Featureinterview
Airline title here
Arabian dream
Bringing low cost travel to the Middle East and North Africa comes at a price,
but for Air Arabia, challenges are turned into opportunity, as Martin Rivers finds
C
ompared with Europe, few people would
Air Arabia operates 48 Airbus
A320s out of 10 bases describe the Middle East and North Africa
(photo: Sergey Korovkin) (MENA) as a liberal aviation market. Restrictive
traffic rights, bureaucratic visa regulations and state
aid for flag-carriers conspire to make life immensely
difficult for the few private airlines based in the region.
Heavy regulation is particularly burdensome for
low cost carriers (LCCs) as they rely on commercial
efficiency and free-market access to unlock new
demand among price-sensitive consumers. This
explains why most Arab LCCs adopt a hybrid business
model that eschews point-to-point flying in favour
44 / Low Cost & Regional Airline Business
of hub economics, and replaces no-frills service
with a whole host of complimentary perks. Airfares,
inevitably, remain higher than average.
The one noteworthy exception is Air Arabia, the
privatised flag-carrier of Sharjah in the United Arab
Emirates (UAE), which was founded in 2003 and now
operates 48 Airbus A320s out of 10 bases stretching
from the Persian Gulf to the Maghreb.
Adel Ali, Group Chief Executive Officer, admits
that he has made compromises in bringing low cost
travel to the Arab world – local partners share control
over his foreign bases, for example, and several
www.lowcostandregional.com / January 2018
 Airline interview

key markets are absent from the network – but

with profits surging, he is confident the region’s
dealmakers are waking up to the LCC revolution.
“A lot of people have now started the approach
of [thinking], ‘let’s not be greedy and just close
everything, because then nobody benefits’,” explains
Ali, who has steered Air Arabia since its inception.
“In the 15 years of this airline [being in business],
we have gone from a very restrictive skies policy to
a reasonably liberal policy, for our part of the world.
The mindset has changed, in the sense that they
recognise [deregulation] is a good source of income
for the economy and for the country … The phrase
‘open skies’ perhaps is not there, but with the way
things have changed in the last 15 years, it’s only
going to change for better.”
Diplomacy is key to Air Arabia’s success. Despite
battling protectionism in all three of the foreign
countries it flies from – Morocco, Egypt and Jordan –
Ali rarely criticises his host countries, preferring to
“be peaceful” and let the benefits of liberalisation
speak for themselves.
“When we bring in passengers, the airport makes
money, we recruit people, and we contribute to
the economical wheel of those countries,” he says.
“If someone doesn’t want the benefit from that
economic input, there’s no point in fighting those
circumstances. We will just slow down and shift lower yields and profitability. The inevitable remedy
Ali says all options are on
those aeroplanes elsewhere.” is cutting capacity growth. the table for long-term fleet
The appeal of deregulation became harder for “It’s the normal cycle that repeats itself every few development (photo: Air Arabia)

Gulf leaders to dismiss in 2017, when the region’s top
three airlines – Dubai’s Emirates Airline, Abu Dhabi’s
Etihad Airways and Qatar Airways – slammed the
brakes after more than a decade of uninterrupted
double-digit traffic growth.
A variety of factors has been blamed for waning
fortunes at the big three super-connectors: lower
oil prices and a resultant slump in premium traffic;
security concerns after the rise of Daesh; heightened
competition from low cost long-haul carriers; and
travel restrictions imposed by the new US President,
Donald Trump. Qatar Airways has also been hit
by a regional blockade against its government,
while Etihad is reeling from several loss-making
investments in foreign airlines.
For Ali however, a simpler truth explains why his
full-service rivals have now hit turbulence – and why
Air Arabia is weathering the downturn better.
“Airlines are known to buy aeroplanes when the
market is good; get delivery when they are not
needed; and then … give them up and shrink the
business,” he says, arguing that Indian and Gulf carriers
“dumped capacity” in the MENA region in 2015 and
2016. Flooding the market with too many seats allows
airlines to grow market share, but only at a cost of
years, but we have been consistent in managing our
costs year after year, whether the year is good or bad.
As a result, it helps in the difficult times … We end
up having to do less restructuring and less cleaning
when markets get difficult.”
Conservative approach
Air Arabia’s ‘conservative’ approach is borne out by its
recent growth trajectory, with seat capacity at the UAE
operation growing by about 9% in 2016 and 10% in
2015. While Emirates grew at a similar pace, its larger
size entailed far greater risk for each percentage point
added: the Dubai flag-carrier transported 4.2 million
additional passengers between the two years, versus
just 900,000 extra at Air Arabia. This overreach fuelled
a dramatic 80% fall in net profits for Emirates, against
a negligible 3.5% dip for Air Arabia.
Moving into 2017, Ali extended his lead by steadily
growing quarterly profits above analysts’ estimates:
103 million UAE dirham ($28 million) in Q1 became
158 million dirham in Q2 and 376 million dirham in Q3.
Emirates also improved its results in the first half of
2017, but only after retrenching staff, deferring A380
deliveries, and cooperating more closely with low
cost subsidiary flydubai. f

