Air Arabia, the World's Most Profitable Airline
The Low Cost Model that Outperforms Other Discount & Legacy Airlines
May 24, 2009
Introducing itself upon the world stage nearly 6 years ago, Air Arabia has set record profits every quarter of it existence. In 2008 this record was unsurpassed. According to an article by the Centre for Asia Pacific Aviation on May 14th 2009, supported by Airline Weekly in Issue #214 and confirmed by Air Arabia’s 2008 Annual Report, “Air Arabia (ABY) is the world's most profitable airline….”
In a time when Europe’s largest low cost airlines (Ryanair and EasyJet) and legacy airlines (British Airways and Air France/KLM) reported €102 million ($130 million), £116.5 million ($185 million), £401 million ($638 million) and €814 million ($1.1 billion) losses respectively, Air Arabia made an astonishing 510 million AED net profit ($139 million.)
The Trend Continues
In the first 3 months of recession driven 2009, Air Arabia made an amazing 104 million AED ($28 million.) The CAPA article continued, “Air Arabia’s first quarter [2009] profits defy industry trends…Air Arabia has…a 32% increase in net profit, producing an industry leading net margin of 22% - an outstanding achievement given the global economic environment.” During this same 3 months most of the world’s airlines followed the path of legacy airline Lufthansa which lost €256 million ($340 million.)
The Low Cost Model
CEO Adel Ali (a 20 year senior management veteran of British Airways and Gulf Air) reported to shareholders in March, “Air Arabia’s appeal to customer’s remains based on a simple promise of value-for-money services, a broad and growing range of destinations, and the very highest levels of passenger comfort and reliability….[That] attractiveness…remains greater than ever, as travelers everywhere increasingly see the appeal of low-cost services in general and those of Air Arabia in particular.”
The Air Arabia Method
This principle, while more competitive over large legacy airlines, does not explain the success over other low cost airlines. Air Arabia thrives based upon 5 fundamental principles.
- Operational Discipline– dictates the concept of controlling costs. Air Arabia won, according to Airbus industries, the operational excellence and service reliability award. “…for the fourth consecutive year [and] maintained the lead among all global airlines operating Airbus A320 aircraft….[They] achieved the highest aircraft utilization in 2008, with 99.8% operational reliability.” Flying over 17.4 hours a day per aircraft (the highest in the industry) ABY is able to lower cost dramatically. With an average two sector operation approaching 7 hours, the cycle hours per aircraft are well below comparable low cost carriers and give Air Arabia a significant advantage.
- Forward Thinking – is a strategy placed upon management! Fuel hedging aided during the run-up, while aircraft purchases when Airbus and airlines were in turmoil created competitive discounts.
- Route Structure – is designed to maximize the operational principles. Filler flights are few as routes are chosen carefully and methodically. In a February conference call, ABY's investor advisor said, “...Air Arabia usually makes a profit quickly when entering a new market.”
- Customer Demands – are carefully listened to and policy changed. Station managers have authority to augment procedures based upon local needs and rapidly implement those changes. Customers are given a smorgasbord of options that provide for all their desired needs.
- Employee Satisfaction – is often overlooked. One senior ABY captain, who formerly piloted jumbo jets for United Airlines, told this author, “I make more money than with Marvin [a nickname for UAL] and I am home in my bed every night.” Counterparts in Europe, Asia and North America control costs by controlling salaries. According to a survey on the pilot website PPRUNE, Air Arabia pilots are among the highest paid in the industry as well as being the most productive – Southwest’s happy worker policy.
With 36 consecutive years of profitability Southwest Airlines is the model for low cost airlines. Air Arabia seems to have cloned that replica and refrained from reinventing the profit-losing wheel.
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