What do we know about Gulf’s low-cost carriers?
The Gulf region boasts some of the most recognizable full-service carriers (FSCs) in the world, such as Emirates, Qatar Airways and Etihad. These names are synonymous with extravagance and include luxurious amenities like private suites. The majority of the world‘s Airbus A380s also operate in the region.
But with such a sterling reputation for FSCs, other air carriers might go unnoticed. In comparison to other parts of the globe, the Gulf region is not exactly famous for its low-cost names. Here, AeroTime investigates the low-cost carrier (LCC) market to assess the situation.
The history of low-cost carriers in the Gulf
Low-cost carriers are a relatively recent addition to the air travel market in the Gulf. In comparison to the region’s more recognizable flag-carriers, such as Emirates, Qatar Airways and Saudia, its most prominent budget airlines were all founded after 2000.
The region’s governments have supported and protected its flag-carriers from competition, which has previously prevented new companies from joining the air travel market. But, over the last two decades, the demand for air travel has increased. As a result, some governments in the Gulf began to recognise that its flag-carriers were unable to accommodate this surge in demand. So, they established a market liberalization process, which allowed new airlines to form and the aviation sector to become privatized.
Unlike European or American low-cost markets, Gulf countries have only formed seven budget carriers, one of which has already ceased operation.
Most of the Gulf’s LCCs are relatively small. However, the biggest players are concentrated in the United Arab Emirates (UAE) and Saudi Arabia. Sharjah-based Air Arabia, which launched commercial operations in 2003, was the region’s pioneering low-cost carrier. The company was also the first low-cost airline in the UAE to become a private enterprise.
In July 2008, the second UAE low-cost carrier, flydubai, entered service in the Gulf market. But unlike Air Arabia, it became a state-owned enterprise and was established by the Government of Dubai, which also owns the full-service carrier Emirates. But the only thing the two carriers have in common is ownership. Initially, flydubai did receive help from its sister airline, but has since gone on to operate independently.
In 2004, the Kuwaiti government gave permission for a new private air carrier to be formed, which ended the 50-year-old monopoly of Kuwait Airways. The 2004 Emiree Decree established Jazeera Airways as the first airline to enter this newly liberalized industry. Jazeera Airways began as a low-cost airline. However, it has followed a hybrid model and, in more recent years, is categorized as a full-service carrier (FSC).
In Saudia Arabia, the government granted two new airline operating certificates, which ended Saudia’s monopoly on the local market in 2007. These newly-formed airlines were both budget carriers and, prior to expanding to neighboring nations, aimed to establish a strong presence in the domestic Saudi Arabian market. Sama, one of the two new LCCs, ceased operations in 2011 after accumulating losses. But the second LCC, flynas (formerly Nas Air), remains a strong rival to other lowcosters in the Gulf region.
A further two LCCs based in the Gulf region, Salam Air and flyadeal, are relatively small and young, founded in 2016 and 2017, respectively.
Muscat-based Salam Air currently flies to over 27 destinations around the Middle East, Africa, Nepal and Pakistan, whereas Jeddah-based flyadeal covers only 12 destinations.
Who are the market leaders?
Air Arabia: the first Gulf LCC
The first, and the largest, LCC in the region, Air Arabia, has shown noticeable results since its inception and, to this day, maintains a leading position in the market.
Air Arabia was also the first airline in the region to post a break-even result in its first year of operations. This was an unexpected achievement, even among airline officials.
Air Arabia CEO Adil Ali said: "We have cleared any doubts in the minds of people in the airline industry who thought that low-cost airlines, like ours, will be a mistake in the region. The results so far are beyond our expectations: airline profitability is a long-term goal and is never achieved during the first year of launching such an operation."
Over the years, Air Arabia’s network and fleet experienced significant growth. Today, Air Arabia serves over 170 destinations, which span the Middle East, North Africa, Asia and Europe. Currently, Air Arabia has a total of 58 aircraft in its fleet, the largest number of aircraft compared to its rivals, as per Air Arabia data.
