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flydubai: ‘Our niche is Dubai.’ But could Emirates have incorporated the short-haul strategy?

Low-cost carriers were once cast off in the Middle East, said to never work. But now turning five years old is Dubai government-owned flydubai, which has become the largest LCC in the Middle East. Explaining the business model that has sustained 40 737s with more on order, CEO Ghaith Al Ghaith says: “Our niche is Dubai.”

It may be surprising to carve out a niche in the city home to the world’s largest international airline based on ASKs. But flydubai has done so by focusing on regional links and using its 737s to serve markets too thin for Emirates’ all-widebody fleet.

flydubai is increasingly hybridising, to the point the differences between it and the short-haul aircraft of Etihad and Qatar Airways are not vastly different. Could Emirates have done the same? In this first instalment in a series of reports analysing flydubai, CAPA examines the history and strategy behind the Dubai airline industry's second, albeit quieter, brand.

Dubai wanted a second airline to diversify its hub

The question of whether Emirates could have incorporated flydubai is perhaps beside the point: Dubai wanted a second airline. With Dubai one of the world’s largest hubs, the view was taken that hubs need more than one local carrier.

Emirates and flydubai do not have to be equal or close to being equal in size, but there does need to be diversity, the logic goes. This is not universal but typically the case. London has British Airways and Virgin Atlantic; Tokyo has All Nippon Airways and Japan Airlines; Sao Paulo has Gol and TAM; Johannesburg Comair and South African Airways; while at New York JFK and Los Angeles many carriers call both cities a hub. 

A second carrier allows Dubai to regain some marketing edge. When Emirates was established in 1985, it was expected the airline would serve the UAE and larger region. Not foreseen was that Abu Dhabi would establish its own airline, and one designated as the national carrier of the UAE. Thus an airline from the UAE was no longer immediately connoted as being from Dubai. But the ‘flydubai’ brand has an indisputable home.

The vast majority of Emirates’ traffic is connecting, but there is still local demand as Dubai serves as a hub – financial, trading, tourism etc. – for the region. This bolsters the prospects of a second brand, and is the niche Mr Al Ghaith speaks of. Also, in the classic LCC sense, it allows flydubai to simulate new traffic flows. A second carrier elsewhere in the smaller Gulf states would be challenging, as seen with the collapse of Bahrain Air, and Oman Air recently deciding not to pursue a LCC project.

By the time it became apparent late last decade that the Dubai hub wanted a narrowbody operation, Emirates’ scale and reputation afforded it a degree of confidence to limit its involvement.

Emirates and flydubai are both government owned (directly or indirectly) but are separate entities. Emirates is 100% owned by the Dubai Investment Corporation, which in turn is 100% owned by the Dubai government. flydubai is directly fully owned by the Dubai government. Nonetheless, Emirates drew up flydubai’s business plan and Emirates executive Ghaith Al Ghaith was appointed flydubai’s CEO, which he remains today.

Dubai was missing connectivity to smaller points. flydubai sustained the hub

Emirates’ all-widebody full service operation left Dubai exposed to smaller destinations as well as the emerging LCC sector, led by all-narrowbody operator Air Arabia. Etihad Airways and Qatar Airways have sizeable narrowbody fleets, in addition to the presence of these aircraft at Gulf Air and Oman Air.

Gulf carrier narrowbody aircraft overview: Oct-2014

Carrier

Narrowbody passenger aircraft

Narrowbodies as share of total passenger fleet

Air Arabia

34

100%

Etihad Airways

29

31% 

flydubai

41

100%

Gulf Air

22

79% 

Oman Air

21

75%

Qatar Airways

41

33%

flydubai has helped sustain the Dubai hub, giving it links to destinations Emirates does not serve but other Gulf carriers, or other global airlines, do. The alternative scenario would have been Dubai missing commercial opportunities, or giving business to competitors.

