Transport and Airport Research 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 Germany allows Emirates to serve four points in Germany 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 Germany (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 2011. 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 Germany, 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
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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 Germany, 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 one- stop 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 one- stop connections per week in transfer window of up to 6 hours after arrival in Dubai.
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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 Germany 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 Germany 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 Germany-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 Germany and the South West Pacific region with 20 %. In this market, no German airlines operate.
. From a growing demand in air travel between Germany 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 Germany 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
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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 Germany has improved due to the new offers.
Impacts of Emirates’ economic activity in Germany
. In fiscal year 2010/11, Emirates spent € 203.3 million in Germany 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 Germany 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 Germany 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 Germany. 2012-04-18 Release: 1.00 Page 13
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This can be regarded as an indication also for further growth potentials for air transport between Germany 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 Germany per inhabitant, the propensity of Middle Easterners to travel to Germany (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 Germany for foreign tourists, availability of flights and low air fares are particularly important.
Impacts of potential new services to additional points in Germany
. Each additional flight to Germany will create approximately 140,000 additional passengers for the respective airport, where such a flight will be operated (pages 112ff.).
. Each additional flight to Germany 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, Germany’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$7 billion at list prices). As of December 2011, the carrier has 140 firm orders for Airbus aircraft to be delivered over the next 10 years (2012-2022), with a contract value at list prices of US-$ 54.7 billion (€ 41.4 billion; including spare parts and spare engines).
. Without considering investments in engines, the share for Airbus Germany and German suppliers exceeds € 10 billion. In total, this will protect and create more than
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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 Germany.
. 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 Germany.
. 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 Germany.
. 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.
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Conclusion
The study finds that more than 18,000 jobs in Germany 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 Germany (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 + one additional daily Employment Existing flights Change flight to BER and STR each Provision of air 3,152 3,548 +12.6 % services Incoming tourism 2,583 3,147 + 21.8 % Industry 12,558 -/- Total 18,293 19,253 + 5.2 %
Existing flights + one additional daily Expenditures Existing flights Change flight to BER and STR each Provision of air € 203.3 million € 233.6 million +14.9 % services Incoming tourism € 76 million € 92.6 million + 21.8 % Industry € 1,399.9 million -/- Total € 1,679.2 million € 1,726.1 million + 2.8 %
Scenario 2 – two daily flights to Berlin and Stuttgart
Existing flights + two additional daily Employment Existing flights Change flights to BER and STR each Provision of air 3,152 4,030 +27.9 % services Incoming tourism 2,583 4,043 + 56.5 % Industry 12,558 -/- Total 18,293 20,631 + 12.8 %
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Existing flights + two additional daily Expenditures Existing flights Change flights to BER and STR each Provision of air € 203.3 million € 269.1 million +32.4 % services Incoming tourism € 76 million € 119.2 million + 56.8 % Industry € 1,399.9 million -/- Total € 1,679.2 million € 1,788.2 million + 6.5 %
The example of Emirates shows that Germany 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 Germany’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 Germany. Moreover, it has been shown that the economic benefits can be further increased when flights to additional German airports will be offered.
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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 Germany, 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 Germany 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 wide- body 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 Air Transport and Airport Research undertakes research to quantify the effects generated for the German economy by passenger and cargo services operated by Emirates to and from Germany, 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 Germany 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 Germany 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 Germany 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 Germany
The document is structured as follows:
In the first part, a brief overview of Emirates in general and its activities in Germany will be given.
In the second part, the connectivity of Germany 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 2011.
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In the third part, impacts of Emirates services on passenger flows between Germany 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 Germany, 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 Germany with the liberalisation of air services agreements in general and the benefits of Emirates services to passengers, summarising the findings of the previous chapters.
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2 Overview – The Emirates business model and Emirates current activities in Germany
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-hub- secondary” 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.
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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 Germany.
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).
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Figure 2-2: Specific fuel consumption in kg per aircraft-kilometre flown
Frankfurt-Singapore
Frankfurt-Dubai
Specific fuel consumption in kg/km in Specific kg/km fuel consumption Dubai-Singapore
Distance in km Source: Based on Egelhofer et al. (2008).
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 Germany, 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 Germany 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.
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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 location- specific 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 Germany. It started services to Frankfurt on 31st July 1987 and will therefore celebrate its 25th anniversary in 2012. The second destination Munich was added on 1st November 1999, followed by Düsseldorf on 27th March 2001. Hamburg, the fourth destination, was added starting on 1st March 2006. Additionally, freighters are operated to and from the airports in Düsseldorf, Frankfurt and Hahn. The bilateral air services agreement between Germany 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 2003. In Düsseldorf frequencies were increased to double daily in 2006. In Hamburg, Emirates started with a daily flight from Dubai, which was extended in October 2006 to New
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York, but discontinued in 2008. 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 1996-2012
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 Germany 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.
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Table 2-1: Emirates operations in Germany as of December 2011
Monthly seat Monthly cargo Monthly Frequency Airport Aircraft Type capacity (upon capacity (in t upon (Departures) departure) departure) 44 Airbus A340‐300 11748 572 Düsseldorf 18 Boeing 777‐300 6552 301 8 Boeing 747‐400F** 0 936 Frankfurt Hahn* 5 Boeing 747‐400F** 0 585 31 Airbus A330‐200 7347 527 Frankfurt Rhein‐ 62 Boeing 777‐300ER 21948 1035 Main Int`l 29 Boeing 747‐400F** 0 3393 31 Boeing 777‐200ER 8246 527 Hamburg 31 Boeing 777‐300ER 10974 518 31 Airbus A340‐300 8277 403 Munich 31 Airbus A380‐800 15159 248 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 Germany (both directions) for the time frame 2000-2011. 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.
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Figure 2-5: Development of Emirates passengers on flights between Germany and Dubai (and vice versa) 2000-2011
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 Germany 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.
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3 Analysis of the effects of connectivity to the international aviation network due to Emirates’ presence in Germany
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.
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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 Germany
The following chapter will analyse the connectivity of Germany 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 Germany 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 Germany. Based on data provided by Sabre ADI, in 2010, more than 50 % of origin- destination passengers travelling on Emirates flights from Germany 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 Germany. Figure 3-1: Destination regions of origin-destination passengers on Emirates flights from Germany
Source: Own representation based on Sabre ADI; Emirates online connections (defined below) only.
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Although it is theoretically possible to fly with Emirates from Germany 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 Germany 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 Germany. 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 Germany
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 Germany non-stop, with one stop or with more than one stop. This analysis includes a discussion of the contribution
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In total, OAG reports 1,292 airports with scheduled passenger services in the geographical area defined above in December 2011.
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.
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3.2.1 Non-stop connectivity In December 2011, a total of 54 destinations in the geographical region defined above were served from Germany with non-stop flights. Lufthansa serves 33 destinations non-stop from Germany, 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 Germany in December 2011
Source: Own representation based on data by OAG.
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Figure 3-4: Overview of destinations in Africa, Asia, Middle East and South West Pacific served non-stop from Germany in December 2011
Source: Own representation based on data by OAG.
While Emirates serves only a single destination (Dubai) among the 54 from Germany in total, the share in number of seats offered is substantially higher. Actually, Emirates has become the second largest carrier operating from Germany measured by the number of seats on long-haul flights to the Eastern Hemisphere.
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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 Germany 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 Germany 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 Germany, such as Berlin, Düsseldorf or Hamburg have only a few intercontinental flights. The existing long-haul flights out of secondary airports in Germany 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 Germany, but also in other European countries, providing at least daily long-haul flights to Dubai with subsequent onward connectivity.
3.2.2 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 Germany (see Figure 3-6). This number of destinations can be reached when all available online or codeshare connections of all carriers serving Germany are taken into account. Among the global alliances, Star Alliance provides the highest number of destinations from Germany, 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
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Three more destinations can be reached with Emirates from Germany 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 short- term, passengers from Germany can benefit from extensions in Emirates’ route network, as Entebbe/Kampala is now served non-stop from Dubai starting 25th March 2012. 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 Germany. 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 code- share agreements in place on Emirates-operated flights, for instance with Air Malta, Air Mauritius, Philippine Airlines and Star Alliance member South African Airways.
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Figure 3-6: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Germany 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
3.2.3 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 Germany 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 Germany. 30 of the 100 largest airports can be reached with Star Alliance carriers, while the oneworld and SkyTeam alliances provide non- stop connectivity to only six destinations each. Lufthansa alone serves 29 of the 100 largest airports with non-stop flights.
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Figure 3-7: Overview of non-stop services from Germany 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 Germany, 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.
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Figure 3-8: Overview of destinations in Africa, Asia, Middle East and South West Pacific served from Germany 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
3.2.4 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.
