UAE airlines dominate low-cost segment

At present, Sharjah-based Air Arabia is the biggest low-cost airline in the GCC with some 66 destinations using approximately 28 Airbus A320s. In close second place and growing at a much more frenetic pace is Dubai-based flydubai, serving 45 destinations with 20 Boeing 737-800s. Air Arabia and flydubai are leading a push into the Russia, the CIS nations, Central and Eastern Europe to expand their network to increase market share.

It is highly likely that in next 12 months, Air Arabia — the original pioneer of low-cost flights in the GCC with three hubs in Morocco, Egypt and Jordan — will slip to second place behind the flydubai, not just in terms of destinations served, but also in terms of fleet size and passenger count too. Furthermore, flydubai is on track to achieve breakeven next year and this too will cement its financial position in the market. Since its launch, the airline has become the fifth largest carrier by ASKs within the Gulf region after Saudi Arabian Airlines, EgyptAir, Emirates and Qatar Airways.

Overall, the main GCC low-cost airlines vary from Air Arabia, Bahrain Air, flydubai, Jazeera Airways, NAS Air and RAK Airways among others.

“The unbundled pricing policy employed by flydubai seems to have been a hit with passengers. There are no stealth fees, no add-ons and no last minute surprises. If anyone in the Middle East wants to copy a rival, then copying flydubai would be a start,” Saj Ahmad, chief analyst at FBE Aerospace London, told Khaleej Times.

The Dubai-based carrier has 30 B737-800s left from its order for 50 placed in 2008, the last of which is slated for delivery in 2016. The airline is looking at placing new orders as its chief executive Ghaith Al Ghaith has recently said that the carrier will certainly consider the B737 MAX in its purchase decisions in days to come.

The aviation analyst said the GCC market is one in which many sceptics believe demand is not inelastic and sadly these people are wrong. The pertinent factoid to remember here is that from any hub in the GCC, a five-hour flight radius puts low-cost airlines there within the reach of over 2.2 billion people. Factor in how many airports can be serviced in this footprint as well as those destinations that have untapped physical resources to cater for that demand and that equals a market where the current crop of players will have more than enough room to manoeuvre and even allow further new entrants to step in if they feel the need to, as has been opined frequently by Qatar Airways, for example.

It’s equally worth remembering that the region has very few airplanes that need replacing, so the litany of narrowbody orders now emerging in the GCC are not just to cater for demand today, but it is also for expansion. There are several key markets within North Africa, East Africa and Russia for example, that has limited competition and this is primarily where low-cost airlines are eyeing their stakes as well as putting pressure on pricing for other GCC-centric services where competition is almost cut throat as it is head-to-head with other established national airlines.

“I actually wonder how long it will be before a major non-GCC or Arab airline starts to talk about deeper codesharing with the low-cost international carriers we have in the region. After all, international airlines flying into the Gulf are already under pressure from Emirates, Etihad and Qatar Airways. As if that isn’t bad enough, they are also losing swathes of regional transfer traffic too, and it’s this which often feeds into the other big three Arab airlines,” Ahmad said.

Open to new entrants

The aviation analysts said the low-cost market in the GCC is far from mature — any claims of the market being saturated are at odds with the realities of what’s happening amongst the key players. The regional carriers grow faster and even compete with the US and European legacy carriers in terms of quality of service, expansion of network and fleet as they have geographical advantage to move East and West, availability of cash and new fuel-efficient aircraft. The demand for regional passenger air travel in the Middle East also continues to rise as the majority of expat community travel once a year at least while local population also take three to four trips annually.

“The market is not yet mature, nor does it have the sort of competition we see in Asia, Europe or the USA where dozens of small, niche airlines are all competing against themselves and other full service airlines,” Ahmad said.

The aviation analyst said it is inevitable that Qatar Airways will step into this arena. They have already missed this first decade of low-cost airline growth, expansion and profitability and they cannot afford to sit on the sidelines any longer.

“They’ll lose lucrative market share at the lower end of the scale where price dictates success. To a certain degree this also applies to Etihad Airways as well, although they have been more lukewarm about vying to launch their own low-cost operation.”

Deeper integration

It is more likely that the regional carriers will see deeper integration in days to come to maximize their market share. The national airlines are more likely to integrate their operations with their budget wings or regional partners to facilitate passengers.

“The GCC low-cost airlines don’t really stand to benefit a great deal and I wouldn’t be surprised if they kept their autonomy and snubbed overtures from other carriers. The one bond I can see developing is Emirates and flydubai. The two airlines have common base in Dubai as well as Emirates start up helping hand for flydubai means that their partnership already has a platform and they have agreements already between them for passenger transfers,” Ahmad said.

“If anything, there is good reason to believe that one Al Maktoum International Airport is fully operational by mid next decade, we’ll see much more deeper integration and that can only improve things for customers,” he concluded.

muzaffarrizvi@khaleejtimes.com