Kathmandu for example is served with narrowbodies from Etihad and Qatar, but Emirates does not serve it. flydubai serves Alexandria, which Emirates could not make work some years ago. Other flydubai destinations like Krasnodar are only served from the Gulf by Air Arabia.

Flydubai network summary: 2014

90

Cities served during 2014

55 (61%)

Cities not served by Emirates

51 (67%)

Cities also served by Air Arabia from Sharjah

18 (20%)

Cities with no Gulf competitor, or no Gulf competitor other than Emirates

10 (11%)

Cities where the only Gulf competitor is Air Arabia from Sharjah (no service from Emirates)

But flydubai was not just a defensive, market share preservation exercise. flydubai, with a lower cost base and agile management, has been able to open destinations unserved by others.

flydubai’s network overlap with Gulf carriers: Oct-2014

Destination

Served by Emirates?

Gulf carrier competition

Addis Ababa

Yes

Gulf Air, Qatar Airways, Saudia

Aden

No

Flynas, Saudia

Abha

No

Air Arabia, Saudia

Al Najaf

No

Air Arabia, Gulf, Jazeera, Kuwait, Qatar

Almaty

No

Air Arabia, Etihad

Alexandria

No

Air Arabia, Jazeera, Kuwait, Qatar, Saudia

Ahmedabad

Yes

Air Arabia, Etihad, Qatar, Saudia

Amman

Yes

Air Arabia, Etihad, Gulf Air, Jazeera, Kuwait, Oman, Qatar, Saudia

Ashgabat

No

None

Baghdad

Yes

Air Arabia, Etihad, Gulf, Qatar

Bahrain

Yes

Air Arabia, Etihad, Gulf Air, Jazeera, Kuwait, Oman, Qatar, Saudia

Baku

No

None

Belgrade

No

Etihad, Qatar

Beirut

Yes

Air Arabia, Etihad, Gulf, Jazeera, Kuwait, Oman, Qatar, Saudia

Bishkek

No

None

Bujumbura

No

None

Basrah

Yes

Air Arabia, Etihad, Qatar

Bratislava

No

None

Bucharest

No

Qatar

Chisinau

No

None

Chittagong

No

Air Arabia, Oman

Colombo

Yes

Air Arabia, Etihad, Kuwait, Oman, Qatar, Saudia,

Dammam

Yes

Air Arabia, Etihad, Gulf, Jazeera, Kuwait, Oman, Qatar, Saudia

Dar Es Salaam

Yes

Oman, Qatar

Delhi

Yes

Air Arabia, Etihad, Gulf, Kuwait, Oman, Qatar, Saudia

Dhaka

Yes

Air Arabia, Etihad, Kuwait, Qatar, Saudia

Djibouti

No

Etihad, Qatar

Doha

Yes

Air Arabia, Etihad, Gulf, Kuwait, Oman, Qatar, Saudia

Donetsk

No

Air Arabia

Dushanbe

No

None

Entebbe

Yes

Flynas, Saudia

Erbil

Yes

Air Arabia, Etihad, Qatar

Gassim

No

Air Arabia, Qatar, Saudia

Hail

No

Air Arabia, Saudia

Hambantota

No

None

Hofuf

No

Air Arabia, Qatar, Saudia

Hyderabad

Yes

Air Arabia, Etihad, Oman, Qatar, Saudia

Istanbul

Yes

Air Arabia, Etihad, Gulf, Jazeera, Qatar, Saudia

Jeddah

Yes

Air Arabia, Etihad, flynas, Gulf, Jazeera, Kuwait, Oman, Qatar, Saudia

Juba

No

flynas

Kabul

Yes

Air Arabia

Kandahar

No

None

Karachi

Yes

Air Arabia, Etihad, Gulf, Oman, Qatar, Saudia

Kathmandu

No

Air Arabia, Etihad, Oman, Qatar

Kazan

No

Air Arabia

Kharkiv

 

