FlyDubai ‘record profits’ promised by chief executive

Dubai: Gaith Al Gaith, chief executive of flydubai, has a very good habit. He makes every airline that he works for profitable, including Emirates and flydubai.

At the flydubai stand during last week’s Arabian Travel Market, he appeared very relaxed. One of the most successful Arab aviation executives, he made Dubai’s budget airline profitable in its third year of commercial launch last year — a time when airlines worldwide were struggling to make ends meet.

“We will make another record profit this year, exceeding last year’s performance,” Al Gaith, who was head of Emirates commercial operations worldwide before taking over the start-up four years ago, said after a pause. “We are serving underserved markets in the Middle East, Central Asia and Africa where there is a huge pent-up demand. India is a huge growth market — which represents just about 1 per cent of our overall capacity. But we are not able to serve that market adequately.”

Flydubai’s record might be somewhat less impressive than that of his previous employer — Emirates, which had made operating profit in its first year of operation, back in 1985-86. However, that was then, this is now.

Flydubai was launched nearly a quarter century after Emirates had taken off, when the price of jet fuel was lower and passenger yield was higher. Emirates was launched with two leased aircraft with a start-up capital of $10 million (Dh36.7 million) — backed by a strong support from Pakistan International Airlines (PIA). It was not welcomed by the neighbouring Gulf states — who initially denied Emirates traffic rights. That’s why it first flew to Karachi and then added Mumbai, London and Dhaka to the network before the GCC countries opened doors to Emirates.

First flight

However, flydubai did not go through those difficulties. It was given Dh500 million as start-up fund by the Dubai Government that helped the airline to place orders for 50 Boeing 737s ahead of its first flight on June 1, 2009. It immediately gained rights to a number of Gulf destinations.

In 2012, flydubai reported a Dh151.9 million net profit carrying 5.1 million passengers that helped it generate Dh2.77 billion revenue, serving 52 destinations by December 2012. The airline currently operates a fleet of 29 Boeing 737s ordered in 2009, serving a growing network of 57 destinations — adding more than a city to its networks over the last 47 months — since its launch.

One of the key reasons behind its success, and that of Emirates — is the power of Dubai to attract tourists.

“For us, the main driver of our success is Dubai — its magic power to attract visitors,” Al Gaith said. “Wherever we launched flights to – we received good passenger traffic, as if people were waiting for someone to let them fly to Dubai.”

Among the airline’s network of 57 destinations, 35 were never connected to Dubai. “People of these cities have barely flown to the Middle East, or anywhere outside these countries, for that matter,” he says. “They embraced us with open arms, when we launched flights. For many of them, Dubai is the first international destination in the Middle East.

“In addition to bringing tourists, we are also a great enabler of trade. People come to Dubai to source products, services and connect to international businesses. That’s why our flights to most of these new and underserved destinations are nearly full.

“With our expanded destinations, we are giving them a wider choice. Besides, from Dubai, they have a better connectivity to 220 of the world’s biggest cities. That’s why, Dubai’s growing power as an economic hub is helping us grow.”

International passengers

Flydubai is now the second-biggest passenger carrier to Dubai International Airport — the world’s second largest airport for international passengers — that last year handled 57 million passengers, including 39.4 million carried by Emirates and 5.1 million by flydubai.

Together, Dubai’s two successful airlines carried 44.5 million, or more than 78 per cent of the total passengers that passed through Dubai. The rest — 12.5 million people were carried by 110 foreign carriers.

Due to flydubai’s growth, the Dubai Civil Aviation Authority had to expand Terminal 2 to allow greater passenger mobility.

Flydubai will receive its 50th aircraft by 2015, when it exhausts the complete order book. It will then need more aircraft to grow further — for which the airline will have to place firm orders much earlier — perhaps this year.

Now that it is well into profitability, Gaith and his team is preparing the airline for it’s next phase of development. “The sky is not the limit for us — as far as our growth appetite is concerned. We plan to place another order this year,” he says. “We are currently evaluating the Boeing 737 Max and Airbus A320neo for the expansion.”

How many? “Fifty, at least. But it could be more,” he says.

Emirates has a mix fleet of Boeing and Airbus. Whether flydubai takes that approach is to be seen, perhaps till the next Dubai Airshow – in November this year.

Bottom line

To make any business sustainable, companies seek to strengthen their bottom lines — with strong profits, healthy cash flow to manage the growth. Aircraft purchase is an expensive undertaking and one has to be very careful in managing the operational cost, keeping it way below revenues — so that the profits could be re-invested in expansion.

“All our aircraft on the fleet have been financed by banks and we do not need to seek fresh funds from the government or an initial public offering (IPO),” Al Gaith says.

A typical Boeing 737-700 is priced at around $75 million (Dh275 million), which could have fetched flydubai less than two aircraft with the start-up money. According to Airbus price list, an A320 is priced at $92 million, while an A320neo is priced at $100.2 million.

At list price, 50 aircraft could cost an airline from $3.75 billion to $5.01 billion. However, with bulk discounts, this could come down to $2.6 billion to $3.75 billion. “We will be able to manage this with our own resources plus the bank finances,” he stresses.

However, flydubai’s growth could only be restricted by bilateral traffic rights and complicated and time consuming visa processes. “Visa remains an issue for the growth of the travel industry,” he said.

“Easing visa processes has supported the growth of the aviation sector throughout the UAE, over the past few years, by allowing 32 nationalities to benefit from receiving a visa on arrival. Further simplification of the visa processes will contribute to substantially increased global passenger traffic and will make Dubai an even more attractive destination,” said Al Ghaith.

UAE visa applications from Ukraine, facilitated by the airline, have significantly grown by 370 per cent in 2012, a trend that is expected to continue, while Azerbaijan, Georgia, Serbia and Turkmenistan remain the largest markets for visa applications made through flydubai.

The aviation and tourism sector is expected to contribute $45 billion in revenues to the emirate’s GDP by 2020. That’s why the Dubai Government is spending 16 per cent of its budget for 2013 in infrastructure projects, to allow the airlines greater connectivity and accessibility. Both Emirates and flydubai are speeding up their expansion to meet the target.