Aviation Sector Grows In UAE As Air Arabia And Fly Dubai Expand
- April 24, 2014
- Posted by: RKonnect
- Category: Hospitality & Tourism
UAE’s aviation sector is soaring high. Most of its airline companies are experiencing robust growth and are rapidly extending their routes and fleet size. It could be safely assumed that UAE’s overall aviation sector is driven by its favorable geographic location, mounting tourist inflow and government backed economic model, which strongly emphasizes on aviation sector. Not to forget, the hospitality sector as well.
Situated on the crossroads of East and West, UAE’s aviation sector has diverse components. At one end, it has high end carriers such as Emirates and Etihad with their extensive global network; on the other hand it has efficient and successful short haul budget airlines such as Air Arabia and Fly Dubai.
Launch of LCC in UAE
In the 1st half of 2000, aviation in UAE witnessed a new change with Air Arabia, the 1st ever Middle Eastern Low Cost Carrier (LCC) making an entry. There were apprehensions as LCC was a relatively newer concept. Nevertheless, Sharjah’s flagship carrier (It is now RAK’s official airline as well), which also happens to be publicly listed, has been a profitable venture since its inception.
In 2009 with the introduction of Emirate backed Fly Dubai, the LCC landscape further changed as competition was introduced. Since then Fly Dubai, has been demonstrating an equally robust growth and has even surpassed the Air Arabia in terms of passenger seats.
Strategic Approach and Operational Efficiency
The rivalry between the two LCCs has resulted in overlapping of routes thereby affecting their bottom-line. However, both the LCCs have their own forte, helping them build individual competencies based on strategic locations and operational efficiencies. The airlines, which served over 6 million passengers with a load factor of around 82 percent in 2013, enjoys the most impressive asset utilization in the region, expressed in the form of high aircraft utilization (13 hours per day), operational reliability (99.6 percent) and low headcount (53 employees per aircraft).
Air Arabia realizes its operational efficiency through offering a no frill based travel and using secondary airports to cut down on cost. Not to mention, adopting hedging to manage petroleum price fluctuation, offering discounts on online booking and using similar A 320 carriers for managing maintenance cost. As a part of its strategy, it will also be operating from the RAK airport from 6th May onwards, following a shutdown of the RAK airlines due to financial constraint last year.
Fly Dubai, which carried 6.82 million passengers at a profit of AED 222.8 (USD 60.7) million with a load factor of 62 percent; business strategies have not been completely cornered around LCC model as adopted by rival Air Arabia such low cost travel, lesser complementary services and hedging. For instance, it has introduced business class as well in many routes which will consequently help the airline to penetrate into point to point as well as capturing premium segment. By the end of February this year, it has business class services across 46 routes. Fly Dubai’s success is also attributed to its close association with Emirates Airline. In spite of technically being two separate entities, Fly Dubai complements Emirates. Large number of Fly Dubai’s destination such as Kiev, Kabul, Lucknow, Sialkot, Al Najaf, Alexandria and Chittagong etc. are not served by Emirates. It also complements Emirates long haul flights with its short haul ones.
Besides, factors mentioned above there are couple of common factors, which have contributed towards both the UAE based LCC’s profit. Firstly, there is an immense potential for Budget travel in UAE, GCC and pan Middle East, which has been successfully capitalized by these airlines. Secondly, both the LCCs have been proactively reaching out to underserved markets in Middle East, Europe and South Asia.
Both Air Arabia and Fly Dubai have a strong presence in GCC and other Middle Eastern countries with Fly Dubai having an edge in terms of frequency and passenger volume. Air Arabia offers eighty eight weekly flights to eight destinations in KSA, adding to a weekly volume of 10,000 passengers while Fly Dubai has a capacity over 22,000 weekly passengers for the Kingdom, which is also the second largest market for UAE based carriers after India. Middle East accounts for Fly Dubai’s 70 percent traffic volume against one third of its routes, suggesting a higher frequency policy adopted by the airline in the region.
Another high volume route in the GCC is UAE-Qatar route due to large number of passengers travelling for a short duration and returning back. In this route, Fly Dubai accounts for around 23 percentage of the total capacity between the two gulfs countries, much ahead of Air Arabia that accounts for less than 5 percentages. Other region where Fly Dubai is aggressively entering into is CIS, which is considered to be high potential market because of heightened economic cooperation between CIS countries and UAE. For instance, in Ukraine with 8300 weekly seats, Fly Dubai features among the top 10 international carriers. In 2013 it has appended 9 new CIS destinations in its network, thereby serving a total of 19 destinations across eight countries Air Arabia is also developing its CIS network and presently serves near around 13 destinations. However, far behind Fly Dubai, its accomplishment includes being the only UAE carrier to serve the Kazakh market.
Air Arabia’s strategic strength draws from its enhanced presence in the Indian markets, where the airline serves eleven destinations, comprising Tier one as well as two cities. In comparison, Fly Dubai serves only three Indian destinations.
The Way Ahead
Our analysts believe there are numerous lucrative international markets, both in Middle East and outside, which can offer strong ground for the UAE based airlines. For instance, in Pakistan, which accounts for a large volume of expatriate workforce in UAE, Air Arabia has only two destinations, namely Peshawar and Karachi. Similarly it does not serve Iraq, one of the fastest growing economies across the globe. Other than Nairobi and Khartoum, Africa as well is an unexplored territory for Air Arabia. Fly Dubai also serves only five African destinations which could be a lucrative market.
In spite of an impressive growth, the UAE LCC market still lags behind, when compared with other regions such as Europe and North America and Asia Pacific, where the share of LCC accounts for around 30 and 50 percent respectively. The slow pace of liberalization in the regional as well as other significant markets such as India are also hampering the growth prospect of UAE and other regional LCCs.
Nevertheless, the near future for both the LCCs along with other regional LCCs appears robust. It will be driven by increase in per capita income, young demographics and rise in inclination for Middle East among international tourists. The latter will also be boosted during the World Expo 2020, which is expected to attract 25 million visitors. Both of them have strong plans of extending their fleet size, which would be covered with the help of their strong cash reserves and low cost of credit in the UAE markets.
Research Konnection FZE
This research report is compiled by Research Konnection Team; a Dubai based market research and business consulting firm that is focused on capturing latest insights and happenings of major events across various sectors in UAE. If you are looking for more research, qualitative/quantitative data, or wish to conduct feasibility study, then feel free to contact us on firstname.lastname@example.org