With unprecedented global air travel fuelled by the economic boom in emerging markets such as China, India and the Gulf, the aviation sector has never seemed more lucrative. On Tuesday, for example, Prestige Jet was launched out of Abu Dhabi to run private jets and this region has also seen Sharjah-based Air Arabia grow from strength to strength since its launch in 2003.
However, the process of new airlines getting off the ground and staying in the skies may not be that easy. MAXjet Airways ceased operations on Monday – leaving jets on tarmacs and stranding passengers – as the all-business class airline said it would file for bankruptcy protection. MAXjet blamed soaring fuel prices and the deteriorating credit market for the “drastic measure”.
But analysts said the company’s failure may raise questions about the viability of all-business class airlines.
MAXjet launched in 2005 and offered ‘all-premium’ flights between London Stansted, New York, Las Vegas and Los Angeles. But analysts said it could not compete with deeper-pocketed rivals such as American Airlines. “High fuel prices were a contributing factor, but American’s inauguration in October of [service between New York’s John F Kennedy International Airport and London’s Stansted Airport]… was the coup de grace,” said Robert Mann, an airline consultant in Port Washington, New York.
While business class service can be very profitable to airlines, it is also a very “thin” market, Mann said, serving, typically, “40 to 70 seats per flight, depending on the route and aircraft”.
Any loss of market share to a competitor can be devastating, particularly to an all business-class carrier like MAXjet that did not have revenue from economy passengers – or a robust route system – to fall back on.
“They could not get the current premium class passengers away from major carriers,” said Mike Boyd, president of The Boyd Group, an Evergreen, Colorado, airline consultancy.
Analysts suggest flyer loyalty – to bigger carriers – makes the model followed by MAXjet and international rivals like Silverjet and Eos.
“The business class challenge is that there’s strong brand loyalty [frequent flyer programmes], plus there’s some corporate deals major carriers offer,” Boyd said. “These off-brand all-premium carriers will struggle.”
Could these challenges also be applied in this region where Prestige Jet and other potential operators hope to capitalise on the sector’s growth?
Dubai-based ArabJet is a proposed all-business class carrier that has already postponed its launch date twice. Speaking to Emirates Business, Mohammed El Shanti, the airline’s chief executive officer, disclosed the challenges he has faced.
So, will ArabJet be flying anytime soon? “Yes,” says El Shanti, seemingly undaunted by the challenges that his company has faced over the past couple of years.
“We have no reason to believe that it [ArabJet] will not fly out of Dubai. At the moment, we have about 10 UAE investors, who are dealing with us professionally and are willing to provide the initial $50 million [Dh183.5m] startup capital. It is difficult to say when we will definitely launch but if things work out well, we are looking at the next six months,” he said.
Richard Aboulafia, of Teal Group Corp, a US-based aerospace and defence consulting firm, said ArabJet’s delay is not an exclusive case.
“Many all-business class carriers have failed or been delayed all over the world. I don’t think ArabJet’s delay reflects poorly on the UAE. Most countries are judged by their national champion carrier, for better or worse. One reason business-class carriers would have a tough time in the UAE is that the national airlines, especially Emirates, do a terrific job catering to business travellers.
Another newcomer, Kang Pacific Airlines (KPA), has made monthly changes to its launch schedule since it went public about its plans in August. KPA’s self-made claims as the ‘fifth airline of the UAE’ and ‘the airline of Fujairah’ have also put it in a controversial light, particularly following official statements from civil aviation authorities that it has not yet applied for the required air operator’s certificate. But KPA’s founder, Indian businessman Paul Kang, seems determined on proving that this airline can and will fly out of Fujairah.
In November, the airline sponsored advertisements on their official website, as well as on a local television network, announcing special Christmas fares for flights from Fujairah to Clark International Airport in Angeles City in the Philippines.
Although Kang refused to provide updates regarding the airline’s operations, Emirates Business has learned that KPA had put off its supposed December flight and that it is tentatively targeting late February 2008 for its maiden voyage.
Abid Riaz, aviation analyst at EFG-Hermes Dubai, said the Gulf has more than enough space for industry players like KPA wanting to tap the low-cost market.
