Dubai's decisiwon to establish a low-cost carrier with support from Emirates will ensure its new airport at Jebel Ali will become a low-cost hub and be competitive with rival Sharjah.
The government of Dubai unveiled plans on 18 March to launch in 2009 a second passenger carrier in the fast-growing emirate. The carrier will operate under a low-cost model and be based at Jebel Ali, where Dubai is developing a massive new airport. Emirates does not expect to move to Jebel Ali for several years but a low-cost terminal is featured in phase one of the project and will likely open next year.
Emirates, which the Dubai government established in 1985 and has grown to become one of the world's largest carriers, says it will support the low-cost start-up. Emirates executive vice-president commercial operations worldwide, Ghaith Al Ghaith, has been appointed the chief executive of the start-up, but the new carrier will not be part of the Emirates Group.
The announcement comes as a surprise as Emirates has previously dismissed any idea of launching or even supporting a low-cost carrier despite the rapid growth of Air Arabia (pictured left), based in the neighbouring emirate of Sharjah. A year ago Ghaith told Airline Business in a feature on the Middle East's fast-growing low-cost sector that Emirates was not interested in the low-cost model. He said at the time that Emirates plans to stick to the full-service network model with an all-widebody fleet.
What has changed in the past year? Ghaith (pictured below) responds: “One of the main drivers for this initiative is the capacity the new airport in Jebel Ali allows us. In the past lack of space was an issue, now with the new low cost terminal the government saw it the perfect time to start this venture.”
Over the last year the low-cost sector in the Middle East has also rapidly expanded and if the Dubai government does not launch its own low-cost carrier, clearly some of the region's other carriers will meet growing local demand for low-cost services. Air Arabia, which was initially established by the Sharjah government in 2003 and had a highly successful initial public offering last year, has been expanding fast. In November it ordered 34 additional Airbus A320s, which will give it a fleet of at least 50 A320s by 2012.
Kuwait-based Jazeera, which launched in 2005 as the region's second low-cost carrier, also has established a small base in Dubai with ambitious plans to expand in Dubai as it takes some of the 30 additional Airbus A320s it has on order. Both carriers are highly profitable - Air Arabia turned a $102 million net profit last year while smaller Jazeera made $9 million - proving there is a huge potential market for low-cost carriers in the region.
United Arab Emirates market share - network carriers | |
|---|---|
| Airline | Weekly departures |
| Emirates | 833 |
| Etihad Airways | 350 |
| Foreign network carriers | 978 |
| TOTAL network carriers | 2,536 |
In the UAE, low-cost carriers now account for only 12% of all departures (see charts above and below). This is impressive as back in 2003 there were not any low-cost carriers flying into the UAE, but clearly there is potential for more low-cost carrier growth. Dubai-based Citi airline analyst Hasnain Malik points out low-cost carriers only account for 4% of traffic in the Middle East-North Africa region, compared with over 30% in the USA and Europe. He says Air Arabia and Emirates now overlap on 22 routes, with Air Arabia operating out of Sharjah and Emirates 15km down the road in Dubai, but "we suspect there is ultimately enough addressable market for both".
United Arab Emirates market share - low-cost carriers | |
|---|---|
| Airline | Weekly departures |
| Air Arabia | 211 |
| Air India Express | 76 |
| Jazeera Airways | 17 |
| Bahrain Air | 14 |
| Sama | 11 |
| flyyeti.com | 7 |
| Mihin Lanka | 7 |
| NAS Air | 5 |
| TOTAL low-cost carriers | 348 |
NOTE: Based on weekly departures at all UAE airports combined, March 2008. SOURCE: Innovata. | |
Malik believes Sharjah is also better positioned for the low-cost market as most of Dubai's low-income white-collar workers live in cheaper Sharjah and commute to Dubai. Jebel Ali, however, is close to some of the booming neighbourhoods on the opposite side of Dubai and is also closer to Abu Dhabi, where fast growing Etihad is based but where there is very little low-cost carrier activity. The Abu Dhabi government, which established Etihad in 2003, could now be prompted to launch its own low-cost carrier to position its airport as a low-cost hub and adding more fuel to its airport rivalry with Dubai and Sharjah.
India is by far the UAE's largest low-cost market because of the large Indian migrant population working in Dubai and Abu Dhabi. Demand in the UAE-India market is clearly outpacing supply and this booming market is probably driving Dubai's decision to launch a low-cost carrier.
While Dubai is an advocate of open skies, most of its major markets including India are still governed by restrictive bilaterals. India has refused Dubai's request for open skies but agreed to open up the market to new entrants in 2005 following the launch of Air India Express, which is government owned. Air India Express has quickly become the second largest low-cost carrier in the UAE, with 76 weekly flights. Air Arabia and Jazeera have benefited from the launch and fast expansion of Air India Express because they have been awarded many of the extra rights secured by the UAE side. India is expected to seek more access for new entrants to UAE airports as its privately owned low-cost carriers, including Air Deccan and SpiceJet, seek to launch international services with Dubai at the top of their wish lists.
Emirates, which is keen to expand its operation in India, will have to battle Air Arabia, Jazeera and other Middle Eastern low-cost carriers for the next batch of India rights made available to the UAE side. By establishing a low-cost carrier separate from the Emirates Group, the new Dubai-based low-cost carrier will be in better position than Emirates to win some of these new key rights.
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| Ghaith Al Ghaith ©billypix |
Bahrain Air now serves Dubai. Sama and NAS Air have recently launched international services including to Sharjah but their requests to serve Dubai have so far been refused. Eventually it is expected one or both of them will win these coveted rights. This will also open up new rights for a second and possibly a third carrier from the UAE to serve the lucrative Dubai-Saudi Arabia market. Emirates, which is now only able to operate 17 weekly flights to Saudi Arabia, is keen to expand its operation there but Dubai will be pressured to give the new rights to new entrants.
Dubai's new low-cost carrier will be in position to win some or perhaps all of these rights over Air Arabia and Jazeera. Air Arabia and Jazeera already serve Saudi Arabia from their Sharjah and Kuwait hubs and are interested in serving Saudi Arabia from Dubai. But as they are not Dubai-based they could be rejected in favour of the new Dubai-based carrier. By establishing its own budget carrier, the Dubai government ensures its stable of carriers benefits not only from the growing demand for low-fare services in the UAE but also from new frequencies that will be made available in India, Saudi Arabia and other key markets.
Source: Airline Business
