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Sun 6 Nov 2005 04:00 AM

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Low-cost Jazeera flies into town

Jazeera Airways founder Marwan Boodai tells David Robinson why his budget airline will make big profits.

Low-cost Jazeera flies into town|~|Jazeerah-200.jpg|~|CONFIDENT: Boodai says Jazeera Airways will offer much cheaper fares.|~|Jazeera Airways founder Marwan Boodai tells David Robinson why his budget airline will make big profits.

The ornate brass balustrades and blood red carpets of the luxurious Majlis lounge at Dubai Airport provided a somewhat incongruous setting for the debut of the Gulf’s first privately-owned, no-frills, budget airline.

But Jazeera Airways Chairman Marwan Boodai was clearly intent on making a statement. As the Kuwaiti low-cost carrier’s maiden flight gently careened into dock, it passed through two fire engines blasting an enormous arc of water into the night sky.

It was an appropriately portentous image. Many observers expect the airline’s arrival will herald a new era for the region’s aviation sector. The Middle East suffers from the world’s highest average airfares — most routes cost two or three times more than their equivalents in Europe — but until last week, there were scant low-cost options. “We’re offering a new proposition, a different kind of service,” Boodai enthuses, during the 45-minute turnaround period, as he paces around the executive suite’s soft veneer furnishings, before jetting back to Kuwait City on the return leg.

His new airline is also launching routes to Bahrain, Damascus, Amman and Beirut, and later Egypt, Saudi Arabia and India, from its base in Kuwait. Like most budget airlines, it is only serving destinations within a four-hour flying radius.

Two years ago, the Kuwaiti government opened up its domestic aviation sector to competition by allowing the private sector to establish low-fare passenger and cargo airlines to compete with the state-owned, debt-ridden Kuwait Airways Corporation.

The country’s national flag carrier has incurred a loss almost every year in the past decade and its total accumulated deficits have reached hundreds of millions of dollars. Moreover, KAC’s lacklustre service reputation and poor flight selection has led many Kuwaitis to prefer to take other airlines or connect from hubs such as Dubai.

The shake-up was kick-started by the decision of UAE sheikhdoms Sharjah and Abu Dhabi to begin operating their own airlines in 2003. Sharjah’s Air Arabia became the first no-frills carrier in the Middle East. Since then, plans to launch other budget flyers around the region have snowballed.

This led to the establishment of Jazeera Airways in May last year, with 30% of the airline owned by a group of core founders led by Boodai, while the rest was offered to public shareholders. “Our up front IPO,” he is quick to point out, “was 12 times oversubscribed”.

The Kuwaiti entrepreneur, who according to his PR people is “40-something" says the carrier’s operating premise is simple: reduce turnaround time, minimise service and ground handling costs, and maximise flying time. The result is that Jazeera intends to offer fares that are 40% less than the cost of travelling with established regional airlines.

It’s a formula that has proved very successful in recent years. Of the eight most profitable airlines in the world last year, seven were low cost — the exception, of course, being Dubai-based carrier, Emirates Airlines.

Dozens of discount airlines now fly around Europe, trading low prices for no-frills service, and they only continue to grow. Ryanair, one of the oldest, has grown from one flight between southeast Ireland and London in 1985, when it started, to 266 routes in 21 European countries this year. Meanwhile, EasyJet, its arch-rival, transported seven million passengers from April to June, up more than 20% from the same period a year earlier.

In Britain, low-cost carriers operated almost a third of the 113,000 flights in and out of the UK last month. And more than 5.5 million low-cost airline seats were on sale — an increase of 24% increase on the October 2004 total.
Meanwhile, Spain was undergoing a low-cost flight bonanza, the number of no-frills’ flights within the country rose 160% last month compared with October 2004, while budget flights to and from Spain increased 25%.

The integration of the European Union aviation market and the emergence of low cost carriers have transformed travel in Europe, allowing many people who never used to fly to regularly travel to out-of-the-ordinary holiday destinations at bargain-basement prices. The sudden emergence of a low cost market could have a similar effect on travellers in the Middle East.

However, the European budget carriers’ stellar results have been tempered by a backlash in the last year against their frugal business models, amid accusations their services are riddled with hidden costs. Consumer groups say the reason some of the fares low-cost carriers offer sound too good to be true — one-way tickets, for example, may be advertised for less than a dollar — is because they are exactly that: too good to be true.

