Business | Features
Up, up and away
Discount airlines are carving out a substantial niche in the UAE and Gulf region.
- By Gaurav Ghose, Staff Reporter
- Published: 00:00 July 29, 2006
It's about 2pm on a Tuesday. In a span of about thirty minutes, just seven cars and vans pull up in front of the departure gate at Sharjah International Airport. Some of the passengers are from Sharjah, others are driving in from Dubai. They are heading for different destinations Mumbai, Doha, Bahrain and Kuwait but all are taking Air Arabia, the budget carrier in the region that began flying in October 2003.
Inside the airport, however, the limited space looks fairly crowded. The two officials at the Air Arabia information counter are busy answering queries from a constant stream of passengers. The airline's logo is displayed on several walls and columns inside, making its dominance felt.
In less than five years, Sharjah airport has come a long way from its previously forlorn look, and a budget carrier such as Air Arabia seems to be making a crucial difference to it. Today, the carrier flies more passengers than any other airline almost 60 per cent in and out of Sharjah airport.
It would not be an exaggeration to say that Air Arabia, a company floated by the Government of Sharjah but run as a commercial entity, has provided a much-needed fillip to the airport, so much so that there has been a continuous surge in passenger traffic over the past few years.
The first six months of 2006, according to the latest report by Sharjah Airport Authority, has seen an increase of 37.6 per cent. The $22 million airport expansion is going on at a rapid pace to handle increased passenger and cargo traffic.
With analysts predicting more such carriers to take to the skies, such secondary or alternative airports with improved infrastructure could provide the incentive of low airport costs.
As well as owning the airline, the Sharjah government also owns the airport. That was an advantage Air Arabia started with. Sharjah airport presents itself more like a secondary airport that provides the airline with the benefit of a quick turnaround. In more ways than one Air Arabia's operations out of Sharjah International Airport closely resemble, on a much smaller scale the successful "no frills" budget airlines of Europe and the United States. Ryanair and EasyJet in Europe mostly operate at smaller secondary airports. But there's a long way to go to carve out a success on those lines or Southwest and JetBlue in the United States.
Business is also being carried from bigger international airports. The two other low-cost carriers in the region, Air-India Express and Jazeera Airways, are flying to Dubai International Airport. In fact, Jazeera uses Terminal 1 and is still able to maximise efficiency and costs, while Air-India Express operates to and from the less-congested Terminal 2 of the airport to minimise costs and to maximise a quick turnaround of 45 minutes.
To sustain low fares, discount carriers need high loads. And for that they need to operate on routes between large population centres.
Business is really taking off, with Jazeera and Air Arabia continuously expanding their routes. Air-India Express has plans to fly to Amritsar and Mangalore, both in India. In fact, the carriers are satisfied with the volumes, with all three running to capacity on all their routes during what is considered the peak season between July and September and turning impressive numbers the rest of the year. While in terms of expansion of routes, Air Arabia and Jazeera Airways have been growing rapidly. In less than three years of operation, Air Arabia now flies to 28 destinations in 18 countries. Kuwait's Jazeera Airways flies to 12 destinations in eight countries. For both, India and West Asia are strong markets, simply because of the demography.
Air-India Express, which started in April 2005, is part of the government-owned national carrier Air India. It operates flights between Dubai, Sharjah, Abu Dhabi and Al Ain in the UAE and three cities of Kerala, the southernmost state of India that has a large expatriate population. It also operates flights between Kerala and Salalah and Muscat, Oman. Air India now has very limited flights to Kerala. According to London-based aviation industry analyst, David Kaminski-Morrow, being a part of another entity always runs the risks of "contaminating your brand, cannibalising your network and ultimately confusing your passengers."
Air-India Express' operations on the routes of Abu Dhabi and Muscat to Mumbai and Delhi became early casualties. After flying on and off for about eight months, it stopped operating on those routes. "The numbers were not up to our expectations," said Sanjeev Talwar, Dubai-based regional director of Air India. "We saw that the clientele for Mumbai and Delhi is more business oriented and so we reversed the trend back to our legacy carrier, Air India."
Low-cost carriers need flexibility to develop a route network and operate with maximum efficiency with no room for overstaffing, under-utilisation of aircraft or unnecessary costs such as relying too heavily on distribution channels other than the internet. They should have the negotiating power to agree favourable rates for airport services and also have access to alternative or secondary airports.
All three have to deal with one or more of these challenges as an operational hazard of any discount airline. But it's especially challenging to maximise efficiency by lowering the cost of sales in a region that has low internet penetration and where credit cards are not always available to the target population.