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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
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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 Germany 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 Germany. 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 Germany), 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 Germany 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 Germany with direct flights of Emirates from Dubai in December 2011 Lufthansa Emirates
Airport Name IATA- Monthly Monthly Monthly Monthly Code Frequencies Seats on Frequencies Seats on on direct direct on direct direct flights from flights flights from flights Germany from Dubai from Germany Dubai
Tel Aviv TLV 70 19514 0 0 Mumbai BOM 59 16418 155 46512 Delhi DEL 59 18774 124 35638 Dubai International DXB 57 19417 279** 90251** Tokyo Narita Apt NRT 56 23138 31 10974 Shanghai Pudong International Apt PVG 55 18570 62 23703 Singapore Changi Apt SIN 55 20695 117 41728 Hong Kong International Apt HKG 53 17895 84 33777 Seoul Incheon International Airport ICN 47 13983 31 15159 Beijing Capital Apt PEK 44 17349 62 23157 Riyadh RUH 40 11940 66 19053 Jeddah JED 38 8398 62 27057 Beirut BEY 35 4884 62 15786 Abu Dhabi International Apt AUH 31 6851 0 0 Bangkok Suvarnabhumi Apt BKK 31 10230 125 48975 Cape Town CPT 31 10230 62 17828 Osaka Kansai International Airport KIX 31 10230 31 10974 Muscat MCT 31 9951 62 15539 Kuwait KWI 30 6630 124 33047 Bengaluru BLR 29 9570 93 22821 Johannesburg O.r. Tambo International JNB 29 15254 93 37107 Chennai MAA 29 10005 93 26435 Nagoya Centrair International Apt NGO 29 7773 0 0 Tehran Imam Khomeini Apt IKA 28 9240 93 26991 Amman Queen Alia International Apt AMM 27 4148 48 13324 Jakarta Soekarno-Hatta Apt CGK 27 5967 62 21948 Bahrain BAH 26 5746 93 22215 Doha DOH 26 5746 155 40550 Addis Ababa ADD 22 4862 31 7998 Pusan PUS 18 3978 0 0 Kuala Lumpur International Airport KUL 17 5610 93 33174 Pune PNQ 15 2835 0 0
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Lufthansa Emirates Airport Name IATA- Monthly Monthly Monthly Monthly Code Frequencies Seats on Frequencies Seats on on direct direct on direct direct flights from flights flights from flights Germany from Dubai from Germany Dubai
Asmara ASM 14 3094 0 0 Ho Chi Minh City SGN 14 4620 0*** 0*** Kolkata CCU 13 2873 54 12798 Dammam (SA) DMM 13 2457 30 7810 Erbil EBL 13 1612 0 0 Nanjing NKG 13 2873 0 0 Guangzhou CAN 9 1989 31 10974 Luanda LAD 7 1547 13 4602 Auckland International Apt AKL 0 0 93 37107 Ahmedabad AMD 0 0 44 10428 Baghdad BGW 0 0 18 4266 Brisbane BNE 0 0 62 21948 Basra BSR 0 0 17 4029 Kozhikode CCJ 0 0 49 12425 Christchurch CHC 0 0 31 10974 Colombo Bandaranaike Apt CMB 0 0 93 32268 Kochi (IN) COK 0 0 62 16460 Dhaka DAC 0 0 74 24352 Damascus DAM 0 0 31 8417 Dar Es Salaam DAR 0 0 31 7998 Durban King Shaka International Apt DUR 0 0 31 7347 Entebbe/Kampala**** EBB 0 0 31 7998 Hyderabad Rajiv Gandhi Intl Arpt HYD 0 0 93 24162 Islamabad ISB 0 0 31 9921 Karachi KHI 0 0 124 35383 Lahore LHE 0 0 31 9714 Madinah MED 0 0 31 7347 Melbourne Airport MEL 0 0 93 32922 Male MLE 0 0 62 21084 Manila Ninoy Aquino International Apt MNL 0 0 62 21948 Mauritius MRU 0 0 50 15747 Nairobi Jomo Kenyatta International NBO 0 0 58 14529 PerthAt PER 0 0 63 19970 Peshawar PEW 0 0 14 3579 Sanaa SAH 0 0 18 4266 Mahe Island SEZ 0 0 49 12642 Sydney Kingsford Smith Apt SYD 0 0 93 37107 Thiruvananthapuram TRV 0 0 54 12798
*) 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 Germany and Dubai ***) Emirates will start daily services to Ho Chi Minh City on 4th 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 2011.
The main benefit Emirates provides in terms of connectivity for Germany 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.
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3.3 Connectivity for individual cities in Germany 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 Germany in general, the following chapter shows Emirates’ contribution to the connectivity of individual cities in Germany. 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 Germany’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 Germany 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
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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.
3.3.1 Düsseldorf Düsseldorf lies in the middle of Germany’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 2011. 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 2008.
Düsseldorf is Germany’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
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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.
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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.
3.3.2 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 Germany. 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 Germany.
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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 origin- destination 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) . Lahore (Pakistan) . Brisbane (Australia) . Melbourne (Australia) . Dhaka (Bangladesh) . Perth (Australia) . Durban (South Africa) . Peshawar (Pakistan) . Jakarta (Indonesia) . Sana’a (Yemen) . Kochi (India) . Sydney (Australia) . Kozhikode (India) . 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 2012-04-18 Release: 1.00 Page 45
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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.
3.3.3 Berlin The metropolitan Berlin-Brandenburg comprising of the city of Berlin and its surrounding area is the largest urban agglomeration in Germany 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 Germany’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
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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 2012-04-18 Release: 1.00 Page 47
Institute of The Economic Impact of Emirates Flights on Air Transport and Germany Airport Research Final Report both carriers, which has started in January 2012. 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 2012. 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
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From the perspective of passengers, the impacts of more airlines serving the market between Germany 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.
3.3.4 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 Germany. 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 Germany, has not had any direct services to Southern/East Africa, Asia or the Middle East before 2011. 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.
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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 Germany (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 36-46 % 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.
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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.
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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 2012. 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) . Lahore (Pakistan) . Dhaka (Bangladesh) . Melbourne (Australia) . Jakarta (Indonesia) . Peshawar (Pakistan) . Kochi (India) . Sana’a (Yemen) . Kozhikode (India) . Thiruvananthapuram (India)
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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 2010.
Thirdly, as shown below, the number of non-stop services offered between the Middle East and Germany increases the attractiveness of Germany 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 Germany 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 2012. Passengers will be able to reach these destinations with a reduced 2012-04-18 Release: 1.00 Page 53
Institute of The Economic Impact of Emirates Flights on Air Transport and Germany Airport Research Final Report 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 4.
3.4 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 2012-04-18 Release: 1.00 Page 54
Institute of The Economic Impact of Emirates Flights on Air Transport and Germany Airport Research Final Report 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 2011. 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.
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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 Germany’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.
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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 non- stop 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., 2008.
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 Germany with two stops (Entebbe/Kampala, until 24th 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
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. 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
Connectivity Index = average shortest path length to the 61 Emirates destinations in Southern/East Africa, Asia and South West Pacific Airport CI CI CI Connectivity all airlines, with all airlines, Emirates flights improvement Emirates without Emirates only due to Emirates Berlin 1.95* 2.02 2.08* +0.07 Düsseldorf 1.95 2.21 2.08 +0.26 Frankfurt 1.39 1.39 2.08 +0.00 Hamburg 2.00 2.27 2.08 +0.27 Munich 1.72 1.72 2.08 +0.00 Stuttgart 2.00* 2.18 2.08* +0.18 Stuttgart (after 2.02 2.26 2.08* +0.24 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 Germany, 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
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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” = 2012-04-18 Release: 1.00 Page 59
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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 Germany 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 narrow- body 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:
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. 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 Germany 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)
Outbound Passengers Market FROM TO “Growth” by EK All carriers EK Share EK HAM Middle East 96,115 30,888 47 % 32 % Southern & East HAM Africa 32,803 7,051 27 % 21 % HAM Asia (w/o CIS) 157,027 46,740 42 % 30 % HAM South West Pacific 17,169 8,590 100 % 50 % Sum all regions 303,114 93,269 44 % 31 %
Source: Own calculations based on Sabre/ADI data.
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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 2011. Such a daily flight leads to an 2012-04-18 Release: 1.00 Page 62
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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 53,212 71 % 41 % Southern & East STR Africa 13,527 5,952 19,479 44 % 31 % STR Asia (w/o CIS) 66,212 34,948 101,160 53 % 35 % STR South West Pacific 2,130 5,952 8,082 279 % 74 % Sum all regions 113,005 69,204 182,209 61 % 38 % *) Assumption for Emirates passengers: 237 seats per day, 80 % load factor, same geographical distribution with regard to final destination than Germany-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.
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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 %.
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3.7 Intermediate conclusions From the results shown in this chapter, we can draw the following intermediate conclusions:
Germany is already strongly integrated into the global aviation system with connectivity provided by airlines and hubs based in Germany 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 Germany. 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 Germany.
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 Germany 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 Germany, 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 Germany and the Eastern Hemisphere the carrier with the fastest journey times. This is due to a combination of the high number of frequencies from Germany’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
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4 Analysis of the effects of Emirates’ presence in Germany on passenger flows
4.1 Market development in Germany According to data provided by Sabre ADI, 5.6 million origin-destination passengers travelled from Germany to a destination in Southern and East Africa, Asia, the Middle East or the South West Pacific in 2010. 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 Germany 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 origin- destination traffic from Germany to both the South West Pacific and South Asia with slightly more than 20 %. Particularly low market shares can be found for traffic from Germany 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 Germany 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 Germany-North East Asia with 1.4 million passengers in 2010, Emirates has
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Sabre ADI data on origin-destination passenger flows dates back to the year 2002. Therefore, a time series on the development of Emirates in Germany 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 Germany to Africa, Asia, Middle East and South West Pacific for 2002-2010 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 Germany and the regions analysed increased by 2.3 million, from 3.3 million passengers in 2002 to 5.6 million passengers in 2010.
Both Lufthansa and Emirates have continuously increased the number of origin-destination passengers from Germany to destinations in Africa, Asia, Middle East and South West Pacific2. A bit surprisingly, given the strong competition on routes to the Middle East, the market Germany-Middle East has more than doubled for Lufthansa from about 140,000 origin-destination passengers in 2002 to more than 300,000 in 2010. 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 Germany to Southern/East Africa, Asia, Middle East and South West Pacific, 2002-2010
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. 2012-04-18 Release: 1.00 Page 68
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The following figure highlights which carriers have participated in the absolute growth of 1.3 million passengers in the market from Germany to Southern/East Africa, Asia, Middle East and South West Pacific between 2005 and 2010. The analysis includes origin-destination passengers which used a non-stop flight from Germany 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 Germany 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 Germany- Africa/Asia/Middle East/Pacific market between 2005 and 2010. 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 Germany 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
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The development of the aviation market between Germany and the Eastern Hemisphere can also be shown in relative terms. Figure 4-4 represents the indexed development of originating passengers between Germany and the Eastern Hemisphere between 2002 and 2010 (2002 = 100).
Figure 4-4: Origin-destination passengers from Germany 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 2005. 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 Germany, with Emirates and Lufthansa as the two main beneficiaries of this development.
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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, 2002-2010
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 2010. 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 2006. 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 2002. Emirates’ market share in intercontinental traffic to destinations in the Eastern Hemisphere from Hamburg reached 29 % in 2010. Lufthansa, in turn, has grown, too, from 39,000 passengers in 2002 to more than 54,000 passengers in 2010. 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 %. 2012-04-18 Release: 1.00 Page 71
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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, 2002-2010
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 2005. 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 2006. 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 2012-04-18 Release: 1.00 Page 72
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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 2010. This resembles the findings shown in Figure 4-3 for the whole market in Germany. 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, 2002-2010
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 2010. 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 2006. 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
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Figure 4-8: Origin-destination transfer passengers from Hamburg to Southern/East Africa, Asia, Middle East and South West Pacific by first transfer point, 2002-2010
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 2001.
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 2010. 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
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Figure 4-9: Origin-destination passengers from Düsseldorf to Africa, Asia, Middle East and South West Pacific, 2002-2010
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 Germany 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.
