Low-cost carriers fly high in the Gulf

In just four years the low-cost carrier sector in the Gulf has established itself as a booming industry with great potential, according to a new report by NBK Capital, a Kuwait-based investment bank.

The first low-cost carrier in the region was UAE-based Air Arabia, which was launched in 2003.

Jazeera Airways was established two years later in Kuwait, followed by two Saudi-Arabian airlines, Nas Air and Sama Airlines.

The final low-cost carrier to be launched in the Gulf was Bahrain Air, which was established in 2007.

Air Arabia sets the pace

Air Arabia has led the way in showing that not only can the low-cost model be implemented in the region, but it can also compete head-to-head with full-service carriers.

The airline achieved phenomenal growth in 2007, tripling its income from $21m in 2006 to $63m last year, the report said.

Air Arabia's operating model is typical of most low-cost carriers. It offers no frills, and flies a single type of aircraft, which eliminates excess maintenance fees by reducing the spare parts inventory and staff training costs.

Based at a secondary airport, the carrier is able to benefit from reduced aircraft traffic by achieving faster aircraft turnaround and reducing the amount of fuel burned while taxiing.

Recognizing that convenience is a key to its success, Air Arabia recently introduced an early check-in procedure for all of its passengers, which allows them to check-in up to 24 hours before their flight.

The carrier, which recorded an 81% jump in profit in the first quarter of this year, went public in 2007 and is currently rapidly expanding its network and fleet with an order placed with Airbus for 49 new planes.

Jazeera profits from international routes

Jazeera Airways, the only international airline in the Middle East that is neither owned nor subsidized by any government, has also achieved strong growth in its relatively short life span and can boast, along with Air Arabia, that it turned profitable in just its second year of operation.

Although its strategy is similar to Air Arabia's, it differs from other low-cost carriers in that it offers a two-cabin class system as opposed to a single cabin class.

It has also has taken the unorthodox approach of using major airports as its hubs.

Jazeera Airways has reported that its first quarter profit in 2008 was up 42% over the same period last year, despite the fact that fuel costs have almost doubled as a percentage of the airline's total costs since the carrier was first launched.

Challenges loom

Other low-cost carriers in the region are beginning to feel the pinch of high oil prices.

Sama Airlines has had to introduce a fuel surcharge on international and domestic flights to offset some of the cost of the increase in fuel.

It has also deferred some aircraft additions to its fleet and has implemented a programme to reduce fuel burn by optimising flight paths and reducing unnecessary weight on the aircraft.

Carriers in the region also face major challenges in the form of increased competition. Emirates Airlines is supporting the launch of a new low-cost carrier, FlyDubai, which is being established by the Dubai government.

The new airline is aiming for a mid-2009 launch and will serve a potential customer base of two billion people living within four hours flying time of the emirate.

'In terms of our customer proposition, we will focus on keeping things simple and flexible. We want to make it easy for our customers to interact with us, and to have more control in how they book, purchase and select value-added services to their basic flight experience,' said Ghaith al Ghaith, CEO of FlyDubai.

Meanwhile, Qatar Airways and Abu Dhabi's Etihad Airways have both said they are considering low-cost carrier subsidiaries.

Low-cost carriers in the region also face competition from carriers outside the Middle East. Air India Express, a low-cost carrier based in India, currently offers 48 flights a week to Dubai alone.

This is significant as Middle East low-cost carriers heavily target the Indian population that works in the Gulf.

For example, a third of Air Arabia's passengers in the first quarter of 2008 flew on routes to the Indian subcontinent, according to the NBK Capital report.

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