GCC Insights: New airlines will boost the aviation industry

The proliferation of airline travel seems to be the order of the day in the Gulf. This follows the launching of two new airlines, Air Arabia and Etihad, in a span of a few weeks. The trend will benefit consumers, investors and the Gulf economies at large.

Air Arabia has selected Sharjah as its hub. Late last month, it launched its operations with an inaugural flight to Bahrain. The new airline focuses on efficiency in operations, with passengers not required to purchase tickets in advance but who can book their seats online.

Ultimately, the strategy aims at operating at the lowest possible cost, with benefits transferred to customers through cheaper air fares. Air Arabia does not provide complementary meals, but passengers may buy food and beverages on board.

Bahrain-based Gulf Air has the credit for commencing budget travel in the region. Last June, it set up Gulf Traveller as a wholly-owned subsidiary in Abu Dhabi, offering all-economy seats. The no-frills initiatives follow the examples of Southwest Airlines of the US and Ryanair of Ireland, as well as the UK-based EasyJet.

The government of Abu Dhabi owns the other larger airline, Etihad. Its identity calls for offering premium economy services. Etihad has disclosed its regional ambition by selecting Beirut as its first destination outside the UAE. Etihad's advantages include the designation as the UAE's national airline.

Specific models

In order to develop efficiency in operations, the two new airlines have selected specific models of Airbus aircraft, A320 for Air Arabia and the wide-bodied A330-220 in the case of Etihad.

Other airlines offering customer-tailored services are on the way. United Aviation, a venture of Kuwait Projects Co offering VIP business jet charter services, was launched in Kuwait in August.

Naturally, the new airlines will add fresh impetus for carrying out reforms in the Gulf's major carriers. To be sure, two airlines, Emirates and Qatar Airways, are undergoing expansion. Emirates, owned by the Dubai government, allocated $19 billion for the purchase of 71 aircraft.

In the same Paris Air Show in June, Qatar Airways signed a $5.1 billion deal for the purchase of 34 new planes. The government owns half of Qatar Airways with the remaining shares held by members of the Al Thani ruling family and Qatar Insurance Company.

Qatar Airways is trying to be to Qatar what Emirates is to Dubai, in terms of helping the development of the aviation and tourism industries. Emirates has largely succeeded in placing Dubai on the world's tourism map.

Restructuring

Another airline, Gulf Air, which is owned by the governments of Bahrain, Oman and Abu Dhabi, is midway through its three-year restructuring plan. In May last year, the carrier suffered a major blow after Qatar decided to withdraw from the firm.

But the Qatari move forced a change of strategy in the company including a determination to reverse a loss-making trend as early as 2005. Gulf Air reported a loss of $108 million last year.

Two other major airlines are bound to move forward. The Kuwaiti government has disclosed its desire to make a partial sell-off of Kuwait Airways Corporation.

But the Kuwaiti parliament must first approve the long-awaited privatisation programme. Also, the Saudi government desires to reduce its 100 per cent ownership of Saudi Arabian Airlines. One strategic option calls for breaking Saudi Arabian into domestic, international and catering services companies.

The fact that four airlines, namely Emirates, Gulf Air, Air Arabia and Etihad, are either fully or partially owned by the UAE reflects a vote of confidence in the UAE economy. The emergence of two new airlines with bases in Abu Dhabi and Sharjah adds another distinction for the UAE economy in the region.

The author is assistant professor, College of Business Administration, University of Bahrain