No

Air Arabia

Khartoum

Yes

Air Arabia,  Etihad, flynas, Gulf, Qatar, Saudia

Kiev

Yes

Air Arabia

Kigali

No

Qatar

Kilimanjaro

No

Qatar

Kochi

Yes

Air Arabia, Etihad, Gulf, Kuwait, Oman, Qatar, Saudia

Krasnodar

No

Air Arabia

Kuwait

Yes

Air Arabia, Etihad, Gulf, Jazeera, Kuwait, Oman, Qatar, Saudia

Lucknow

No

Air Arabia

Madinah

Yes

Air Arabia, Etihad, Gulf, Kuwait, Oman, Qatar, Saudia

Male

Yes

Etihad, Oman, Qatar

Mashhad

No

Air Arabia, Gulf, Jazeera, Qatar, Saudia

Mineralnye

No

None

Moscow

Yes

Air Arabia, Etihad, Gulf, Qatar

Multan

No

None

Mumbai

Yes

Air Arabia, Etihad, Gulf, Kuwait, Oman, Qatar, Saudia

Muscat

Yes

Air Arabia, Etihad, Gulf, Kuwait, Oman, Qatar, Saudia

Odessa

No

Air Arabia

Osh

No

None

Port Sudan

No

None

Prague

Yes

None

Riyadh

Yes

Air Arabia, Etihad, Gulf, Jazeera, Kuwait, Oman, Qatar, Saudia

Rostov

No

Air Arabia

Salalah

No

Air Arabia, Oman, Qatar, Saudia

Samara

No

Air Arabia

Sanaa

Yes

Etihad, Gulf, Qatar, Saudia

Sarajevo

No

None

Shymkent

No

Air Arabia

Sialkot

No

None

Skopje

No

None

Sofia

No

Qatar

Sulaymaniyah

No

Qatar

Tabuk

No

Saudia

Taif

No

Air Arabia, Qatar, Saudia

Tbilisi

No

Qatar

Tehran

Yes

Etihad, Gulf, Kuwait, Oman, Qatar, Saudia

Thiruvananthapuram

Yes

Air Arabia, Etihad, Gulf, Kuwait, Oman, Qatar

Ufa

No

Air Arabia

Volgograd

No

None

Yanbu al Bahr

No

Air Arabia, Saudia

Yerevan

No

Air Arabia, Etihad

Yekaterinburg

No

Qatar

Zagreb

No

Qatar

Zanzibar

No

Oman

Most of flydubai’s destinations are served less than daily

Emirates has a different network strategy from flydubai, and there could be an argument that such different strategies are best achieved by separate management teams.

Emirates typically serves destinations twice a day, often with 777-300ERs. Over 56 Emirates passenger destinations are served at least twice daily, and only nine are served less than daily. At flydubai, 13 destinations are served at least twice daily while 50 are served less than daily.

Emirates routes served by frequency per week week: 27-Oct-2014 to 2-Nov-2014

flydubai routes served by frequency per week: 27-Oct-2014 to 2-Nov-2014

flydubai is not always the smallest. Of its top 10 destinations in 2014 based on frequency, on seven it offers more frequencies than Emirates. On two flydubai and Emirates offer the same frequency while on only one Emirates offers more frequencies than flydubai.

flydubai’s frequency advantage is important for business travellers, and also to claw back against the frequency some other carriers operating to Dubai. Some frequencies offered by Emirates are during hours that work for its hub structure but are not ideal for local travel. For example, Emirates' last Beirut flight leaves Dubai at only 15:00 while flydubai has an 18:45 departure.

flydubai top 10 destinations frequency summary: 2014

flydubai destination

Emirates frequency

flydubai frequency

Major Gulf competitor frequency from Dubai and Sharjah)

Kuwait

5

9

Air Arabia: 3, Jazeera: 3

Doha

5

9

Air Arabia: 3

Qatar: 12

Muscat

2

4

Air Arabia: 2

Oman: 7

Bahrain

3

4

Air Arabia: 2

Gulf: 7

Kabul

1

3

Air Arabia: <1

Dammam

2

3

Air Arabia: 3, Saudia: 3

Jeddah

3

3

Air Arabia: 3, Saudia: 3, flynas: 2

Beirut

2

2

Air Arabia: 2

Kathmandu

0

2

Air Arabia: 3

Riyadh

3

2

Air Arabia: 2, flynas: 3, Saudia: 5

With regional focus, flydubai flies throughout the day and not just at scheduling banks 

Emirates’ network is focused around its hub that offers two main scheduling banks and a third smaller one.

