Low cost airlines are storming into the regional market. Are they challenging the full service carriers or risking overkill? Trends magazine reports.
February 10, 2010 12:34 by Emily Meredith
People questioned the logic in establishing Emirates Airlines back in 1985, which recently announced that it expected profits to top $272 million in 2010.
Pichler said Jazeera’s focus on the Levant, Egypt and Europe means that another carrier in the Gulf will not harm the Kuwait-based carrier’s business: “We really would be less exposed to a new company than others.” Despite the rumors of a new airline, many players see consolidation in the market this year.
“In 2010, the regional aviation sector is likely to witness the first indicators of consolidation, a healthy trend that will stabilize the market and indicate its increasing maturity,” said Adel Ali, Air Arabia’s chief executive. “Likewise, gradual liberalization will also continue.”
Jazeera has taken an aggressive public stance, with its chairman Marwan Boodai speaking openly about expanding through acquisitions.
Pichler confirmed the strategy, and said that some of the smaller low cost carriers are prime targets. “A lot of carriers are pretty small. In this business it’s about economies of scale.
“If you run an airline with three or four aircraft than your costs are much higher than if you have 30 aircraft.”
Air Arabia’s chief executive did not say whether the company would be interested in acquisitions, instead choosing to emphasize its established patterns of growth. A 2007 public stock offering generated $700 million, which the airline has used to expand its routes and to purchase new aircraft.
“Air Arabia had embarked upon organic growth through new destinations and ancillary services to contribute to our revenue streams. Our new hubs in Morocco and Egypt have been established through joint venture agreements with local partners,” Ali says.
Flydubai is still a small carrier, but is planning on adding seven new aircraft this year. The likelihood of the government-backed airline company agreeing to a takeover from a foreign carrier is probably small at the moment.
Al Ghaith, however, laughed when Trends asked him what he thought about Pichler’s industry analysis. “You know how the saying goes,” he said. “Never say never.”