The Middle Ground

SPECIAL REPORT: LOW COST CARRIERS The middle ground As the region’s low-cost carriers continue to grow in popularity, another business model is emerging to fill the niche between full-service and budget airlines. By Nadia Khan ncouraged by the fast-paced Middle East aviation by introducing the location of the UAE is very different to growth of low-cost carriers LCC model and taking it to new heights,” that of Europe or the US in that fl ying (LCCs) in markets such as says Ali. “Our success over the past eight is the only feasible option when visiting Europe and Northern America, years has helped the LCC sector achieve other countries,” says Al Ghaith. “When EAir Arabia became the Middle East’s fi rst signifi cant market share in the region.” Air these two factors are combined with the budget airline in 2003, followed by the Arabia operates a typical no frills low-cost minimal penetration of low-cost carriers in likes of Kuwait’s Jazeera Airways, Saudi model, relying on a single type of aircraft the Middle East, budget airlines are well- Arabia’s Nasair and Sama Airlines, Bahrain to reduce extra maintenances costs. By the placed to prosper in the years to come.” Air and fl ydubai. Trying to fi nd their place end of the third quarter in 2011, the carrier Whilst the future does indeed look prom- in a highly competitive environment, these was demonstrating sustainable profi tability ising for the LCC carriers, a new airline airlines have battled with regional unrest, and healthy seat occupancy levels. “In eight model has been emerging in the region internal and external competition and years of operations, Air Arabia has grown to give the sector a run for its money. The rising fuel prices to carve out a niche for from serving just fi ve cities to around 70 past fi ve years has witnessed the introduc- themselves in the sector. Whilst some have destinations in the Middle East, Africa, tion of a number of carriers taking on this thrived, others have been forced to adapt Asia and Europe, operating from hubs in model which is neither full-service nor and one – Saudi Arabia’s ill-fated Sama the UAE, Morocco and Egypt,” he says. low-cost but falls somewhere in between. Airlines – succumbed to defeat in 2010. fl ydubai, launched in 2008 by Dubai’s Bahrain Air is a classic example - defi ning The rest of the region’s valiant low-cost government to compete with neighbouring its business model as that of a premium sector has grown steadily to reach a market Air Arabia, also operates under a similarly value carrier. “Our model is based on the penetration of around 7% – which compares typical budget airline model with custom- premise that a large proportion of the popu- rather dwarfi shly to the enormous 35% ers choosing to only pay for the services lation is looking for value for money from market share enjoyed by low-cost carriers they wish to receive. The carrier has an their airline,” says Richard Nuttall, CEO in Europe, and around 20% in the US. But operational network of 46 routes across 27 of Bahrain Air. “But they do not want to be as Adel Ali, board member and group CEO countries, including most of the Middle subject to all the additional fees for extras of Air Arabia, is quick to point out, unlike East. As well as these intra-Middle East that come from a typical LCC.” Passengers, the much more mature markets of Europe short-haul routes, fl ydubai benefi ts from he argues, want food on-board, a reason- and the US, the LCC model in the Middle being based in a country where 83% of the able baggage allowance, fl exibility and even East is less than a decade old. “Since population is expatriate and mobile with a a premium class option. “But for regional inception, Air Arabia has transformed strong desire to travel. “The geographical fl ights, they do not need the same product 028 February 2012 · AV I AT I O N B U S I N E S S www.aviationbusinessme.com SPECIAL REPORT: LOW COST CARRIERS www.aviationbusinessme.com February 2012 · AV I AT I O N B U S I N E S S 029 SPECIAL REPORT: LOW COST CARRIERS national carrier RAK Airways. Suffering Pichler again, we offer all inclusive meals, There is no doubt the biggest impact from the fi nancial crisis 40kg baggage allowance, free on-board en- out of all the UAE airlines, the carrier set tertainment, a business class, airport loung- that Air Arabia and off to an inauspicious start as a victim to es and more. Does the carrier offer value flydubai have economic recession when it was forced for money? Defi nitely yes, Pichler states, to close operations in 2009. A year later, otherwise we would not have enough