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Figure 4-10: Origin-destination transfer passengers from Düsseldorf to Southern/East Africa, Asia, Middle East and South West Pacific by first transfer point, 2002-2010
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 2010.
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 Germany 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.
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The overall strong position Lufthansa has in the market between Germany and Asia is also reflected in the development of seat capacities and the number of destinations offered from Germany. 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 Germany and the Middle East and Germany and India, as shown in the following figure. Over the 8-year period from 2003 to 2011, seats offered between Germany and India and between Germany 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 Germany to the Middle East and Germany to India
Source: Own representation based on data by OAG.
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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 2006. So we have a time series with 4 years before Emirates market entry (2002-2005) and five years (2007-2011) 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 2011. 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.
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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.
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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 Germany 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 high- frequency / 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 Germany 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. 2012-04-18 Release: 1.00 Page 80
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However, the data also shows some declining transfer passenger figures for traffic between Germany, 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 Germany 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.
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5 Analysis and quantification of economic effects for Germany
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 Germany 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 Germany 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.
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5.1 Effects of existing passenger and cargo services
5.1.1 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 Germany.
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 Gross Rest Total consumption capital of the expenditure formation World SUPPLY (1) (2) (3) (4) (5) Final Gross Total Intermediate Products (1) consumption capital Exports use by consumption expenditure formation product Components of value (2) Value added - - - - added Rest of the (3) Imports - - - - World Total Total supply Total (4) supply by - - - = Total product use
Source: Own representation based on Eurostat (1996).
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. 2012-04-18 Release: 1.00 Page 83
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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 Germany. According to German input-output tables in 2007 in Germany, 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 Germany, 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 2007.
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 2012-04-18 Release: 1.00 Page 84
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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 Germany. 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 Germany. 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 2012-04-18 Release: 1.00 Page 85
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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 Germany 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 Germany has been used. The elements of spending include for instance:
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. 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 Germany 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 Germany related to the operation of passenger and cargo services amounted to € 203.3 million. € 10.1 million are spent directly as salaries and social security payments for the employees on Emirates’ payroll. Emirates itself employs in Germany 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.
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The second largest expenditure block of Emirates in Germany is the one for fuel bought in Germany, 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 Germany is services, such as the rental of offices, IT services, advertising and sports sponsoring. This expenditure was in fiscal year 2010/11 € 43.6 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 Germany 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 Germany 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 Germany.
Further effects, due to the spending of foreign travellers, are analysed in chapter 5.1.3 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 Germany.
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
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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 Germany. 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 Germany 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 Germany can be estimated at 1.198 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 3.04. 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 Germany, the selection of a multiplier smaller than 2 for the situation of Emirates in Germany 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.
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Table 5-2: Summary of direct and indirect employment estimations for Emirates’ air services to and from Germany
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 Short bottom-up approach expenditures in airline jobs, dependent description on Emirates’ Germany, including variable) and cargo and expenditures in employment effects of passenger WLUs as Germany non-aviation activities independent variables (airport retailing and public authorities) Definition of Employees with Employees on Employees on direct workplace based on the Emirates’ payroll Emirates’ payroll employment airport Employees at companies delivering Employees at inputs to Emirates, Definition of companies delivering including full chain of Employees with indirect inputs to Emirates, inputs and employees workplace based outside employment including full chain of benefitting from the airport inputs Emirates’ activities (e.g. airport retailing and public authorities) Direct 169 169 1,198 employment Indirect 1,628 2,271 employment 2,395 (using a multiplier Induced of 2.0) 570 712 employment Sum of direct, indirect and 2,367 3,152 3,593 induced employment Does not account for No clear distinction employees in non- between direct and aviation areas indirect employment in (retailing, services by the systematic of public authorities national accounts, not Limitations offered free of charge taking into account off- to aviation, such as airport employment (e.g. customs or border city ticket office). control) Multiplier of 2.0 empirically questionable
Source: Own representation.
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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). Business- related 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 Germany’s secondary airports, which currently have no or only very few intercontinental air services, as shown in Figure 3-11.
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.
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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.
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Institute of The Economic Impact of Emirates Flights on Air Transport and Germany Airport Research Final Report 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 Germany, 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 Germany. 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)
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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 Germany is conducted in the following chapter.
5.1.3 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 Germany (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 Germany). The authors of the study conclude that the tourism industry has a higher importance for Germany 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 Germany 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 Germany in 2010, which is a share of 8 % of all nights spent by foreigners in Germany (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 Germany for a selected range of countries/regions which are connected to Germany via Emirates’ hub in Dubai.
The development shows a high growth dynamic. Particularly high growth rates in the number of travellers to Germany 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.
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Figure 5-5: Development of incoming tourism, measured in nights spent by travellers from Asia, Middle East and South West Pacific 2001-2011
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 Germany. This can be regarded as an indication also for further growth potentials for air transport between Germany 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 inhabitants3. Based on the expected number of nights to be spent in Germany per inhabitant, the propensity of Middle Easterners to travel to Germany (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).
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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.
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Figure 5-7: Development of incoming tourism in Munich from selected countries, measured in nights spent 2007-2011
*) 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
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Given the optimistic growth forecasts, we do not expect that with new long-haul services to secondary airports in Germany 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 Germany 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 2007. 2012-04-18 Release: 1.00 Page 98
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Assessing the contribution of Emirates for incoming tourism in Germany
For assessing the contribution of Emirates to incoming tourism in Germany, we have analysed the correlation between the origin-destination passenger volume and the seat capacity offered and the nights spent by foreigners in Germany.
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 Germany) 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 Germany and Asia/South West Pacific and the nights spent by incoming travellers from these regions in Germany.
In the following figure, we correlate the number of seats offered on non-stop flights from the Middle East to Germany with the number of nights spent in Germany by travellers from this region. With a higher number of non-stop seat capacity, the attractiveness of Germany 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 Germany and the number of nights spent by tourists from the Middle East in Germany, 2001-2010
Source: Own representation based on data by the German Statistical Office.
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The analysis shows that statistically for every four seats offered on a flight from the Middle East to Germany, travellers from this region stay one night in Germany. Based on this finding it can be argued that Emirates, which offered in 2010 about 860,000 seats to Germany, generated about 215,000 overnight stays by tourists from the Middle East in Germany.
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 Germany 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 Germany are travellers from the Middle East coming to Germany for medical treatment, which, almost automatically, requires a longer stay than a trip for sightseeing.
The correlation between origin-destination passenger volume between Germany 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 Germany and destinations in Asia and the number of nights spent by tourists from Asia and South West Pacific in Germany, 2002-2010
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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 Germany increases by about 0.8. Emirates, with 608,000 passengers from Germany to Dubai, could therefore be attributed about 485,000 nights spent by foreigners from Asia and South West Pacific in Germany.
We estimate the economic impact for Germany from these travellers as follows: the German National Tourist Board provides figures for the average daily spending of foreign travellers from each country in Germany. 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 Germany. The results are shown in the following table.
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Table 5-3: Expenditures by foreign tourists travelling on Emirates to Germany
Total Total Expenditures Share of Country / Region no. of spending per day days days Middle East € 24.7 million € 160 31.9 % 154,646 China and Hong Kong € 11.7 million € 348 6.9 % 33,597 India € 8.6 million € 153 11.6 % 56,467 Australia, New Zealand and South € 5.0 million € 120* 8.6 % 41,946 West Pacific Korea € 3.6 million € 176 4.2 % 20,384 Japan € 1.4 million € 335 0.9 % 4,292 Other countries in Southern/East € 20.8 million € 120* 35.8 % 173,668 Africa and Asia
Total € 76.0 million 100.0 % 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 Germany as tourists from China (8.8 nights) or Japan (8 nights). Therefore, expenditures on souvenirs or brand products “Made in Germany” 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 Germany 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 Germany flying on Emirates. Without Emirates services, the travellers either could have switched their destination to another country or could have flown to Germany on another airline. However, as discussed above, it is unlikely that all the tourists would have visited Germany 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 Germany. With an increasing number of non-stop flights, the attractiveness of Germany 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.
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5.1.4 Outgoing tourism While Germany 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 Germany 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 Germany’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 Germany. However, this issue would require more fundamental research before final conclusions can be drawn.
5.1.5 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 Germany 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 Germany’s fifth most important trade partner in Asia (Statistisches Bundesamt, 2011).
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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 2030. Considering the fact that approximately 25 % of Germany’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 2010-2011 (Boeing, 2010) and on the other hand the industry-specific export forecast in Germany, 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.
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Figure 5-11: Development of air freight exports from Germany to the UAE (in tons), 2000- 2010
Source: Own representation based on data by EUROSTAT.
The gain in importance of the UAE in trade relations with Germany is also reflected in the volume of air cargo between the two countries. While imports from the UAE to Germany are still relatively small, export of goods by air from Germany 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 5-11. 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, Germany 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, Germany forms the leading air freight exporting country to the UAE among the EU-27 countries. Taking into consideration the overall foreign trade of Germany, the UAE have become the 5th most important trading partner in Asia from an export perspective. These figures reflect the rising importance of the UAE as export market for Germany’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 Germany to the UAE. These industries form the backbone of the German economy and contribute to a large extent to Germany’s position as one of the leading exporting countries worldwide. Hence, the provision of reliable, high- performing, efficient transport systems, including air freight transport, connecting Germany to
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Like in the market for passenger transport, also in the air cargo market Emirates has developed into a major player in Germany. 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 Germany, 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 Germany was about 5 % in 2010.
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Figure 5-13: Market share of Emirates for outbound air freight originating in Germany 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 Germany, which could otherwise not be exported under a temperature-controlled environment to Africa. In this regard, the high number of frequencies from Germany’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. 2012-04-18 Release: 1.00 Page 107
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The use of cargo services from other airports in Germany 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 Germany, 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 Germany 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 Germany’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
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5.2 Effects of new services
5.2.1 Outlook for Germany 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 Germany 2011/2012
Source: Own calculation.
Associated with the growth in passenger numbers is a further growth in expenditures as shown in the following figure.
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Figure 5-15: Emirates’ expenditures in Germany 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 € 184.8 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 Germany are discussed in the following paragraph.
5.2.2 New services to Berlin and Stuttgart For the analysis of the macroeconomic impacts of additional Emirates flights to Germany, we have set up traffic scenarios for Stuttgart and Berlin, which are evaluated with the same methodology as described for Germany 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.