In the three years Arabia has been operating, direct online purchases have gone up from a minuscule 2 per cent of the total bookings to about 25 per cent. All hope that the growth will be faster in the coming years. "In the next two to three years, I expect (direct) online booking to go up by 30-40 per cent," said Adel Ali, chief executive officer of Air Arabia. The share of direct online booking in Air-India Express and Jazeera Airways is currently 30 per cent.
Although they have to deal with these challenges, the emerging low-fare airlines have a strong advantage in some cases there is little competition in their home market. "Jazeera Airways, for example, was the only home-base competitor to Kuwait Airways when it started operations. That's a huge advantage," Kaminski-Morrow says.
The three are, however, not directly competing, except for Air Arabia and Air-India Express which have flights to Kochi, India. Air-India Express, however, has flights to Kozhikode and Thiruvananthapuram too. The sheer volume on the Kerala route provides enough business for both carriers and until now have not posed a threat to each other. While Jazeera operates from Kuwait, Air Arabia operates from Sharjah. "I think there's plenty of room for both at the present time," Kaminski-Morrow added.
On its home turf, Jazeera Airways is in direct competition with Kuwait Airways and the national carriers of countries it operates in. In a recent interview with Gulf News, its chairman Marwan Boodai, citing Kuwait's Directorate General of Civil Aviation figures, claimed that in its first four months Jazeera gained up to 50 per cent market share on more than half of its routes, flying 100,000 travellers. This was achieved with just two aircraft. Consequently, though it's uncertain by how much, it's eating into the profits of its competitors.
Air Arabia has started flying to Delhi, and Jazeera to both Delhi and Mumbai, pitting the carriers against Air India and Emirates Airlines. It's quite possible that the bigger airlines might lose some numbers to the smaller carriers.
The budget sector, says Kaminski-Morrow, is likely to enlarge the population of travellers and not necessarily damage the bigger carriers. "There will certainly be a degree of cross-over by price-sensitive travellers, but budget carriers have a habit of generating additional passengers rather than simply stealing them from other airlines."
Air Arabia's Ali dismisses suggestions of competing with the bigger airlines, such as Emirates Airlines, and denting their profits. "We came in as a regional airline and we intend to stay that way," Ali says. "Emirates is a successful, global airline."
The market segments the two cater to are different, he elaborated. "Within the region, we are attracting people who use surface transport to travel. Also, we have been getting passengers who were not able to travel earlier or who travelled once every two years. Now they are travelling every year or even two or three times a year."
Talwar of Air India agrees. "We have increased the cycle of travel. Our frequency has improved and so our numbers have improved and there is enough scope for all."
In case of the bigger airlines Emirates, Qatar, Eithad they are all fighting among themselves to become bigger carriers, he added. They are all concentrating on bigger segments in different markets. Moreover, he points out, the operations of the low-cost carriers will not affect the bigger ones because they are not looking at much traffic from Dubai to India.
"They are looking at through-traffic from Europe and USA all those coming here. Their basic carriage is perhaps not more than 20 to 30 per cent. Eighty per cent is all through-traffic. Most of the big airlines (of the region) are relying on that."
But it's passengers such as Dhiraj Balani, a young software professional based in Dubai, who took an Air Arabia flight home to Mumbai that would bring a smile to Ali's face.
Balani did not mind driving all the way to Sharjah to catch a flight on Tuesday that was priced, one-way, at Dh450, which he said was close to 50 per cent less than a bigger carrier would have offered.
"It's a two and a half-hour flight, and I don't care whether food is served or not. Or for that matter the comfort. It's much cheaper."
With the region witnessing an economic boom over the last few years, all industry insiders and analysts believe that there is room for more players. There is enough liquidity in the market to launch more budget airlines.
Kuwait, for example, witnessed a 4 per cent increase in total air traffic growth in 2005 over 2004 and passenger traffic more than doubled to 8.8 per cent during the same period.
The population in Kuwait in the corresponding period grew 7.7 per cent, GDP 19.4 per cent and the stock market index shot up 106 per cent. Young people were joining the workforce in increasing numbers. There were more people with disposable income to spend and many chose to fly.
The vibrant economic conditions aided by a policy of liberalisation in Kuwait help to account for the successful launch and continued success of Jazeera Airways, which was launched in 2005.
It is difficult to estimate how many budget airlines the region can sustain. Kaminski-Morrow suspects there will be more start-ups jostling to take a share of the market. The Middle East and intra-Gulf region currently has one of the highest rates of traffic growth in the air transport industry, Kaminski-Morrow confirms. And Middle East-India routes, he believes, are going to be one of the most competitive battlegrounds over the next few years.
"The market has yet to become fully liberalised something which has helped the rapid growth of Ryanair and EasyJet in Europe but it is not saturated. And this means that there is probably still room for other prospective budget airlines to catch up and flourish."
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