Monday, 12 October 2009

A Look Behind The Air Arabia Success Story

In the two years that followed 9/11, major airlines and airplanes manufactures reported unprecedented losses. At the same time, in the tiny emirate of Sharjah plans for a new airline were being drafted. It was launched in February 2003, in the midst of the worst-ever aviation recession the modern world has known.

Air Arabia’s arrival changed the expectations of travel in the minds of many people. For a region that houses no less than 10 million expatriates, boarding a plane meant digging deep into pockets and sacrificing other items that one may want to acquire. As a result many expat residents opted to travel to visit their relatives back home only once every two years.

Since the launch of Air Arabia the single digit growth level of passenger traffic in Sharjah airport witnessed a major boost to around 35 percent in both 2006 and 2007. In fact in a few short years passenger traffic had almost doubled to 5.5 million per annum from about three million previously. This has prompted Sharjah International Airport to start building an additional terminal at a cost of $354 million.

But what are the reasons behind the success of Air Arabia over the past few years?

Many entrepreneurs believe that being a 'first-mover' offers significant advantages. Examples of such companies around the world include Nokia and Palm. However, because this business model was tried and tested in Europe and Asia before, markets where the industry is fragmented as opposed to America’s consolidated airlines industry, Air Arabia also benefited from what some in the industry term as second-mover advantages. This includes learning from the experiences of other airlines such as Malaysia’s Air Asia, Ireland’s Ryan Air and Britain’s Easy Jet with regards to establishing remote aviation hubs and offering various services to passengers on a payment basis.

Additionally, Air Arabia established a second hub in 2007 in the Moroccan capital, Rabat, providing the Sharjah-based airline with a platform from which to serve Europe, the Middle East and African markets. Last month Air Arabia established a second hub via a $50 million joint venture in Egypt in association with Travco to serve the ever-growing tourism sector in the North African state.

Another aspect of Air Arabia’s success is that it identified a growing sector within a stagnant industry worldwide. In fact, as Air Arabia was launching there was a ten percent growth rate in Middle East air travel whereas the global airline industry had shrank.

There is no doubt that Sharjah airport’s proximity to Dubai also played a major role in Air Arabia’s growth in addition to its proximity to the northern emirates where the standard of living and GDP income per capita is below Abu Dhabi and Dubai. A no-frills airline seems to have been just the ticket.

Another strategy employed by Air Arabia is concentrating on destinations that were underserved, such as Alexandria in Egypt, which serves as an alternative to Cairo’s overcrowded airport and lies three hour’s drive away from the Egyptian capital.

From the outset Air Arabia’s target market was far wider than other airlines. Its chief executive officer Adel Ali told Reuters in 2003 that the airline hoped to convince bus travelers to pay a little more to go by air. In the UAE, expatriates make up more than 80 percent of the population and in 2003, the year Air Arabia was launched over 150,000 people traveled by bus from the UAE to various Arab states in including Oman, Syria, Jordan, Lebanon, Egypt and Yemen.

The arrival of Air Arabia succeeded in serving this niche market. More established regional airlines were sceptical about Air Arabia’s viability, with senior officials stating that they have no plans to launch no-frills airlines, only to do so in the wake of its success, which ultimately, are the most shining tribute to Air Arabia’s achievements. After all, imitation is the highest form of flattery.

*This article first appeared in Gulf Business Vol 14 Issue 6 October 2009

2 comments:

A Blessing in Tragedy said...

Very thorough article. I must say I am beyond glad to read such things written by one of our own.

Sultan Sooud Al-Qassemi said...

Thank you