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Table 5-4: Traffic scenarios for Berlin and Stuttgart
Scenario 1 Scenario 2 Service scheme 1 daily flight 2 daily flights Annual seat capacity 173,010 450,410 (arrival & departure) Annual passengers (80 % seat load 138,408 360,328 factor, arrival & departure) Annual air cargo (in 5,475 17,374 t, arrival & departure) Annual transport performance in 193,158 534,068 WLUs
Source: Own calculations.
A daily service to Dubai will generate approximately 140,000 passengers for each airport. This figure was reached in the first and second full year after Emirates’ flights have started in Düsseldorf and Hamburg. If the daily flight is complemented by a second daily frequency and, at the same time aircraft size will be increased, the passenger numbers can be expected to rise to 360,000 annually. Based on average cargo load factors from German airports to Dubai and the aircraft types used, cargo traffic can be estimated at around 5,500 t and 17,400 t, respectively.
Based on the passenger and cargo workload units and applying the methodology of Klophaus (2007), the increase in on-site employment at the airports in Berlin and Stuttgart can be estimated at 169 full-time equivalent jobs in traffic scenario 1 and 472 full-time equivalent jobs in scenario 2.
The results of our own approach for the estimation of the economic effects with the input- output analysis, based on Emirates expenditures (Table 5-5 and Table 5-6) are shown in the following table.
In Stuttgart, we estimate the annual expenditures to operate a daily flight at more than € 15 million, which in turn creates 198 direct, indirect and induced full-time equivalent jobs. For the second traffic scenario with two daily flights, we estimate the expenditures at around € 34 million, creating 438 full-time equivalent jobs.
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Table 5-5: Emirates expenditures for new services between Dubai and Stuttgart
Scenario 1 Scenario 2 One-time start-up costs € 0.2 million € 0.2 million Handling / catering € 2.8 million € 7.3 million Airport charges (excluding passenger security charge and passenger-related € 1.2 million € 2.7 million charges Airport charges (passenger-related) € 0.8 million € 2.1 million Passenger-related security charges € 0.3 million € 0.7 million Air navigation charges € 0.3 million € 0.7 million Fuel uplift € 8.0 million € 17.6 million Crew accommodation € 0.9 million € 1.4 million Rent / IT / Personnel € 0.9 million € 0.9 million Total € 15.4 million € 33.6 million
Source: Own calculations.
In Berlin, expenditures for the two traffic scenarios are slightly smaller, due to different airport, passenger and security charges. However, the effects concerning the potential generation of employment are similar.
Table 5-6: Emirates expenditures for new services between Dubai and Berlin
Scenario 1 Scenario 2 One-time start-up costs € 0.2 million € 0.2 million Handling / catering € 2.8 million € 7.3 million Airport charges (excluding passenger security charge and passenger-related € 1.0 million € 2.2 million charges Airport charges (passenger-related) € 0.6 million € 1.5 million Passenger-related security charges € 0.3 million € 0.7 million Air navigation charges € 0.2 million € 0.4 million Fuel uplift € 8.0 million € 17.6 million Crew accommodation € 0.9 million € 1.4 million Rent / IT / Personnel € 0.9 million € 0.9 million Total € 14.9 million € 32.2 million
Source: Own calculations.
In both cases, a substantial share of the spending is flowing into the local and regional economy, creating jobs in the airport region. This is particularly the case for handling fees, catering expenditures, airport charges, security charges, crew accommodation and rent for local offices. A smaller share of the expenditures remains in Germany outside of the Stuttgart region, for instance air navigation service charges and fuel.
With the new passenger traffic, further effects can be shown. In the first place, airports will benefit from more passengers, so not only aeronautical revenues will be generated, but also the non-aviation business will increase. For instance, the airport operator in Stuttgart has generated close to € 10 in non-aeronautical revenues per passenger. It is likely that the largest share of these revenues is made in parking and in revenue-sharing of airport retailing. Given our assumptions for the passenger numbers associated with potential new Emirates 2012-04-18 Release: 1.00 Page 113
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The effect for incoming tourism can be estimated using the relation between origin- destination passengers and nights spent by foreign travellers in Germany shown in chapter 5.1.3. We estimate the marginal effect of new seat capacity on incoming tourism at 0.8 nights spent by foreign travellers for each additional origin-destination passenger arriving in Germany. In traffic scenario 1, we have 69,000 arriving passengers, therefore generating about 55,200 additional nights of foreign tourists staying in Germany. In traffic scenario 2, we estimate 180,000 arriving origin-destination passengers with a potential for 144,000 nights by foreign tourists in Germany.
When a conservative average of € 150 in expenditures per day (cf. Table 5-3) is assumed, the economic effect of additional incoming tourism can be estimated at € 8.3 million in traffic scenario 1 and € 21.6 million in scenario 2 for each additional destination in Germany.
While it is reasonable to assume that the main beneficiaries of the incoming tourism will be the regions near the airports where new services are offered, it is likely that other areas in Germany or even Europe will benefit from more incoming tourists, too. As the stakeholder interviews with the tourism authorities in Berlin and Stuttgart have revealed, leisure travellers from Asia often make round-trips with several intermediate overnight stops. Tour operators usually select cities with long-haul connectivity as their gateways and these cities get a longer average stay than intermediate points. With more potential gateway cities, tour operators can offer more choice for travellers, therefore increasing the overall attractiveness of Germany, probably also for repeat visitors.
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5.3 Effects of the purchase of aircraft, engines, spare parts and equipment The aerospace industry in Germany
In Germany, the aerospace industry is one of the key elements of the high-technology base of the economy. According to the German Aerospace Industries Association (BDLI), in 2010 more than 95,000 people were employed in the industry, which had revenues of almost € 25 billion. The German industry benefits from growth in aviation as an increasing number of new aircraft, spare parts and engines are needed. Even rising oil prices do not necessarily jeopardise this development, as technological innovations for more fuel efficient aircraft and engines become commercially viable and airlines invest in newer technology aircraft to save fuel and operating costs. For instance, the development of the Airbus A350 is a good example for this trend.
Within the German aerospace industry, EADS and Airbus has a major role. The German work share in Airbus aircraft is about 36 %. Besides the final assembly line for narrow-body aircraft (A319/A321) in Hamburg, EADS branches in different parts of Germany supply major components for Airbus wide-body aircraft, which are assembled in Toulouse. The systems delivered from facilities in Germany include fuselage sections, vertical stabilizer and cabin interior.
Among other German suppliers for systems of the Airbus A380 are Liebherr, with air systems and flight control actuators, Diehl Aerospace (door and slide systems, cabin lighting and flight actuators) and Sell (galleys). Also in the Airbus A350XWB project, German suppliers will take a major role for systems and structures.
In the area of aircraft engines, Germany plays a major role, too. Besides activities of Rolls Royce and the International Aero Engines (IAE) consortium for engines used in Airbus’ A320 family, MTU is part of the Engine Alliance consortium. Engine Alliance supplies one of two engine options for the Airbus A380. GP7200 engines for the A380 were ordered e.g. by Air France, Emirates, Etihad, Korean Air and Qatar Airways. MTU has a share of 22.5 % in the development and production of this engine.
Emirates as customer of the aerospace industry
Emirates has become one of the largest customers for the aeronautical industry globally. Its fleet has grown from two aircraft in 1985 to 168 as of the end of 2011.
Emirates is also 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$7 billion at list prices). These figures underline the long-term importance of the business ties between Emirates and Airbus.
Emirates’ order backlog stood at 237 aircraft at the end of 2011. 140 firm orders are placed with Airbus and 97 with Boeing. The list prices of Airbus aircraft on order at the end of 2011 was more than US-$ 54.7 billion (including spare parts and spare engines), the order value for Boeing aircraft US-$ 28.5 billion. Furthermore, Emirates holds options or has signed letters of intent for 80 aircraft.
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Figure 5-16: Emirates fleet and order development 1985-2011
Source: Own representation based on data by ASCEND Online Fleets.
Figure 5-17: Emirates aircraft on order as of 31st December 2011 (excluding options and letters of intent)
Source: Own representation based on data by ASCEND Online Fleets.
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Employment effects for the German aerospace industry
By applying the same input-output analysis methodology as described in the chapter above on air services, we have estimated the impacts of Emirates’ investment in new aircraft, engines and spare parts for the German economy. Over the whole aerospace industry, the input-output analysis shows that 9,091 direct, indirect and induced jobs are created for every billion € in revenues.
Based on Emirates’ firm orders with Airbus for 140 aircraft, the revenue share for Airbus factories in Germany and German-based suppliers will exceed € 1 billion per year over the delivery schedule of the Airbus A380 and A350 aircraft. We estimate the direct, indirect and induced employment effect for Germany in the order of 9,439 direct, indirect and induced jobs created due to these aircraft orders.
In case Emirates would exercise its options / letters of intent for the 50 Airbus aircraft it currently holds and these aircraft would be manufactured on top of the firm orders in the same timeframe, the employment effect can be estimated at an additional 2,435 direct, indirect and induced jobs in Germany.
Moreover, Emirates has ordered Engine Alliance GP7200 engines for its fleet of 90 Airbus A380 aircraft and has concluded a 15-year fleet management contract for these engines, which includes spare parts, maintenance and overhaul services. The German share of the production of new engines and the fleet management contract amounts to € 65.5 million annually up to the year 2025. We estimate that 595 direct, indirect and induced jobs are generated in Germany by Emirates’ decision for the Engine Alliance engine option for the Airbus A380.
Unfortunately, Boeing did not provide any figures on the share of German suppliers in Boeing’s aircraft programs. Based on the firm orders of Emirates for 87 Boeing 777-300ER and 10 Boeing 777-200LRF, the contract volume for the German industry for each percentage point in participation in these projects is about € 174 million. As the intended delivery schedule for these aircraft ranges from 2012 to 2019, we assume that the contract volume will be evenly spread over this time frame. Based on these assumptions, we estimate that about 200 direct, indirect and induced jobs in Germany are related to every percentage point in work share in Boeing aircraft ordered by Emirates. However, as the actual share for Germany’s industry in Boeing aircraft programmes remains unclear, we have not included these figures in the totals shown in the following paragraphs. In consequence, this means that our estimations are rather conservative and underestimate the actual effects.
Besides the order of new aircraft, Emirates has spent € 208.8 million in fiscal year 2010/11 for cabin interior components (e.g. carpets, seats, galleys), paints and ground handling equipment at German suppliers. This also includes travel cost of Emirates staff travelling to Airbus and other suppliers in Germany. Moreover, Emirates spent more than € 68.8 million in Germany for spare parts and the repair of components. With the same employment coefficient as above, these on-going expenditures create another 2,500 direct, indirect and induced jobs in Germany’s aeronautical industry. This estimation can be considered as conservative in the long-term, as the demand for spare parts will grow in future in line with a growing fleet of aircraft. Moreover, the need for cabin interiors and parts will increase due to the overhaul of Emirates’ fleet in future.
