Air Arabia Profile

Overview - Air Arabia

Air Arabia – the Middle East’s first LCC

The Government, in a move that marks it as unique in the UAE, sold down its airline in a Mar-06 IPO, offering 55% of its shares to investors. The proceeds of the over-subscribed USD681 million listing were to be used to fund the carrier’s fleet expansion, with a target size of 34 aircraft by 2012.

The tiny, relatively poor emirate has become an unlikely aviation success. With its cargo sector continuing to flourish and its flag carrier looking to build on its popularity with a sizable increase in scale, there is no reason to believe its successes will not continue.

Until the emergence of Air Arabia, the idea of a budget airline in the Middle East – and especially the petroleum-rich Gulf region – would have been dismissed as unlikely. But the concept has a proven track record, and has inspired several imitators, thanks to the Sharjah carrier’s example.

Key to Air Arabia’s success so far has been its home base, which possesses many of the attributes that have benefited LCCs in the EU and US. Sharjah’s simple airport is inexpensive and not congested.

Its accessibility to Dubai has proven especially important, as Sharjah serves as a de facto dormitory community for its wealthier neighbour’s foreign labour community, and it is easily accessible for Dubai’s vacationing-class locals and expatriate professionals.

These market factors both play a role in Air Arabia’s destination roster, which includes migrant worker pools such as Chennai and Colombo, as well as holiday destinations, including Beirut and Sharm el Sheikh. It also serves local destinations, like Kuwait and Riyadh, for the benefit of local price-sensitive business traffic.

Led by founding CEO, Adel Ali, the carrier has instituted a strict rein on costs throughout operations. Operating out of a Spartan headquarters building on the airport grounds, it offers none of the frills some of the local rivals do. And, according to Mr Ali, the carrier’s loyalty programme “is our low costs”.

Air Arabia has continued to expand its services to the Subcontinent region. The Jan-07 award of rights to serve Karachi and Peshawar in Pakistan (beginning mid-07) will complement its existing services to 9 destinations to in India (including double-daily operations to Mumbai during the country’s limited “open-skies” period), Sri Lanka and Nepal.

This philosophy has been critical in the company’s achieving break-even performance in its first year and profits in years two and three. Air Arabia is in the midst of an expansion that has seen it increase the fleet to eight A320s. With more aircraft on the way – managements promises an order in the second half of 2007 that would see the fleet swell to 34 units – the carrier is talking of a second base. Locations in the Mediterranean and Levant regions are under consideration, while Air Arabia has also reportedly allocated up to USD400 million from its IPO to acquire another airline in the Middle East region, if the opportunity arose.

The carrier is also expanding its focus out of its core market area, and is considering establishing an offshore base in Asia next year. Air Arabia, which claims a unit cost of just USD 3.89 cents per ASK, has already ruled out India as a potential Asian base. Its current fleet of nine A320s have sufficient range to reach Sri Lanka, Bangladesh and possibly Medan in Eastern Indonesia, establishing them as possible sites for the new base of operations. Alternatively, an AirAsia-style JV in Southeast Asia may be an option.

Strict adherence to low cost principles, a ready source of traffic to the subcontinent and increasing scale all hint at continued success for the airline. 

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