Mumbai: Adel Abdullah Ali , board member and group chief executive officer of Sharjah-based low fare carrier Air Arabia (PJSC), isn’t one to follow the herd. While most international carriers service Indian metros, he has focused on connecting other cities. The strategy has paid off and his airline covers 13 cities, more than Emirates Airline, which operates to and from 10 Indian cities. Ali, who has worked with Gulf Air and British Airways, has also ensured this strategy has been profitable for the past eight years. His formula: low costs (single passenger class, single aircraft type, fly to less-congested airports), a simple fare scheme, and the use of direct sales channels. In an interview with Mint, Ali declined to comment on his intention to invest in Indian carriers, now that the Indian government has relaxed the norms for foreign direct investment (FDI) in the aviation business, but he reiterated his commitment to the country. Edited excerpts:
Why would someone want to fly Air Arabia?
Air Arabia is all about value for money. Since we started the low-cost model in this part of the world, the airline has remained focused on offering affordable, reliable and on-time air travel. We have seen great appeal for our services and managed to maintain the world’s highest seat load factor for nine consecutive years. With the large number of Indian expatriates in the Middle East, there is a strong need for affordable air travel—for this community to travel to their homes. We see a lot of families and students travelling with us and also connect to the wider network we offer from Sharjah.
You fly to more cities in India than even Emirates Airline...
Air Arabia started flying to India in March 2005 and currently offers over 112 flights a week, flying directly from our hub in Sharjah to 13 destinations in India. This does represent the most comprehensive destination network of any international airline in India. Our business model is such that is suited best to the needs of Indian travellers. Over these years, India has grown to be an important market for us and we are always looking to expand operations and cater to more markets between the United Arab Emirates and different cities in India.
We follow the reciprocal flight rights set between both countries and will be looking forward to add more destinations and frequencies into India as and when we secure the approvals to do so. For example, we announced an increase in our flights to Delhi starting September 2012 and also ramped up our Nagpur flights, increasing the frequency to four flights a week beginning June 2012. Strategy on new routes will largely depend on the demand we see for travel and the response we get from our consumers. Our twice-daily flights from Delhi starting September 2012 are the most recent example of this. Having said that we will continue our due diligence of exploring newer locations around the globe, and India is no exception.
You fly mostly to non-metros. Why?
We fly where we believe it adds value to our customers and business. Air Arabia operates services to smaller cities such as Nagpur, Jaipur, Ahmedabad, Cochin, Coimbatore and Thiruvananthapuram, making it easier for our customers to fly to their destinations directly from their home town. Our efforts to operate to central as well as smaller, less-congested airports closer to our customer base have been successful. We are also the first international airline to fly to Nagpur and Jaipur and this step underscores Air Arabia’s commitment to tier II cities and the burgeoning Indian market at large.
What was the biggest challenge in India? How was the competition?
Challenges such as fuel price, open skies, airport charges and infrastructure have been hindering the pace at which low-cost airlines can grow. Having said that, there is an enormous opportunity for low-cost air travel in India and the wider region. We have proved this through our operations in these seven years. Over the past couple of years, we have seen many low-fare carriers enter the market and many more will in the near future, but in such challenging times, managing ruthless costs will be vital for any new airline to survive.
There are no low-cost terminals in India and airport charges are high. How have you managed to stay profitable?
It is true that charges vary from airport to another and some are considered expensive to the airline as well as the customer. As a low-cost carrier, we enjoy the advantage of saving costs at every given step such as the fast turnaround times at every airport to best serve our operational efficiency and save on airport associated costs. Air Arabia enjoys one of the world’s lowest operational costs and is also one of the 10 most profitable low cost carriers in the world. Issues such as growing fuel surcharges, airport taxes, and poor infrastructure do impact the pace of growth as far as low cost airlines are concerned. Particularly, since low-cost models work on lower margins, it does have an impact on the overall profit margins.
Does oil give you an edge?
Since inception, Air Arabia has been focused on running a successful and profitable business. Air Arabia is a publicly joint stock company and the airline shares are traded on the Dubai Financial Market. The airline’s financial performance is transparently published on the company’s website and in public domains. The airline achieved financial breakeven from the first year of operations and has been profitable since then. In the second quarter of this year, Air Arabia reported a net profit of AED 66million, an increase of 31% compared to AED 51 million in the corresponding period in 2011. As far as oil is concerned, Air Arabia pays the same oil price as any other airline across the globe and oil price fluctuation is a key challenge.