The Other Gulf Carriers: The high-flying Big Three get the headlines. But Gulf LCCs are making a splash of their own

Gulf LCCs are making a splash of their ownThey’re growing at warp speed. They’re voraciously buying planes. They’re located at the geographic center of the world. And they’re irritating established legacy airlines everywhere with their allegedly unfair government support. No wonder Emirates, Qatar Airways and Etihad, the Gulf’s high-flying Big Three, get so much attention.

More quietly, though, other Gulf carriers—call them the Gulf’s “low-flying” carriers, as in low costs—are bringing important changes to aviation in the Middle East and beyond. Chief among them is Air Arabia, the Middle East’s first true LCC. It was founded in 2003 by the government of Sharjah, one of the seven United Arab Emirates. The publicly-traded airline, profitable since its second year, produced another set of strong results in 2014, followed by solid margins in the first quarter of this year as well.

Just how does Air Arabia earn such a good living? It competes closely, after all, against the more famous Gulf carriers, most importantly Emirates—the airports of Sharjah and Dubai are closer to each other than are, say, London Heathrow and Gatwick, or Houston’s two airports. More broadly, it flies in a region where capacity is growing well ahead of GDP, and has been for many years now. The larger Middle East is politically tumultuous, with frequent market disruptions that make certain airports un-servable for safety reasons. It’s sometimes unsafe to even fly over certain countries, such as Iraq or Syria.

Middle East LCCs, furthermore, rely far more on third-party ticket distributors—Air Arabia, for its part, says it gets less than a third of its bookings via the internet, a figure depressed by relatively low levels of internet penetration and credit card usage. About 60% of its bookings, by contrast, come via travel agencies and general sales agents (GSAs), with the balance through the airline’s call centers and ticket offices. High reliance on indirect sales is not just costly but means limited access to customer data, which in turn limits opportunities for the sort of personalized merchandising that LCCs elsewhere are enthusiastically adopting. And ancillary revenues? Here too, Air Arabia is a laggard relative to other LCCs around the world—it conceded as much during its first quarter earnings presentation. To be sure, it levies charges for things like checked bags and seat assignments. But bag fees in particular—the biggest source…

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Proving once again that airline profits these days are highly correlated with seat density, the ultra-densified Ryanair and Wizz Air both reported excellent financial results for what’s the weakest quarter of the year in Europe. Then again, AirAsia X is pretty dense too, but its lousy financial results highlight an important exception to the rule: The magic doesn’t work nearly as well with longhaul flying.

As for shorthaul AirAsia, business is still more or less good, especially in Thailand. But AirAsia Indonesia is a mess, and younger ventures like those in the Philippines and India have yet to turn a profit. AirAsia will soon try its hand in Japan again too, never mind that its first attempt was a disaster.

Back at Ryanair, all eyes are on its looming decision on whether to accept IAG’s offer for its share of Aer Lingus. To the delight of Willie Walsh, Ireland’s government agreed to sell its stake. Will Michael O’Leary do the same?

The Indian airline market is making everyone dizzy again. Traffic is surging, and at least one airline—IndiGo—seems to be emerging as an industry star, although confirmation of that will come only if it follows through on IPO plans and publishes its finances. As for Jet Airways, the country’s leading international airline, losses are falling thanks in big part to cheaper fuel. But it’s now a member of the notorious Etihad gang, a group that’s perhaps most famous for all the money its members lose.

Etihad itself claims it’s making money, not losing money. But without audited financial statements and in light of other data points, such claims naturally raise skepticism.

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