Air Arabia experienced its golden age in 2019, when the aviation industry was at the peak of its growth. Air Arabia reported a track record net profit of AED 1 billion ($272 million) for the full year of 2019, an increase of 80% compared to the net profit registered in 2018.
Additionally, during the height of the COVID-19 pandemic, Air Arabia seemed to weather the crisis. Unlike many other airlines in the region, Air Arabia reported a net profit of AED 20 million ($5 million) for the fourth quarter of 2020. However, full year reports show that the airline suffered a net loss of AED 192 million ($52 million) in 2020.
A statement by Abdullah Bin Mohamed Al Thani, Chairman of Air Arabia, reads: “Air Arabia’s ability to record a profitable fourth quarter despite the continued impact of the COVID-19 pandemic, is a testament to the robust business model it operates. The early measures taken by the management team to control overall cost and the gradual resumption of flights, albeit to a limited number of destinations, helped in achieving profits in the fourth quarter and in significantly reducing the net loss for the full year.”
While the pandemic forced many airports and airlines to suspend operations, Air Arabia saw certain growth opportunities. In 2020, the lowcoster added a total of 14 new routes from its operating hubs in the UAE, Morocco and Egypt to its global network. The airline also launched Air Arabia Abu Dhabi, which was formed following an agreement between Etihad Airways and Air Arabia to establish the capital’s first low-cost carrier.
Air Arabia has four operating joint ventures. Alongside the recently launched Air Arabia Abu Dhabi, the lowcoster has subsidiaries in Egypt, Morocco and Jordan. Additionally, Air Arabia announced it would launch a new low-cost subsidiary together with the Armenian National Interest Fund (ANIF).
Five years later, the Government of Dubai established the second low-cost carrier in the UAE. In comparison to its rival, Air Arabia, flydubai was formed as a state-owned enterprise. flydubai was born out of the government’s desire to create its own low-cost carrier to support Dubai’s tourism and to capitalize on market share.
flydubai is the second biggest low-cost airline (by the number of aircraft) and a leading budget airline in the region. Until 2018, the Dubai-based air carrier reported significant financial growth. There has also been significant fleet growth, as the company used to be the second-largest customer airline for the Boeing 737 MAX in the world, after American budget airline Southwest Airlines (LUV). Initially, flydubai placed an order for 75 737 MAX jets in 2013 and has expanded its commitment year on year. Previously, the airline had commitments to acquire a total of 251 aircraft of this type, of which 14 of this order have already been added to the fleet.
But flydubai is exhibiting signs of struggle. In 2018, the carrier experienced a loss of AED 159.8 million ($43.5 million). The loss, which was a dramatic shift from the AED 37.3 million ($10 million) profit experienced in 2017, was "largely due to increasing fuel costs, rising interest rates and unfavourable currency exchange movements", said flydubai's Chief Financial Officer Francois Oberholzer said, adding that the second-biggest Boeing 737 MAX customer at the time, has had to deal with the troubled MAX groundings.
“While 2019 has seen a return to profitability, it does not reflect the loss of market position and the unfilled opportunities flydubai could have exploited,” due to the absence of Boeing’s newest narrowbody aircraft from its fleet, indicated the company’s CEO Ghaith Al Ghaith in 2020.
Due to COVID-19, flydubai reported a net loss of AED 712.6 million ($194 million). As a result, the airline made an agreement with Boeing to reduce the number of Boeing 737 narrow-body jets on order, which was confirmed to the local media when the order was cut by 65 jets. The decision followed the airline’s strategy update.
Currently, flydubai is working on rebuilding its network, which, according to a comment made to Reuters, was adjusted to “the changing dynamics of the airline’s route structure” affected by the global pandemic. Despite the downturn, flydubai is still one of the leading low cost-carriers in the Gulf, covering over 90 destinations spread across Africa, Central Asia, Europe and India.
