Competition is hotting up among low-cost carriers in the Persian Gulf. That’s according to analysts at NBK Capital, who say government-owned FlyDubai’s aggressive expansion is having a negative impact on publically-listed Air Arabia at its Sharjah hub.
FlyDubai and Air Arabia already overlap on 40 destinations from their respective airports, which are just a short drive away from each other. In total, Air Arabia offers 70 destinations from Sharjah International, while FlyDubai launched 17 new routes last year from Dubai International to now serve a total 66 destinations.
Air Arabia also recently added a new hub about 100 kilometers away in Ras Al Khaimah, filling a void left by RAK Airways which suspended operations in January. Low-cost carriers have grown to make up 7% of total traffic in the region, from nothing ten years ago, Boeing Co says, illustrating the growth in the sector.
Both FlyDubai and Air Arabia reported strong passenger growth last year. Yet net income at Air Arabia was broadly flat at 420 million U.A.E. dirhams ($114 million) last year, while FlyDubai reported a 47% increase in net profit to AED222.8 million, although it doesn’t release audited financial statements.
FlyDubai also plans to snap up planes to cater for its expanding routes. It ordered 86 Boeing single-aisle jets at the Dubai Air Show in November. About 1,240 single-aisle aircraft will be ordered in the region in the next 20 years, making up 48% of deliveries, Boeing forecasts.
FlyDubai ordered 86 Boeing single-aisle jets at the Dubai Air Show in November.
FlyDubai operates 34 aircraft, which is already more than Air Arabia’s 29 aircraft at the Sharjah hub, despite being in business about half the time, NBK Capital points out. The analysts also note that Emirates Airline, Etihad Airways and Indian low-cost carriers are all launching new routes around the Middle East and Indian Subcontinent.
“We believe that despite market prospects remaining strong for the U.A.E., such massive additions to system-wide capacity remain a challenge for Air Arabia’s profit margins,” the analysts said in a note. NBK Capital has a “sell” recommendation for Air Arabia shares.-Middle East Real Time/WSJ