The decline and fall of RAK Airways

Four big competitors, a tiny fleet and the destabilising influence of a Saudi investor have once again put paid to plans for the UAE’s fifth airline to get off the ground
The decline and fall of RAK Airways
By Courtney Trenwith
Fri 24 Jan 2014 03:27 AM

It all seemed to be going so well. Only six months ago, the then-CEO of RAK Airways enthusiastically announced plans to increase the airline’s fleet by five times and quadruple the number of destinations by 2015. Two new routes were launched in August and a mammoth sale was announced in October, on the back of claims the airline’s passenger numbers had grown by 40 percent in the first half of 2013.

But just two months later, the dream began to unravel when engineer Murabit Al Sawaf, who had stepped in to revive the carrier at the beginning of the year, left and on 1 January 2014, all flights were suspended, effective immediately. It was the second time the airline had been grounded after a nearly two-year hiatus during the economic downturn, but unlike its former CEO’s previous enthusiasm for the airline’s future, few are confident it can make a second comeback.

“To try to do it again would be very, very difficult,” veteran aviation consultant John Strickland tells Arabian Business. “It takes a long time to build up credibility for an airline; the travelling public can be quite fickle. If you then break that [credibility], you’ve got to work harder. [Suspending flights] can build up a perception of not being reliable.”

So what went so drastically wrong in the second half of 2013 to cause the UAE’s fifth airline to collapse, particularly at a time when the others are seemingly going from strength to strength and signing record-breaking aircraft deals? The carrier’s management is saying little, other than to point towards global factors, blaming increased costs and regional instability.

“The decision for suspending operations was taken following increased pressures on the carrier’s performance due to continuous market conditions, increased operating costs and the impact of the regional political instability on the overall aviation industry,” RAK Airways said in a statement on 1 January.

It declined to elaborate when contacted by Arabian Business.

Launched in early 2007 by the emirate’s ruling family, the flag carrier was intended to help make Ras Al Khaimah the UAE’s fourth aviation hub after Dubai, Abu Dhabi and Sharjah, particularly servicing the UAE’s northern emirates, while being less than an hour from Dubai.

It positioned itself as a hybrid carrier — in between full-service airlines Emirates and Etihad and the low-cost carriers flydubai and Air Arabia. Passengers were given free food and beverages and a generous 30kg baggage allowance, while staff followed the full-service ethos in practice. The price point was originally towards the cheaper end while the airline established itself in the market, gradually rising to reflect its above-average service.

“The business model was based upon finding a niche in the marketplace — a combination of product and price, so we weren’t always looking for the lowest price and we weren’t aspiring to be Emirates in terms of quality,” John Brayford, who was chief executive between April 2012 and January 2013, explains.

Brayford says when he left a year ago, the airline was in a healthy state.

“Over the two years [after re-launching] we proved that business was viable and the business was making money to cover the costs of aircraft,” he says. “The problem was it had to grow in order to cover its overheads [such as] backroom staff, finance staff, marketing, head office and all the other executives — costs not connected directly with [flying].

“So the model needed about three more aircraft in order to effectively make that combination that would cover those overhead costs. That was the business model that I worked with.”

Despite plans to take on a third aircraft, the airline never expanded its fleet of two A320s, which after launching a new “premier” class, were configured with eight premier seats and 160 in economy.

The airline did expand its network after re-launching in 2010. It built up to 11 destinations by the time it was again grounded — including Amman and Riyadh in August — focusing on point-to-point, short-haul routes.

It also attempted to offer the first domestic flights, between RAK and Abu Dhabi, as part of a codeshare agreement with the UAE flag carrier Etihad. The 45-minute flight was supposed to offer businessmen a more reliable alternative to road travel, while also offering international connections, initially to five cities including London, Manchester, Dublin, Geneva and Bangkok.

That arrangement lasted barely a few months, and its axing was a mistake, according to Brayford, who says he was forced to resign when Al Sawaf put up a significant investment contribution in exchange for the top executive role.

Brayford, who now works for Biman Bangladesh Airlines, says RAK Airways lacked the frequencies and required additional aircraft to become more competitive. That also would have allowed it to pay more attention to the lucrative Indian and Saudi markets.

He says Al Sawaf, a Saudi businessman, offered the investment the airline needed to fund its growth, removing some of the burden from the RAK royal family. But costs continued to mount.

“I’m not sure what went wrong,” Brayford says. “It continued to lose money... and I think by the end of the year they’d had enough time to decide if they wanted to continue with the airline or not.”

Al Sawaf could not be reached by this magazine for comment.

RAK’s tourism has been developing quite rapidly, with visitor numbers doubling to about 1.2 million last year and international hotel brands from Hilton and Waldorf Astoria to Rotana, Rixos and Crowne Plaza have been climbing over each other for their spot along the coastline.

RAK Airways promoted itself as an alternative to enter the UAE, particularly for passengers whose ultimate destination was within the northern emirates — where a total of 800,000 people live — or Dubai, the tourism hub of the Gulf. Its smaller airport was more efficient and a free shuttle service could get passengers as far as Dubai in less than an hour.

