Abu Dhabi low-cost rumble: Wizz Air versus Air Arabia and Etihad
On December 12, 2019, Wizz Air announced that it plans to establish its first subsidiary outside of Europe, Wizz Air Abu Dhabi. Two months prior, Abu Dhabi’s flag carrier Etihad, partnered together with Air Arabia, announced Air Arabia Abu Dhabi – a low-cost joint venture (JV) based in the same city and airport as Wizz’s new subsidiary. The two sides are set for a showdown in 2020, as both companies plan to launch their respective subsidiaries during the year.
The pair chose an interesting market. After all, the Middle East region is not famous for its low-cost brand names, unlike in other continents. Gulf airlines are known for their over the top luxury, including private suits on their aircraft, with a majority of the world‘s Airbus A380s operating in the region.
The same trend is reflected in market share. Only Flydubai has a strong market presence, ranking number five in terms of capacity in the Middle East, according to data by CAPA. However, low-cost carriers (LCCs) grew leaps and bounds ahead of the legacy carriers. In 2019, the LCCS increased capacity by 12.2%, while full-service airlines grew by 3.3%, which indicates a change in consumer practices within the region.
So why has Abu Dhabi suddenly became such a lucrative market for new low-cost ventures?
Economic Emirates‘ goals
There is no secret that stereotypically the United Arab Emirates is known for its oil and gas industry. And for a good reason, as the aforementioned industry generates almost 30% of UAE’s Gross Domestic Product (GDP), making it a crucial sector for the wellbeing of the country. One of the main goals of the local government is to diversify its income, as it aims to grow the portion of non-oil real GDP growth.
“The Government is focusing on the UAE becoming the economic, touristic and commercial capital for more than two billion people,” states the government’s website regarding its Vision 2021 program.
Furthermore, Abu Dhabi itself wants to become an “attractive, distinct tourism destination.” To achieve that goal, the Department of Culture and Tourism of Abu Dhabi launched a five-year strategic plan in 2016, with the goal to contribute 4% to the Emirates’ GDP. The Department, amongst other things, aims to achieve this by “boosting visitor numbers […]” and “stimulating market demand,” as indicated in the strategy.
Evidently, the local government aims to stimulate demand by targeting a large range of travelers. This includes price-sensitive consumers from regions that typically would not travel to Abu Dhabi, as connections on local full-service carriers like Etihad or Emirates can be very costly when compared to no-frills airlines.
Wizz Air is not alone on its Abu Dhabi venture – a local company, called Abu Dhabi Developmental Holding Company (ADDHC) is holding its hand on the journey. Reports by Reuters indicate that the Budapest-based carrier will own 49% of the new airline, while ADDHC will take the remaining 51% stake. The announcement by the airline describes the Emirati company as following:
“With a clearly defined mandate to generate sustainable financial returns for the Government of Abu Dhabi, ADDH stimulates value creation by developing prominent cluster ecosystems and instilling a culture of performance and efficiency across its portfolio of companies.”
Thus, the local government is clearly involved with the two new ventures, as it also owns Etihad, the other contributing party to Air Arabia Abu Dhabi.
While it might seem counter-intuitive to essentially sponsor two new carriers to be based in Abu Dhabi International Airport (AUH), both Air Arabia and Wizz Air will bring something different to the capital of UAE.
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