January 2018 / www.lowcostandregional.com Low Cost & Regional Airline Business / 45

Featureinterview
Airline title here

The airline’s original order for
A320s will be fulfilled in 2018
(photo: Airbus)
The other big UAE carrier, Etihad, meanwhile
plunged to a $1.87 billion loss in 2016 after its equity
strategy unravelled in spectacular fashion, with both
its flagship investments – Alitalia and airberlin – filing
for insolvency. Etihad does not publish quarterly or
biannual results.
Ali is characteristically modest when talking about
divergent fortunes in his home market. He credits his
full-service rivals for shifting to a more rational growth
rate, insisting there is room for both types of airlines
to thrive in the region.
Nonetheless, he clearly believes LCCs will benefit
the most from the emerging trends of liberalisation
and price-sensitivity, noting that they account for
just 17% of capacity in the Middle East today.
“When economic conditions get a little more
difficult then LCCs tend to be the best choice and
option for the customers. We already benefited from
that,” he says. “I think, as we move on, economic
conditions are going to bring more pressure on the
industry in the region, and that will probably make
some operators reconsider some of the overcapacity
that exists … That gives us the opportunity not to
shrink, but to actually expand.”
Air Arabia currently deploys 37 A320s under its UAE
licence, serving more than 70 international destinations.
The Middle East and the Indian subcontinent are its
largest markets – particularly Saudi Arabia and India
– but spokes also extend to the Commonwealth of
Independent States (Almaty and Astana in Kazakhstan;
Baku in Azerbaijan; Kiev in Ukraine; Moscow in Russia;
and Yerevan in Armenia); Sarajevo in Bosnia and
Herzegovina; Istanbul in Turkey; Tbilisi in Georgia;
Ürümqi in western China; and three African points
south of Egypt (Hargeisa in Somalia; Khartoum in
Sudan; and Nairobi in Kenya).
Further afield, eight A320s are based in Morocco
under a joint venture with local partners. Those
aircraft fly from six bases (Agadir, Casablanca, Fez,
Marrakech, Nador and Tangier) to 29 points in
Western Europe, plus Istanbul. One domestic route
is also served between Fez and Marrakech.
Air Arabia Jordan, a second joint venture, deploys
two A320s from Amman to three points in Saudi
Arabia (Dammam, Jeddah and Riyadh), plus Sharm
El Sheikh in Egypt.
Air Arabia Egypt, a third part-owned affiliate, links
the northern city of Alexandria with the same three
Saudi points, plus Amman and Kuwait.
Finally, back in the UAE, two of the 37 locally-
registered aircraft have been moved from Sharjah to the
emirate of Ras Al Khaimah, which lost its flag-carrier, RAK
Airways, in 2014. “It is never going to be a very large hub,”
Ali says of the secondary UAE base. “But we will consider
operating out of anywhere, so long as the business
exists and the traffic rights exist. We are in the business
to move people around, and we will move them.”
Management’s willingness to explore new markets
is now coming to the forefront as Air Arabia prepares
for its next wave of fleet expansion.

46 / Low Cost & Regional Airline Business www.lowcostandregional.com / January 2018


