Air Arabia took-off in 2003 with only two leased Airbus A320 jets

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Air Arabia took-off in 2003 with only two leased Airbus A320 jets. The Sharjah-based airline began as a start- up owned by the government and was the UAE's third airline. Air Arabia has managed to establish its position in the regional market of low cost carriers (LCC). Recently, Air Arabia's low-cost rivals, flydubai and flynas, have adopted what is referred to as hybrid model, which includes a range of selected full-service offerings. This switch has managed to position Air Arabia as the only entirely low- cost airline in the Middle East and North Africa region. Air Arabia CEO, Adel Abdullah Ali, pointed out in 2013 that his company would always cater to the low-cost market.

Although one might have assumed that the region's airline market was saturated, the CEO of Air Arabia insisted that his company was planning to target around 85 percent potential regional customers who cannot afford normal flying expenses. Starting with short-haul flights to neighboring countries in the peninsula, Air Arabia quickly gained price leadership in the Middle East region, becoming the first and largest LCC in the Middle East and North Africa.

Today, the company serves tens of destinations across three continents, with hubs in Morocco, Egypt, and the UAE, and has earned recognition as the premier LCC in the Middle East. Air Arabia has recently won two awards at the esteemed Aviation Business Awards 2014.

Air Arabia has utilized the cost cutting practices characteristic of other LCCs to maintain low costs, and thus deliver competitive fares to customers. How did they succeed in making such remarkable progress in little over a decade?

The company made a careful and plucky choice of aircraft from the outset—the Airbus A320 combined comfort (boasting a 32-inch seat pitch) and efficiency (162-passenger capacity). The A320s also benefitted from larger cabin space and a wider aisle, allowing for shorter boarding time and reduced in-flight congestion. A generous seat width (18 inches) granted the Airbus A320s best legroom offered by any of its competitors in the LCC market. Finally, using a universal aircraft model lowered their training expenditure.

Air Arabia currently owns 39 Airbus A320s, with a current order of a further 44. Opting for brand-new planes has reduced fuel costs and environmental impact. Ali Al Naqbi, founding chairman of the Middle East Business Aviation Association, confirmed that aircraft demand in the Middle East was not affected by the uncertainty and instability that the Arab Spring brought in the region be- tween December 2010 and mid-2012.

The company also prides itself on using pioneer- ing technologies to boost efficiency. In 2012, Air Arabia smartly equipped its fleet with sharklet technology to reduce emissions by up to 4 percent on fuel-burn. Sharklets are curved fin-like attachments to the wingtips that facilitate higher take-off weight, significantly reducing overheads. In addition, Air Arabia foresaw the inevitable fluctuations of fuel price and dealt with them ahead of time by adopting a fuel hedging strategy in order to en- sure that any increase in fuel prices would not automatically result in an increase in the price of its flight tickets. In other words, Air Arabia has constantly maintained low prices, thus preserving customer loyalty.

Since its inception in 2003, Air Arabia has made considerable expansion exploiting the gap in the LCC market and expanding its flights to more exotic destinations. The airline now flies to nearly 100 destinations, from its original base in the Middle East to North Africa, Central Asia, the Indian subcontinent, and several European cities.

Its booking system has been expedited by a user- friendly online service, reducing turnaround time at air- ports, and keeping planes in the air. In 2012, the airline had an average flying time per aircraft of 14 hours per day and an impressive seat load factor of 82 percent—one of the highest figures in the industry. That year it upgraded its online presence with a cutting-edge mobile Web site that provided travel information on the move.

As confirmed by Adel Ali, prices in general represent a very important factor when it comes to booking a flight, which is why he made sure that Air Arabia prices are on average 40 percent cheaper than the regular economy fare.

Despite a thrifty "pay-less, fly-more" motto, the business has not lost its human touch. Unlike many other low-priced airlines, Air Arabia has consistently kept its vision customer-oriented; its crew members are dedicated and view passengers' comfort as key to the company's success. The online message refers to the fact that Air Arabia is always ready to serve its customers wherever they are. This message emphasized the three main elements of the value triad espoused by the company: great flying experience, affordable price, and good customer service. In 2013, the company opened additional sales offices aiming to serve the increasing demand concentrated in the Middle Eastern and North African markets.

Air Arabia's business model has consistently put low fares, frequent flights, and safety at the top of its agenda; such efficacy has earned them high rankings and good reputation among airline companies worldwide. Its recent accolades include Skytrax's World Airline Award for best LCC in MENA, and the Low-Cost Carrier of the year at the Aviation Business Awards for three consecutive years. The Air Arabia Group's CEO was named Airline CEO of the Year twice by Aviation Business. The company was also rewarded the Airline Business Award at the Airline Strategy Awards 2014, in acknowledgment of its exceptional offer granting low-cost solutions and high- quality travel experience to passengers.

In the first nine months of 2014, Air Arabia continued its upward progress and achieved a net profit of $135 million, up by 46 percent compared to the profit reported at the same period in 2013. The company's revenues showed an increase of 17 percent compared to the same period in the year before that. In the last decade, 40 million customers have chosen to fly with Air Arabia. It was also the first publicly owned airline company in the Arab world, floating for the first time on the Dubai Stock Market in 2007. Air Arabia's top management has recently declared that the company's fleet is expected to have 55 aircraft by 2015.

The network expansion strategy, the persistent focus on cost control by hedging fuel prices, and the use of world-leading fleet rates and high load while preserving passengers' comfort have been the key factors behind a small profitable airline company like Air Arabia's success.

Questions

1. Air Arabia has succeeded in profitably challenging big established airlines companies in the Middle East and North Africa. Why don't all other airlines apply the same business model as Air Arabia?
2. What challenges does Air Arabia face? Do you think that the company will be able to maintain its leadership position in the LCC market in the Middle East and North Africa? What will happen if other airlines apply the same business model as Air Arabia?