In summary, the following table shows the employment effects generated by Emirates’ expenditures for the German aerospace industry. For new aircraft, engines and spare parts, annual spending is close to € 1.4 billion for the German economy, generating 12,558 direct, indirect and induced jobs.
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If we also take into account the possibility that further aircraft will be firmly ordered, which are currently on option with Airbus, the total employment effect increases to almost 15,000 full- time equivalent jobs.
Table 5-7: Annual contribution of Emirates to the German aerospace industry
Area Annual Direct, expenditures indirect and induced employment New aircraft orders (Airbus only) € 1038.3 million 9,439 Production, spare parts, maintenance and € 65.5 million 595 overhaul for Engine Alliance GP7200 engines Cabin interiors and ground service equipment € 208.8 million 1,898 Spare parts and maintenance services for in‐ € 68.8 million 625 service fleet
Total € 1381.4 million 12,558
New aircraft (Airbus only, option / letter of € 267.8 million 2,435 intent)
Total in case of conversion of options to firm € 1,649.2 million 14,993 orders
Source: Own calculations, based on data provided by Emirates.
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6 Discussion of the benefits of air transport market liberalisation for Germany
In this chapter, an overview on a more theoretical level about the impacts of liberalisation for different stakeholders will be given. The analysis considers both the effects of liberalisation for the decentral regions and for the hub regions to give a balanced view for the whole country. In the beginning, a first general overview about the level of liberalisation and possible changes will be given, followed by an overview about liberalisation’s related impact change on airports, differentiating decentral and hub airports. Based on this, an analysis of the consequences of liberalisation in the respective regions will be conducted. To get a complete picture about the aviation industry, the impact for airlines and also for alliances will be shown. Finally the passengers’ viewpoint will be taken into consideration as the stakeholder who should benefit from the consequences of liberalisation. Whereas airports and airlines represent more or less the supply side, passengers represent the demand side of the industry. Before the focus is laid on the different stakeholders, there will be an introduction about the impacts liberalisation is expected to cause. The approach will be on a more theoretical level added by a literature review, showing what other authors identified as impacts of liberalisation.
6.1 Consequences of the liberalisation of air transport markets Liberalisation in the aviation industry is one of the best documented institutional changes the theoretical economic literature can provide. Most of the existing literature concentrated on its introduction and its first results. Here, the emphasis will be on the further progress of liberalisation and its potential impacts. Liberalizing air services between countries means not only positive outcomes for the demand side, such as the consumers in the form of new travel options, job creation, better service quality, increased incoming tourism and improved business relations, but also the supply side is affected. Airlines and airports may also benefit from the liberalisation and the concerned countries may experience an overall positive economic impact.
The path to liberalisation began in the United States with the Airline Deregulation Act of 1978. The purpose of this Act was “to encourage, develop, and attain an air transportation system which relies on competitive market forces to determine the quality, variety, and price of air services, and of other purposes” (Rhoades, 2003) The aim of deregulation was to improve service for the public, to lower fares, to allow carriers to achieve higher profits, and to create a more competitive airline industry through the entry of new carriers as well as a more liberal regulatory environment for existing competitors (Kane, 1998). However, the fear of negative consequences for incumbents, such as concerns on the competitiveness on the market in relation to newcomers hindered liberalisation. Often national carriers and - by their lobbying - also nations are not willing to liberalise markets. The results are restrictions still existing in air service agreements.
Sometimes the antagonists of liberalisation mention the danger of an unlimited liberalisation (Dempsey, 1990). The difference of understanding is already underlined by the different wording: in the U.S., the term of deregulation is usual whereas in Europe the term of liberalisation is more common. But even the relatively far reaching deregulation of the U.S. did not remove all regulations being established in aviation over time. Especially regulations dealing with safety and security were intensified over the years; regulations about social norms still have their importance, and environmental regulations become more and more relevant. This brief overview shows that the regulatory framework consists of quite more regulations than the pure market regulations about market access, quantities and prices. When referring to liberalisation throughout this study, we refer to market regulations only. 2012-04-18 Release: 1.00 Page 119
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Despite the doubtless positive impacts of deregulation of national (U.S.), regional (EU) and international (open skies agreements between a growing number of countries) markets for consumers, there is even a kind of re-regulation under discussion. This trend can be observed particularly in the U.S., where legacy carriers have been struggling in adapting to the market environment and developing a sustainable business model. The ideas in this area go into the direction of a stricter market monitoring (Lowy, 2010).
The bilateral air service agreements negotiated between two countries lay out the regulatory framework under which airlines can operate. The reciprocally agreed provisions were typically based on airline designation, entry points per country, frequency, capacity and pricing. Further ownership restrictions were incorporated to limit the number of potential airlines. All restrictions were established in order to protect the own country and its airline industry. As these stipulations were under discussion after the Second World War, with commercial aviation in its infancy and a high significance of the national state, this may have been justified at the time. Nonetheless, the overall framework and many individual agreements did not completely change over time. While other industries, even in services, have undergone a global liberalisation process, mainly driven through the World Trade Organisation, the aviation industry remained a restricted one. However, with the increasing globalisation and the ascent of emerging markets, aviation is changing and demands for more freedom. In many bilateral relations a trend for further liberalisation can be observed, albeit sometimes in a long and cumbersome way. At least in some of the largest aviation markets, such as between the US and the EU, a full market access liberalisation was finally reached. But even in these cases, ownership regulations were not touched.
In the agenda ‘Statement of Policy Principles regarding the Implementation of Bilateral Air Services Agreements’ released by IATA in 2009 (IATA 2009), seven nations including the United Arab Emirates and the United States declared, although not binding, that they will support the liberalisation of air service agreements. The agenda particularly emphasizes the disadvantages the restrictions in bilateral air services agreements have on market access, investment, tourism, job creation and economic growth. The declaration furthermore sets out basic statements to be followed, such as the freedom to access capital markets, the freedom to do business, the freedom to price services, fair competition, legal effect, and endorsement by representatives of other countries.
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In the case study ‘The Economic Impact of Air Service Liberalisation’ which was conducted by InterVISTAS for IATA, several important consequences of further liberalisation of air service agreements between countries have been identified. The report reveals a typical traffic growth of 12 % to 35 % following market access liberalisation. It also states that liberalizing only 320 bilateral agreements of the existing thousands would create 24.1 million full-time jobs and generate an additional US-$ 490 billion in Gross Domestic Product. (InterVISTAS, 2006) This corresponds to an economy almost the size of Brazil.The statement of Giovanni Bisignani, then Director General & CEO of IATA, puts it all in a nutshell (IATA, 2007):
“Further liberalisation of international air transport is essential. Airlines facilitate global travel but are among the last companies to benefit from globalisation. Greater commercial freedom for airlines is vital for the long-term health of the industry and for the global economy”.
6.2 Literature review of worldwide liberalisation Since 1978, a lot of literature was published about the impact of the liberalisation of the aviation industry. Here we can give only a brief overview. It is a controversially discussed topic, however, it seems that generally speaking liberalisation is evaluated having a positive impact on the economy of the concerned countries. Rhoades (2003) argues that liberalisation was meant to support the competitive market with the aim of improving the overall economy. This intention is strengthen by InterVISTAS (2006), which gave some figures as shown already in the previous paragraph.
IATA (2007) refers to other industries in order to emphasise on the positive outcomes liberalisation had generated. In accordance with this, IATA (2009) released an agenda which explicitly sets out a policy on liberalisation. Gillen et al. (2001) conducted a study, commissioned by the city of Hamburg on the impacts of liberalisation of international aviation on Hamburg airport.
In this study it is argued that market entry barriers for airlines from third countries do not protect German airlines and hubs, as the intra-European market is liberalised. In case capacity restrictions exist for long-haul flights, EU carriers will capture much of the market growth, which then will be routed through their hubs. Moreover, market entry barriers lead to higher ticket prices and cargo rates in Germany, which, from the viewpoint of the overall economy is detrimental to Germany’s competitive position in comparison to other EU member states.
Gillen et al. (2001) have shown in their study that liberalisation is estimated to generate 149,000 new passengers and 17,000 who will use the airport as transfer point for other international destinations, yield a 6 % increase of the overall airport revenue, increase local output, investment and employment as well as create 11,000 new tourists and 22 new jobs in the tourism industry. This study is of special interest since it has a focus especially on a secondary airport and describes the positive impact for such an airport.
Fu et al. (2010) state that liberalisation has allowed airlines to optimize their network within and across continental markets and that the growth of LCCs leads to increased competition and stimulated traffic. Wang and Evans (2002) have stated that airline performance within the liberalisation process shows that airlines, on average, achieve better results of operation if the market is more liberal.
On the other hand, there are opponents of liberalisation. Particularly in the US, triggered through the financially difficult state of legacy carriers, advocates can be found calling for
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6.3 Liberalisation’s impact on different stakeholders
6.3.1 Secondary and hub airports Given that market access liberalisation allows airlines to operate long-haul services from a large number of airports in a given country, it might be suggested that secondary airports can take advantage from this process, while the incumbent’s hubs might lose.
Secondary airports are defined herein as airports not having a hub function by providing airlines with infrastructure optimised for transfer itineraries. These systems were introduced after liberalisation and optimized through alliances. One success of liberalisation was the introduction of low cost carriers (LCC) offering point to point services in short- and medium- haul markets. While the emergence of LCCs put pressure on the continental networks of legacy carriers, it did not harm the big European hubs so far. Recently, a situation has developed that liberalisation in Europe extends from the common internal market to the relations with third countries. We observe that this has led to an increasing number of long- haul flights from secondary airports in Europe to the hubs of third country airlines in North America, Asia and the Middle East.
The example of Hamburg shows that time-sensitive passengers can benefit from a direct service e.g. to Dubai and avoid transfers when bound for this destination. Also passengers for destinations beyond Dubai benefit from the reduction in the number of transfers, e.g. for destinations in Australia or secondary destinations in India.
For secondary airports, the presence of third country carriers with long-haul flights into hubs in North America or Asia results in an improvement in their global connectivity, as frequencies and capacities to intercontinental destinations increase and new destinations can be reached with only one intermediate stop instead of two or more.
