Middle East and Africa LCCs: huge growth opportunities, but challenges
It has been nearly two decades since LCCs began to penetrate the Middle East and Africa markets. Comair was the pioneer in Africa, launching its budget brand kulula.com in 2001, and Air Arabia was the pioneer in the Middle East, launching operations in 2003.
While the LCC sector in the Middle East and Africa have since expanded, the LCC model has hardly proliferated in the way that it has in other regions. There are only 200 aircraft currently operated by LCCs based in the Middle East and Africa.
There are now 14 LCCs based in eight countries throughout the Middle East and Africa. However, most are small, and the main players are concentrated in three markets - Saudi Arabia, South Africa and the UAE.
LCC growth seems inevitable, but overcoming challenges, particularly in Africa's highly protective aviation market, will not be easy.
- The Middle East and Africa have a combined LCC fleet of only 200 aircraft, representing just 3% of the global LCC fleet.
- The LCC market in the Middle East and Africa is concentrated in three main markets: Saudi Arabia, South Africa, and the UAE.
- Africa's highly protective aviation market poses challenges for LCC growth in the region.
- The Middle East LCC market is dominated by flydubai and Air Arabia, with flydubai being the largest LCC in the region.
- LCC growth in Africa has been primarily driven by South Africa, with Kulula, Mango, and FlySafair being the main players.
- Regulatory challenges and competition from network airlines are obstacles for LCCs in both the Middle East and Africa.
Summary
- There are only 200 aircraft operated by LCCs in the Middle East and Africa, representing just 3% of the global LCC fleet.
- There are only 14 LCCs based in the Middle East and Africa; only eight countries in the two regions have local LCCs.
- Saudi Arabia, South Africa and the UAE are the main LCC markets, accounting for 80% of the total LCC fleet in the Middle East and Africa.
- There are huge growth opportunities for LCCs in Africa, but regulatory challenges first need to be overcome.
- There are also huge growth opportunities for LCCs in the Middle East, but competing with network airlines can be challenging.
LCC development in the Middle East and Africa will be the subject of a panel discussion at the CAPA Middle East and Africa Aviation Summit in Dubai on 29-Apr-2019. Click here to learn more about the Summit.
The Middle East and Africa LCC fleet is very small
African LCCs currently operate a combined fleet of 69 aircraft and Middle Eastern LCCs have a fleet of 132 aircraft in service (based on the CAPA Fleet Database as of 8-Apr-2019).
There are no widebody aircraft operated by LCCs in the Middle East and Africa - all 132 of the aircraft operated by Middle Eastern LCCs are narrowbodies (A320s and 737s). Of the 69 LCC aircraft in Africa, 53 are narrowbodies and 16 are regional aircraft (turboprops and regional jets).
The Middle East and Africa combined account for only 3% of the global LCC in-service fleet. Africa and Middle East are relatively small regions but they are clearly punching below their weight compared to other regions when it comes to LCC development. The Middle East and Africa account for 10% of the total global fleet - which is more than double the portion operated by LCCs.
LCCs account for less than 5% of the total commercial passenger aircraft fleet in Africa. In the Middle East LCCs account for a stronger, but still small, 9% share of the total commercial passenger fleet.
There are only 14 LCCs based in the Middle East and Africa
There are currently nine airlines in Africa operating under the LCC model, but none have more than 13 aircraft.
Only four African LCCs have a fleet of at least 10 aircraft - Air Arabia Maroc, FlySafair, Kulula and Mango. The other five LCCs (Air Arabia Egypt, fastjet Zimbabwe, Fly540, FlyEgypt, Jambojet) each have a fleet of less than 10 aircraft, and three of these airlines only operate regional aircraft.
The Middle East has even fewer LCCs than Africa - just five. However, the Middle East's LCC fleet is much larger overall, given the relatively large size of flydubai, Air Arabia and flynas.
The other two LCCs based in the Middle East (flyadeal and SalamAir) are relatively small as both are still in their infancy, having launched operations in 2017. However, flyadeal is expanding rapidly and will soon be bigger than any of the African LCCs.
See related report: Saudia: transformation and dual brand strategy drive rapid growth
Flyadeal claims to be the only airline in the Middle East following a pure low cost model. Most of the LCCs based in the Middle East and Africa indeed follow hybrid models. Flydubai, in particular, is a hybrid as it offers a business class product (even offering lie-flat seats on some aircraft) and relies heavily on network traffic, feeding its sister airline Emirates.
