Air Arabia CEO: Low cost model is far from simple

Why airlines need to change their approach at different stages.
COMMENT, Business Trends


Why airlines need to change their approach at different stages of the life cycle By Adel Ali, chief executive officer of Air Arabia.

The business model for low cost carriers (LCC) has witnessed a significant amount of development and traction in the Middle East ever since Air Arabia launched its operations in 2003.

Of course, the economic crisis was a severe challenge to the aviation industry as a whole over the past couple of years, but the low cost sector was a much better performer than expected. In short, it delivered a ray of hope across the airline sector, even though passenger numbers and yields were taking a turn for the worst.

As things stand at the moment, there are around 10 low cost carriers in the Middle East and North Africa (MENA), which reflects the major developments being made in recent years.

However, is it time to rest on our laurels and celebrate this success? Of course not! There have been instances of low cost carriers that start their operations with huge promise, but eventually fall by the sideway due to a lack of focus and unfortunate decisions to move away from the basics of the LCC business model. This is the case globally, including the MENA region, although I won’t mention any specific names.

The future performance of individual players is dependent on the strength of their specific business model and their focus going forward. However, given the right kind of segmentation strategy and good execution, there is enough room in the market for multiple service offerings.

Traditionally, low cost carriers have thrived with a reduced operating cost structure, which has been achieved due to the advantages of a single aircraft type, a single passenger class, flights to secondary airports and fast turnaround times.

I’ve heard a number of times that this business model sounds a little simplistic.

Maybe that’s true at face value, but executing and carrying out such an approach requires great discipline, consistent communication with the employee base and an inspirational leadership model.

For example, some carriers in this region have re-adjusted their positioning to target different customer segments - like business travellers - rather than sticking to a rigid interpretation of the LCC business model.

LCCs therefore need to change their approach at different stages of the life cycle. In the case of carriers like Air AsiaX, they have started to challenge network carriers on long-haul flights to attract customers still beset by higher prices from traditional carriers.

Will Air Asia X change the trend of air travel? Time will only tell.
In Air Arabia’s case, our approach of using strategic hubs around the region to maximise the range of our Airbus A320 fleet has translated into more market coverage, thereby helping to expand our routes.

As the first and largest low cost carrier in the Middle East and North Africa, Air Arabia leveraged its attributes to make the most of the Gulf region’s emergence as a significant hub for international air travel.

From our perspective, passengers on LCCs are not necessarily those of a lower income bracket, but those who want to get the most value for their money.

With the MENA region still developing as a market, there is significant potential across the region given the obvious growth prospects.

The eventual success stories across this sector will be driven by those carriers who have a compelling value proposition that includes not just pricing, but other variables like convenient schedules, on-time performance, including travel packages for destinations that they serve.

Constant innovation is also a prerequisite in order to survive and thrive in this challenging market, which is now attracting the attention of legacy carriers across the region.

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