LCCs: From Modest Beginnings To Success (Part 2)

When LCCs first emerged in the MENA region, there was scepticism over whether they would survive.

Many industry observers believed that potential passengers would equate low cost with poor quality and hesitate to use them.

However, their financial results and operating performance during the last decade reflects that their sustainable business model is resilient.

Marking the first LCC in the region, Air Arabia was founded in 2003 by Sharjah Government in an attempt to further promote travel and tourism sectors in the emirate.

At the beginning of its operations, the main challenge was to change the perceived image of luxurious air travel in the region.

Dominating the sector even during the challenging times of the global air travel, Air Arabia achieved a continued annual growth and became profitable.

Moreover, it has successfully positioned its brand in the region and has been named as the Best Low-Cost Airline in the Middle East for the second consecutive year during the 2015 Skytrax World Airline Awards at the Paris Air Show. Following a multi-hub strategy by launching subsidiaries in different markets through making local joint ventures, the carrier serves some of the key destinations within the Middle East.

Exceeding analysts’ expectations, the Sharjah-based carrier reported strong financial results for the first quarter of this year, with a net profit of AED103 million (USD28.04 million).

In addition, more than 2.1 million passengers chose to fly with the airline between January and March while its average seat load factor stood at an impressive 81 percent.

In a similar manner, flydubai experienced unrivalled growth by following an aggressive expansion strategy since its establishment in 2009.

Capitalising on the unique opportunities offered by Dubai’s proximity to the world’s centres, the carrier facilitated trade and tourism with the opening of new and previously underserved routes, succeeding a total revenue of AED2.5 billion (USD689 million) during the first half (H1) of this year, an increase of 9.9 percent compared to the corresponding period in 2016.

In addition, passenger numbers reached 5.4 million, an increase of 10.5 percent over the first six months in 2016.

Most importantly, Dubai’s LCC contributed 19.4 percent to the total growth at Dubai Airports compared to H1 in 2016.

Focussing on its strategy to be a leader in innovation, flydubai is said to be the first airline in the region to operate Boeing's newest single-aisle airplane, Boeing 737 MAX 8.

FACING THE CHALLENGES

Despite the numerous positive outcomes and sustainable developments emerging from the rise of LCCs, Low-Cost airlines in the region are still facing several critical challenges with the region’s political and economic status representing the main obstacle.

Another major challenge is the lack of infrastructure as the majority of secondary airports, where LCCs often operate their services, are away from capitals, something which threatens their competitive advantage against FSAs.

In addition, LCCs face crucial governmental restrictions including higher airport taxes and restricted licenses especially in Egypt, Saudi Arabia and Kuwait.

Although ancillary revenues contribute mostly to LCC’s, there is an urgent need to promote them effectively in order to ensure revenue maximisation and to influence the consumer’s purchase decision.

Thus, LCC’s should focus on identifying new sources of ancillary revenue including airport transfer facilities.

According to IATA, by 2020, Middle Eastern Airports will handle some 400 million passengers per annum, with low-cost carriers playing an ever-increasing role in the evolution of the sector.

Achieving these numbers and making air travel accessible to all is therefore crucial, and airlines, airports, regulators, governments and relevant stakeholders all have a duty to work together to make this a reality