Air Arabia has high hopes for new hub

It is the start of a new phase for the discount carrier as a third base of operation gives it the opportunity to build on its strengths and successes.

Air Arabia is set to announce the third hub to join Sharjah and Casablanca.

Air Arabia is set to announce the third hub to join Sharjah and Casablanca. It will probably be somewhere in the Levant or North Africa region, if analysts are to be believed, with Beirut in Lebanon, Egypt and Tunisia each identified as likely locations.

For Air Arabia, a third base signals the beginning of a very important phase of its development. As the growth out of Sharjah is expected to slow, the airline is trying to use its wealth of experience and commercial success, and also funds from its 2007 IPO as a springboard to expand around the region. It is spreading its brand across the Middle East much as some of the great budget carriers worldwide have done.

Air Asia, one of the world's biggest budget airlines, has eight bases in South East Asia, while Ryanair of Ireland has 34 in Europe for its 200 aircraft. As low-cost carriers, these airlines use the point-to-point model - carrying passengers on one leg only. This allows them to maintain just one type of aircraft, as opposed to the big full-service airlines like Lufthansa, British Airways and Emirates, which use a hub-and-spoke model to feed regional traffic into their hub and then carry passengers on higher-margin long-haul flights.

Even though Air Arabia launched its Sharjah base six years ago, the Middle East is still poorly represented by budget airlines, which account for about 7 per cent of regional air travel, according to research by Nomura Securities. This compares with a share of about 25 per cent in Europe, Asia and North America. With hundreds of millions of potential customers in the Middle East, it's surprising there has not been more interest in launching budget airlines here for quick regional flights. Short flights are relatively easy affairs to operate, and passengers are generally unfussy if they only have to sit for a few hours.

That means price is king, especially as the downturn has forced companies and individuals to fly less in business class and more in economy. "The economic slowdown classically favours the low-cost model," said Scott Darling, an analyst at Nomura Securities in Dubai. This would suggest that the first airline to branch out through the region and provide a punctual, low-cost and hassle-free flying experience stands to profit considerably.

To date, that airline would seem to be Air Arabia. It operates 24 Airbus A320 aircraft, with most based in Sharjah and a few of its new deliveries flying out of its second hub in Casablanca, which launched in May. Adel Ali, the group chief executive of Air Arabia, has said he believed each of the three hubs could accommodate 25 aircraft, and he is not stopping there. "If our plans for all the hubs that we have in mind in the next five years come up and are all approved, then Air Arabia will require up to 100 aeroplanes," Mr Ali said recently.

As well, Air Arabia has a young fleet, and this is one of the biggest factors that differentiates it from its competition. Many of the state-owned carriers in the region - with the exception of some of the Gulf's modern and luxurious long-haul airlines - have dismal offerings. In expressing his optimism with the Casablanca hub, Mr Ali said his competition consisted of other low-cost carriers cramming passengers into old aircraft, or conventional airlines that charged too much.

This focus on new markets has meant that Air Arabia has slowed its growth at Sharjah, although Mr Ali has said there was still enough demand to double its focus on some routes. Air Arabia's expansion is by no means guaranteed, however, and its plan to pioneer budget travel in emerging countries could face roadblocks. Last year, it joined Yeti Airlines to launch a budget subsidiary, flyyeti.com, but pulled out after only a few months, citing political instability and operational issues.

With its success, however, Air Arabia will find itself competing more with other lower-cost players. In terms of traffic between India and the UAE, the budget carrier Air India Express is the second-largest airline, by weekly seat capacity, after Emirates. Air Arabia is third, offering 13.1 per cent of total capacity, or 29,500 seats per week, according to Innovata. Jazeera Airways also has grander plans beyond simply operating out of Kuwait City. It plans to open another hub in the Middle East and will announce its selection by the end of the year.

Even flydubai, despite its name, has not explicitly ruled out additional hubs, saying only that it is too early to discuss such matters. The Dubai start-up, which launched in June, will also be a worthy competitor for travel to the Sharjah and Dubai greater metropolitan area, offering more convenience to Dubai residents because it flies out of Dubai International Airport instead of Sharjah, while also offering a comfortable but low-cost service.

Within a matter of a few years, flydubai aims to grow from four aircraft to 50. When that happens, it is very likely it will compete directly with Air Arabia on many of its main routes in the Middle East and the Indian subcontinent. But by that time, assuming all goes to plan, Air Arabia should be reaping the fruits of its current expansion efforts and recording growth at some of the Middle East's up-and-coming airports.