Low-cost carriers fly high despite global crunch
As budget airlines around the world are feeling the pinch of the global credit crunch, the Middle East low-cost carriers (LCCs) continued to fly high in 2008.
Low-cost passengers account for about two per cent of the region's air traffic, which is due for a major boost once more LCCs start operation in the region (including Flydubai) and the new Low Cost Terminal at Jebel Ali's new airport takes off in mid-2009.
The Centre for Asia Pacific Aviation (Capa) has forecast that as many as 10 budget carriers could be launched in the Middle East over the next five years… as the region is a high potential market due to large migrant worker population.
Scheduled airline passenger traffic in 2008 attained "small overall growth" thanks to a significant increase in the performance of low-cost carriers, according to the International Civil Aviation Organisation.
It said that although passengers carried on scheduled air services worldwide increased by 0.8 per cent in 2008 to 2.29 billion, "this average growth was shared unequally between airline members of the International Air Transport Association and other types of carriers, notably the LCCs".
The numbers say it all. While most LCCs reported huge losses, Sharjah-based budget carrier, Air Arabia, saw its net profit soar to Dh160 million in the first half of 2008, up 39 per cent from the year-ago period.
Discussing the airline's profit outlook for the full year 2008, Air Arabia's chief executive, Adel Ali, had told Emirates Business: "We hope to have a profitable 2008, overall. I expect we would be doing much better this year than we did in 2007."
Kuwait-based Jazeera Airways, on the other hand, saw its net profit for the first nine months of 2008 rising 43 per cent to KWD1.48m from a year earlier. The carrier reported net profit of KWD1.633m in third quarter of 2008 on cutting costs and improving the yield per seat.
The Kuwait Stock Exchange-listed LCC expects "robust performance in the fourth quarter" on fuel price declining by over 50 per cent, according to the airline's chief executive, Marwan Boodai.
"We expect to meet our targets and be profitable. Overall, we would have a profitable 2008," he said. "We are undeterred by the financial turmoil in the world and still see a silver lining in the clouds."
While most global full-service airlines in 2008 — as also some budget carriers — were busy either cutting capacity, cancelling aircraft orders or scaling down route expansions, the LCCs in the Middle East were expanding their wings.
Air Arabia announced plans for launching a new hub in Morocco, expected to begin operations in early-2009, with a few more hubs in the pipeline. Jazeera Airways launched a new $375m aircraft leasing arm — Sahaab Leasing, to cash in on the huge aircraft leasing demand from airlines.
Another Middle Eastern carrier, Sama Airlines (Saudi Arabia's second budget carrier after Nas Air) said recently it is likely to strike a bilateral agreement with Dubai airlines if it fails to obtain approval from the civil aviation authority to fly into Dubai.
Dubai's startup budget carrier, flydubai, to launch operations in the first half of 2009, said it would launch at the scheduled time even though airlines around the world are reeling from record fuel prices and slowing economies.
"We think we are starting at the right time as we have got an advantage because other airlines are not starting up now," flydubai's chief executive, Ghaith Al Ghaith, had recently said, adding that the carrier will serve a potential customer base of two billion people living within four hours' flying time from Dubai.
He added that the airline would launch on time, even though delivery of its new planes would be delayed by the month-long Boeing strike.
Air Arabia, meanwhile, signed a $770m (in list prices) contract with Airbus in November 2008 for 10 additional A320 aircraft. The contract follows an earlier agreement for 34 Airbus A320 aircraft signed at the end of 2007.
Here to stay
"Low-cost carriers are a fact of life. Convenience will be the key to compete with them," said Giovanni Bisignani, Director-General and CEO of the International Air Transport Association (Iata).
"Low-cost carriers are coming and they cannot be stopped," added Addison Schonland, a California-based aviation analyst with Innovation Analysis Group, adding that the long-haul skies in the Middle East are getting more crowded every year.
He added that while other full-service airlines in the region may not start their own low-cost arms, they might form alliances with other LCCs, making it a much cheaper way of doing business.
Doha-based Qatar Airways and Abu Dhabi-based Etihad Airways both said last year they are eyeing the "low-cost" pie of the business.
India's Jet Airways may also fly its low cost arm, JetLite, (erstwhile Air Sahara, bought over by Jet) into the region soon.
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