“I guess the real issues would be whether a potential airline can create a demand that wasn’t earlier addressed and if it can implement a sustainable business model. Can it replicate the success of existing airlines and will people be willing to travel, for instance, from Dubai to Fujairah in order to avail of their service?”
Citing Air Arabia as an example, Riaz said the Sharjah-based carrier’s operational matrix successfully targeted a particular segment of the region’s travel market. “The growth of Air Arabia has been exponential – from breaking even 18 months after it was launched in 2003, to becoming highly profitable in 2006.”
In addition, Riaz said the backing of a local government can also influence the success of a startup airline. “If an airline is backed by a local government, it enjoys preferential treatment like landing rights. Airport expansion may also be undertaken to accommodate its increasing fleet.”
Meanwhile, another new entrant to the market, RAK Airways, managed to finally take off on November 29 despite a tough start. The highly anticipated fourth national carrier of the UAE had to weather three launch postponements and two changes of chief executive officers in less than two years.
After being tightlipped about its plans, the Ras Al Khaimah government-backed airline last month began its thrice-a-week service to Beirut, with plans to expand its route network to include Bangladesh, Sri Lanka, Bulgaria, India, Nepal, Qatar and Tanzania.
Earlier reports mentioned that, although the carrier operates charter flights to Turkey using a Boeing B757 aircraft, its full commercial launch has been put on hold following the acquisition of route access rights to India and Iran.
RAK Airways’s fitful start has not dampened its promising entry into the aviation market, experts say.
According to a Centre for Asia Pacific Aviation (Capa) report published in August, “Ras Al Khaimah is a late mover in the increasingly congested Middle East skies, but it could develop an effective niche role, particularly in the cargo segment, in the years to come”.
Undoubtedly, the UAE’s diverse economic opportunities, open skies policy and strategic location have stimulated a phenomenal growth in its aviation industry. Capa projects revenues from the country’s travel and tourism sector will stand at about $33.9bn (Dh124.4bn) by the end of the year, 65 per cent higher than the income generated three years ago.
UAE's newest carriers?
An ambitious business-only airline that aims to be in the same league as Silverjet (United Kingdom) and L’Avion (France), the Dubai-based Arabjet hopes to offer flights to Jeddah, Riyadh, Dammam, Manama, Amman, Cairo, Beirut, Tehran, Doha and Muscat. But in order to realise its plans of acquiring, and eventually expanding, its fleet of two leased Airbus A319 corporate jetliners, it needs a capital investment of $100 million (Dh365 million).
CEO: Mohammed El Shanti
ORIGINAL LAUNCH DATE: First quarter 2006
CAUSE OF DELAY: Failed negotiations with potential Saudi investors
CURRENT SITUATION: Co-ordinating with new investors in UAE and Qatar
NEW LAUNCH DATE: Unconfirmed
Attempting to set up its hub at the Fujairah International Airport, Kang Pacific has been showing an unwavering determination to launch its service to the Philippines, India, Bangladesh, Sri Lanka, and the United Kingdom. With an initial capital of $10 million (Dh36.5 million), this private low-cost carrier plans to lease a McDonnell Douglas DC-10 aircraft for its operations.
CEO: Paul Kang
ORIGINAL LAUNCH DATE: October 2007
CAUSE OF DELAY: Undisclosed
CURRENT SITUATION: Preparations are underway with bookings expected to be available by late November
NEW LAUNCH DATE: Tentatively, February 2008
As the UAE’s highly awaited fourth national carrier, RAK Airways has been waiting in the wings for more than a year. Setting its hub at the Ras Al Khaimah International Airport, the airline has launched its service to Beirut and also has active plans to offer scheduled commercial flights to Bangladesh, Bulgaria, India, Nepal, Qatar, Sri Lanka and Tanzania. Its industrial objectives are backed by a substantial capital investment of $411 million (Dh1.5 billion).
CEO: Jack Romero (February to September 2006), Kishu Teckchandani (February to May 2007), Captain Khalid Almeer (July 2007 to date)
ORIGINAL LAUNCH DATE: End-2006
CAUSE OF DELAY: Acquisition of route access rights
CURRENT SITUATION: Operational
NEW LAUNCH DATE: November 29, 2007