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Low cost, high expectations

The low cost model in the Middle East has not been short of opportunities. Steve Johnson provides an overview of the key players, market segments and challenges
 

The Middle East has a somewhat different low cost model – put simply, passengers generally have higher service expectations. The airlines position themselves accordingly with a hybrid offer – business class in addition to economy and seat density, food, baggage allowances and airport facilities more akin to full service operations. With the dominance of the region’s national carriers, paring things to the bone and then charging for it is not the best course for success. Think less ‘low cost’ and more ‘better value’.

 

However, as things stand, the LCC market share in the Middle East is still some way off the significant levels enjoyed by operators in other regions. Although accommodating fleet growth to these levels could have been ‘interesting’ for aircraft manufacturers to fulfil, the real issues are more fundamental. Standing in the way of maximising the sector’s potential are the Middle East’s challenges of regulation, lack of open skies policy and competition restrictions.

 

Simon Elsegood, senior analyst for the Middle East at CAPA Centre of Aviation, says most states in the Middle East heavily favour their national carriers and the barriers to entry in some markets in the region are prohibitive. 

 

“While a lot of Gulf states have been eager to open up market access with Europe, North America, Africa and Asia-Pacific states, they haven’t approached regional liberalisation with the same eagerness,” says Elsegood.

 

With several major airport developments taking place to accommodate more flights and greater passenger numbers, there is another major factor affecting growth. John Strickland, Director at JLS Consulting, says; “Air traffic control capacities remain a challenge as route numbers continue to increase. This has to be tackled by investment and a coordinated approach by all players.” 

 

Nevertheless, the four main operators – Air Arabia, flydubai, Flynas and Jazeera Airways – are sounding typically bullish about what the future holds. Positions are backed by some promising performances so far in 2016 with regular new route announcements. In short, the airlines want and need to grow the market; by whatever means.

 

Looking at aircraft orders and net fleet growth projections, things are a little unclear but it could be just a question of timing. The decision process may be stalled, but Riyadh-based Flynas is still planning a 60 aircraft order plus 40 options this year with a possible move away from Airbus to Boeing or Bombardier. Flydubai has 75 Boeing 737 MAX 8 aircraft on order, Sharjah UAE-based Air Arabia has a commitment for 44 A320s.

 

Kuwait-based Jazeera Airways, the smallest of the operators in the sector, with just seven A320s and 16 Middle East destinations, is clearly looking to add quality to its offer. Chairman Marwan Boodai reports a successful start to 2016. “Our outlook for the year remains unchanged and in line with seasonality. While the excessive overcapacity on the sectors we operate poses a downward pressure on yields, we expect to counter this in the peak summer season and close the year with growth in operational profits.”

 

In February, Jazeera Airways launched its ‘Next Big Thing’ strategy – a series of what the operator refers to as ambitious game changing initiatives to attract and retain more customers. Remote single stop check-in with valet parking and luggage assistance is currently in development at Kuwait International Airport. Due to be operational by the end of 2016, services are designed to bypass the airport’s parking and check-in congestion.

 

In July, Jazeera Airways opened its business class lounge at the airport – the first Kuwaiti airline to do so. With an unobstructed view of the tarmac, passenger services include high-speed internet with food and drink provision. Starting Q1 2017, Jazeera’s fleet will be equipped with broadband internet technology from Rockwell Collins. The airline is the launch customer for these services offering livestream TV, movies, news and sports on any personal device.

 

Boodai states that the past two years have been transformational for the airline. “In 2015, we exited the aircraft leasing business to focus on the airline. We attracted more passengers, despite the political and economic challenges we face. With the Next Big Thing, we have a three year strategy in place to transform our product,” Boodai says.

 

Strategically, Jazeera Airways is currently looking to expand its network to include key long haul destinations by partnering with an international operator. Though still in its early stages, the airline confirms the new routes will be non-stop and offered through a true partnership with a global airline. Jazeera Airways may be a small operator as things stand, but it gives every impression of thinking big.

 

Air Arabia positions itself as the largest LCC in the Middle East and north Africa. The airline is publically listed, has a fleet of 44 Airbus A320s flying to over 100 destinations and maintains an economy class only strategy. Since the beginning of 2015, Air Arabia has added more than 25 new routes across its multi-hub operation, including Sarajevo and Batumi in Georgia. >>


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