Fear of flying

Air Arabia boss, Adel Ali, claims not to be competing with the region’s state airlines, but governments are still reluctant to allow the budget carrier into their airspace. He tells Richard Agnew that securing traffic rights remains a big challenge for the airline, despite the popularity of its service.

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By  Richard Agnew Published  October 23, 2005

Fear of flying|~|3 40-7_1-200.jpg|~|HIGH-FLYER: Ali has led Air Arabia to profitability ahead of schedule, and is looking to open up a number of new routes within the Middle East and India. |~|A LIGHT DRIZZLE WAS FALLING LAST week as a crowd watched Air Arabia’s inaugural flight leave Nagpur airport, a dilapidated set of buildings on the central Indian city’s outskirts. The facility — where the grass doesn’t seem to have been cut in years and tractors are still used to tow luggage — might not seem the optimum choice as an international carrier’s regional hub. But as recent history has shown, low-cost airlines’ business plans aren’t based on traditional logic. “Nagpur is the classical type of airport that we want to fly to,” says Adel Ali, Air Arabia’s chief executive officer. “It’s similar to a number of cities we serve – it has a large population but international airlines don’t fly to it. People have had to suffer to get there. It’s also got railway connections to a number of other cities, so the catchment area is fantastic.” Air Arabia has opened up 20 destinations since Sharjah’s government launched the company two years ago; the latest, last week, being Nagpur and Aqaba. Many of the airports it serves are off the beaten track and are, therefore, a source of untapped business for the airline, having been snubbed by its rivals. With Nagpur, for instance, it hopes to target a large market surrounding the city, which is not well connected internationally, but is home to a large number of expatriate workers in the Gulf. But Air Arabia’s unconventional route map is not just a product of the company’s forward strategy — it is also down to restrictive government policies. Many countries have so far given the budget carrier the cold shoulder, rather than allowing it to operate freely from their major airports. After Mumbai, Nagpur is only the second city in India where Air Arabia has so far managed to secure landing rights, despite the fact that there is clearly demand for the low-priced service it offers. Ali claims the airline has regularly been filling 95% of its seats since launching flights to the country six months ago, and believes that there’s ample room for more routes. “Generally, the Middle East and Indian sub-continent still operate very confused aeronautical policies,” says Ali. “Some claim to be open, some are half-open and some — you don’t know what they are. The only ones that say they are open and actually apply that policy are the UAE and Lebanon. In Europe, countries are chasing budget airlines and begging them to develop their airports, but we’re in a part of the world where they are mainly blocked for national carriers.” Despite these difficulties, however, Air Arabia has performed above expectations since its launch. Although it doesn’t release detailed financial results, the airline claimed to have reached operational profitability during 2004 — two years ahead of schedule — and to have reached the million customer mark by June of this year. The company has also helped to increase the number of travellers passing through Sharjah International Airport, and is seen as a rare success story in a sector where many major players are under the cosh. Ali also denies that Sharjah’s government has helped by softening the blow of soaring fuel bills — an accusation often thrown at Middle Eastern airlines. “The results are not due to oil,” he says. “We buy our oil in Sharjah from BP. We pay rates that any other airline that comes to Sharjah pays, and we get the volume discounts that are applicable to any airline. We have introduced surchages, but ours are based on reality to cover the extra cost — not to make money out of it. If you compare ours with other airlines in the region, you will find there is a big gap.” If Air Arabia’s growth is to continue, however, Ali admits that it will have to overcome its denial of access problem — especially as it is facing increasing competition from the launch of new budget airlines in the region, such as India’s first such carrier, Air India Express and Kuwait’s Al Jazeera. To combat this, the airline is looking to launch new routes around the region, and add new planes to its fleet. But the impossibility of making accurate long-term predictions of government policy shifts will make this all the more difficult. “Having such an ambigious position makes it all the more difficult to plan,” Ali says. “If I was based in Europe or the US then I would know where the airline would be able to go and base my strategy on that. Here, the way the policies are conducted you have to firefight all the time.” Expanding geographically is certainly a big part of Air Arabia’s business plan, as well as gaining permission to increase the frequency with which it serves its existing markets. The airline currently operates a handful of Airbus A320s but plans to have a fleet of 12 to 15 aircraft within five years, flying to any country within four and a half hours of its home base in Sharjah. “We won’t be going to Europe or South East Asia,” says Ali. “But that can take us to a lot places in central Asia and the Mediterranean and those are areas we are looking at next.” Securing permission to expand into those areas will be crucial in realising that aim, however. Despite an agreement signed earlier this year by various Middle Eastern governments to adopt ‘open skies’ policies, Ali says this has yet to have a major effect. Negotiations with individual civil aviation authorities have also dragged on — in particular, Air Arabia’s attempts to gain access to Egypt’s Cairo International Airport. Jordan’s government, meanwhile, only last week gave the airline permission to fly into its capital, Amman — and that was for one flight a week. All of the GCC countries have also allowed Air Arabia to operate a certain level of service, but have yet to accept its requests to offer two flights a day to and from the Gulf’s capitals. “We want to increase our flights within the GCC,” says Ali. “The market wants a double daily and we have been talking to most of the GCC countries, but some of them are reluctant. I see no reason why any airport authority would not allow an airline to operate to its terminal if it was not for protectionism, because any airline generates business, pays to use the airport and buys fuel. So there must be a reason for blocking it.” Securing traffic rights in India — in particular the southern state of Kerala, where many Gulf-based expatriates hail from — also continues to be a problem, Ali says. Air Arabia has sought permission to operate from an additional five secondary airports in the country, which is seeing surging demand for air travel, but has yet to see clearance come through. Nor can Ali predict accurately when this might happen. “We hope for a few more airports in India but it is difficult to say which ones will open up because it is in the hands of the authorities,” Ali says. “India is important for any airline, considering the big population living in the UAE and the Gulf and the fact that the Indian economy is doing well. We wish that we could go to anywhere we wanted, but given that they are much more open than before, we will go wherever we are allocated.” Although Ali claims that signs are emerging that regional governments are starting to adopt more open policies, he admits it will be some time off before the market is fully liberalised. Getting round the problem in the meantime will also be difficult, he says — as the airline is cautious about inking code-sharing agreements with foreign carriers in a bid to enter new markets. Nor will the company be launching other low-cost products, such as car rentals and holidays, to complement its flights in the short term. “Our model is not geared towards partnerships,” he says. “We will work with other airlines if it does not add complexity to the business model and confuse the customer. But we want to keep it simple. A lot of low-cost airlines are coming up now in India, but there has been no discussions on alliances or code shares or anything.” One thing that will obviously help, however, is the company’s association with Sharjah’s government and the emirate’s sway in negotiations with regional aviation authorities. The airline’s management is keen to privatise the company once its business model has been proved as solid. But government backing will remain vital to its long-term future, Ali says. “We’re very much open to the idea of an IPO [initial public offering]. But you need government support to establish an airline in the Middle East because if you don’t you won’t be able to fly anywhere. Unless you are a government airline most countries don’t talk to you. Even if you are 100% private you still need government support to obtain travel rights and that’s the reality we’ve got to work with.” ||**||

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