Middle East and Africa LCCs ranked by fleet size (number of aircraft in service): as of 8-Apr-2019
| Rank | Airline | Year launched | Country | Fleet size |
|---|---|---|---|---|
| 1 | flydubai | 2009 | UAE | 47 |
| 2 | Air Arabia | 2003 | UAE | 40 |
| 3 | flynas | 2007 | Saudi Arabia | 30 |
| 4 | FlySafair | 2014 | South Africa | 13 |
| 5 | flyadeal | 2017 | Saudi Arabia | 11 |
| 6 | Air Arabia Maroc | 2009 | Morocco | 10 |
| 7 | Kulula* | 2001 | South Africa | 10 |
| 8 | Mango | 2006 | South Africa | 10 |
| 9 | Fly540 | 2006 | Kenya | 8 |
| 10 | FlyEgypt | 2016* | Egypt | 7 |
| 11 | Jambojet | 2014 | Kenya | 6 |
| 12 | SalamAir | 2017 | Oman | 4 |
| 13 | Air Arabia Egypt | 2010 | Egypt | 3 |
| 14 | fastjet Zimbabwe* | 2015 | Zimbabwe | 2 |
Air Arabia and flydubai are the market leaders
Flydubai is the largest LCC in the Middle East and Africa. Flydubai currently operates 47 737-800s but its in-service fleet would actually be at 58 aircraft if it was not for the global grounding of the 737 MAX 8. Flydubai has an extensive network, serving 84 destinations that include 28 within the Middle East and 10 in Africa.
Sharjah-based Air Arabia operates 40 A320s, making it the second largest LCC in the region. Air Arabia has 72 destinations, including 29 in the Middle East and eight in Africa. Air Arabia and flydubai both also have large networks in South Asia and the Eastern Europe/CIS regions.
The Air Arabia Group has a fleet of 53 aircraft (making it larger than flydubai, but only because of the current 737 MAX 8 grounding) when Air Arabia's affiliates in Egypt and Morocco are included. Air Arabia also had an affiliate in Jordan until 2018, when Air Arabia Jordan ceased operations.
Air Arabia CEO Adel Ali and flydubai CEO Ghaith al Ghaith are both speaking at the CAPA Middle East and Africa Aviation Summit in Dubai on 29th-30th April. Both have led their airlines since their inception.
Jazeera Airways CEO Rohit Ramachandran is also speaking at the summit. Kuwait-based Jazeera launched in 2005 as a low fare airline but always followed a hybrid model, and in recent years has been categorised as an FSC.
Air Arabia is the Middle East's first LCC
Air Arabia was a pioneer in the Middle East LCC sector, launching operations from its Sharjah base in 2003. Jazeera became the region's second LCC in 2005, followed by Saudi Arabia's flynas in 2007.
A second independent Saudi Arabian LCC, Sama, also launched in 2007 and followed a purer LCC model than flynas. However, Sama suspended operations in 2010.
Flydubai launched in 2009. In the latest wave of LCC start-up activity, Oman-based SalamAir launched in early 2017 and Saudia Arabia-based flyadeal launched in late 2017.
Middle East LCC fleet growth accelerates
The LCC fleet in the Middle East has grown by nearly 50% over the past five years.
Flydubai has grown the fastest, expanding its fleet from 35 aircraft in Apr-2014 to 47 aircraft in Apr-2019 (or 58 aircraft when its 11 737 MAX 8s are included).
Air Arabia has added nine aircraft over the past five years, from 31 A320s in Apr-2014 to 40 A320s in Apr-2019 (according to the CAPA Fleet Database).
Flynas' fleet has been flat over the past five years but the airline is planning to resume expansion over the next few years as it takes delivery of new A320neos. Flynas took delivery of its first two A320neos in late 2018 and early 2019 and has another 78 of the type on order.
The overall Saudi Arabian LCC sector has expanded over the past 18 months due to the initial 11 aircraft delivered to flyadeal, which operates A320ceos and in late 2018 placed orders for 30 737 MAX 8s.
Saudi Arabia should help drive a further acceleration of the Middle East LCC growth rate over the next five years. The rate of LCC fleet expansion in the UAE will also pick up as flydubai has a staggering 237 737 MAX family aircraft on order.
