Low-cost airlines: A departure from tradition

Dubai: Budget carriers in the Middle East are not following the traditional model but continue to witness growth opportunities in the region's fledgling low-cost carrier (LCC) market.

Since 2003, when Air Arabia launched its operation, marking the dawn of budget aviation — the market has evolved gradually.

The popularity of Air Arabia has influenced others to enter the market — Jazeera, Nasair, sama, flydubai and Bahrain Air.

This segment has firmly established its position in the market, although the share is still low.

In pictures: Keeping an eye on budget airlines

Analysts say, budget aviation has a long way to go in the Middle East as people here are still ready to pay for extra comfort, due to high disposable income and abundance of personal wealth.

The air travel market has still not matured and people need visas to enter countries which restricts shuttling trips across the region.

The low-cost model, which originated in the United States and then moved to Europe in the 1990s, is supposed to be a no-frills, one-class airline that offers the bare minimum and operates one type of aircraft to reduce costs as much as possible.

In North America and Europe, no-frills airlines began to add ‘frills' in order to differentiate themselves as the LCC market became more competitive.

LCCs in the Middle East however, started off with some frills and even a choice of classes. As competition increases, the model might shift towards a more traditional structure or try to be closer to conventional carriers while keeping fares low.

Cost structure

Robert Ziegler, vice-president and partner for Middle East at AT Kearney, a global management consultancy firm, said that while the percentage of LCCs in the region is much lower compared to that of mature markets of North America and Europe, they are putting themselves in risk by not following the low-cost model more closely.

"It's a danger for them. In a growth market, they were able to take those prices that were a little lower than traditional fare but still high for a low-cost airline and get away with that," he said.

But as competition grows and the growth begins to slacken in the long term, their cost structure would not allow them to keep profits on current levels, he said.

"This market downturn is the best thing to help maturity. It forces airlines to look at how they are filling their capacity. It forces them to look at new pricing models that will attract more traffic. It forces them to look at their cost, to make sure that they are actually adhering to low-cost model," he said.

The GCC countries are planning to connect their cities through a rail link that might change the travel pattern.

However, this might take at least six to eight years. Till then, the budget carriers could grow without any hindrance.

"There is much potential here for LCCs," Ziegler said, "as there are no alternative high-speed travel options, such as trains."

Meanwhile, at the Low Cost Airlines World Mena 2009 conference, Adel Ali, chief executive of Air Arabia, said that the coming years would see regional low-cost airlines become major players in the global playfield.

"Despite the extremely challenging conditions facing the aviation sector worldwide, LCCs in the Middle East and North Africa region, with their revived focus on commercial sustainability, are seizing the opportunity to grow their global market share," Ali said.
 
"Importantly, this is happening at a time of increased regional competition and rapid deregulation of our skies," he said.

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