The recent conclusion of the Australia-United Arab Emirates Comprehensive Economic Partnership Agreement (CEPA) marks a milestone in strengthening bilateral ties between the two nations. As Australia seeks to expand its reach into the Middle East, the agreement opens doors to significant opportunities in critical sectors, including minerals and clean energy technology. However, a crucial issue looms large—airline capacity.

A report from FCM Travel, a leading player in corporate travel, has revealed a striking 22% increase in business travel from Australia to the UAE in the first half of 2024 compared to the previous year. While the surge signals growing interest in the region, it also highlights a critical bottleneck: Australia’s current airline capacity to the UAE lags at only 76% of pre-pandemic levels. This figure is notably below Australia’s broader international outbound travel average of 96%, pointing to a crucial gap that needs urgent attention.

According to Renos Rologas, General Manager of FCM Travel Australia and New Zealand, resolving this capacity issue is vital to fully leveraging the trade deal’s potential. “There is an incredible opportunity in this new agreement for Australian businesses, but a critical component needs to be addressed to ensure the agreement’s success—sufficient travel capacity,” Rologas stated.

The CEPA between Australia and the UAE represents a significant step forward in enhancing trade, particularly in sectors pivotal to both countries’ futures. The UAE is Australia’s largest trade partner in the Middle East, with bilateral trade totalling AUD 9.9 billion in 2023. The agreement promises to boost two-way investment, which stood at AUD 20.6 billion in 2023, opening new pathways for Australian exporters to reach the Middle Eastern market, with a combined GDP of AUD 1.4 trillion.

Capacity Challenges Holding Back Potential

The FCM Travel report underscores a critical challenge: airline capacity. As Australian business travellers continue to flock to the UAE, the country’s airline capacity lags, preventing a full realization of the opportunities this agreement presents.

“Flights to the UAE from Australia are only at 76% of pre-pandemic levels,” Rologas explained. “This is one of the lowest outbound capacity rates we’re seeing, particularly when compared to Australia’s overall international capacity, which is at 96%. Without an increase in airline capacity, we risk limiting the success of this Free Trade Agreement.”

This capacity constraint affects direct trade relations between Australia and the UAE and broader travel patterns, particularly for Australians transiting through the UAE to Europe. Rologas believes increasing capacity will benefit business and leisure travellers, as the heightened competition among airlines could lead to lower airfares.

“There’s a significant opportunity to enhance travel flow, which would drive down costs and increase accessibility. A rise in airline capacity is essential not just for the success of the trade agreement but for broader international travel trends,” Rologas added.

Unlocking New Frontiers: Critical Minerals and Clean Energy

The CEPA holds considerable promise for expanding trade in critical minerals and clean energy, vital to Australia’s future economic landscape. Australia boasts world-leading capabilities in clean energy technology, and the UAE’s interest in tapping into these advancements aligns with both nations’ long-term goals for sustainable development.

As outlined in the Federal Government’s announcement, the trade agreement provides Australian exporters access to a market of 58 million consumers across the Middle East. This region has considerable demand for Australian exports, including alumina, meat, dairy, oil seeds, seafood, and steel. However, the real growth prospects lie in critical minerals and renewable energy.

The UAE has already signalled a strong appetite for Australian expertise in these sectors, with significant investments anticipated in mining, processing, and clean energy initiatives. However, without the necessary infrastructure, including sufficient airline capacity, the ability to capitalize on these opportunities remains uncertain.

Looking Ahead: A Path Forward

The Australia-UAE CEPA is a bold step toward enhancing trade and investment between two critical players in the global economy. However, as Rologas and others have pointed out, the success of this agreement depends not only on the paper it’s written on but on the infrastructure that supports it.

An immediate and substantial increase in airline capacity is not just a matter of convenience—it’s a strategic imperative. Australian businesses stand to gain immensely from the agreement, but only if the logistical hurdles are addressed in time.

The growth potential is undeniable, with two-way investment already at AUD 20.6 billion. The ball is now in the airlines’ court to rise to the challenge and unlock the full benefits of this historic trade agreement.

Written by: Michelle Warner

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