A lesson in economics as UAE schools get competitive

The cost of a child’s education from preschool to university in the UAE has been estimated at around $255,000. (Shutterstock)
Updated 25 August 2018
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A lesson in economics as UAE schools get competitive

  • chools in the UAE could find themselves in a price-and-quality battle to attract students
  • A flood of new schools across the UAE means parents have more choice yet are seeking value

ABU DHABI: Schools in the UAE could find themselves in a price-and-quality battle to attract students as competition within the nation’s education sector hots up.
After years of near-constant growth and an infrastructure boom in the field of education, a flood of new schools across the UAE means parents have more choice yet are seeking value as salaries become squeezed in a tougher economic environment.
While education analysts do not see a so-called “expat exodus” leading to empty spaces in UAE classrooms, they believe rising living costs and uncertainty in the job market mean schools will have to carefully consider their price structure and show they can continually drive up standards if they are to survive. As the sector becomes increasingly competitive, some schools are taking heed by turning down the option of raising tuition fees.
Mahboob Murshed, managing director at Alpen Capital (ME), said: “The UAE education sector — which has in the past seen a phase of robust growth in student enrolment coupled with an expansion of infrastructure — is now entering a phase of transition.
“For the first time, there are concerns of oversupply as demand struggles to catch up with supply, with the entry of a large number of new schools in the past few years. The competition among private players has intensified over the years with new schools offering incentives and discounts to attract students.
“The increased competition has ensured a greater focus on quality of education, with players focusing on continuous improvement to enhance their ratings.
Any drop in enrolment numbers has a direct impact on profitability of schools and newer entrants are at a greater risk as compared to older and more established schools. We expect to see consolidation in the sector and only those with a high-quality offering in their price segment will be able to maintain and enhance their profitability.”
While concerns have been raised that tougher economic times mean that some expats will leave the UAE, with a resulting impact on school numbers, WorldOmeter — one of the world’s leading sources on global population growth — estimates that the UAE’s population will continue to expand at a net rate of 1.5 percent.
But according to Mansoor Ahmed, director for health care, education and public-private partnerships at Colliers International, the potential client base for schools is only one factor in whether they thrive or stagnate. He feels providers need to look at “the composition of the population,” which is becoming more mid-income than high-income, and make “affordability” their focus.
“The government in Dubai has already taken a step in this regard, by freezing private school fees in 2018/19, while the private sector is also moving in this direction by introducing more and more affordable schools,” he said. “Dubai is expected to maintain its status as one of most buoyant private school market in the world.”
However, he emphasized that studies have shown the cost of private education in the UAE is still the second highest in the world — behind only Hong Kong — with parents spending an average of 365,025 dirhams ($99,378) to send their child to school. Meanwhile, the cost of a child’s education from preschool to university in the UAE has been estimated at around $255,749 — and that excludes the cost of books, school trips, and uniforms, which could add another 40 percent to that figure where leading schools are concerned.
“In Dubai, based on 2015/16 data, almost 57.5 percent of students pay tuition fees of less than 20,000 dirhams per annum, whereas a large number of schools that have opened in the last few years, especially branded international schools, were catering to the premium end of the market,” said Ahmed.
“However, as the education market is maturing in the UAE and in Dubai, parents are becoming more and more careful in selecting a school for their children, as being expensive does not guarantee better quality. This hypothesis is also supported by the KHDA School Inspection Report which does not show a one-to-one correlation between tuition fees and a school’s ranking, as there are a number of schools charging affordable and/or mid-level tuition fees and still being ranked as ‘outstanding’ or ‘very good’.”
Ahmed said that while schools in Dubai are allowed to increase tuition fees based on the Education Cost Index (ECI) released by the Dubai Statistics Center — which, in 2017, enabled eligible schools to raise fees by between 2.4 percent and 4.8 percent — some schools decided not to do this for the 2017/18 academic year.
He said this decision was based on their desire “to attract and retain students in their schools as a result of a slowdown in economic activities,” which reduced the enrollment growth rate from 6.4 percent between 2011/12 to 2015/16 to only 3.13 percent in 2016/17.
“There is also increased competition, with the opening of around 10 new schools in 2017, following a record 15 new schools in 2016,” Ahmed added. “In fact, a number of schools in Dubai — especially this year — are offering incentives such as scholarships founder’s discounts, and sibling discounts to attract and retain students.”


Lufthansa profit warning spooks European airline sector

Updated 17 June 2019
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Lufthansa profit warning spooks European airline sector

  • Ryanair Chief Executive Michael O’Leary last month warned of the impact of what he called ‘attritional fare wars’

FRANKFURT: Germany’s Lufthansa sent shockwaves through the European airline sector on Monday as it cut its full-year profit forecast, with lower prices and higher fuel costs compounding the effect of losses at its budget subsidiary Eurowings.
The warning follows gloomy comments last month from Irish budget airline Ryanair, which vies with Lufthansa for top spot in Europe in terms of passengers carried. Air France-KLM also reported a widening quarterly loss last month.
In a statement issued late on Sunday, Lufthansa forecast annual EBIT of between €2 billion and €2.4 billion, down from the previously targeted €2.4 billion to €3 billion.
“Yields in the European short-haul market, in particular in the group’s home markets, Germany and Austria, are affected by sustained overcapacities caused by carriers willing to accept significant losses to expand their market share,” it said.
European airlines are locked in a battle for supremacy, with a surfeit of seats holding down revenues and higher fuel costs adding to the pressure. A number of smaller airlines have collapsed over the past two years.
Lufthansa cited falling revenue from its Eurowings budget business as a key reason for the profit warning.
“The group expects the European market to remain challenging at least for the remainder of 2019,” it said.
It also pointed to high jet fuel costs, which it said could exceed last year’s figure by €550 million, despite a recent fall in crude oil prices.
Ryanair Chief Executive Michael O’Leary last month warned of the impact of what he called “attritional fare wars” and said four or five European airlines were likely to emerge as the winners in the sector.
“No signs that anyone is prepared to reduce capacity, therefore we would anticipate the wave of consolidation in European short haul is not over,” said analyst Neil Wilson, analyst at London-based broker market.com.
Earlier this month global airlines slashed a widely watched industry profit forecast by 21 percent as an expanding trade war and higher oil prices compound worries about an overdue industry slowdown.
Lufthansa’s problems are centered on its European business, with a more positive outlook for its long-haul operations, especially on transatlantic and Asian routes.
Eurowings management is due to implement turnaround measures to be presented shortly, Lufthansa said, adding that efforts to reduce costs had so far been slower than expected.
Lufthansa’s adjusted margin for earnings before interest and tax (EBIT) was forecast between 5.5 percent and 6.5 percent, down from 6.5 percent to 8 percent previously, it said in a statement.
Lufthansa also said it would make a €340 million provision for in its first-half accounts, relating to a tax matter in Germany originating in the years between 2001 and 2005.