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Wed 17 Nov 2010 12:00 AM

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Potential is limitless for low cost sector

Additional competition is needed from budget carriers in the Middle East

Potential is limitless for low cost sector

Around a month ago, I provided a keynote speech at the seventh annual World Low Cost Airlines Congress in London, where I addressed a number of leading industry delegates as well as the aviation media. What topic did I select for discussion? The enormous potential of low cost aviation in the Middle East.

For a Middle Eastern carrier such as FlyDubai, we have been successful at adapting the traditional low cost model to meet the requirements of a market that differs from other parts of the world. For example, this region is still very dependent on face to face contact. That, plus poor internet penetration and a low percentage of credit card usage in some markets, has meant we have altered the low cost model to a certain extent.

Internet only selling is not an option and we have recruited a network of distributors and travel agents to sell directly to the customer. We also have a number of payment partners, such as currency exchanges, banks and post offices, where customers can pay for their bookings in cash or through ATM machines, to serve the large numbers of passengers who don’t have credit cards.

In addition, FlyDubai offers customers a selection of options, with the freedom to choose which services they want, to personalise their experience and adjust the cost to suit them.

For example, they like being able to save money by not bringing checked baggage. However, baggage has undoubtedly been one of our biggest challenges. Passengers who are used to travelling on larger aircraft, with greater hold capacity to take checked baggage have had to adapt to the concept of travelling lighter.

In just one year, the concept has been so well accepted that 44% of our passengers capitalised on our lowest fares by travelling with just hand luggage. And this still left 56% of our passengers contributing extra revenue to the airline with checked baggage fees.

The success our airline has enjoyed during its first 12 months has been recognised by the financing community too. We have just completed our latest round of financing and have been pleasantly surprised by the interest we received from the market. In fact we received offers for far more aircraft than we currently wish to finance. We received offers for more than 80 aircraft and we decided to take up the offers for nine of them.

As a new airline, to have that level of confidence and support from leading aircraft financing companies is tremendously satisfying. This latest deal secures our financing needs until June 2011 and I believe it is an endorsement not only of FlyDubai, but of Dubai too.

Although developing quickly, low cost aviation in the Middle East still has some way to go to catch up with the market in Europe and the US. Low cost air travel currently accounts for just 7% of the total air travel market in our region, whereas in Europe it is as high as 35% - and some predictions are that it will reach 50% in a few years.

There is no reason why we cannot reach those same figures in the future and that is why I welcome competition; I welcome more players into the market. This is why I believe the sky really is the limit for low cost air travel and low cost airlines in our region.

But this growth will only be achieved by the deregulation of the skies and the easing of visa restrictions. The UAE has an open skies policy, which means any airline in the world is free to come to Dubai. The same flexibility is not afforded to UAE airlines flying into other countries within the regions that we operate.

Governments trying to protect their national carriers were reluctant to open up routes to other airlines they viewed as a threat. I notice that this is now changing and in recent times many countries have relaxed their stance on this issue. In praising those who have moved away from a highly regulated aviation environment, I would like to encourage the others by saying that there is plenty of traffic in this region for all well run airlines to be successful. If their house is in order they have nothing to fear from competition – and at the end of the day the economies of these countries and the consumer benefit by the improved trade, tourism and commerce increasing international flights brings.

Although it’s this regulation of the skies that is the biggest single barrier to the development of air travel in the region, visa requirements also present a barrier to the development of air travel, and especially low cost travel, in the region. The time taken to apply for a visa and the costs involved mean that frequent and impulse trips are greatly reduced. If you have to pay too much for a visa to get into a country, a weekend trip ceases to be a low cost option.

However in recent times there has been a relaxation in the requirements for visas in some countries and they have since benefitted from increased trade, tourism and commerce as a result. With such developments, I believe the aviation industry in this region has a very bright future and I am very excited to be a part of it.

Ghaith Al Ghaith, is the CEO of  FlyDubai.

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