The sand is really EK's fault for choosing to hub in the desert
Whereas the other options were?
Investing in and subsidising other industries, such as pharmaceuticals, etc...
The UAE is starting to give up their little aviation experiment after realising that there is no money to be made in it, at least the way they are doing it.
They had hoped to take their petrol dollars and develop real estate in the desert. Now they realise that they are worse off than if they hadn't done anything and had saved up the petrodollars.
The UAE only has two options. Carry on and make their EK/EY operations sustainable like everyone else, or give up everythinf that they've worked towards and go back to riding camels.
This goes for both EY and EK.
I don't think you understand the economics of the situation very well.
EK was created precisely because Dubai was quickly running out of petro-dollars. All the UAE's oil wealth is buried under Abu Dhabi, NOT Dubai.
Dubai and Abu Dhabi should each be conceptualized as a "corporate state" - a vertically integrated corporation in and of itself. Dubai and Abu Dhabi are in competition with each other, albeit relatively friendly competition.
EK makes some money. Now yes, its true they can turn a profit relatively easily given that the policies of the emirate are easily alterable to improve EK's performance. But this makes sense so long as you understand that EK is a subsidiary of "Dubai, Inc." You can say its an unfair advantage if you'd like, sure. But its not technically a subsidy. Not to mention its no different to how many other nations treat their flag carriers.
Finally, Dubai developed very valuable real estate in the desert. If they didn't, no one would want to buy it. The fact people do, in fact, buy it shows that it is valuable (economically).
They are not "less well off than they otherwise would've been." Dubai is doing extraordinarily well for itself, and has changed from a sleepy fishing village into an international brand and an Alpha + world city according to the Globalization And World Cities Research Network. Dubai created valuable stuff
through leveraging its location and political structure so as to become an international finance/commerce hub for West Asia, North Africa and the Middle East.
Yes, EY will have to shrink substantially. Its already doing so. The amount of demand for intercontinental travel is, after all, limited. But that's true of any other industry and suggesting that "they should go into pharma" is just ignoring the fact that the entire strategy of Dubai and Abu Dhabi is based on economic diversification. Dubai and Abu Dhabi are essentially replicating the Singapore model (authoritarian political regime with little lang, little natural resources, and only location to exploit). They are diversifying and have been for the last decade. They've also been creating value, new jobs, new opportunities, cheaper travel, and to some extent their own nations have been liberalizing on social issues (if only modestly and de facto rather than officially).
I certainly don't think everything they've done or everything they currently do is good or morally justifiable. But they're HARDLY in a situation where the only alternatives are to dramatically reduce EK/EY or to "go back to riding camels." They've both created real value (Dubai moreso than Abu Dhabi). Abu Dhabi's airline must shrink, but Abu Dhabi has all the petro-dollars and won't be running out soon. Not to mention that to a substantial extent, Abu Dhabi free-rides on Dubai and will benefit even more once the new Dubai airport opens (since its closer to Abu Dhabi than DXB is).
Yes, there are many rational reasons to criticize the way the UAE is run. But don't try to make this a "just world hypothesis" thing. Atrociously totalitarian or at least authoritarian countries can become very rich and create economic value even if they aren't the kinds of places that we'd like to live in ourselves. They've made international travel much cheaper than it used to be. They've provided job opportunities which otherwise would not have even existed. They've created substantial economic value, whether or not you approve of every law they have.
They are not going to go back to riding camels.