Why Osh, Juba and Dushanbe make sense for flydubai

The low-cost-carrier flydubai is deploying a business model that has flourished beneath the radar of the bigger carriers in an effective expansion strategy.

You can work out flydubai's growth strategy just by looking at a map. It's as if someone stuck a set of compasses in Dubai, drew a circle five hours' flying time around it, and said: "Check all the airports inside - if no one flies there, that's our next route."

Suggest that idea to the chief executive of the Arabian Gulf's leading low-cost carrier, the veteran airline executive Ghaith Al Ghaith, and he does not disagree.

"The idea is to connect Dubai to places that are not served by the major airlines," he said on a day trip to launch one of his latest destinations - Juba in South Sudan. But Mr Al Ghaith isn't just looking at destinations in Africa; his ambition is 360 degrees.

"We have the biggest hub in the world, and our focus is on breaking new frontiers ... new frontiers in tourism, in business, in destinations," he added. "The mountains in Tajikistan for skiing. Baku for the Caspian Sea and business. All only five, five-and-a-half-hours away. There is a critical mass out there and if you tap it, then the potential is phenomenal."

A list of flydubai's next planned routes gives a taste: Osh in Kyrgyzstan, Salalah in Oman, and Mattala Rajapaksa in south-eastern Sri Lanka this month; and in September, Volgograd, Rostov on Don and Krasnodar in Russia, and Kiev and Dnepropetrovsk in Ukraine.

"All these are new frontiers. We fly to 56 destinations now, and have added 14 new routes this year, since January," Mr Al Ghaith said. "Some routes are instant successes, but some take time to build, and we'll grow them in the next couple of years.

"Every route for us is a successful route because we choose it for its potential for growth. Places that people have not heard about but when they do, they want to go."

Since Mr Al Ghaith was interviewed on the airline's maiden flight to Juba on March 21, flydubai has added yet another destination - its 57th, Dushanbe, the capital of Tajikistan.

The people of Juba were certainly pleased to see Mr Al Ghaith and the promise of a four times a week connection to Dubai.

The South Sudan vice president, Riek Macha Teny, was on hand to welcome the flight, noting that it was his country's first direct connection to a destination out of Africa, and underlining some simple facts: the flight would be vital for the future of his country's economy, from its oil industry to tourism, and the education and even health care of its citizens.

Flights to Juba will operate on Mondays, Tuesdays, Fridays and Saturdays. Return fares to Dubai from Juba start at US$650, compared with more than $2,000 on airlines that fly via nearby Addis Ababa or Nairobi. The benefits, Mr Macha Teny said, were obvious.

It was an assessment already made by Mr Al Ghaith's team.

"There is a very good case for a new flight to Juba. It is a new country and has lots of aspirations to build," he said. "For us, we have to make money. For South Sudan to connect with the UAE, it will make it easy for business, with all the advantages our Dubai offers as the hub. Lots of people will come through Juba to fly with us to Dubai."

That his business is making money was clear from the airline's 2012 results.

In February, flydubai reported it had turned a net profit of Dh152 million for the year on revenues of Dh2.79 billion. Its operating profit margin reached 24 per cent as passenger traffic exceeded five million for the year. Flydubai says it has been consistently in the black since the second half of 2011, just over two years since its launch.

The airline's effect on the aviation market in the region and beyond is also impressive, according to figures compiled by the Sydney-based airline analysts, Capa, the Centre for Aviation.

Flydubai's traffic within the GCC grew by 63 per cent last year and the airline now has a 26 per cent share of capacity from the UAE to Kuwait, 23 per cent to Qatar, 22 per cent to Saudi Arabia, 19 per cent to Oman and 16 per cent to Bahrain. It is the largest low-cost carrier in each of these markets.

All this in only five years.

The airline came into being in 2008, spun out of Emirates Airline. It made its presence felt that same year, with a 50-aircraft order for 737-800s at the Farnborough Air Show (all the aircraft are to be delivered by 2016).

"All we had at the time was a business plan and a brand," Mr Al Ghaith recalled.

Flydubai was conceived as a means to lure passengers not being swept up by Emirates full international service. However the low-cost carrier - which began service in June 2009 with a flight to Beirut - is anything but Emirates-lite.

In its early days, it relied on Emirates for most of its back-office functions. Today, however, flydubai has developed its own low-cost infrastructure and a clear identity in the market.

Mr Al Ghaith, a former Emirates executive who has run flydubai since the beginning, says there is no consultation with his former employer over route planning. The service is traditional no-frills - food, drink and even over-the-counter medicines are available to buy on board and every aircraft is equipped with a fibre-optics-based in-flight entertainment (IFE) system from US-based Lumexis, offering hundreds of movies, games, TV programmes and news on a pay as you go basis.

"This is one of the most innovative IFE systems ever and is a huge differentiator for us," Mr Al Ghaith says.

Outlook good for 'hybrid model'

Capa, one of the most influential of the global airline watchers has made the following assessment of Mr Al Ghaith’s enterprise.

“Flydubai has grown rapidly since being launched in 2009 by the Dubai Government, which also owns Emirates. Over the years it has adopted a hybrid model which allows it to fill, in some respects, a role as a regional carrier for its bigger full-service sister carrier,” it said.

The hybrid approach has resulted in rapid and profitable expansion as flydubai has entered short and medium-haul markets that are too small for Emirates’ all-widebody fleet but in many cases have sufficient yields to support a full-service carrier. At the same time it has been able to stimulate demand by offering low fares and is able to successfully operate alongside Emirates on some of the biggest routes within the Middle East.

"The opportunities for further capacity expansion are tremendous, as about half of flydubai’s routes are served with less than daily frequency. The demand will be there to support more frequencies, as in many cases these are fast-growing emerging markets that are underserved and would benefit from increased connectivity with Dubai, and therefore the Emirates network.

“Flydubai should be able to continue to pursue rapid and profitable expansion, maintaining its position as the Middle East’s largest low-cost carrier and potentially becoming one of the largest globally."

The airline is planning to order a further 37 new aircraft this year – either the Boeing 737 Max or the Airbus A 320neo.

GCC dominates capacity

Flydubai now has more destinations outside the Middle East, although most of its capacity is still within the region.

The airline currently allocates 70 per cent of its seat capacity to its 21 routes within the Middle East, including 55 per cent to GCC countries.

The remaining capacity is allocated to South Asia with nine routes and 13 per cent of seats, and Eastern Europe with 14 routes, mainly to Russia and other CIS countries, with 10 per cent of its seats.

Africa accounts for the remaining 5 per cent of seats on five routes, and Central Asia has two routes and 2 per cent of capacity.