Air Arabia is not your traditional point-to-point high-frequency low-cost carrier. It serves 27 destinations, exclusively from one hub, and a majority of its 26 routes are served less than daily.
But in the Middle East new airlines do not have the freedom to operate daily services on most routes or offer fifth-freedom services. So Sharjah-based Air Arabia has had to adapt to the environment and, under the leadership of former British Airways executive Adel Ali, it has succeeded with its atypical model since launching three years ago.
Air Arabia has already carried over two million passengers and after breaking even in its first year, Ali claims the carrier ended its second in the black and will also finish its third year in the black. “Everyone told us it wouldn’t work. Aviation experts predicted we’d shut down in three to six months,” he recalls.
Ali is proud to point out that when Air Arabia launched on 28 October 2003, there was not a single low-cost carrier in Africa, the Middle East or India. One low-cost carrier in Africa, a second in the Middle East and five in India since have launched.
Air Arabia, meanwhile, has quickly grown its fleet to seven Airbus A320s, with three more due to be added by year-end and three more next year. Ali says UAE’s population, while only four million, can support a large low-cost carrier because 40% of the population consists of expatriates with large disposable incomes. But Adel realises for the carrier to reach its full potential, dramatic liberalisation must take place across the Middle East. “You don’t have the massive population of America nor the authority to allow you to operate 10 flights per day,” he says.
“The growth is there. The challenges are it’s not Europe or America … The Middle East is different. Everyone dreams of open skies. It’s not there.”
Bilateral agreements between the UAE and other countries in the Middle East, North Africa and South Asia now prevent Air Arabia from offering a high-frequency service on most routes. They also prevent it entirely from serving several key markets in the region such as Amman and Cairo. “Everything we have been given we are utilising,” Ali says. “You have to keep negotiating.”
Ali is confident all the restrictions will gradually be lifted over the next two years, allowing Air Arabia to expand five-fold. “Every country will be progressively opening up in the next 12 to 18 months,” he predicts.
There is even talk of a regional open skies agreement, which Ali says could be signed within two years. “In the last three years we have seen a shift in the attitude of the authorities towards opening up the skies, but it will be a year or two before the whole thing opens up for everybody,” Ali says.
While he waits for a big sea change in the Middle East, Air Arabia over the next several months plans to direct much of its growth to the Indian subcontinent. It already serves four cities in India and one in Sri Lanka. Ali says Air Arabia is interested in flying to several secondary Indian cities, pointing out that “every city in India is major because each has one billion” people. Ali says expansion in India is now feasible because the relevant bilateral has been extended to allow Air India’s new low-cost carrier, Air India Express, to expand in the Middle East.
“They are very lucrative routes. Supply is still short of demand,” he says of the Middle East-India market.
Despite its relatively small fleet, Air Arabia has been able to operate 26 routes from its Sharjah hub with 140 weekly frequencies. It has been able to achieve a high utilisation for its fleet, which currently averages 14 hours per day per aircraft, by operating around the clock, something short-haul carriers typically avoid.
“We operate 24 hours. Our airports are open all night,” Ali says, pointing out that unlike their counterparts in Europe most Middle East airports do not close.
“It’s how you make money. You have to utilise them [aircraft] a lot and properly,” Ali says.
Spreading out the operation over 27 cities may seem like an expensive proposition and Ali acknowledges Air Arabia’s airport costs are relatively high for a low-cost carrier, accounting for 7% of all its costs. “The airport costs are significant but not enough to damage your viability,” Ali says. “The reality is there aren’t secondary airports. You have to operate from primary airports.”
Sharjah is seen by some as a secondary airport to Dubai although the two are in rival emirates. Ali say a lot of its passengers make the 20 minute drive from Dubai but Air Arabia, which is partly owned by Sharjah’s aviation authority, has no plans to fly to the larger city. “Sharjah is close enough,” Ali explains. “It’s not as congested.”
Dubai has until now been turning away low-cost carriers because it lacked the facilities but Dubai’s aviation authority is now beginning to target them ahead of the 2008 opening of a low-cost terminal at the new Jedel Ali airport complex. But Ali says Air Arabia is pleased with Sharjah’s airport improvement plans, saying the scheduled renovation and expansion of the airport will ensure it meets Air Arabia’s requirements well into the future.
Air Arabia should be more worried about new competition. Kuwait-based Jazeera Airways late last year became the second Middle Eastern low-cost carrier and new start-ups are planned across the region, in particular Egypt and Saudi Arabia.
“Some will grow; some will fold,” Ali predicts, adding being the first “has its advantages but others will learn from our mistakes”.
While he made some mistakes, Ali has enjoyed a relatively smooth ride at the helm of Air Arabia. He acknowledges leaving BA after 20 years, where Ali rose up the ranks to Dubai-based general manager for the Middle East and Africa, for a low-cost start-up represented a “180 degrees change”. But he claims the transition was not that difficult.
“You need common sense to run a low-cost or traditional carrier. It’s not rocket science to run a low-cost carrier.”
Click here for more Airline Business interviews?xml:namespace>