In the German case, we find a number of intercontinental flights by third country carriers connecting Germany’s secondary airports with hubs on other continents. These are for instance Continental Airlines with services from Berlin, Hamburg and Stuttgart to New York, Delta Air Lines from Berlin to New York or Gulf carriers Etihad Airways from Düsseldorf to Abu Dhabi and Qatar Airways from Berlin and Stuttgart to Doha. Emirates offers connections from Düsseldorf and Hamburg to Dubai.
In a situation with static demand, these new services would result in a relocation of demand, which would lead for incumbent airlines and the German hub airports Frankfurt and Munich to a decrease of transfer passengers assuming that most of these passengers so far used only these hubs.
However, the effects observed in reality are more complex than it seems in this simplistic view. First, and of foremost importance, the demand for intercontinental air travel from and to Germany is quickly growing at rates of more than 5 % p.a. over the last decade. A reason for 2012-04-18 Release: 1.00 Page 122
Institute of The Economic Impact of Emirates Flights on Air Transport and Germany Airport Research Final Report part of the growth is the additional capacity brought into the market by new entrants and also low prices, which generate additional demand. Already in the past it could be observed that the price sensitive demand to a large extent has used foreign airlines, which typically offered lower fares in the German market than the local incumbent. Typically, itineraries via Amsterdam, London and Paris were available in the German market at low fares, while non- stop services and even transfer itineraries via Frankfurt and Munich were priced higher. This phenomenon is described in the literature as home country premium (Fröhlich, 2011). So the relocation effect, which can be observed in the Germany-Asia market, goes at the expense of European legacy carriers, such as Air France-KLM or British Airways, and mostly not at the expense of Lufthansa.
But also the hub airports benefit from competition between incumbents and new entrants, as is the case in Frankfurt and Munich, which are the preferred points for airlines starting services to Germany. With competition and lower fares, demand is also stimulated at the hubs. For instance, Emirates introduced a third daily service to Frankfurt and offers A380 services for one of its two daily services to Munich. On reason for the preference for the German hubs is also the generation of transfer traffic with bi- and multilateral interlining agreements.
Besides the above mentioned reason of an overall growing market in intercontinental air travel, also the efficient transfer times at German hubs and the overall comparably shorter journey times contribute to growing transfer passenger numbers at Frankfurt and Munich. Relatively longer journey times and waiting times at the Gulf hubs in Abu Dhabi, Doha and Dubai need to be compensated by lower prices in the market, from which price sensitive travellers, mostly for leisure purposes, can take advantage of.
A further important point might be that business travellers are less price-sensitive; instead they are in most cases member of frequent flyer programs (FFP). To collect further miles to receive the benefits associated with such programs, this group of travellers remains loyal with incumbent airlines and, hence, the hubs they use. This effect might be decreased the more often business travellers are members in more than one FFP, but then it has to be questioned if these additional FFPs will be of European airlines of other alliances or of non- European airlines taking advantage of further liberalisation. As this aspect rather concerns the passengers, this will be discussed further in the passenger part.
Finally, it can be concluded that the hypothesis of the beginning of this chapter has to be corrected. Secondary airports benefit from the liberalisation process, but not at the expense of German hub airports.
6.3.2 Airlines and alliances Airlines are the main suppliers of the aviation industry towards the consumer. According to the business model, airlines can be classified as network carriers, low cost carriers, holiday carriers and regional carriers. Also a combination of different business models is possible which is then recognized as a hybrid airline. Besides these airlines relying predominantly on the passenger business, there are scheduled and charter freight carriers as well as integrators.
In the beginning of the liberalisation process, the International Air Transport Association (IATA) was sceptical towards liberalisation, as it was strongly involved in market access and price regulation matters. IATA paved the way for regulating market access through the system of slot allocation, which was adopted more or less along the lines of IATA’s recommendations in many parts of the world. More importantly, IATA acted as platform on
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Institute of The Economic Impact of Emirates Flights on Air Transport and Germany Airport Research Final Report which airlines coordinated prices in a global legally approved price cartel (Ehmer et al., 2000). These structures exist until today; however, through the emergence of alliances, internationally agreed IATA fares are less relevant now. Today, IATA is a strong proponent of the liberalisation process. It might be the reason that IATA has recognized that the benefits of liberalisation dominate for its members. Predominant benefits of liberalisation as outlined by IATA include the lowering barriers to entry into the industry through removal of operational restrictions, freedom for airlines to operate on a fully commercial basis, expand or rationalise capacity and ownership in accordance with customer needs and to improve the return on capital invested (IATA, 2007).
The current airline industry is characterised by the three major strategic alliances oneworld, SkyTeam and Star Alliance, a large number of non-aligned network carriers, low cost carriers and regional airlines. Alliances were one of the many consequences of partial liberalisation and fierce competition. With full liberalisation, i.e. the removal of national ownership clauses, it is probable that alliances will develop further into mergers. At least partly, with cross-border mergers of British Airways and Iberia and the acquisition of Austrian Airlines, Brussels Airlines and Swiss by Lufthansa this trend can already today be observed. However, as strict regulations on foreign ownership still restrict these market consolidation trends, alliances continue to be a remedy to solve this limitation.
Besides cost reductions through the joint use of resources, airlines try to achieve advantages in marketing with a membership in a strategic alliance. An airline will be able to extend its network through code sharing agreements and also reduce costs by sharing common facilities getting easier access to new markets. By joining an alliance the particular airline will be able to offer more frequencies, seamless travel, lounge access and the ability to bind customers due to the mutual acceptance of frequent flyer programs of airlines being members of the alliance. Star Alliance, oneworld and SkyTeam encompass over 50 once- separate airlines, crossing national and regional boundaries and accounting for almost 70 % of all international scheduled revenue passenger kilometres (RPKs) for 2010. (Emirates, 2011)
Independent airlines typically struggle to achieve the economies of scale, scope and density without the benefits of alliances. For the emerging carriers in the Gulf region, the situation is somewhat different. Economies of scale are realised through an extensive growth strategy in a favourable environment with low labour costs, low taxes and adequate infrastructures on the ground. However, network benefits, such as the exponential growth of city pairs that can be served with every addition of a new destination as spoke in the network will be difficult to realize without further liberalisation. With further liberalisation and the advantage of the 6th freedom traffic rights, Emirates and other Gulf carriers are likely to continue to gain significant passenger numbers.
Further implications of deregulation were the evolution of the hub and spoke systems. Via a hub, airlines can be more productive by offering more city pairs and a higher number of frequencies. Airlines could take advantage out of the increasing number of passengers per leg, because several destinations were served by a single flight; the then used bigger aircraft reduced the cost per seat. This results in benefits for consumers as well.
Since airlines offer a relatively homogenous product, a flight from A to B, they have a high interest that their passengers are loyal. For this purpose, frequent flier programs were introduced, which offer passengers benefits from frequently using the same airline or alliance. The wider the network, the bigger is the benefit for consumers being members in a frequent flyer program of a particular airline, as bonus and status points can be collected on flights to a larger number of destinations. The formation of alliances contributed essentially to the expansion of the networks of legacy carriers. Lufthansa is a good example for this strategy, as the German carrier’s network grew substantially due to the large number of 2012-04-18 Release: 1.00 Page 124
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Network airlines in Europe mainly operate so called hinterland hubs. As the name implies, hinterland hubs stand for the bundling of passengers from smaller airports located more or less concentrically around and relatively close to the hub. For intercontinental journeys, often relatively short flights (e.g. Düsseldorf-Frankfurt) are combined with long flights (e.g. Frankfurt-Guangzhou). This can be disadvantageous from a commercial point of view, as short-haul flights are usually operated on relatively high costs per available seat kilometre in comparison to long-haul flights. Moreover, when travelling on low-demand or ultra long-haul city pairs, itineraries often involve two transfers, as typically less direct long-haul services to smaller destinations are operated, but two hinterland hubs of an alliance are connected. An example for such an itinerary is for instance Düsseldorf-Frankfurt-Singapore-Perth.
The strategy of Gulf carriers such as the Emirates lies in adding as many destinations as possible and providing direct connections via their hub. This structure is defined in the literature as hourglass hub. In such a system, individual spokes have about the same length. Avoiding short-haul flights has overall cost advantages and passengers, even when travelling between two secondary airports, can reach their destination with only one transfer. The liberalisation process has allowed carriers to set up such a business model and exploit the respective productive efficiencies, for the benefit of consumers and shippers of air cargo.
For the Gulf carriers, further liberalisation would allow for the expansion for their networks, further increasing the economies of scale and density associated with the bundling of passengers and their “re-distribution” over one central hub. Currently, many markets (e.g. Germany and Canada) are restricted in the number of points that can be served. This reduces the possibilities of more efficient 6th freedom services via the hubs in the Gulf. Lufthansa on the other hand has always been making use of the 6th freedom rights, and further liberalisation would also lift limitations Lufthansa currently faces, e.g. in China.4
The fear of losing traffic to competitors, which began thirty four years ago in the United States, still has its traces until today. Individual stakeholders will always be differently affected by liberalisation, but since overall traffic grows, even incumbents losing historic privileges can prosper. Learning from the experiences of the US market, we can see that the quote of the ‘Survival of the Fittest’ is also valid in this industry and an essential requirement for a competitive market. However, airlines which are well established have little to lose. This is also a lesson that can be learnt from the past.
6.3.3 Passengers In today’s market, passengers have a wide choice of different airline business models for their mobility needs, be it the low cost carriers on short-/medium-haul routes, legacy network carriers offering domestic, European or intercontinental services and a growing number of new entrants in long-haul markets, such as Emirates, Etihad, Qatar Airways or Oman Air. Simultaneously, transfer passengers have the option between many different hub airports, In Germany (with Frankfurt and Munich as the most prominent), Europe (Amsterdam, London and Paris) or, for passengers with the final destination in the Eastern Hemisphere, hub airports in the Gulf.
For passengers, further liberalisation means first of all more flexibility and choice. Passengers can choose itineraries according to a wide range of individual preferences, such
4 http://www.aero.de/news-11051/Lufthansa-A380-Linie-nach-Peking-startet-mit-Problemen-.html 2012-04-18 Release: 1.00 Page 125
Institute of The Economic Impact of Emirates Flights on Air Transport and Germany Airport Research Final Report as the shortest journey time, the lowest price or other quality criteria, e.g. the highest level of frequent flyer points. When considering the benefits for passengers, one has to distinguish between frequent flyers and non-frequent flyers. The frequent flyer program is thought to bind customers to one airline or alliance and promote customer loyalty. Through alliances, airlines are aimed to provide the customer a more or less seamless travel with optimized connection times.
