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Copy cat success?
Better late than never for Dubai’s low-fare airline.
September 9, 2008 12:48 by kippreport
Dubai has never been one to associate itself with the word “budget,” so it may have surprised some when the emirate unveiled its long-awaited plan for a low-cost airline at the UK’s biennial Farnborough International Airshow in July. For those who follow such things, the announcement had long been expected.
FlyDubai chief executive Ghaith al Ghaith, in a gushing write-up in Arabian Business (the “charismatic” executive is “a big fan of desert sands and sunny skies,” and the airline “seems set for success,” the magazine says) claims the new entrant is not, as has commonly been thought, a subsidiary of Emirates.
Although Dubai’s flagship carrier will be doing plenty of FlyDubai’s heavy lifting – providing finance, marketing, maintenance, engineering and “negations”* – he says the airline is in fact a separate state-owned company.
FlyDubai, Kuwait’s Jazeera Airways, Bahrain Air, and two recent entrants to the Saudi market, Nas Air and Sama – all of these regional low-fare carriers are attempting to emulate the runaway success of Sharjah’s Air Arabia, the no-frills carrier that burst onto the scene five years ago and now advertises flights to India for as cheap as Dh199.
At prices like those, for travelers from Dubai the cost of a taxi ride to Sharjah takes up a significant chunk of the total trip cost.
That’s one reason FlyDubai, which will be based at Dubai’s new airport near Jebel Ali, will have an advantage. Many budget carriers fly in and out of little-known airports far from major cities. Dubai’s new airport, on the other hand, is expected to be the world’s largest.
Though FlyDubai is arriving late to the low-fare airline game, most investors seem to think the segment is set for years of strong growth and that the field is still far from overcrowded.
Low-fare penetration remains in the low single digits in the Middle East, compared to 25 percent in Europe and the US and 50 percent for UK domestic flights, according to one executive in the region.
And with millions of migrant workers who would happily visit home twice or three times a year if they could afford it, airlines like these are expected to grow the market for air travel rather than compete for existing customers.
No wonder investors have been trying to get a foothold in spite of soaring fuel prices.
In the 2006 Saudi tender that Sama and Nas eventually won, no less than 15 bids were submitted, according to one participant. These included one from Emirates, which reportedly made a pitch in partnership with Prince Waleed bin Talal’s Kingdom Holding, and another from Jazeera.
When fuel prices soared, Sama and Nas began hemorrhaging cash. The Saudi government had imposed a domestic fare cap while forcing them to buy fuel at the international market rate, putting them at a huge disadvantage to state-owned competitor Saudi Airlines, which enjoys a subsidized fuel rate.
If there’s a lesson to be learned there, it’s that in the Gulf, state backing still counts for nearly everything. No wonder Ghaith al Ghaith is in a good mood.
* Kipp honestly has no idea what this means. Did he mean (or say) “negotiations”?