Gulf LCCs: small but still growing
The Gulf’s budget airlines all consist of relatively small fleets, but there has been steady growth in the number of aircraft over the last decade. The overall number of aircraft in the Gulf’s LCCs totals approximately 170, according to the estimates from Planespotters.net and airline official data. Additionally, it is worth noting that all low-cost carriers in the Gulf region, except flydubai, operate all-Airbus manufactured aircraft.
Currently, Air Arabia boasts the largest number of aircraft, with a fleet of 58. The biggest part of its fleet consists of 52 Airbus A320ceos and six Airbus A321neo aircraft, as per Air Arabia data.
flynas currently operates a total of 37 all-Airbus manufactured aircraft, as per Planespotters.net data. Presently, Oman-based lowcoster, Salam Air, utilizes six Airbus A320neo aircraft, as per Salam Air data. Jeddah-based flyadeal operates 13 Airbus A320 family aircraft, 11 are Airbus A320-200 and two are newly-delivered Airbus A320neo aircraft.
The only air carrier in the Gulf that is currently operating an all-Boeing fleet is flydubai. Planespotters.net data shows that the lowcoster has a total of 53 Boeing 737 family aircraft. The largest part of the airline’s fleet consists of 36 Boeing 787-800s. Additionally, the carrier operates 14 Boeing 737 MAX 8s and three Boeing 737 MAX 9s.
If we take a look at future plans for low-cost airlines in the Gulf, Saudi Arabia and the United Arab Emirates could be a driving force to further accelerate the growth rate of LCC fleet growth, despite the ongoing COVID-19 pandemic.
According to flynas, the airline will continue to grow and invest. A recent agreement has been made with Airbus to purchase 120 new A320neo aircraft at a value of $8.6 billion. flyadeal plans to take delivery of an additional 28 Airbus A320neo aircraft until 2024. Air Arabia has 120 Airbus A320 family aircraft on order, which will start to arrive in 2024. However, flydubai is currently awaiting delivery of 11 Boeing 737 MAX 8s, which should arrive by the end of 2021.
Over the last two decades, LCC growth in the Gulf region has been accelerated. During this time, some of the region’s low-cost carriers have managed to achieve significant gains.
Until recent years, Gulf LCCs were a dominating power in a region that had an undemonstrated LCC market. However, at the height of the COVID-19 pandemic, European rivals established a new subsidiary in the region, which created some competition.
On January 15, 2021, Wizz Air launched its first flight to Athens, Greece from its new subsidiary Wizz Air Abu Dhabi, based in the United Arab Emirates. Flight WAZ7007 marked the beginning of commercial passenger operations from its latest homebase at Abu Dhabi International Airport (AUH).
Earlier, in 2019, Wizz Air’s Chief Executive Officer, József Váradi said: “Wizz Air Abu Dhabi will be an incremental path of growth for Wizz Air, built on our successful ultra-low-cost business model, bringing affordable travel to ever more customers. We believe the new airline has the potential to be a significant player in the region.”
Wizz Air is a recognisable brand name from Central and Eastern Europe where the carrier is mostly based. It is one of the few low-cost carriers from Europe that fly to the United Arab Emirates. Thus, competition is rather scarce.
“The intention and the purpose of coming to Abu Dhabi is to stimulate the market place. Abu Dhabi is hugely underpenetrated with regard to low-cost flying,” Varadi told Nasdaq in an interview in 2019.
However, for the Gulf’s low-cost airlines, Wizz’s presence in the region may just pose a significant threat. The Budapest-based air carrier offers low prices and is a strong contender in a relatively empty market.
GlobalData, a leading data and analytics company, reported: “This recent development reinforces the necessity for low-cost competition, and the airline will support the stimulation of leisure demand to the UAE during and post-COVID-19.”
Gus Gardner, Travel and Tourism Analyst at GlobalData, commented: “Wizz Air’s launch will certainly disrupt the market, offering competitive fares and opening up underserved destinations that could bear fruit for the airline. Abu Dhabi has long been a market dominated by full-service carriers, with Etihad Airways being the largest player. Low-cost competition has been limited to inbound airlines, often only serving one city pair, and the market has been in desperate need of low-cost disruption.”
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