High time for low cost airlines

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Air Arabia CEO Adel Ali: the price has always been the prime determining factor when a customer books an airline ticket.

Massive infrastructure growth, high regional GDP and a region-wide desire to travel are all contributing to the boom in the low cost carrier sector, and there is plenty of room for more expansion, the industry has predicted.

Internet penetration is improving Middle East wide and more mature markets in the region are already proving willing to book and buy online, but low cost passengers still account for a mere 1% of the region's air traffic, compared with 25-30% in Asia Pacific, where the low cost model took off some years ago.

The low cost market in the GCC is currently dominated by Air Arabia and Kuwait-based Jazeera Airways - the only two international LCCs in the region - but KSA-based Sama and NASair are set to be granted rights to begin international flights any day now, which could effectively double the size of the market.

Air Arabia CEO and board member Adel Ali said he was appalled by the fact that carriers in the region can still justify charging AED 1500 (US $409) for a flight to Bahrain, when Air Arabia charges as little as AED 450 ($123).

Despite some argument to the contrary, price would always be the fundamental factor when a customer is buying an air ticket, according to Ali.

"Price has always been the key factor when a customer books a flight," he said in a keynote speech at the Low Cost Airlines Conference 2007, which took place at the Burj Al Arab in Dubai from November 11 to 12.

"A flight is not a key purchase - it's not something you keep - once you land it over, the money is gone, so you want a cheap price. Price will continue to be the key factor; LCCs will survive because they are the only ones that can provide that low price to the masses.

The Middle East's aviation industry was still in its infancy at the start of the Millennium, but now has the highest number of aircraft on order in the world, highlighting the demand for air travel from the consumer market.

Centre for Asia Pacific Aviation (CAPA) CEO Indian Subcontinent & Middle East Kapil Kaul identified some of the growth drivers spurring on the low cost industry in the Middle East, including a strong regional GDP, with 5-6% economic growth across the board and a youthful population, 50% of which is under 25 years old.

He also cited the central geography of the Middle East, ever-increasing airport capacity and "a liberal approach to aviation deregulation" as further growth drivers.

According to CAPA research, Dubai commands some 22% of airport traffic for the whole region, while Saudi Arabia accounted for at least 19% of air traffic, even though neither has an international LCC at this stage.

And Kaul said the market share of LCCs for travel within the Middle East has increased from almost nothing in Q1, 2005 to more than 3.5% by Q4, 2006, but the LCC penetration is still nowhere near saturation.

Air Arabia's Ali noted the positive influence an LCC had when it began flying into an airport that had been previously underserved: "LCCs stimulate the markets and they make more people fly - we see that in every airport where Air Arabia flies and we have seen huge growth because of it," he said.

National Air Services CEO Edward Winter shared Ali's perspective, and highlighted the vast potential NASair had to stimulate more outbound travel from Saudi Arabia - a hugely untapped source market for tourism - when the carrier launched international low fares services.

"In all the LCCs I have been involved in, it is not about taking traffic that is currently there away from an incumbent carrier - that is not what the market is all about," he said.

"It's about going into a market that you can stimulate with lower fares.

"You stimulate people that travel for leisure, people that travel for VFR, business people that would shy away from so many trips because of the cost, and you increase the market dramatically. What you do as an LCC is take all the increased market space that you have created.

According to Sama CEO Andrew Cowen, the business travel market is slowly coming around to the idea of travelling with an LCC, particularly for very short trips within the GCC.

"We don't have detailed passenger breakdown data, but if I walk down the aisle and look at the number of people with laptops we are getting about 25% business travellers," he said, speaking to ATN during the Business Travel Show Dubai.

Cowen said he fully expected the GCC to reach the same levels of LCC penetration as have been witnessed in Europe, the US and Southeast Asia: "Our feeling is that as trust for LCCs grows - and they are still relatively new and Middle East travellers tend to be quite conservative - they start to see that for short haul travel for the mass market, it makes sense to travel on an LCC," he said.

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