Most frequent flyers are usually business travellers and high yield customers. These are mostly time sensitive customers who are willing to pay more for a better connection and service. Currently, there is a low likelihood that this customer segment would be attracted to travel via Dubai since these connections incorporate a flight detour and a longer travel time. Although this may hold true, it has to be noted that Emirates has a much higher number of frequencies – for example of the 31 common points, Lufthansa has more frequencies than Emirates on only two points. Lufthansa for example is offering a broad network with fast connections which is even more emphasized through the alliance partners. However, being the national carrier of Germany, it also offers most of the time higher prices compared to competing carriers on the same routes (Fröhlich, 2011).
Even for the lowest available, non-refundable economy class ticket, the highest fare can be up to twice the price of the lowest offer in the market, as shown exemplarily in Figure 4-14. The same can be observed for business class travel, where price sensitivity of passengers is particularly low due to frequent flyer programs, corporate loyalty schemes and a high value attributed to travel time savings. Home carriers exploit this willingness to pay with a premium in their national markets, as described by Fröhlich (2011). Nevertheless, a growing demand for lower-priced business class products exists, as in times of economic uncertainty companies often slash their travel budgets to reduce costs. For these travellers, also transfers or increase travel times are acceptable, often using European or to an increasing extent also non-European hubs.
Time sensitive frequent travellers are very often members of the home carrier’s FFP and companies they are employed at often hold a corporate contract and are therefore widely “locked-in” by the national carrier. As the Gulf carriers often only allow limited collection of bonus points on other carriers in their own FFPs, the attractiveness of these programs is somewhat limited for passengers travelling on a range of different routes. In many cases, therefore passengers with a “gold” status in one alliance, therefore prefer to have another frequent flyer membership with an alternative alliance, providing more choice in the collection of points.
Already today passengers on international routes have in most cases the choice between at least two carriers, mostly being the two national carriers of the home and the destination country. If these two carriers belong to the same alliance, they often have been granted antitrust immunity, which allows coordinating schedules, capacities and, most importantly, prices. While benefits for passengers are created through the extension of networks, such arrangements basically eliminate price competition. For the more price-sensitive passengers, carriers offering 6th freedom services in the same markets are an important alternative. The market entry of Gulf carriers, among them most prominently through its wide network Emirates, can be from the view of competition policy an important element of “countervailing power” against the oligopolisation and monopolisation of markets.
So far the analysis concentrated mainly on customers having more choice. However, even in markets with already a large number of competing carriers, it is positive to have more supply. Every new carrier increases the competitive pressure in the market, driving down prices of all carriers with the result of generation of new demand – a further advantage for the passengers. New customer groups get access to international services which increase at least the social welfare and global connectivity. 2012-04-18 Release: 1.00 Page 126
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As far as new traffic is generated there will also be the probability of added frequencies. It was shown already in previous parts of the study that this happened for Emirates opening recently a third daily service in Frankfurt. This then leads to the advantage for the passengers that the average waiting time for the transfers in the Middle East is shortened. Also the average waiting time for travelling (“schedule delay” as the difference between the preferred flight time of the individual passenger and the published time of a particular flight) is reduced leading to an optimization of travel opportunities.
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7 Conclusions
From the findings in this report we draw the following conclusions:
Connectivity
. Main benefits for passengers and shippers of cargo come from the supply of dedicated capacity to the Eastern Hemisphere, which increases the availability of seats and cargo capacity at all airports served by Emirates in Germany.
. Secondary airports in Germany are relatively well connected to European hubs, but rarely long-haul flights to destinations in Asia and the Middle East are offered. Therefore, services to Emirates’ hub in Dubai improve the accessibility considerably. The improvement can be found in an increase in the number of destinations that can be reached with one transfer instead of two or more and in an increase in frequencies, broadening choice for passengers.
. Stakeholder interviews with the Chambers of Commerce in Hamburg and Stuttgart and a survey among companies in the Stuttgart region have confirmed that the accessibility of emerging markets in the Middle East and Asia is a crucial element for the competitiveness of the German economy. In Stuttgart, the survey revealed that participating companies are highly discontented with the connectivity to Asia and the Middle East. More high-quality and high-capacity direct long-haul flights and the subsequent onward connectivity are required, irrespectively of the airline providing the service.
. As other airlines show a limited interest in offering long-haul flights from Germany’s secondary airports to the Eastern Hemisphere, Emirates is a reliable supplier of new flights, which can improve the accessibility of German regions in a global context. With Germany’s highly export-oriented economy, each improvement in connectivity needs to be regarded as positive, both from the perspective of passenger and cargo traffic, but also from the perspective of the airports and the regions.
Passenger Flows
. Through the supply of additional capacities and attractive inflight services on flights to Dubai and beyond, to our understanding, new demand has been generated at the airports Emirates currently serves in Germany. Most likely, this demand development would not have happened without the Gulf carrier’s market entry. It is therefore, in our view and according to passenger flow data, not correct to assert that a high share of demand currently served by Emirates has been detracted from other carriers.
. From demand generation effects through a qualitatively attractive offer, the German airports served by Emirates benefit from more passengers generating more revenues in the aeronautical and non-aeronautical segments of business. Moreover, Emirates generates additional transfer traffic at the hubs through interlining passengers.
. Although the overall market for air travel between Germany and the Eastern Hemisphere grows, some airlines do not participate in this development. In some cases, it can be observed that transfer traffic from Germany to Asia actually declines, mainly affecting third-country carriers from Western Europe and the hubs in London-
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Heathrow, Amsterdam-Schiphol and Paris-Charles de Gaulle, which have a relatively weak position in the German market since itineraries via these hubs are considered relatively inconvenient by passengers.
. The air transport market between Germany and the Eastern Hemisphere is not static, but dynamically growing at rates of around 5 % p.a. in the recent past. The majority of airlines can benefit from the growing demand, so that the aphorism that “a rising tide lifts all boats” apparently seems to fit. This is particularly the case for Lufthansa, as the strongest incumbent in the Germany-Asia air transport market. According to data provided by Sabre Airport Data Intelligence, the German carrier, with very time- efficient non-stop or transfer itineraries and a high level of customer retention via its frequent flyer program, has recorded the second highest growth after Emirates in the number of origin-destination passengers between Germany and destinations in the Eastern Hemisphere between 2005 and 2010.
. With the findings presented in this study that transfer traffic is not shifted away from German airports due to the offers of new entrants, previous hypotheses on the impacts of new competition in long-haul markets (e.g. Brützel, 2006) can widely be confirmed. Incumbents can retain market shares in the high-yield market segment, where passengers have a high value of time, a strong preference for non-stop flights and are locked-in through frequent flyer programs.
. We conclude that in case traffic rights would be granted allowing Emirates to operate to additional points in Germany, the market situation at these points can be expected to be very similar to the situations observed in Düsseldorf and Hamburg. It is very likely that passenger demand for trips via Frankfurt and Munich will be stable or slightly growing, while additional demand will be generated through the increase in attractiveness by direct long-haul flights, with positive effects for secondary airports and the regions surrounding them.
Economic Impacts
. The German economy benefits from the provision of Emirates’ air transport services, as well as the use of air transport links. We estimate that Emirates will spend about € 200 million in 2012 for wages and the purchase of goods and services from German suppliers.
. The use of Emirates’ air services is beneficial for the shippers of cargo with high- frequency services also to destinations which would be less accessible if shippers had to rely only on other airlines. The use of Emirates’ passenger services increases the welfare for German passengers by creating a consumer surplus and stimulating incoming tourism.
. Germany’s aeronautical industry and its suppliers are key beneficiaries of Emirates’ orders for aircraft, engines, spare parts and maintenance services. These orders are to an extent only possible due to market access liberalisation in many countries. As a good example, the United Kingdom has fully liberalised market access for traffic between the UK and the United Arab Emirates.
. The assertion that Germany receives more economic benefits when air transport demand growth will be handled with aircraft and crews that are based in Germany (Lufthansa, 2010) instead of aircraft coming to Germany from third countries is only partially correct. While it is right that more jobs are created when aircraft and crews are based in Germany, also positive effects coming from competition need to be 2012-04-18 Release: 1.00 Page 129
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considered. Consumers benefit from competition, as it drives market participants to produce with a higher efficiency.
. Efficient production of services with lower unit costs is beneficial for consumers, as can be seen in nearly all other industries from consumer electronics to textiles. With a decrease in prices, demand will increase, having again a positive impact on employment. This is also true for air transport services. The assessment of the economic impacts of new air services needs to be conducted in a holistic way, taking into account both the supply and demand side. In our view, the consumer perspective must not be forgotten when making decisions on the liberalisation of air transport markets.
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Annex
Definition of regions used throughout this report
Southern Africa – OAG Region AF2 South Asia – OAG Region AS1 ISO‐Code Country Name ISO‐Code Country Name AO Angola AF Afghanistan BW Botswana BD Bangladesh LS Lesotho IN India MW Malawi LK Sri Lanka MZ Mozambique MV Maldives NA Namibia NP Nepal SZ Swaziland PK Pakistan ZA South Africa
ZM Zambia South East Asia – OAG Region AS3 ZW Zimbabwe ISO‐Code Country Name BN Brunei Darussalam East Africa – OAG Region AF4 CC Cocos (Keeling) Islands ISO‐Code Country Name ID Indonesia BI Burundi KH Cambodia DJ Djibouti Lao People's Democratic ER Eritrea LA Republic ET Ethiopia MM Myanmar KE Kenya MY Malaysia KM Comoros PH Philippines MG Madagascar SG Singapore MU Mauritius TH Thailand RE Reunion TL Timor‐Leste RW Rwanda VN Vietnam SC Seychelles
SO Somalia North East Asia – OAG Region AS4 SS South Sudan ISO‐Code Country Name TZ Tanzania United Republic of CN China UG Uganda Hong Kong (SAR) HK China
JP Japan
Korea Democratic
KP People's Republic
KR Korea Republic of MN Mongolia MO Macao (SAR) China
RU Russian Federation
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Middle East – OAG Region ME1 South West Pacific – OAG Region SW1 ISO‐Code Country Name ISO‐Code Country Name AE United Arab Emirates AS American Samoa
BH Bahrain AU Australia IL Israel CK Cook Islands IQ Iraq Christmas Island, Indian IR Iran Islamic Republic of CX Ocean JO Jordan FJ Fiji KW Kuwait Micronesia Federated LB Lebanon FM States of OM Oman GU Guam QA Qatar KI Kiribati SA Saudi Arabia MH Marshall Islands SY Syrian Arab Republic Northern Mariana YE Yemen MP Islands (except Guam)
NC New Caledonia NF Norfolk Island NR Nauru NU Niue NZ New Zealand PF French Polynesia PG Papua New Guinea PW Palau SB Solomon Islands TO Tonga TV Tuvalu VU Vanuatu Wallis and Futuna WF Islands WS Samoa
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Emirates’ Destinations The following table shows the destinations in Emirates global network served with passenger flights, the number of departures, seat and cargo capacities in the month of December 2011, according to OAG MAX schedule database. In column on the far right, we have marked all airports, which are located in the OAG regions with significant passenger traffic from Germany via Dubai.
