The price is right

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Jazeera Airways Q3 2008 profit stands unchanged at $5.9m from a year earlier.

They offer few frills and luxuries, but the Gulf's low-cost airlines could be this year's carriers of choice for frugal travellers in the Middle East.

As airline start-ups go, FlyDubai's management could not have launched their new venture into darker, more turbulent skies.

Only 18 months ago, the outlook for Middle East aviation was relatively clear following years of record growth. Even last year, the development of Dubai as a global hub continued apace, with the emirate's international airport hosting over 37m passengers.

Today, however, the outlook is significantly less rosy for the aviation industry. Among the doomsayers is the International Air Transport Association (IATA), which has said Middle Eastern carriers will lose $200m in profits this year. The airline industry body has also forecast a $2.5bn loss for the global industry as it enters the toughest revenue environment in 50 years.

In particular, analysts are predicting a bleak future for budget carriers, which offer cheap fares and few onboard amenities, amid the worst economic downturn in living memory.

"It is going to be challenging for those carriers that don't already have their markets established," says Niko Hermann, aviation expert at management consultancy Oliver Wyman. "Unless low-cost carriers have very clear funding or are in an environment where they can operate without obstruction, this year is going to be tough."

Such forecasts might make unpleasant reading for the directors of FlyDubai.

The government-owned budget airline, set to launch later this summer, will provide cheap flights from Dubai to destinations across the Middle East, Southeast Europe, Indian subcontinent and Africa.

However, the airline is bullish about its prospects, and maintains that it will launch - and grow - according to an aggressive schedule unveiled last year. Moreover, the carrier dismisses suggestions that aircraft production delays at manufacturer Boeing, where FlyDubai has an outstanding order for 54 737-800s, could hamper its expansion strategy.

"A press release that we issued when we bought the aircraft in July said we planned to launch in mid-2009, and we are still on track for that," said a spokesperson last week. "We don't think it [Boeing's production delays] is going to delay our plans."

FlyDubai is not alone in its insistence that the budget model will hold firm amid the current economic turbulence. Expert John Strickland believes they have good reason to remain upbeat about their respective operations.

Indeed, the founder of aviation advisory practice JLS Consulting says budget airlines offering relatively cheap fares can secure healthy passenger numbers this year.

"There is a unique stream of traffic around the Gulf that a company like FlyDubai will be able to exploit, particularly in ethnic traffic flows from countries such as Pakistan and India to the Philippines," he says.

"Those are the people who are relied on for the workforce for many areas of the economy in places like Dubai and Abu Dhabi. They want to go and visit their families but they can't afford to do it frequently with the existing airline pricing, so the market will respond to having low-cost airlines present."

If anything, Strickland adds, this market segment is likely to grow in size as migrate workers look to fly home more frequently.

"We have had the same thing in Europe, where Polish workers moved from one country to another on the basis that they can get home fairly frequently at a reasonable price," he says. "So not withstanding a recession, that is a key factor that will assist those airlines."

Strickland isn't the only optimist, with many low-cost carrier chiefs counting on steady growth over the coming months. Among them, Bahrain Air managing director Ibrahim Abdullah Al Hamer insists the adverse economic conditions will not stop his operation from becoming one of the region's leading carriers. He also believes budget airlines will benefit from frugal passengers seeking more "attractive and affordable flights" across the Middle East.

To capitalise on this demand, Bahrain Air plans to increase its fleet of leased A320s to 10 by 2012.

Meanwhile, the airline's network will cover 21 destinations across the Middle East and Indian subcontinent. Once the expansion strategy is complete, the airline's board is confident that passenger loads, which have increased from 20 to 60 percent since Bahrain Air's inception in early 2008 - will continue to rise.

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