Budget airlines do it better

Budget airlines do it better

While carriers in the region are suffering significant losses, Air Arabia is boasting profits.

May 7, 2009 1:19 by Dana El Baltaji

Sharjah-based budget airline Air Arabia is experiencing profit growth in spite of the global economic slowdown, and it does not see Emirate’s new budget airline, flydubai, as an immediate threat, revealed a research note by Citi Investment Research & Analysis. The airline expects a 10 percent revenue growth in 2009, a 17 percent drop from previous years, but an encouraging growth percentage given the market conditions: last month, the International Air Transport Association (IATA) announced a 12 percent fall in revenue ($62 billion) in 2009.

The airline’s first quarter results, which will be published sometime in May, are expected to show a revenue increase of 12 percent to AED431 million based on a 24 percent increase in passengers to 950,000.

The airline also expects to a 22 percent drop in average ticket prices to AED430 from AED550 in the fourth quarter of 2008.

The report explains that while other carriers may be unprofitable this year, low-cost airlines have typically thrived during downturns due to consumers’ cost-cutting measures. Furthermore, the airline’s 16 plane fleet is considered a “very low base,” especially in a region that is largely untapped by budget carriers.

As for speculation that Emirate’s new budget airline, flydubai, may eat into Air Arabia’s market, the report claims that until 2011, when the new airline is expected to have 16 planes in operation, it is not threat.

“We expect flydubai to have most impact on the other 110 airlines currently serving Dubai, including, for example, Jazeera Airways, ” the report said. “From flydubai’s perspective, we think it would make far more sense to target these other airlines rather than go head-to head with the most established and strongest low-cost carrier in the region – Air Arabia.”

Flydubai will begin operations in June with routes to Amman and Beirut from Dubai International Terminal 2. It was initially planned to operate from the Maktoum International Airport at Jebel Ali.

Air Arabia, which has been recognized by Airbus for achieving the highest operation utilization in the world (99.8 per cent operational reliability) with the Airbus A320, is the region’s first and largest low-cost carrier.

It launched its second base at Casablanca, Morocco on Wednesday with a route to London Stansted. The airline aims to fly to 15 destinations from Casablanca within the first year of operations, said Adel Ali, CEO of Air Arabia to Reuters.

The airline expects to fly to 60 destinations in the Middle East and Europe from its new hub within five years.