Air Arabia’s success in democratizing Middle East and North Africa (MENA) travel has led it to look for new hubs to add to four existing bases at Sharjah and Ras Al Khaimah in the UAE, Alexandria Borg El Arab, Egypt, and Casablanca, Morocco. It added an Abu Dhabi hub to its list last week, when the airline announced the imminent launch of Air Arabia Abu Dhabi, in partnership with Etihad Airways.
“The formula is pretty simple. With the infrastructure that we have put in place, we're ready to put [in] a hub anywhere we think it's workable and commercially viable,” Group CEO, Adel Al Ali, told AIN.
In an interview this month, Al Ali refused to say where Air Arabia would establish its next hub. “That's a multimillion-dollar question,” he said. “The potential is huge. The Middle East is going through an abnormal time and has been doing so since 2011, on the political side. If you just think of the big countries in the Arab world, where there is a large, growing population, aviation is still very small in those countries.”
Asked whether candidates might include Iraq, Syria, or Algeria, Al Ali expressed optimism for expansion there and beyond. “There's great potential in all those countries,” he said. “I'm sure there are many others. Change in Sudan? It's happening. It could be a potential [hub]. A country like Algeria has fantastic potential. Our business model is about stimulating and creating new business. Regardless of which country we are talking about in this region, when you look at the demography, it is all young. The new generation wants to travel. If they were able to afford it, they would.”
Al Ali founded Air Arabia in 2003 to transport people from Arab hubs “east, west, south, and north,” but said progress on hub development had proved slow. “We think it's very slow, mainly because of the restrictive aero political policies that exist in this [region], in Africa, and [several] other countries,” he explained.
Sharjah serves as the airline’s main hub. It flies mainly point-to-point from five airports in Morocco on 70 routes, mostly to Central and Eastern Europe. It offers Sharjah-Casablanca flights via Istanbul or Vienna, and a third option, Tunis, will soon follow. “If people see the connection is good, particularly those who want to make a quick stopover in the Middle East, or Istanbul, then we serve them. The general principle is that we prefer point-to-point business. Overall, the group serves about 170 destinations.”
Al Ali said Egypt, a hub since 2009, is improving. “We only saw stability in the last quarter of 2016, when the currency took a big drop. We hope now to inject more airplanes. Egypt’s economy seems to be on the right track. Tourists [are] coming back; people feel better.”
Morocco’s Open Skies treaty with the EU enticed Air Arabia in 2009. It proved a boon for job creation, as 99 percent of the venture’s 600 employees are Moroccan. “We also serve…the ‘points-to-points’ that were not served before,” he noted. “This brings in more tourists into Morocco, [which] relies heavily on tourism...”
Air Arabia’s profits rose 47 percent in the first half of 2019. “Not all decisions made by airlines, particularly in the competitive arena, work out,” he said. “It's not always business as usual. Price dumping is the first thing that comes to mind. We think we have managed over recent years to bring a lot of efficiency into the business... We have a much better grip on the yield management process, in terms of selling lower prices in troughs and higher prices at peaks; that has added to our profits.
Meanwhile, he explained, efficiency in aircraft utilization has brought “excellent benefits,” as had fuel hedging. Load factors in the first half of this year averaged 84 percent. The airline’s fleet averages just four years of age.
Air Arabia operates Airbus A320s and A321s. The fleet consists of 56 aircraft: nine in Morocco, three in Egypt, and 44 in the UAE. Al Ali planned to have 60 by the year’s end. He confirmed the airline would place an order, mooted last year, for over 100 aircraft before the end of this or early next year.
“We need 100-plus airplanes,… for replacement, and because we need to grow in other hubs,” he said. “We are, however, talking to Boeing about the Max. Airline size now is good to this stage, particularly with the hubbing system. You can even change the whole fleet if need be, as EasyJet did, [switching] from Boeing to Airbus. Both manufacturers are good, but you only have two to choose from. We will order from one or other OEM; we won't have a mix… It's cost per seat per kilometer that dictates…at the moment.”
For what Al Ali called another part of Air Arabia’s business—in which it might fly thinner routes with smaller airplanes–he said he has spoken with Embraer and expressed interest in the Airbus A220. “If we wanted that aircraft, we could do that,” he noted.
Air Arabia operates to 12 airports in Saudi Arabia. An official Hajj and Umrah target of 30 million visitors a year by 2030 has seen individual pilgrimages becoming easier to organize. “[Some] 49 countries [now] have [Saudi] online visas available,” he said. “The country does offer a lot. People did not go before, but the more you discover, the more you hear. It has a lot to offer. In time, this will be a fantastic thing.”
He said booking-platform dynamics varied. In Morocco, 70 percent of passengers booked online. In the UAE, the figure has grown from 22 to 35 percent. “One has to be realistic. I'm optimistic about 2020, personally, but if you listen to the news—the European and American stock markets, China's economy—it tells you that it could be a difficulty. But with the Expo 2020 coming to the UAE, regional people continue to discover travel. We're lucky in the sense that we are so focused on regional business.
“We seem to have grown year on year, to have been profitable every year of the 16, with the exception of the thing that happened last year,” he added, referring to a failed investment in now liquidated Dubai-based private equity concern, Abraaj Capital. “The whole aviation business, in terms of competition, is a tough market; it's a price-sensitive business. People want to pay the lowest possible price to travel.
“I just would like to carry on as is. It's good at the moment.”