Air Arabia sees bright future for low-cost carriers

Speaking at the Low-Cost Airlines World Mena Conference in Al Ain, Air Arabia's CEO, Adel Ali, said that although the low-cost sector is still in its infancy in the region, it has already made great strides and offers enormous potential moving forward.

Since launching the first low-cost airline in the Gulf six years ago, the carrier has seen its market share, profit, and passenger traffic grow each year, and now flies to over 60 destinations with two main hubs, he noted.

The economic downturn has helped boost the fortunes of Air Arabia, as more business people are now using the airline. 'Low cost carriers are not for poor people only,' Ali said. 'The fact is, if you travel, and you are paying yourself, you want the best price. That is what's driving the industry.'

The downturn has also had an impact on airline advertising. Prior to the recession, airlines used to focus on the quality of their service and the fine points of their cabins, but never mentioned price. 'Now you will see very little advertising without the price,' he noted.

Regional demographics

The key factors that bode well for the growth of LCC's in the Gulf are the demographics of the region and the relative lack of penetration of the low cost model in the regional market. 'A small minority of people in the Middle East is rich. Also, the middle income [segment] in this region is much less than in Europe or America,' he said.

In terms of penetration, LCC's carry just 5% of passengers in the region, he pointed out, while LCC penetration rates in Europe and America are in the 20 percentile range. The travelling habits of people in the region have also changed, whereas years ago people would take one long holiday - often at home - now they take many short vacations each year.

Ali believes the GCC needs to adopt an open skies policy to ensure that the region's carriers can continue to grow, but he acknowledges that it 'will take some time' before it is likely to be implemented. He also expects more consolidation among carriers moving forward.

Future plans

Meanwhile, the launch of rival low-cost carrier Flydubai has been a good thing for Air Arabia, he claimed. 'To really penetrate the low-cost carrier network it is good to have more LCC's, as it shows customers that it is a viable alternative.'

Ali also pledged that the carrier had no plans to add extra charges for services that are now offered for free, such as those that have been imposed by Ryanair. The only thing he does not seem to be certain about is the future price of oil. 'Where oil prices will go nobody knows,' he said. 'Is $60-$70 the right price to hedge? Theoretically yes. Will it go to $40, who knows?'

Looking ahead, Ali believes the future looks very bright for the airline. Its average passenger capacity will be 80% for the year, and it is moving forward with its aggressive expansion plans, including the launch of its new operations in Egypt in the first quarter of 2010.

'It is going to be an LCC world,' Ali says.