$10m a day Emirates’ loss latest blow to Dubai recovery

Posted on 19 April 2010 with no comments from readers

Emirates Airline is losing $10 million a day because of the grounding of planes in Europe by volcanic dust clouds over the past five days, The Financial Times reported today. This is the latest blow to the recovery of Dubai where tourism has been a notable bright spot in recent months as the city struggles to emerge from the real estate crash of 2009.

Leafing through the stages of the emerging market business cycle, as brilliantly compiled by Dr Marc Faber in his classic book ‘Tomorrow’s Gold’, and it is easy enough to conclude that Dubai is stuck in the phase six or crash stage.

Beyond that nemesis is phases zero and one. So are there any signs of Dubai inching towards recovery? Actually the emirate is now picking itself up off the floor with its debt restructuring plans but the other symptoms are still not that encouraging.

Phase zero?

Tourism has been improving after a slump in room rates and occupancy last year. The stock market has been moving sideways for sometime and is very undervalued.

Very few foreign fund managers visit the city now. Press headlines are still very negative. Credit is still tight because of the problems of the previous boom. Investment interest is low after big profit falls in 2009. There was also a big outflow of capital last year.

This is all straight out of Dr Faber’s phase zero. It could be worse. There is no unemployment because perhaps 400,000 construction and real estate workers have gone home. And maybe for that reason the city is still safe. Downtown hotels are struggling; coastal hotels are full.

For this to move on to phase one, or the start of a recovery then a ‘catalyst’ is required. This could be ‘a sharp rise in the price of an important commodity, the application of an important new innovation, a sudden rise in exports, or changes in tax and investment laws’ says Dr Faber.

Other catalysts include: ‘The undertaking of large scale infrastructure projects that improve power supplies, road transportation and port facilities’ or ‘The privatization of entire industries’.

No catalyst

In the context of Dubai the ‘catalyst’ for a recovery is currently missing. That is not to say that it will not come, perhaps in late 2010 or 2011 or later.

Indeed, it is not hard to see what might happen. Oil prices could boom again in a period of global inflation as a result of the government debt boom to combat the recent financial crisis. High hydrocarbon prices would rapidly heat up business in Dubai as the regional trading and logistics hub.

Then again the UAE is presently reviewing its laws on foreign investment and that would help. So too would a move to unify the stock markets of the UAE into a single trading platform.

Privatization

Privatization or part privatization of the airline, ports, airports and power generation would attract an inflow of capital. Government debt could be repaid. Then again infrastructure investments are ongoing and creating a more attractive and efficient urban environment for business in Dubai.

Thus the recovery prospects of Dubai are perhaps rather obvious and the city’s future outlook far from hopeless. But all of this will take time, even if – as seems to be the case – the government knows what it ought to be doing to sort things out. Emirates Airline will soon be flying high again.