CAPA Live: Air Arabia CEO: JV with Etihad working well


Air Arabia CEO Adel Ali is optimistic about travel in the Middle East region, with the coronavirus largely under control. Travel may be down on 2019, but compared to earlier in the summer the LCC is experiencing strong demand.

Testing within the UAE is widespread and compulsory before travelling on Air Arabia. With protocols in place the number of flights the airline can operate is reduced, but that means load factors are high. There is plenty of pent-up demand, and as more flights are able to get online, the capacity is absorbed quickly.

The joint venture with Etihad is working well, as Air Arabia provides a service to those customers who want to pay less but still fly on short and medium haul routes. The LCC currently sees no need to delay long haul narrowbody aircraft orders which are due in 2024, as by then the LCC expects that demand will have recovered, and they will need those aircraft for their expansion.

Talking at the CAPA Live on 11-Nov-2020, Air Arabia’s CEO Adel Ali spoke with CAPA’s chairman emeritus Peter Harbison. Some of the key highlights can be found below.

We're up to 40% of our operation back, staff are in the office and people are travelling, and the airport has a life in it again.

“From an aviation point of view, I think here in UAE, we're up to 40% of our operation back. In Egypt about 60% is back, and in our Morocco hub we were almost 80% back, and that's mainly between Morocco and Europe. But as Europe is getting into more lockdowns at the moment, that number is shrinking. But interestingly, during the second wave, we noticed that airports are not closed. Even in some areas where country borders are closed between cities, airports are open[,] and we do see people travelling. So that's not too bad."

“We started with two airplanes, once things opened up in the region. Currently we have got 18 airplanes flying, which is about 40% of fleet. And then we are flying to about seven destinations. If I compare it to 2019, it's a big drop. But if I compare it to earlier this summer[,] I'm very pleased to see that movement.  Staff are in the office and people are travelling, and the airport has a life in it again. So given the circumstances, and what the globe has got on its hands with the pandemic, I'm quite pleased where we are.”

More supply than demand[,] but COVID-19 test before getting onto the airplane is mandatory before travelling on Air Arabia.

“It really varies. Within UAE, it's simple. Most places, you need to have a COVID-19 test before getting onto the airplane. So we've made it mandatory that before travelling on Air Arabia, you take a COVID-19 test. And if you have a valid 72-hour COVID-19 certificate, then you just board as normal. Obviously, countries have been grouped by the World Health Organization, and travellers to those areas that are badly affected need to take another test on arrival, and then quarantine themselves until the test result comes through. So normally 12 to 24 hours, they get the results, and then they can freely move. That has been a great help. In Abu Dhabi however, they still require a longer quarantine period, but similar protocols work."

“The rest of the region is really a mixed bag. Everybody requires the test now. Almost every airport that we operate to. One or two places still have 14-day quarantines, some places have reduced it to seven days. The most challenging part, because airports have to do the additional COVID-19 protocols, is the customer flow tends to be slower as a result. From an LCC point of view, and for a non-LCC, the turnaround time becomes longer and a lot of airports' slot committees have worked it so only one or two airplanes arrive at a time. So airports where we used to have three or four flights a day, we now have three flights a week. That's a massive reduction in operation. And every country that we fly to has put restrictions on how many flights each airline can operate."

"Fares are relatively high at the moment, because of the lack of supply across all the airlines"

“This takes me nicely into the second part of the question. At the moment, I think there is more demand than supply, because of those restrictions. On the number of frequencies that we operate, we find that the seat factors are high and there are greater demands. As we're gradually bringing one or two airplanes into the system every couple of weeks, we find they are absorbed very quickly. The result is that fares are relatively high at the moment, because of the lack of supply across all the airlines. Not to every destination, obviously. If airlines have started operating to a very big tourist inbound destination, you may find that the seat factors are low. Within the GCC, within the Middle East, Indian subcontinent, to East European countries, we find that people are eager to get on the airplane very, very quickly. In fact, we inaugurated a new destination yesterday to Uzbekistan, Tashkent, and the first flight had 114 people on it."

