Air Arabia Primed for Alex Landing

Carrier is poised to open Egypt’s first budget hub, a move that could change the air travel landscape

The biggest budget carrier in the Middle East, Air Arabia, may open a new hub in Alexandria as early as next month, a move experts say could eventually drive down prices across the country, and revitalize the airline business in Egypt’s second largest city.

The Sharjah-based carrier will team with local tourism group Travco, and though the companies have not released a list of destinations or number of flights, their investment has been pegged at LE 150 million.

While analysts could not say whether the new hub will challenge Egyptair’s regional dominance, they believe Egyptians who normally fly out of Cairo would be willing to head north in search of cheaper flights. Should the venture prove as successful as Air Arabia’s Morocco and Sharjah bases, the airline plans to open further hubs in other Egyptian cities.

By reducing the cost of air travel, and forcing traditional airlines to become more competitive, budget carriers have the potential to transform the Egyptian airline industry as the advent of counterparts like Ryanair and easyJet have in other regions.

“Egypt enjoys a strategic location for airline business, especially for Air Arabia with its existing hubs in the UAE and Morocco,” said Adel Ali, Air Arabia Group CEO, in an email interview. “Egypt has a number of international airports and we aim to operate from as many as we can. We will initially start with Alexandria, being Egypt’s second largest city, and expand into more airports based on business sense and operational feasibility.”

The venture, 60% owned by Travco, will give people flying from Al-Nohza International Airport in Alexandria more choice in destinations and flight times, according to Travco chairman Hamed El-Chiaty.

It also means fewer Alexandrians will have to make their way 300 km south to the capital to catch a flight. The move will put Alexandria on the map as a travel destination for European and Arab travelers who now fly into Sharm El-Sheikh and Hurghada to benefit from budget air fares.

The airline is set to announce the expanded number of routes and flights soon. Its goal is to follow in the footsteps of its Moroccan hub launched last May. By offering flights to 11 destinations in Europe and North Africa, that hub helped the airline attract 11 million passengers in 2009.

Neither Travco nor Air Arabia would comment on whether there had been talks with the Ministry of Civil Aviation about flying out of Cairo, state-run Egyptair’s hub, but they added that the airline may fly out of the capital in the future.

Air Arabia, also the Middle East’s first budget airline, began operations in October 2003. In just six years, the airline has become a force, flying to more than 60 destinations out of the Sharjah and Casablanca. The company plans to begin with two Airbus A320 aircraft in Alexandria and to increase the fleet as needed.

While Air Arabia has managed to post positive annual growth, few national carriers could boast the same in light of the global economic downturn during what industry insiders are calling the worst year for air travel in the sector’s history. Egypt, though, was one of the few exceptions. The number of scheduled passenger departures for 2009 was 9.6 million, up 4% from 2008. The country has seen substantial growth in terms of air traffic recently, says the International Air Transport Association’s chief economist, Brian Pearce, despite the economic crisis.

“Growth has been relatively robust. The Egyptian economy slowed down to a 4.7% (growth rate) last year, which is lower than we’ve seen before, but there is growth during a global recession.

“I think we’ve also seen growth in capacity in air transport infrastructure and services,” he says, alluding to Egyptair’s membership in the Star Alliance network of air carriers in 2008 and recent investment in airport renovations throughout the country.

Pearce predicts the airline industry will continue to grow as new carriers, such as Air Arabia, open the market to passengers unable to afford regular fares. They will also push other airlines to offer better, more cost-effective services, similar to Europe in the 1990s when budget airlines first came on the scene.

Though they usually offer fewer routes, flights, airport choices and creature comforts, no-frills carriers have flourished around the world by providing flights that can be up to 50% cheaper than national carriers. A return flight to Sharjah from Alexandria on Air Arabia costs LE 1,472, while Egyptair’s economy class flight on a recent day from Cairo was LE 2,160.

“In many ways [Egypt] is still a country where people don’t fly anywhere near as much [as in] Europe. There’s a lot of opportunity for people who haven’t flown to fly more. Lower fares give them access,” says Pearce.

“Obviously, when you get a new entrant there’s also the element of taking market share from the incumbents and there will be some of that, but because Egypt has a fast growing economy I think there’s a scope to stimulate the market overall. It certainly means there’s more pressure for innovation and cost cutting.”

Pearce foresees more new entrants here as airlines find new ways of exploiting the region’s vast population and tourism potential.

Dr. Adla Ragab, an economics professor at Cairo University and expert on air travel in the region, says Air Arabia’s hub will likely increase the number of Egyptian air passengers and could increase travel in the region. Last year, 18% of people who flew to Egypt were from the Arab world. But she points out that airline’s claim that it will boost tourism depends on which European and Middle Eastern cities Air Arabia will connect to.

“The number of passengers will increase and it will be very good for the airport, but the growth will not be as much as we are expecting [for other airlines],” she says.

Cairo International Airport’s chief commercial officer Jean-Pierre Tabet does not think traffic at his airport will be affected greatly because its passenger base, business travelers, is not a low-cost carrier’s target clientele. There is also the question of whether savings will be substantial enough to entice passengers living in Greater Cairo to add an extra three-hour train trip to their journey.

“There may be some minor shift in passenger traffic that lower prices attract, but we are generally geared toward business travelers,” he says, most of whom are looking for convenience and greater choice in flights, classes and destinations rather than the cheapest fares.

He says he does not know if Air Arabia or Travco approached the Ministry of Civil Aviation to put the hub at Cairo Airport, adding that capacity at the airport is tight due to the closure of Terminal 2 for upcoming refurbishment. Already airlines are moving out into temporary stations in Terminal 1. In addition, the Ministry of Civil Aviation has set up agreements with national airlines that might make it difficult for certain regional carriers to set up shop in the capital.

Air Arabia is counting on a growing population of travelers reliant on cheap fares to make their new hub profitable, as well as the ever growing numbers of air travelers in the region.

“I think growth in the Middle East and North Africa is likely as liberalization continues and economic growth continues to boost salaries. I think you will see new [airlines and joint ventures] coming in and providing more services. What we’ve seen is if the market is stimulated there tends to be more business for carriers of all different business models,” says Pearce. bt

Source: Business Today