adapted the low-cost it re-emerged, positioning itself between costumers to make us operate a profi table the well-established commercial airlines operation. “People always to try to create model for the needs and the low-cost carriers with its ‘value for boxes for business models, in order to help of the local market. money’ model. “We aim to deliver a value them understand the mechanics of those offering that differentiates ourselves from models,” he concludes. “Reality is far more And this has been low-cost carriers,” says Omar Jahameh, complex. In the end, everyone has to cre- working very well.” CEO of RAK Airways. “Despite our con- ate a business model which suits the tar- sistently low fares, RAK Airways still offers geted customers and markets – and helps JOHN STRICKLAND a full baggage allowance, a shuttle service you make money – it’s as simple as that.” level as a long haul premium airline – just and serves a complimentary hot meal But with both low-cost carriers and full- a service designed specifi cally for regional and beverages on-board all fl ights.” Like service airlines carving out their shares travel that fl ies on time,” he adds. Nuttall, Jahameh believes that there is a of the region’s aviation market, is there As Nuttall is keen to clarify, Bahrain Air defi nitely gap in the market between the really room for an intermediary service? was primarily conceived as an LCC and low-cost carriers and full service airlines. John Strickland, director of UK-based JLS never meant to be a full service long-haul “It is the right time for us to grow our busi- carrier. “But to be a true LCC you need ness as the Middle East’s aviation industry a base of point to point travel and large has bucked the world-wide trend and has enough fl eet to get economies of scale,” he continued to grow,” he says. “Our passen- says. “With limited traffi c rights and a rela- ger loads have been encouraging – provid- tively small home base this was always go- ing an endorsement of the demand for ing to be diffi cult. At the same time our cus- value-for-money fl ights across the region.” tomers were telling us that, whilst they did Both RAK Airways and Bahrain Air have not need all the frills, they wanted a certain been blurring the traditional boundaries level of service.” In the long-term, privately- between LCCs and full service airlines in owned Bahrain Air plans to tap into mar- order to fi nd a model which fi ts both the kets further afi eld – another indication of its needs of the local population whilst ensur- move away from a traditional LCC model. ing a healthy profi t margin. And there is “There is considerable traffi c that arrives another carrier which has been leading into the region via a transit point or that the way with this airline model for some visits multiple destinations,” says Nuttall. time now. Kuwait’s Jazeera Airways has “We are currently revisiting and upgrading been around for what CEO Stefan Pichler our distribution capabilities to better sell in terms a ‘great’ six years. “We have a strong the long-haul markets or through partner market foothold, a solid reputation, and carriers.” He remains confi dent of the suc- have become a great household brand in cess of Bahrain Air’s hybrid model, point- Kuwait and in the region,” he says. “And ing to industry evidence as generally sup- over these years we have fl own over 8.7 porting this middle ground. “LCCs around million people in a country with a total the world are gradually upgrading at the population of 3.3 million people.” The car- same time as legacy carriers are looking to rier has been stretching the defi nition of a rationalise their product offerings,” he ex- LCC as far as it can go. Pichler, however, plains. “In the future, we hope that Bahrain remains somewhat non-committal about Air will be the airline of choice in its home this defi nition -– shrugging off the low-cost country as well as a strong regional player model as merely a label. Is Jazeera Airways connecting Bahrain to most major markets a low-cost carrier? Of course, says Pichler, within fi ve hours fl ying range.” we work in an asset intensive industry and The most recent entrant to adapt this we have to have the lowest cost to grow. Is type of model has been Ras Al-Khaimah’s it a full service regional carrier? Yes, says 030 February 2012 · AV I AT I O N B U S I N E S S www.aviationbusinessme.com SPECIAL REPORT: LOW COST CARRIERS Consulting warns that this type of ‘hybrid’ less on lower fares, and eventually It is clear that the lines between low- model might prove tricky.

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