A321neo order
The airline’s original order for A320s will be fulfilled
in 2018, when the final two units arrive in Sharjah
and one additional plane lands in Cairo. A leasing
deal for A321neos will then see six stretched aircraft
delivered in 2019 – likely the long-range variant
– enabling deeper expansion into China, the Far
East, Russia and Africa. The A321neos will also be
useful for up-gauging routes such as Moscow and
Kathmandu in Nepal. Air Arabia Maroc may use
them to push further into Eastern Europe.
Despite rumours to the contrary however, the UAE
operation has no plans to serve Western European
markets like London. Doing so would be perceived
as an assault on Emirates, which serves the UK capital
nine times daily from Dubai International Airport –
a mere half-hour drive from Sharjah.
“We see there are too many aeroplanes already
flying into Europe. There’s overcapacity on certain
routes particularly,” says Ali. “We won’t rule out
anything. But I think we have not considered Europe
yet because we’ve got enough on the plate for
those aeroplanes already.”
As work continues to identify markets for the
A321neos, management are also preparing to sign
an order for more standard-sized narrowbodies.
Airbus has a head start in the negotiations given its
existing relationship with Air Arabia, but Ali stresses
that all options are on the table for long-term
fleet development.
January 2018 / www.lowcostandregional.com
Airline interview
“
We will consider operating out of
anywhere, so long as the business exists
and the traffic rights exist. We are in the
business to move people around, and we
”
will move them
Adel Ali, Air Arabia
“In terms of the quality of the aircraft available
today, everybody gets good aeroplanes,” he says.
“So, we would be daft not to look at everything that
exists … We will not tie ourselves to one particular
brand just because we started with that brand.”
Although airlines typically stick with one
manufacturer in the early stages of their development
– building economies of scale through uniform
maintenance, training and licensing – the benefits
of a single-type fleet begin to wane after 50 units.
Switching suppliers is particularly viable for airlines
that spread aircraft and crews between multiple hubs,
as they avoid the need to hire two sets of technicians
and pilots at the same base.
Ali says an order for “around 100 aircraft” should
be announced by early 2018, meeting Air Arabia’s Airbus delivered the first
Sharklet-equipped A320 in
long-term requirements for both replacement and the Middle East to Air Arabia
expansion units. Parallel leasing deals will also be f (photo: Airbus)
Low Cost & Regional Airline Business / 47
Featureinterview
Airline title here

Air Arabia took delivery of
the 6,000th A320 back in 2014
(photo: Airbus)
sought on an ad hoc basis, building flexibility into
the renewal programme.
Asked what markets are ripe for A320 growth, he
paints a picture of abundant opportunity stretching
in all directions from the Gulf.
Russia stands out as one underserved country
from Sharjah, though fluctuating demand means that
“charter-type operations” may have an advantage at
some of its regional airports. Tunisia and Algeria – two
glaring white spots for the group – are in the crosshairs
of the Moroccan unit. For the Alexandria base, Western
and Eastern European destinations will be considered
after Egypt’s 2018 presidential election. In Amman too,
plans are afoot to serve Europe, along with key markets
like Istanbul and the Lebanese capital Beirut.
Niche destinations will also be considered as talks
continue with a third manufacturer, Bombardier,
about a possible order for the 110-130-seat C Series.
Ali notes the “positive vibes” coming from the aircraft’s
launch customers, speculating that it could work well
on domestic flights in Morocco and some thinner
routes from Egypt.
He has little appetite for widebodies though,
warning that operators in the low cost long-haul field
have yet to prove their business models. “I don’t want
to rush to be the first to do it,” he insists. “I’d rather
watch some successes.”
Ultimately, it must be said that Air Arabia’s
long-term vision – of developing a point-to-point
network akin to Ryanair in Europe – bears little
resemblance to its present-day scope.
Protectionism is by far the biggest obstacle to
growth, holding back existing affiliates and pouring
cold water on future ones. Despite having an
Egyptian operating licence, Ali has all but given up
on basing aircraft in Cairo, the largest city in the Arab
world. “Yes, we would like to, but we know it’s not
going to come soon,” he shrugs. “So, we have got to
operate from where we are, and develop that.” The
Jordanian authorities have stalled route applications
“for over a year”, he adds, while Morocco is blocking
flights to West Africa.
Even in the UAE, Air Arabia’s wings are being
clipped by foreign governments who protect local
carriers by hindering access. India has revoked
traffic rights for flights from Ras Al Khaimah, for
example, while Iran is lifting capacity restrictions
at a disappointingly slow rate.
Such obstacles explain why Ali is in no rush to
add more joint ventures. However, with patience
and perseverance, his dream of a pan-Arab carrier
is moving closer to reality each day.
“In every country I visit governments are very
positive and their wish is to be open skies, but
obviously there are other considerations,” he
concludes. “Looking at where we were, and where
we are today, I think I’m extremely satisfied.
We’ve just got to keep working.” „

48 / Low Cost & Regional Airline Business www.lowcostandregional.com / January 2018