feature

AV I AT I O N

AVIATION

Low cost in the Levant

Is the decision by Air Arabia to launch operations from Jordans
capital a commercial master stroke given the precarious
geopolitical and economic climate of the Levant?

by Martin Rivers
thegulf@tradearabia.net

he
Jordanian
aviation
sector gained a new player on 19 May, when Air
Arabia launched operations
from Ammans Queen Alia
International Airport to Kuwait City in
conjunction with local equity partner
RUM Group, a Jordanian transport firm.
Amman becomes the fifth hub in
privately-owned Air Arabias network,
furthering its long-term aim of offering
point-to-point connectivity across the
Middle East and North Africa. The
low-cost carriers main operating base

of Sharjah was last year complemented

by a secondary UAE hub in Ras al
Khaimah, while it also operates joint
ventures in Alexandria, Egypt and
Casablanca, Morocco.
Expansion to Jordan, however, comes
with risk. While the International
Monetary Fund (IMF) has praised
Amman for persevering in the face
of regional unrest, foreign tourists are
largely steering clear of the Hashemite
kingdom. Visitor numbers declined
from 8.2 million in 2010 to 5.3 million
last year as crisis after crisis rocked the
Arab world. The downturn has only
accelerated with the rise of Islamic State
north of the border in Syria: tourism

With flag-carrier
Royal Jordanian
Airlines deepening
its losses despite
a comprehensive
restructuring
programme, 2015 is
a curious year to
launch a Jordanian
airline

8
the gulf | June 2015

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feature

AV I AT I O N

feature

AV I AT I O N

[Air Arabia chief

executive Adel Alis]
enthusiasm may in part
be borne of frustration.
Jordan had always
been in Air Arabias
pan-regional business
plan, but a previous
attempt at establishing
a subsidiary was
derailed by the Arab
Spring unrest

8 revenues fell 11.9 per cent year-on-year

in the first quarter of 2015.
With flag-carrier Royal Jordanian
Airlines
deepening
its
losses
despite a comprehensive restructuring programme, 2015 is a curious year
to launch a Jordanian airline. Yet Air
Arabia chief executive Adel Ali appears
confident that the timing is right.
Jordan is a country full of potential
with its steady economy and historical
attractions, he said at the launch of
the inaugural service to Kuwait. Today
marks the start of a new era of value
air travel for people in Jordan and
across the Levant. We are confident
that Air Arabia Jordan will complement and positively contribute to the
overall aviation growth from and into
the kingdom.
His enthusiasm may in part be borne
of frustration. Jordan had always been
in Air Arabias pan-regional business
plan, but a previous attempt at
establishing a subsidiary - five years
ago with local partner Tantash Group was derailed by the Arab Spring unrest.
Whereas low-cost carriers in Europe
can set up foreign bases at will owing to the continents open-skies
agreements - the Middle East is an
inhospitable place for multi-hub
airlines. Cross-border bilateral restrictions mean that Air Arabia must secure
a domestic operating licence before
basing aircraft in a new country. That
typically necessitates finding a local
equity partner. In the case of Jordan,
Ali ultimately decided to acquire 49
per cent of Petra Airlines, RUM Groups
pre-existing charter carrier.
A similar approach had been taken
in Morocco, where Air Arabia teamed
up with Casablanca-based Regional
Air Lines before launching operations
in 2009. Its Egyptian subsidiary began
services the following year in conjunction with Travco Group, a local travel
and tourism company.
At the time of writing Air Arabia
Jordans route network was due to
expand beyond Kuwait to include
Jeddah in Saudi Arabia, Erbil in
northern Iraq, and Sharm el Sheikh in
Egypt. Amman is already connected to
Alexandria and Sharjah by the groups
other operating units.
With Royal Jordanian Airlines also
32

flying from Amman to Kuwait, Jeddah

and Erbil, competition with the ailing
flag-carrier is undoubtedly on the
agenda.
But the start-up is not aiming for rapid
growth. Air Arabia will initially place
just two Airbus A320s in Amman - a
fraction of the 35 aircraft deployed in
the UAE - allowing time for marketing efforts to boost domestic brand
awareness.
Although low-cost carriers have
expanded in the Middle East over recent
years, the sector remains in its infancy.
Market penetration currently runs at just
14 per cent, compared with 38 per cent
in Europe and 30 per cent in America.
Many of the regions self-proclaimed
low-cost carriers - notably flydubai

Air Arabia, which last

year grew profits by
30 per cent to Dhs566
million ($154 million),
has generally fared
better than the regions
flag-carriers at staying
in the black. Its lowcost formula is well
suited to the vibrant
Jordanian market
June 2015 | the gulf

and Kuwaits Jazeera Airways - offer

on-board products that would be classified as full-service elsewhere in the
world. Air Arabia bucks this trend
with a bona fide no-frills product that
charges extra for ancillaries such as
checked luggage.
How its business model will fare in
Jordan, where budget holidaymakers are in short supply and low-cost
penetration previously stood at just
nine per cent, remains to be seen.
But the government is taking steps to
stimulate the sector, most recently by
exempting holidaymakers from a JD40
($57) visa fee.
The measures approved by the
government aim to encourage travellers
to add Jordan to their next itinerary,
the gulf | June 2015

and will aid in promoting Jordan as an

accessible, safe and inviting destination, Nayef al Fayez, the kingdoms
minister of tourism and antiquities, said
in May.
Deregulation of travel restrictions
and liberalisation of the competitive
landscape will both play a part in
encouraging tourists to return. But it
would be foolhardy to think that Jordan
is out of the woods yet. The ongoing
difficulties faced by its flag-carrier
underscore how events in the wider
region have tarnished Jordans image
on the global stage, warding off leisure
and business travellers alike.
When The Gulf spoke to Basma
Majali, Royal Jordanian Airlines then
commercial vice-president, in summer

2013, she voiced optimism about a

turnaround strategy but cautioned that
the airlines fortunes hinged on stability
returning to Syria.
Far from enjoying such a recovery,
Jordans northern neighbour has over
the past two years gone from an alreadydesperate situation to one of absolute
calamity. The death toll in the four-year
conflict now stands above 220,000, and
Islamic State is stepping up attacks
outside of its self-declared caliphate.
Saudi Arabia and Turkey have both
been targeted by its suicide bombers
in recent months. Having participated in the aerial campaign against the
jihadists, Jordan is bracing itself for the
same.
Little wonder that Royal Jordanian
Airlines deepened its losses in 2014,
albeit only slightly to JD40 million. The
airlines passenger numbers fell three
per cent during the year, offsetting the
positive impact of lower fuel prices and
a concerted cost-cutting drive.
Air Arabia, which last year grew profits
by 30 per cent to Dhs566 million ($154
million), has generally fared better than
the regions flag-carriers at staying in
the black. Its low-cost formula is well
suited to the vibrant Jordanian market.
But the timing of the launch cannot
fail to raise eyebrows. Air Arabia
Jordan may have caught the bottom
of the market, or it may have landed
in the middle of an inexorable slide
southwards. <
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