But majority of the emirate’s visitors preferred to arrive via alternative airports, most commonly Dubai International, which offered far greater airline and destination choice and frequency.

Barely 300,000 people travelled on RAK Airways last year, compared to 60 million travelling through Dubai International, with most of those on transfer flights. The airline declined to provide updated passenger load information.

“The airline was the top favourite of the blue-collared passenger because they got great fares travelling in a full service airline,” a spokeswoman said in a statement to Arabian Business.

“RAK Airways passenger strength to different sectors varied. Calicut and Cairo were the most commendable sector from Ras Al Khaimah and across network. For the other sectors we depended on passengers from across our network.

“Riyadh and Amman were just launched in August 2013. We need to give routes six or eight months, after launch to review passenger growth.

“In the UAE, our major passenger strength was from Dubai, Sharjah, Al Ain, Jebel Ali, Khorfakkan, and passengers loved it because we had shuttle service from these places to RAK International Airport.”

The fact the RAK tourism industry seems unperturbed by the loss of the emirate’s only commercial passenger carrier, says a lot about the significance of the airline in the first place.

RAK Tourism Development Authority CEO Steve Rice says the loss of direct flights would have little impact on the emirate’s improving tourism industry, which grew by 150 percent more than the global average growth rate in 2013.

“Whilst the suspension of RAK Airways is not ideal we do not think it will impact significantly on the strong growth we have seen,” Rice says.

“RAK Airways did not service Ras Al Khaimah’s key feeder markets and the majority of inbound tourism to Ras Al Khaimah comes through Dubai International Airport and Sharjah International Airport, both approximately 45 minutes drive from Ras Al Khaimah.”

The RAK boss of Hilton Worldwide, which is the emirate’s pioneer hotelier and manager of seven accommodation offerings, also is hardly concerned. Mohab Ghali says few guests at his hotels, which dominate the emirate’s accommodation sector, used the airline.

“Though the majority of our guests travel via Dubai International Airport, we are hopeful that local airports and airlines will continue to do what is best for their business and RAK and continue to attract regional and global travellers,” he says.

RAK Airport also seems to remain viable without the commercial carrier, thanks to strong cargo and private jet business.

CAPA Centre for Aviation Middle East and Africa senior analyst Simon Elsegood says the airline had always faced an uphill battle.

“The carrier was a small point-to-point player with a limited network and catchment area going up against some very serious and well-established competition,” he explains to Arabian Business. “Most of the routes it operated to in the Middle East and South Asia were already heavily congested, both by full-service and low-cost airlines.

“Ras Al Khaimah is a small — if rapidly growing — tourism and travel market. RAK Airways benefitted somewhat from this, but the carrier handled the same amount of passengers in a year that Emirates would handle in a few days, so variations in fuel price and a few poorly performing routes could have quickly made RAK Airways’ position untenable.

“Emirates, Etihad, flydubai [and Air Arabia] are able to compete successfully because they’ve already established themselves in rapidly growing markets, invented new business models and have been very effective controlling costs and growing new markets. They’ve also carved out differing strategies, which means that they don’t have to compete too intensely with each other.”

It is difficult to properly assess RAK Airways’ business model without load factor and passenger data, but Elsegood says he doubts reforming the airline into either a complete full-service or a complete low-cost operation would have saved it, despite budget airline seat capacity in the Middle East growing at the second-fastest rate in the world.

“With a fleet of just two A320s, the airline couldn’t offer the product of the full-service airlines in the region, or hope to compete with the unit cost advantages of widebody operators like Emirates or aggressive low-cost operations like Air Arabia/flydubai,” Elsegood says. “It was stuck in the middle ground.”

Brayford says RAK Airways had little choice but to position itself between the low-cost and full-service carriers.

“The business was never going to be large enough with significant reserves to be able to sustain an onslaught [of competitive pricing] from flydubai or Air Arabia, if they chose to,” Brayford says. “And also the bigger carriers that might just want to see a competitor out of the market.”

So the seeming failure of RAK Airways begs the question — can the UAE sustain a fifth airline? Was it the location and/or business model of RAK Airways that failed, or is the market simply too small to handle more than two full-service and two low-cost airlines?

“Any attempt to have a fifth carrier would need to have a very clear business plan, it needs to have a clear idea of what its niche would be, what its proposition is, how it would differentiate itself successfully and properly against the varied and powerful competition that exists,” Strickland says.

“At the very least, it’s a significant challenge for an airline to step up and do so successfully on a truly standalone commercial basis.”

Perhaps therein lies part of the RAK Airways problem. While he may have had a clear strategy for growing the airline’s fleet, Al Sawaf revealed none of it when he announced his grand plan to expand the airline. His departure soon after also raises questions about how promising the airline’s future was already looking.

What does seem obvious, though, is that RAK Airways’ ability to come back from its second grounding is highly unlikely and the chances of another airline emerging in the northern emirates seem a long way off.

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