Airport with IATA Monthly Monthly relevance Monthly 3‐ departures cargo OAG for Airport Name Country seat OAG Region Name Letter of capacity Region connectivity capacity Code Emirates (t) to/from Germany Cairo CAI Egypt 52 15184 2463.6 AF1 Africa : North Africa Casablanca CMN Morocco 31 8061 1328.5 AF1 Africa : North Africa Khartoum KRT Sudan 31 7347 1289.6 AF1 Africa : North Africa Tunis TUN Tunisia 27 6399 1123.2 AF1 Africa : North Africa Cape Town CPT South Africa 62 17828 2927.3 AF2 Africa : Southern Africa Durban DUR South Africa 31 7347 1289.6 AF2 Africa : Southern Africa Johannesburg JNB South Africa 93 37107 5465.3 AF2 Africa : Southern Africa Luanda LAD Angola 13 4602 737.1 AF2 Africa : Southern Africa Africa : Central/Western Abidjan ABJ Cote D'Ivoire 62 16554 2498.6 AF3 Africa Africa : Central/Western Accra ACC Ghana 62 16554 2498.6 AF3 Africa Africa : Central/Western Dakar DKR Senegal 21 4977 873.6 AF3 Africa Africa : Central/Western Lagos LOS Nigeria 62 18972 3109.3 AF3 Africa Addis Ababa ADD Ethiopia 62 15996 2703.2 AF4 Africa : East Africa Dar Es Salaam DAR Tanzania 31 7998 1351.6 AF4 Africa : East Africa Entebbe/Kampala EBB Uganda 62 15996 2703.2 AF4 Africa : East Africa Mahe Island SEZ Seychelles 49 12642 2136.4 AF4 Africa : East Africa Mauritius MRU Mauritius 50 15747 2604.8 AF4 Africa : East Africa Nairobi NBO Kenya 58 14529 2442.5 AF4 Africa : East Africa Ahmedabad AMD India 44 10428 1830.4 AS1 Asia : South Asia Bengaluru BLR India 93 22821 3835 AS1 Asia : South Asia Chennai MAA India 93 26406 4365.6 AS1 Asia : South Asia Colombo CMB Sri Lanka 155 53552 8628.2 AS1 Asia : South Asia Delhi DEL India 124 35736 4881.9 AS1 Asia : South Asia Dhaka DAC Bangladesh 74 24352 3944.6 AS1 Asia : South Asia Hyderabad HYD India 93 24191 3799.2 AS1 Asia : South Asia Islamabad ISB Pakistan 31 9921 1621.8 AS1 Asia : South Asia Karachi KHI Pakistan 124 35383 5913.4 AS1 Asia : South Asia Kochi (IN) COK India 62 16460 2708.1 AS1 Asia : South Asia Kolkata CCU India 54 12798 2246.4 AS1 Asia : South Asia Kozhikode CCJ India 49 12425 2069.2 AS1 Asia : South Asia Lahore LHE Pakistan 32 9980 1614 AS1 Asia : South Asia Male MLE Maldives 93 31094 5005.7 AS1 Asia : South Asia Mumbai BOM India 155 46512 7678.7 AS1 Asia : South Asia Peshawar PEW Pakistan 14 3579 592.3 AS1 Asia : South Asia Thiruvananthapuram TRV India 54 12798 2246.4 AS1 Asia : South Asia Bangkok BKK Thailand 218 86082 12858.4 AS3 Asia : South East Asia Jakarta CGK Indonesia 62 21948 3515.4 AS3 Asia : South East Asia Kuala Lumpur KUL Malaysia 124 44138 7086.1 AS3 Asia : South East Asia Manila MNL Philippines 62 21948 3515.4 AS3 Asia : South East Asia Singapore Changi Apt SIN Singapore 209 74586 11976.3 AS3 Asia : South East Asia Beijing Capital Apt PEK China 62 23157 3301.5 AS4 Asia : North East Asia Guangzhou CAN China 31 10974 1757.7 AS4 Asia : North East Asia Hong Kong HKG China 115 48801 6678.1 AS4 Asia : North East Asia Osaka Kansai KIX Japan 31 10974 1757.7 AS4 Asia : North East Asia Seoul Incheon ICN Korea 31 15159 1949.9 AS4 Asia : North East Asia Shanghai Pudong PVG China 62 23616 3579.6 AS4 Asia : North East Asia Tokyo Narita Apt NRT Japan 31 10974 1757.7 AS4 Asia : North East Asia Amsterdam AMS Netherlands 31 10974 1757.7 EU1 Europe : Western Europe 2012-04-18 Release: 1.00 Page 133
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Athens (GR) ATH Greece 31 7347 1289.6 EU1 Europe : Western Europe United Birmingham BHX Kingdom 62 21948 3515.4 EU1 Europe : Western Europe Copenhagen CPH Denmark 31 7347 1289.6 EU1 Europe : Western Europe Duesseldorf DUS Germany 62 18300 2831.6 EU1 Europe : Western Europe Frankfurt FRA Germany 93 29295 4805 EU1 Europe : Western Europe Geneva GVA Switzerland 31 9543 685.8 EU1 Europe : Western Europe United Glasgow GLA Kingdom 31 10974 1757.7 EU1 Europe : Western Europe Hamburg HAM Germany 62 19220 3081.4 EU1 Europe : Western Europe Istanbul Ataturk IST Turkey 49 15762 2526.3 EU1 Europe : Western Europe Larnaca LCA Cyprus 62 14694 2579.2 EU1 Europe : Western Europe United London Gatwick LGW Kingdom 93 30194 4839.1 EU1 Europe : Western Europe United London Heathrow LHR Kingdom 155 63450 9217 EU1 Europe : Western Europe Madrid Barajas Apt MAD Spain 31 10974 1757.7 EU1 Europe : Western Europe Malta MLA Malta 62 14694 2579.2 EU1 Europe : Western Europe United Manchester (GB) MAN Kingdom 93 33480 4997.2 EU1 Europe : Western Europe Milan Malpensa Apt MXP Italy 62 22673 3645.5 EU1 Europe : Western Europe Munich MUC Germany 62 23436 3199.2 EU1 Europe : Western Europe United Newcastle NCL Kingdom 31 7347 1289.6 EU1 Europe : Western Europe Nice NCE France 31 8277 1249.3 EU1 Europe : Western Europe Paris Charles de Gaulle CDG France 62 26433 3770.6 EU1 Europe : Western Europe Rome Fiumicino FCO Italy 62 26153 3711.8 EU1 Europe : Western Europe Venice VCE Italy 31 9538 1489.8 EU1 Europe : Western Europe Vienna VIE Austria 57 17682 2891.3 EU1 Europe : Western Europe Zurich ZRH Switzerland 62 21948 3515.4 EU1 Europe : Western Europe Europe : Eastern/Central Moscow Domodedovo DME Russia 62 19918 2524.1 EU2 Europe Czech Europe : Eastern/Central Prague Ruzyne PRG Republic 31 7347 1289.6 EU2 Europe Europe : Eastern/Central St Petersburg LED Russia 31 8157 1254.5 EU2 Europe Latin America : Lower Sao Paulo Intl Apt GRU Brazil 31 10974 1757.7 LA4 South America Amman AMM Jordan 48 13324 2206.9 ME1 Middle East Baghdad BGW Iraq 18 4266 748.8 ME1 Middle East Bahrain BAH Bahrain 93 22215 3875.4 ME1 Middle East Basrah BSR Iraq 17 4029 707.2 ME1 Middle East Beirut BEY Lebanon 62 15786 2683.2 ME1 Middle East Damascus DAM Syria 31 8417 1392.1 ME1 Middle East Dammam (SA) DMM Saudi Arabia 30 7810 1317.2 ME1 Middle East Doha DOH Qatar 155 41135 6927.2 ME1 Middle East Dubai International DXB UAE 5878 1868915 289494.1 ME1 Middle East Jeddah JED Saudi Arabia 62 27057 3593.7 ME1 Middle East Kuwait KWI Kuwait 124 33047 5552.2 ME1 Middle East Madinah MED Saudi Arabia 31 7347 1289.6 ME1 Middle East Muscat MCT Oman 62 15539 2653.9 ME1 Middle East Riyadh RUH Saudi Arabia 66 19053 3166.3 ME1 Middle East Sanaa SAH Yemen 18 4266 748.8 ME1 Middle East Tehran Imam Khomeini IKA Iran 93 27247 3847.3 ME1 Middle East Houston George Bush IAH USA 62 18662 1054 NA1 North America Los Angeles LAX USA 62 20305 2284.7 NA1 North America New York J F Kennedy JFK USA 62 26133 3707.6 NA1 North America San Francisco SFO USA 31 10974 1757.7 NA1 North America Toronto Intl Apt YYZ Canada 13 6357 817.7 NA1 North America Auckland AKL New Zealand 186 74214 10930.6 SW1 Southwest Pacific Brisbane BNE Australia 124 43896 7030.8 SW1 Southwest Pacific Christchurch CHC New Zealand 93 32922 5273.1 SW1 Southwest Pacific Melbourne MEL Australia 186 65844 10546.2 SW1 Southwest Pacific Perth PER Australia 63 19970 1825.3 SW1 Southwest Pacific Sydney SYD Australia 186 74214 10930.6 SW1 Southwest Pacific
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Stakeholder Interviews
The authors of this report were supported with data, ideas and suggestions by the following companies and organisations:
Berlin Tourismus & Kongress GmbH
Chamber of Industry and Commerce of the Stuttgart region
Hamburg Chamber of Commerce
International Air Transport Association, Geneva
Panalpina Deutschland
Stuttgart Marketing GmbH, Regio Stuttgart Marketing- und Tourismus GmbH
Schenker AG Global Air Freight
The authors would like to thank all interview partners for their valuable input for this study.
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