Emirates does have a peak 07:00-11:00 departure period, and this is its largest. flydubai is busy during this period, but its departures are concentrated in a narrower window from 07:00-09:00, in line with typical regional travel patterns.

flydubai has another smaller departure spike from 18:00-19:00. This allows visitors to return at the end of the work day, or for Dubai-based passengers to depart so they can arrive in the evening at their destination and have a full day the day after.

flydubai movements at Dubai International: 22-Oct-2014

Emirates movements at Dubai International: 22-Oct-2014

Incorporating a LCC strategy could have diluted Emirates’ brand

Dubai was always going to bring class to its short-haul project, and there was never a question that a carrier like Ryanair would be created. As flydubai says in a brochure: “We recognise the expectation that has been set for us by carrying Dubai’s name”.

But the more basic service necessitated by short-haul LCC travel risked diluting Emirates’ brand. Emirates earned a reputation for offering voluminous in-flight entertainment at every seat, superior meals and business class (and often first) on their aircraft. 

This brand dilution concern was also present at fellow full service, brand-focused heavyweights Cathay Pacific and Singapore Airlines, which maintained slimmed down regional operations under different brands: Dragonair and SilkAir, respectively. SIA has moved SilkAir slightly up-market, but it is still noticeably different from SIA. Meanwhile, Dragonair has become almost indistinguishable from Cathay.

But the flydubai of 2009 is different from flydubai of 2014. flydubai in 2013 introduced business class and previously rolled out in-seat in-flight entertainment for a fee. flydubai’s business class has dedicated business seats. It has not followed the model used by some European LCCs of offering business class passengers economy seats with the middle seat blocked.

See related report: flydubai adds business class, hybridising and growing closer as Emirates' short-haul regional unit

If a passenger pays for meals, IFE and luggage on flydubai, the gap with Emirates is narrowed. flydubai may have the most comfortable product of any LCC. Indeed, it could be better than many slimmed down full service airlines.

What has also changed since 2009 are integration and hybridity strategies. LCCs are finding ways of accommodating full service passengers, such as providing them with meals, luggage and comfort items that would otherwise be available on an a la carte basis.

A separate brand can work but should not exist in isolation

flydubai is young but has reported two years of profits, albeit with limited financial information. Cost information is undisclosed, but we can assume flydubai is lower cost than Emirates, but probably higher cost than other LCCs.

See related report: flydubai has its second consecutive annual profit as network continues to overlap with Emirates

The question is if revenue – bolstered by business class, interlines and the attractiveness of Dubai versus Sharjah, to name a few factors – surpasses the extra cost involved. 

Almost no airline releases financial information on a route-by-route basis, so it is unclear how Emirates has fared on routes where flydubai has entered. But Dubai has surely benefitted from additional passengers.

Dubai’s second airline has demonstrated an ability to enhance the Dubai hub, offering higher frequency and opening new destinations. These characteristics should not benefit flydubai exclusively.

flydubai already has some partnerships, but these are relatively limited. For flydubai to continue to meet its original benefit of enhancing the Dubai hub, it should be brought out of isolation and work closer with its bigger sister Emirates.

At present there is not even a loose dual-brand strategy. The two offer connections but are separate. Indeed, plans are underway for a more expansive scope at flydubai which could see accelerated growth.

In the second instalment in this series of analysis reports on flydubai, we will look at the prospect of flydubai increasing its fleet beyond what it has ordered, and how aeropolitical matters, connecting traffic and partnerships will shape its growth.

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