During tough times in the travel and tourism business a new low-cost airline is launching in Cairo.
The Sharjah-based Air Arabia and the Egyptian hospitality company Travco Group International recently announced a partnership to form Air Arabia Egypt for budget flights in Europe, the Middle East and Africa (EMEA).
“The low-cost model, which will be used in operating Air Arabia Egypt, is uniquely attractive in these challenging economic times. When travel budgets are low and travel is a must, travelers prefer value-for-money options,” said Sara Salib, the director of marketing and public relations for Travco, in an email to Al-Masry Al-Youm.
Profits in the worldwide commercial airline business have declined sharply in the last two years. The International Air Transport Association (IATA) predicts the global industry will lose US $11 billion in 2009. Commercial airlines lost $16.8 billion in 2008, a drop of $29.7 billion from the previous year.
“Reported losses have already exceeded $6 billion in the first half of this year,” said an IATA report released this month. “Although the beginnings of an economic upturn are now visible…yields are much weaker than anticipated and oil prices higher. These last two factors are more than offsetting better economic growth.”
Airlines in the Middle East, however, have suffered less than other regions, the report says. Although commercial airlines the Middle East are generally smaller than counterparts in North America and Europe, for example, carriers in the region are gaining a greater market share of international flights. It is also the only region in the world that had higher year-on-year passenger traffic in 2009.
And there’s evidence that a low-cost model can be successful. Air Arabia’s net profits for the first half of 2009 are up by 21 percent from the same period last year to $52.6 million, according to a report by AFP.
“At a time when the global aviation industry is witnessing serious challenges as a consequence of the worldwide financial crisis, we continue to move forward with our strategic expansion strategy, as demonstrated by this important announcement,” said Sheikh Abdullah Bin Mohammed Al Thani, chairman of Air Arabia, in a press release.
The low-cost carrier model has worked in Europe and the United States, and even been recession proof. The Irish carrier Ryan Air has increased its number of passengers for every month year-on-year since January 2007. The American carrier Southwest Airlines earned a profit for 71 consecutive quarters until the beginning of 2009–and rebounded in the second quarter.
Figures for EgyptAir Express, the national carrier’s low cost airline, are not available on the company’s website beyond June 2008. Similarly, tourist figures are not available past the same time period on the Egyptian Central Bank’s website, the official place the Ministry of Tourism publishes statistics.
The numbers for the first four months of 2009 show a 13.2 percent drop in the number of tourist nights compared to the same period in 2008, while the number of tourist arrivals during the same period has declined 10.3 percent to 3.67 million arrivals.
The tourism industry is going through some rough times, thanks to the global financial crisis. The Ministry of Tourism had released figures for the first four months of the current year, showing a 13.2 per cent drop in tourist nights and a 10.3 per cent decrease in tourist arrivals compared to the same period last year. A report released this month by the Center for Trade Unions and Workers Services also stated that the tourism sector is the highest in terms of layoffs this year. If anything, the timing is right to take advantage of tighter travel budgets and Egypt as an affordable destination. In addition to Air Arabia’s experience as a low-cost airline, the new group will benefit from the economy of scale in an end-to-end hospitality group like Travco.
“Controlling all aspects of the tourism value chain also allows operating efficiencies and cost savings,” Salib said. “Being the only fully integrated powerhouse in Egypt and the region only increases Travco’s competitive advantage.”
Air Arabia will have a 40 percent stake in the new venture and will handle the day-to-day operations, serving on a joint board with Travco, which owns 50 percent. Travco declined to name the independent Egyptian investor who owns the remaining ten percent. Air Arabia, which flies to 57 destinations east of the Atlantic Ocean, launched its second hub in Casablanca this year to compliment operations in Dubai. The company has not announced when flights will commence from Cairo.