Saturday, November 27, 2010

LCCs Redefining the Travel Market - GCC and MENA

Air Arabia aptly celebrated its 7th anniversary by taking delivery of the first A320 of its 44 aircraft order having finished 28 profitable quarters. YouGov Siraj latest survey revealed that LCCs have changed the travel habits of UAE residents (click here for full story) and I am sure it did the same in the GCC and MENA.

The LCCs reshaped the market by making air travel more affordable and as a result expanded the market by introducing a segment of the population that traveled by land or sea to air travel and most importantly enabled middle class professionals to travel more often on holiday and business.

Seven years ago when Air Arabia started flying, legacy airlines did not pay attention, for them this was a fad and if you ignore it, probably, it will go away.

Well it did not go away, on the contrary the concept flourished and today there are about 7 or 8 airlines operating. The major ones being Air Arabia, Flydubai, NAS Air, Jazeera Airways and Nouvelair. Air Arabia has 2 operating Startups in Egypt and Morocco with the one in Jordan under set up. Jordan has 2 startups Royal Falcon and Petra Airlines and with Air Arabia Jordan coming up this market should prove to be interesting. Etihad has opted for an all economy operation using the A320 which is its version of a quasi low cost operation.

It is true that this year saw the bankruptcy of SAMA Airways in Saudi Arabia and the exit of Bahrain Air from the market to operate as a legacy type airline.  The market is getting crowded and it will eventually determine who is there to stay (at this time, other than Air Arabia all others are not profitable).

The segment faces many problems that range from

  • subsidies to Flag Carriers in Saudi Arabia and Kuwait.;
  • crowded markets in the UAE and Kuwait;
  • competitive pressures from legacy airlines of the region
  • competitive pressures from foreign low cost carriers operating into the region 
  • relatively small markets;
  • lack of secondary airports;
  • governments that will not award traffic authorities in order to protect their airlines 

Having said that, the LCC's market share will increase over the coming few years to beyond the existing 6 to 8 percent as it expands the local markets by enabling more and more people to experience air travel.

Tuesday, November 16, 2010

The Saga Continues, Air Services Agreement between Qatar and Canada

Canada has signed an Air Services Agreement with Qatar (here to read more) weeks after both the Canadian Government and Air Canada opposed it. It seems Mr. Al Baker's alluding to the possibilities and impossibilities of investments and trade had helped people in Ottawa make up their mind.

"This agreement responds to the needs of the Canada-Qatar travel market and is a first but important step in developing Canada-Qatar air relations," says John Babcock, a spokesman for Canadian Transport Minister Chuck Strahl.

Sounds great and should equally apply to the UAE which is almost 4 times a larger market with a much larger Canadian Community however Air Canada is still self delusional and dragging the government with it

Recently Air Canada chief executive Calin Rovinescu said the carrier "is not supportive of turning over our hard-earned network and flow traffic to state subsidised carriers of countries where there is no such reciprocal demand".

So in his eyes all of a sudden Qatar Airways is not a subsidised carrier and there is more reciprocal demand with Qatar than the UAE.

I respect the need to protect a "hard-earned network" including its feed to and from Star Alliance partners. It appears that Air Canada has an objection to a Dubai Global Hub and it fears that if Emirates, not Etihad per se, dumps capacity into Vancouver for example it will deter all other airlines from competing out of Vancouver and generating 275,000 new seats per year will decimate Vancouver as a hub and make it into a stub in Emirate's Dubai hub.

Air Canada has indicated that they oppose any increases in frequency or addition of flights to the UAE and Qatar, in order to protect their traffic to Frankfurt. Lufthansa (Star Alliance) will operate from there onwards to MENA and the GCC. Basically it boils down to a capacity issue coupled with a level of service. Air Canada does not have the lift to operate additional flights or to operate directly to the UAE and Lufthansa probably has different plans.

Canada is a popular immigration destination for professionals from MENA, GCC and the Indian Sub Continent. It is also a popular destination for higher education from the region. Hence, this is a growing market for "Visiting Friends and Relatives"

Air Canada needs to leverage its Star Alliance connections to tap more into this market or start operating its own flights to the region.

The unfortunate escalation between the UAE and Canada over this issue so far has been low key, even though to Canadian residents in the UAE it has an impact on the mobility of their non resident family members.

Hopefully, the issue will be resolved to the mutual benefit of all concerned.


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