As a part of its “23 new destinations in 22 months,” Kuwait-based discount carrier, Jazeera Airways will start with four flights weekly between Beirut and its second hub in Dubai beginning on October 27 and increasing the flights by January 2009 to seven. The airline already flies between Beirut and Kuwait.
As with the new Beirut service, the carrier will offer six other new destinations out of Dubai that includes Kuwait, Bahrain, Muscat, Salalah, Riyadh, and Jeddah. Jazeera also flies to other cities outside the region including Delhi, Mumbai, and Kochi and is adding a vacation destination to the Maldives.
“We broke one barrier after another,” said Marwan Boodai, chairman and chief executive officer of Jazeera Airways. He explained that at first, Jazeera faced difficulties in gaining trust and support in the investment community as well as securing access to some airports.
After this initial success, Jazeera now has ambitious expansion plans — doubling their routes by 2010 — and placed a $2.4 billion order in July for 40 new Airbus A320s, complete with leather seats.
For added services to customers, Jazeera also entered into two new service partnerships. The first is with American International Group (AIG) that will give passengers a travel insurance option to cover lost baggage, missed flights and other mishaps. “This is an added service to give comfort, ease, and peace of mind to travelers that when they leave home an international organization is giving them support for all of their insurance needs and services,” said Boodai.
The second new service is partnered with Dnata, a flight services company created by the Dubai government to assist the travel industry, which will link the airline’s booking system directly to Dnata. This new alliance gives customers a third booking outlet and the ability to walk into any Dnata office in the region to reserve a flight. Other ticketing options include their own online booking system which accounts for 62% of all transactions and their call center.
Trimming down overhead
Fewer booking outlets is part of how low-cost carriers save money. By relying on direct booking through their own online systems and cutting out third parties such as the global distribution system (GDS) and other leased databases used by travel agents, low-cost carriers (LCCs) are able to circumvent high costs in selling tickets. E-tickets and online services also help to cut costs and commissions ordinarily passed on to consumers. “It saves the customer around $11 by not having a paper ticket,” according to Joe Chamoun, general manager for Air Arabia in Beirut.
Other ways LCCs trim costs are by cutting overhead such as complementary food and beverage services offered in-flight. Rather than providing meals, LCCs make available sandwiches and beverages as well as entertainment for a low fee.
Another way they cut costs is by standardizing their fleets using the same model aircraft. Both Jazeera and Air Arabia fly Airbus 320s which is the most economical on the market. This streamlines the needs of aircrafts by concentrating their efforts on maintaining only one model.
Turnaround time is also a huge cost-saver. As full-service airlines park their planes for extended periods and pay for overnight accommodations for their flight crews, LCCs have a turnaround time of 45 minutes. They fly to their destination, unload, clean, and take off again with passengers all in less than an hour.
However, to distinguish itself from competitors, Jazeera offers more than just a cheap ticket. “We use a different model, we have brand-new aircraft with fitted leather seats, through the services like Jazeera Plus and technology we offer our passengers we are different,” according to Boodai. Jazeera Plus is designed for the business class and offers extra services such as complementary food, drinks, entertainment and lounge access.
Boodai is excited at what his company can offer: “We were on time 93% of the time. I missed my flight on Jazeera because I wasn’t at the airport on time — they didn’t even wait for me,” he cooed.
The major hurdle for Jazeera has been convincing the market that low cost does not equal low quality. For Chamoun, the entry of Jazeera on the market was more of a support for Air Arabia. “In the beginning, we had a tough time getting people to understand the concept of low-cost airlines. But when Jazeera came on as well, we were no longer alone.”
Sharjah-based Air Arabia began its operations in 2003 with five flights. They started with one leased aircraft and now have 10 fully-owned planes. They too will be unveiling new destinations very soon
The entry of low-cost carriers on the regional market has forced prices of other airlines to be more competitive. According to Chamoun, “three years back, a ticket from Beirut to Dubai would have cost a minimum of $600 for major airlines, today the ticket price has gone down to $400 even though the price of fuel has increased. This is due to the conditions caused by low-cost airlines.” Furthermore, the arrival of LCCs in the region grew the market by tapping into a segment that was not serviced before — those unable to afford full service carriers.
Low cost does not mean low profit and growth for the LCCs is expected to be much higher than their higher cost competitors. Air Arabia’s net profits for the first six months of this year increased 342% compared to the same period in 2006. The carrier managed to break even the first year and recorded $9 million in profit the second year and $30 million for their third year of operations.
Jazeera had the most successful IPO in Kuwait history bringing in $34 million and set to sell more shares again in November — doubling the number of shares. They have offered to sell one new share for every share held by their existing 36,500 shareholders and plan to raise another $450 million through banks.
Growth higher than global average
Growth for air traffic in the region has grown three times the global average. Passenger demand has grown this year by 20%. The Center for Asia Pacific Aviation (CAPA) recorded the growth rate in terms of revenue passenger kilometers during the first seven months of 2007 to 16.8%.
This region, especially Dubai and other Gulf airports are competing for international hub status. Dubai is marketing itself into an international hub as a natural stopping point between Europe and East Asia.
Regional governments are investing massively in new systems and infrastructure to handle the growth. For the industry at large, Booz, Allen Hamilton in a recent report cited liberalization, deregulation and regional cooperation as the biggest obstacles facing the Middle East. Access restrictions are still limiting some airports in the region from expanding service.
There are currently over 65 airlines operating out of Rafic Hariri International Airport with Air Arabia and Jazeera among the top ten. The most popular destinations from Beirut is the UAE (19.11%), France (11.54%), Saudi Arabia (8.93%), Kuwait (7.3%) and Egypt (5.1%).