Other markets in the Middle East will also likely attract LCC start-up activity in the coming years. However any new start-ups will likely be small compared to the existing operators in the main markets of Saudi Arabia and the UAE.
LCC growth in Africa has been dominated by South Africa
The LCC fleet in Africa has similarly grown by approximately 50% over the past five years. However, the growth has been on an extremely low base.
Most of Africa's LCC growth has been concentrated on the South African market. South Africa is the home of Africa's first three LCCs - Kulula, 1Time and Mango.
Kulula was launched in 2001 by Comair, which also operates a British Airways franchise in South Africa. Comair uses the same operator's certificate for Kulula and its BA franchise but has a separate fleet and livery for the two operations.
The Kulula-branded fleet currently consists of 10 737s in all economy configuration, according to the CAPA Fleet Database. Comair's BA-branded fleet includes another 17 737s; in this analysis these aircraft are excluded because they are operated under a full service model.
1Time was an independent South African LCC that was launched in 2004 but then suspended operations in 2012. South African Airways launched Mango in 2006 as a new LCC subsidiary, in a competitive response to the initial success of Kulula and 1Time.
FlySafair was launched in 2014, filling the void left by 1Time two years earlier. FlySafair, Kulula and Mango are now relatively similar in size, each capturing approximately a 20% share of the South African domestic market. Mango also has a small international operation (one route to Zanzibar in Tanzania), whereas FlySafair and Kulula only offer domestic services.
African LCC activity outside South Africa is very limited
South Africa accounts for approximately half of the African LCC fleet. The South African portion of intra-Africa LCC capacity is much larger (over 80%) because broadly half of the African LCC fleet outside South Africa consists of small regional aircraft and the other half consists of narrowbody aircraft that are used primarily on routes to other regions (Europe and the Middle East).
There are approximately 250,000 weekly LCC seats in South Africa's domestic market (based on CAPA and OAG data for the week commencing 8-Apr-2019). In the rest of the intra-Africa market there are less than 50,000 weekly seats.
The LCC penetration rate in South Africa's domestic market is 60%. The LCC penetration rate for the overall intra-Africa market is approximately 13% - a very small figure for a regional market that is generally within narrowbody range.
Intra-Africa LCC and FSC annual seat capacity: 2009 to 2018
Source: CAPA - Centre for Aviation & OAG.
Regulatory challenges are a major obstacle in Africa
When domestic South Africa is excluded, the LCC penetration rate in the intra-Africa market is only 5%. Clearly there are opportunities for LCCs to expand in this market but huge challenges remain; particularly, an unfavourable regulatory environment.
Most African markets remain protectionist, making it difficult for independent LCCs to be established.
A cross-border LCC model is the ideal solution for Africa, given that most of the individual markets do not have the scale to support individual airlines. However, attempts by fastjet and (now defunct) flyafrica.com to establish a group of LCCs in Africa have not gained support, in face of powerful vested interests and the vagaries of the bilateral regulatory structure.
Until there are fundamental changes in the regulatory environment it will be impossible for LCCs in Africa to reach their full potential.
Middle East LCC market also has challenges
The Middle East is a relatively easier market to enter from a regulatory perspective but is still challenging.
In addition to dealing with some regulatory constraints, Middle Eastern LCCs have to compete in a market dominated by large network airlines.
There are opportunities to expand on regional routes within the Middle East, a segment that is experiencing rapid demand growth. However, network airlines have a large presence in these markets, often using widebody aircraft and offering low fares for local travel, as well as providing connections beyond their hubs.
LCCs account for a relatively modest 17% of seat capacity within the Middle East. While this is slightly higher than the intra-Africa LCC penetration rate, it is significantly below the global short haul average.
Intra-Middle East LCC and FSC annual seat capacity: 2009 to 2018
Source: CAPA - Centre for Aviation & OAG.
Middle East and Africa LCC penetration rates should gradually inch up
There are also opportunities for LCCs from both Africa and the Middle East to expand in the Africa-Middle East market. LCCs currently account for only 10% of Africa-Middle East capacity, although a large proportion of this market is within narrowbody range.
Ultimately the Middle East and Africa should be able to support a lot more than the 200 LCC aircraft currently in service.
The fleet could double in size over the next five years, providing the capacity for LCCs to increase their market share gradually within, and between, the two regions.