Budget carriers are here to stay

As the quote goes, "the government of business is not the business of government," is indicative of the continued trends of the international airline industry over the past 30 years.

Since the US deregulation in 1978, the cost of air travel has fallen and the size of the airline industry has grown rapidly.

The early predictions by economists that airline deregulation would improve consumer welfare were proven correct. Today, leveraging advanced technology for processes, flexibility and cost control, budget carriers continue to increase their market share. Success hasn't been just about reducing the cost of a ticket, but primarily changing traditional business processes and using demand-driven pricing; by removing airlines from the bosom of national politics, what remains is a simple business.

This year marked a new chapter in the story of the low cost carrier (LCC), with the signing of the Open Skies Agreement between the European Union and the United States. This removed one of the few remaining blocks to laissez faire aviation between the two continents. The agreement, implemented 30 years after US airline deregulation, paves the way for any European or American budget airline to be allowed to fly from any city within the EU to any city in the US. With protectionism giving way to free-trade, it will be interesting to observe to what extent, with rising oil prices, there is scope for increased competition and lower air fares between these two regions.

Similarly, the future of low-cost travel in this region is very promising and so are low-cost terminals. The governments of the Middle East can further help by investing in airports and aviation infrastructure, and by agreeing to civil aviation-friendly policies such as "open-skies" agreements that will allow any and all carriers to land at their airports for minimal fees. The result will be a further expansion of the industry, more jobs and of course more revenue than ever for the treasuries of Arab nations. This can be best substantiated by observing that the LCC market penetration in the Middle East has now grown to almost two per cent compared to 25 per cent in North America; a fact which reflects the existing potential for future growth in the region.

As rising fuel prices impact on travel trends in the West by forcing cost cutting, the effects of the oil boom on Middle East economies is having a trickle-down effect, not only encouraging more people to fly more often, but also bringing budget travel within reach of the lower paid. The aviation industry in the Middle East is now very open to greater change. People want to travel more frequently to more places with the best value for money.

Put simply, low cost carriers have become the customer's ideal choice for travel. Hence, there appear to be more GCC legacy carriers indicating the start of LCCs.

Low-cost travel in the region stands at a crossroads. Ensuring that passengers have the freedom to choose where and when they want to travel and with the carrier they prefer is paramount and it is this which will determine the future successes of each low cost carrier in the region.

- The writer is board member and chief executive officer, Air Arabia.