A business class on a budget carrier flight would have been considered as one of those classical paradoxes when low-cost airlines first started operating: Southwest airlines in the US and Ryan Air in Europe, Virgin Blue in Australia, Air Asia in Malaysia and the Arabian Gulf’s own Air Arabia in Sharjah.
But when flydubai recently announced plans to introduce business class across its network of about 60 destinations, there was hardly any surprise.
Given the growing dominance of low-cost carriers over legacy airlines in recent years, it was becoming increasingly evident to industry observers that future winners among the budget airlines will be decided by their ability to create a distinctive competitive advantage over their peers, which need not necessarily be based on price, but more on the basis of quality of service.
This is in sharp contrast to the strategies of the pioneers who focused mainly on cost reduction in comparison to network carriers.
It is quite clear by now that the natural progression of the low-cost carriers is not their transformation into full-service carriers, meaning the mainstream legacy carriers, but further development of their role revolving around the low-cost model itself. This has turned the attention of aggressive low-cost carriers, such as flydubai, for example, to more focused client relationship management, value-added services and strategies that reinvigorate the low-cost differentiation. Budget airlines may soon be offering airport transfers, holiday packages and similar products as a means to tap additional revenue generation opportunities.
With their cost advantages and renewed focus on quality, budget carriers have forced the legacy carriers to rethink their pricing, positioning and distribution strategies. Low-cost no longer means low quality and this has made the task of legacy carriers even more challenging.
Growth statistics of budget airlines make them the envy of legacy carriers in most parts of the world. More than half of the intra-European market, for instance, is reportedly captive to the budget airlines.
In Asia, their market share has not grown on comparable scales, but the future growth of the aviation industry is set to shift its base from US and Europe to Asia, particularly India and China.
Although the major legacy carriers such as Emirates, Etihad and Qatar Airways have dominated the Gulf aviation market, budget carriers, led by Air Arabia, flydubai and Jazeera have begun to shake up the market.
Cost-conscious travellers constitute the biggest market segment of the region’s travel business and as such, low-cost carriers offering no-frills travel that suits their needs and budget have become the most preferred option for a majority.
New segment emerges
With the budget airlines beginning to compete with differentiators based on quality, in addition to cost, a new segment of corporate travel is also developing within the low-cost carrier space. According to reports, while 75 per cent of budget airline travellers pay for their travel from their own pockets, there is a growing segment of passengers who use them on the company account.
The share of such travellers has particularly increased as a response to the financial crisis and as a means to reduce corporate travel costs. This is the segment that flydubai hopes to tap through its business class offering.
Flydubai is expected to take delivery of its first aircraft with the business class cabin next month. All subsequent new aircraft deliveries will include business and economy classes.
Business class travellers will be offered a range of services, including a dedicated customer service team, priority check-in as well as priority baggage collection at the disembarkation point.
Contrary to the typical ways of Dubai, flydubai has been a late entrant to the scene of budget travel, which has been dominated by Sharjah’s Air Arabia as it enjoyed the first mover advantage and the business class move may be seen as a bid to wrest the initiative.
Dubai’s track record in the aviation sector, symbolised by Emirates airline, and its brand power can be potential winners for the new airline.