Budget airlines take root in Middle East

The company began operating in late 2003 with two aircraft and a $13 million grant from the government of Sharjah, a conservative emirate overshadowed by its freewheeling neighbor, Dubai.

Air Arabia now owns nine aircraft and plans to go public, selling 55 percent of its shares this year, Ali said. The Sharjah government will retain 45 percent ownership.

The airline expects to report 2006 profits significantly higher than the $8.8 million it made in 2005, Ali said.

Air Arabia is not the only budget player plying busy routes in the Middle East.

Kuwait-based Jazeera Airways, the only private airline in the Middle East, grew from two planes and five destinations in October 2005 to four aircraft flying to 12 destinations last year, said Marwan Boodai, Jazeera’s chief executive. Jazeera carried about 500,000 passengers last year, he said.

A third budget carrier, Marrakech, Morocco-based Atlas Blue, established in 2004, caters to European tourists linking 15 European cities with Marrakech.

Low-cost carriers from outside are also breaking into the market. In 2005, Air India launched Air India Express, a no-frills operation connecting India to the Mideast. Air India Express started with 14 flights a week from India to Abu Dhabi, the Emirates’ capital, and has since expanded to 50 a week, said Dubai-based regional director F.J. Vaz. In addition to the Emirates, the Indian carrier connects Bahrain and two cities in Oman to several cities in India.

Saudi Arabia is in the process of granting traffic rights to two budget airlines, Sama and National Air Services.

Despite the flurry of activity, JP Morgan’s Peter Negline said the Mideast budget air travel market is still in its infancy.

“They’re in a position to stimulate a lot of traffic,” said Negline, a Hong Kong-based airline analyst.

Budget airlines are hampered by their reliance on Internet sales and credit cards, said Danvir Khawaja, managing director of Arabian Travels agency in Dubai.

“Budget airlines still make their best offers online but most people in this part of the world still prefer to deal with another human being,” he said. “People are also less comfortable using their credit cards.” But he expects people in time will become more comfortable dealing with budget airlines.

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