Launch of new UAE budget airline Air Arabia Abu Dhabi – Is India calling?

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HIGHLIGHTS

  • With the announcement of Air Arabia Abu Dhabi, Etihad could also have come up with the best alternative to pursue possibilities into India.
  • With the Abu Dhabi connection, Air Arabia has new avenues to pursue “organic growth” more aggressively.

Dubai: Who can even think of launching a new airline in the current economic climate? Well, Abu Dhabi’s Etihad and Sharjah’s Air Arabia just proved that they did.

In a move rated as audacious by many in the industry, the two carriers confirmed they will launch a low-cost carrier, with the hub being in Abu Dhabi and using the established branding of ‘Air Arabia’ to reach for the skies. And they can do so without much of the time consuming processes new carriers have to go through.

“The launch of “Air Arabia Abu Dhabi” falls well short of a full-scale merger, but there are so many cost and time efficiencies that can be generated,” said a consultant with an M&A advisory firm in London. “Etihad could assign even more focus on those routes that serve its status as a premium airline from the Middle East.

“It also has landing rights to several destinations where a budget/low-cost service could have served it better in the past. Now, it has the right sort vehicle to make it happen. Premium and low-cost services require two different mindsets.”

It is in this context that the word “re-purpose” is being thrown about, with Etihad in a position to place some of its existing fleet or new jet orders at the service of the new airline. “Put simply, there’s no need to reinvent the wheel – what they already have can be deployed at Air Arabia Abu Dhabi and at much less cost than is the case for most new airlines,” the source added.

India calling?

With the announcement of Air Arabia Abu Dhabi, Etihad could also have come up with the best alternative to pursue possibilities into India. And not have to be perpetually distracted by whatever is happening at Jet Airways, the grounded Indian carrier in which the Abu Dhabi entity has a 24 per cent stake. (Jet’s future is still clouded, with only one bidder – Synergy Group – taking formal steps to acquire it, base don media reports last month.) Jet had been operating services into the UAE, and “The loss of capacity following its folding up led to a significant increase in prices of international flight tickets from India,” said Ranvir Nayar, Managing Editor at Paris-based Media India Group. “The Gulf accounted for more than half of all the international flights operated by Jet.

“As ticket prices had already begun to harden in the Gulf-India sector, any further consolidation would have led to a sharp increase in the prices, hurting consumers, especially those Indians who earn their livelihood in the Gulf.

“The arrival of a new low-cost airline to focus on the Gulf-India sector is a development that would be welcomed by practically all consumers… as well as gain support of the Indian government.”

Air Arabia’s reach

Many didn’t foresee Sharjah-based Air Arabia turning up as Etihad’s joint venture partner. All through recent months, speculation was rife about Etihad seeking local-level alliances, and it was always the possibility of an Emirates tie-up that was speculated. Even when top officials at both Emirates and Etihad denied any such moves, the rumour counters would still go into overdrive.

With the Abu Dhabi connection, Air Arabia has new avenues to pursue “organic growth” more aggressively. Its latest financials show steady gains on the profit side – second quarter profits came in at Dh210 million, up 75 per cent year-on-year.

The Sharjah airline, which launched in 2003, now has a fleet of 54 aircraft serving more than 170 routes from four hubs, which include Morocco and Egypt apart from the UAE ones.

It is reckoned that Air Arabia as of now has no new aircraft orders.

Etihad could do the heavy lifting

Many didn’t foresee Sharjah-based Air Arabia turning up as Etihad’s joint venture partner. All through recent months, speculation was rife about Etihad seeking local-level alliances, and it was always the possibility of an Emirates tie-up that was speculated. Even when top officials at both Emirates and Etihad denied any such moves, the rumour counters would still go into overdrive.

With the Abu Dhabi connection, Air Arabia has new avenues to pursue “organic growth” more aggressively. Its latest financials show steady gains on the profit side – second quarter profits came in at Dh210 million, up 75 per cent year-on-year.

The Sharjah airline, which launched in 2003, now has a fleet of 54 aircraft serving more than 170 routes from four hubs, which include Morocco and Egypt apart from the UAE ones.

It is reckoned that Air Arabia as of now has no new aircraft orders.

Etihad could do the heavy lifting

Many didn’t foresee Sharjah-based Air Arabia turning up as Etihad’s joint venture partner. All through recent months, speculation was rife about Etihad seeking local-level alliances, and it was always the possibility of an Emirates tie-up that was speculated. Even when top officials at both Emirates and Etihad denied any such moves, the rumour counters would still go into overdrive.

With the Abu Dhabi connection, Air Arabia has new avenues to pursue “organic growth” more aggressively. Its latest financials show steady gains on the profit side – second quarter profits came in at Dh210 million, up 75 per cent year-on-year.

The Sharjah airline, which launched in 2003, now has a fleet of 54 aircraft serving more than 170 routes from four hubs, which include Morocco and Egypt apart from the UAE ones.

It is reckoned that Air Arabia as of now has no new aircraft orders.

Etihad could do the heavy lifting

For the new airline, Etihad would provide much of the fleet strength is what the industry expects. The question is where would that come from?

Earlier this year, Etihad concluded talks with Boeing and Airbus to “restructure” a major portion of its existing orders. As per the new plan, it would take delivery of 26 A321neos and five A350s from Airbus, and six 777-9x from Boeing.

“Would Etihad place new orders or make use of those orders it has already placed – it will be interesting to see how that pans out,” said an airline source. “The fact is Etihad had to restructure its orders because of the losses in the last three years.” (Last year, it lost $1.28 billion on revenues of $5.86 billion.) In the statement that accompanied the announcement of the new carrier, Tony Douglas, Group CEO of Etihad Aviation Group, said: “Air Arabia Abu Dhabi will be formed through the establishment of an independent joint venture company owned by Etihad Aviation Group and Air Arabia. The company will operate a low-cost business model and independent strategy, steered by its board of directors, which will consist of members nominated by Etihad and Air Arabia.”