Many of the fares no-frills carriers offer may sound a bargain, but when you factor in additional charges for credit card handling, airport taxes and “passenger service” — not to mention the headache of dealing with out-of-the-way airports — their seemingly cheap tickets can actually prove costly and inconvenient. ||**|||~||~||~|On many of these airlines, passengers have to give up some comforts — like free meals or reclining seats — for the price. But it’s the incremental charges that can cause howls of disbelief. An airline might advertise a US$35 fare on its website, but the taxes and charges can double or triple the price, catching customers off guard. Baggage polices, for example, can be particularly sneaky. Many low-fare airlines limit all luggage to 20 kilograms or less and charge hefty add-ons for each kilogram above that, to the dismay of many unsuspecting passengers. “There isn’t any one low-cost model worldwide, don’t you believe that,” Boodai retorts, to accusations that his operation might have similar price drawbacks. “Every country needs to have its own model. You’re taking a global concept and localising it.”

Boodai points out that unlike Ryanair and EasyJet, whose passengers have to arrive at the airport early and stand in line at the gate for the best seats, Jazeera’s customers can choose where they sit beforehand. “In our model we provide seat selection. We provide more than one mechanism to book your seats, so it’s really different from all the others,” he says.

Boodai, who heads the Boodai Group — a top Kuwaiti business conglomerate with interests in media and transport, as well as aviation — adds that the airline will not be flying to secondary or remote airports to keep costs down, like a lot of European budget carriers.

“In the Middle East we don’t have the problems of places in Europe. For a start we don’t have three or four secondary airports to chose from. We will just go to the main airports,” he says.

In an interview with Arabian Business last month, Adel Ali, chief executive of fellow no-frills flyer Air Arabia, complained that his airline’s grand expansion plans were being hindered by restrictive government policies when it came to securing landing rights. Many countries around the region, he said, have given Air Arabia the cold shoulder, refusing to allow it to operate freely from their major airports.

In India, one of Air Arabia’s biggest target markets, the budget carrier has only managed to secure landing rights to Mumbai, and the lesser-known destination of Nagpur, despite the fact that there is clearly a huge demand in the country for the low priced service it offers.

However, Boodai claims his low-cost carrier has yet to face such problems. “Jazeera Airways is the recognised national carrier of Kuwait,” he says — before quickly adding diplomatically, “besides Kuwait Airways (KAC).”

“[Landing rights] are being taken care of by our authorities, our government … So far thanks to all the neighbouring countries we’ve got all we have asked for,” he adds. It remains to be seen whether this continues, however.

Low-cost airlines have blossomed in the EU as its aviation market has integrated, likewise, budget carriers can move around the “open skies” of the United States. But Asia lacks a unified regulatory umbrella — carriers have had to negotiate with individual countries to obtain rights to fly there — and its burgeoning no-frills industry has stumbled. This summer, Singapore-based budget carriers Jetstar Asia and Valuair merged, indicating the industry has already become overcrowded as the region’s low-cost flyers battle intense competition and soaring fuel costs.

Moreover, budget airlines in Asia have yet to do any serious damage to dominant national carriers like Cathay Pacific Airways and Singapore Airlines, and make up barely 5% of their full service rivals total seat capacity.
Jazeera’s business model relies in quick turnarounds — to get passengers on and off, refuel etc — at the airports it flies to, keeping costs down. But this could prove a stumbling block at some of the poorer countries it flies to in the region, which have less sophisticated facilities. “We have taken care of that through our studies,” Boodai assures. “Instead of allocating 20 to 30 minutes for a turnaround we are looking at 45 minutes.”

One innovation Jazeera is driving in the Middle East is the purchase of tickets via SMS. “It’s a state of the art service,” he says, dismissing any security concerns customers may have buying flights through their mobile phones. “Absolutely not. We link our reservation system to top facilities in Salt Lake City, so if there is a breach at Jazeera Airways, there is going to be a breach at Ryanair and EasyJet,” he says, using Europe’s better-known no-frills operations as a benchmark.

Some of the prices Jazeera is advertising certainly look a bargain — its website offers flights from Dubai to Bahrain for US$34 — but with oil prices hovering between US$60-70 a barrel, and set to continue rising; fuel costs look set to send ticket prices spiralling upwards. “It definitely affects us,” Boodai admits. “But fortunately we are living in a part of the world where high oil prices helps our economy,” he adds with a smile. And with that, Jazzera Airway’s commande-in-chief is bundled back into his airline’s brand new A320 by his entourage, after the briefest of stopovers in Dubai, to fly back to Kuwait. The following day he was expected on the carrier’s maiden flight to Beirut.

Some people say it remains to be seen whether Kuwaitis — which are expected to make up 75% of Jazeera’s business — will take to a low-cost carrier. Many people in the wealthy, oil-rich nation could be put off by the airline’s thrifty, no-frills approach to flying. After all, many Kuwaitis presently choose to avoid the cheaper KAC, in preference to other regional airlines that are perceived to offer a higher quality of service. But many aviation observers used the same arguments a decade ago, when Europe’s low-cost airline industry first took to the skies. And history has shown that passengers, wherever they are, have a habit of voting with their wallets. Boodai — having spent US$400 million on eight Airbus aeroplanes — is banking on it.||**||

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