Fleet Census - Orient Aviation

SPOTLIGHT ON THE GULF
First LCC steps up the pace
IPO will fund fleet expansion as Air Arabia seeks more routes
By Tom Ballantyne
Adel Ali, chief executive of
the Gulf region’s first lowcost
car rier (LCC), Air
Arabia, is more than happy
with the strides it has made
since its launch in October 2003 with a single
flight from Sharjah to Bahrain. In its first 18
months it carried one million passengers.
That went up to 1.7 million in 2006. This
year the total should hit 2.2 million.
With a fleet of eight A320s – two more
arrive this year – the carrier now operates
to 33 destinations in 20 countries. But Ali
believes Air Arabia must take a further step.
“Now is the time to move to the next stage,
expand and add assets,” he said.
By next month the airline – currently
owned 60% by the government of Sharjah
in the United Arab Emirates (UAE) and
40% by Sharjah International Airport – will
have become the first operator in the Gulf
region to go to the market, with an initial
public offering of 55% of its shares. Ali
won’t say how much it expects to raise, but
he confirmed that the money would be used
to finance expansion and add 25 aircraft,
worth more than US$1 billion, to its fleet,
bringing the total to 34.
Despite its early success, further growth
could prove tough going. Speaking in
Kuwait, Ali told Orient Aviation a number
of challenges remained. “There is a serious
shortage of regional airport facilities,
secondary airport infrastructure that would
allow low-cost operators to widen their
breadth of operation. At the moment we
mainly have to fly to primary airports in
competition with full-service airlines, or
seek out niche markets that others may have
ignored,” he said.
A regional open skies regime and
relaxation of regulatory restrictions that
placed limits on operations were also needed.
“Markets need to be liberalized,” Ali said.
Despite these limitations, Air Arabia has
shown itself to be a smart network planner.
Some 18 of its routes are within the Arab
world, flying from Sharjah throughout the
Air Arabia: it wants to add 25 aircraft
Gulf, North Africa and the Middle East. It
has also placed a solid foot at India’s door,
now operating to six destinations: Jaipur,
Kochi, Mumbai, Nagpur, Chennai and
Thiruvananthapuram. The last two were
added in November and Ali plans more.
Air Arabia also flies to Colombo in Sri
Lanka and has ventured further afield, to
Kazakhstan, Turkey, Afghanistan, Nepal
and Armenia.
The carrier is seeking further flying rights
in the Middle East, Kazakhstan and South
Asia, including to Riyadh, Jeddah and the
Qatari capital, Doha.
Its growth has been achieved profitably.
Air Arabia made US$8 million in 2005 and
expects to beat that with its 2006 figures
It is modelled on the standard budget
airline principles used by LCCs in Europe
and North America, adjusted to cope with
local regulatory conditions. All ticketing is
electronic, through the Internet and travel
agents. But it strives to make the process as
simple as possible. For example, under an
‘We mainly have to fly to primary
airports in competition with
full-service airlines, or seek out
niche markets that others may
have ignored’
Adel Ali
Chief Executive
Air Arabia
agreement with Emirates Post, the postal
operator for the United Arab Emirates,
passengers can buy tickets at any post
office.
Ali, who pointed to Sharjah’s proximity
to the region’s major hub at Dubai, wants
Air Arabia to be known for its low fares –
30% to 40% below standard ticket prices
– and costs are managed ruthlessly. This is
difficult at times because, like all carriers,
Air Arabia is paying a high premium for fuel
and, operating mainly into primary airports,
it has to pay the same landing and parking
fees as traditional airlines.
R ig ht now A i r A r a bia h a s l it t le
competition in the LCC sector. The only
other operator in the Gulf is Kuwait’s Jazeera
Airways. Launched in 2005, it has 10 A320s
flying to eight destinations.
But that situation may soon change. In
December, Saudi Arabia awarded private
carrier National Air Services (NAS) a
licence to operate domestic flights from
Riyadh. NAS hopes to begin flying early
this year as an LCC with five aircraft,
operating to 22 Saudi destinations and
aiming for a network of 37 domestic routes
with an 18-strong fleet by 2010.
No timetable for inter national
expansion has been released, but NAS has
indicated it also wants to operate low-cost
flights to other areas in the Gulf and the
Middle East. Air Arabia could be facing
some tough competition before long.
26 ORIENT AVIATION APRIL 2007