“So I feel people are willing to travel, albeit they've got to go through a lot of procedures. And probably in our part of the world, as a result of the demography, the demography is everyone is either working in a city that's not theirs, or want to bring somebody to visit them. And a lot of students, a lot of people from various parts of the world live and work in UAE, and the GCC altogether. So you find them eager to travel."

“We have been thinking about what happens in summer 2021 and in my opinion, people have not travelled in summer 2020. I think as soon as they are able or allowed to get on an airplane, they'll jump and go because everyone has delayed something somewhere, and are waiting for travel to open up.”

Air Arabia Abu Dhabi consists of a mix of Etihad and Air Arabia, we have a good relationship, we seem to have built a good chemistry.

“Last week we celebrated our 17th year of Air Arabia operations. And if we reflect, back then we were saying this is what is needed everywhere, and this is what will happen. And we've seen in almost every corner of the world that LCCs have grown up and taken off, especially on the short and medium sectors, more and more of the customer base."

Middle East has been slower. And the reason they've been slower, is because of the bilaterals, and still we are into the era of non-open sky within the Arab world. And all those sort of things slowed it down. But certainly the customers, the younger generation, wants to pay as little as possible, and to fly. I think Abu Dhabi has invested a lot of money into the tourism infrastructure, the business capital, and it's really a super place to be."

Etihad is doing the conventional business traffic, all that sort of thing. They're handling it very well. And it's not just Etihad, there's a lot of other airlines that go to Abu Dhabi airports. And the LCC part was missing. Etihad did talk to us. They looked at it as they could set up their own LCC, but it's not their business. They have seen a lot of airlines doing both and failing at it. Also they felt that as a UAE publicly listed company it would be great to work with two UAE companies."

“We both looked at it and we found there was a good chemistry, good opportunities because a lot of airports that Etihad serve out of Abu Dhabi are LCC type of customers. And they probably don't fully utilize some of the potential that exists. And because of that, we looked at it, and there was a great opportunity there. And being in the same country, it's much easier."

Insights from Air Arabia group CEO Adel Ali at CAPA Live, 11-Nov-2020

"So we went into a JV with Etihad, on a contingent that they own 51% of the JV, Air Arabia PLC owns 49%. Etihad said they wanted us to manage it, because we know better how to run this business. So we're managing it, and the boards tend to direct the airline. The board of Air Arabia Abu Dhabi consists of a mix of Etihad and Air Arabia, and the chairman of the company is Tony Douglas, Etihad's CEO. And so far, it's been great. We have a good relationship, we seem to have built a good chemistry. And despite the more stringent protocol for travelling in and out of Abu Dhabi at the present time, we still see good opportunities, and it's turning the corner."

“Yes Wizz are coming, and so far I have not had the opportunity to meet anybody from Wizz, but I believe they've taken an office next door to us. Is there room for two LCC at the same? Time will tell."

"They still have not started operation, although I'm sure at some stage they will. I hear in the media that they have an AOC and I think if they bring more business into Abu Dhabi airport it's all good and well. A very respectable airline, good size, very well run in East Europe. I think we've been in this market in UAE for 17 years, hopefully we also can survive there and do what needs to be done.”

The government, at the federal level have been extremely supportive in terms of both deferral and helping us back into the air.

“I guess one always needs funding from the government, if you can get it. We have been in discussion, I must be honest. The government, at the federal level[,] have been extremely supportive in terms of both deferral and helping us back into the air. We almost have daily meetings with the generals of aviation at federal and local level to try and get things sorted.  I've never seen, in my time in the industry, such a cooperation between the authorities and the carriers to get the industry moving quicker, so that has been great. In terms of specific financial support, we have put a request in. If it comes, we will be very happy. It will help us to pay some of our outstanding debts quicker. If it doesn't, I think we can survive, hopefully, for some time to come.”

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