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By every measure, every definition and every analysis, Adel Ali should be a failure. It is ten years since he first launched his low-cost carrier Air Arabia, a project that had failure written all over it. As he says himself, “Every guy I spoke to in the airline industry said it was impossible to start an airline from scratch in six months,” the group CEO of the airline says. “Everyone said low-cost carriers wouldn’t work in the Middle East. ‘You need to have open skies for this to work in the region, and you don’t have that’ they said. Those times were probably my worst times — the lowest point that I reached. Because I hadn’t started the business yet, there was no income and we were burning through the money.”
Ten years on, Ali has a huge grin on his face and rightly so. Today Air Arabia is worth a staggering $1.9bn on the stock market. It has become one of the Gulf’s biggest private-sector success stories. It is the first Middle Eastern low-cost carrier and the region’s only publicly listed airline. It has reported nine consecutive years of profit, flies to over 80 destinations and has set up two other hubs in Egypt and Morocco. Its stock is beloved of local investors, rising by over 120 percent in the last year.
The latest figures for the second quarter show a 15 percent rise in profits to $20.7m, with three million passengers having flown the airline in the first half of this year, a 16 percent jump on last year. Yet during this time, Adel Ali’s many competitors have come and gone. Remember Bahrain Air? Remember Wataniya? Remember SAMA? The rest of them pretty much all followed the script, which is that in this part of the world you would be absolutely crazy to take on the established big players backed by governments with deep pockets.
Yet Adel Ali is still here. Still smiling, still winning, still growing. Air Arabia kicked off its operations with just two aircraft flying to five destinations — the only destinations, in fact, for which the carrier was able to secure rights to serve. Today it is the biggest operator into both Saudi Arabia and India.
How has he managed it? I have met Ali several times over the past decade, and he isn’t what you would expect from a man running a near $2bn operation. He is relatively quiet and not one to give thumping orders and make ludicrous demands on his staff.
As he says in this week’s interview with Ed Attwood: “I always use this terminology — if you can’t paste, don’t copy. What I mean by that is that in business you have to have a belief and a very clear purpose about the results you want — whether it’s an airline or something else. Your objective also has to be that you want a return on your investment, and if those two things are clear, then you will succeed. What I think has happened is that people go into the airline business without realising it’s a risky business and also a very expensive one. You can’t just run a business purely by relying on a generic business plan dreamt up by someone sitting 5,000 miles away. Just because it was successful somewhere else doesn’t mean it will work here.”
But I believe the real story of Air Arabia is only just beginning. Nobody for a moment believed he could create a $2bn company in ten years — now there is good reason to believe his operation will be worth $10bn over the next decade. The airline is expanding faster than ever, and any city within a six-hour radius is on the radar.
China is a particularly interesting proposition. The carrier recently announced that it would be testing the waters of the world’s most populous country, although the range of its aircraft means that access points will be relatively limited to Chinese provinces like Xinjiang, Tibet and possibly Yunnan.
Though considered “smaller” cities, many of these have populations bigger than key destinations in the GCC. Crack China, and the game has really changed.
About three months before the first Air Arabia jet left the tarmac at Sharjah airport in October 2003, Adel Ali started feeling a bit nervous.
“Every guy I spoke to in the airline industry said it was impossible to start an airline from scratch in six months,” the group CEO of the airline says. “Everyone said low-cost carriers wouldn’t work in the Middle East. ‘You need to have open skies for this to work in the region, and you don’t have that’, they said.
“Those times were probably my worst times – the lowest point that I reached. Because I hadn’t started the business yet, there was no income and we were burning through the money.”
It says a great deal about Ali – and about Air Arabia – that the Bahraini national’s lowest point during his ten years in charge of the airline was before it had even taken off. In the intervening years, it has become one of the Gulf’s biggest private-sector success stories. It is the first Middle Eastern low-cost carrier and the region’s only publicly listed airline. It has reported nine consecutive years of profit, flies to over 80 destinations and has set up two other hubs in Egypt and Morocco. Its stock is beloved of local investors, rising by over 120 percent in the last year.
A decade ago, of course, there was far less certainty about an airline that was launching from a small airport, and competing against the might of deep-pocketed government-backed carriers. Air Arabia kicked off its operations with just two aircraft flying to five destinations – the only destinations, in fact, for which the carrier was able to secure rights to serve.
“Saudi Arabia wasn’t even part of our original business plan, because we thought it would take years to get in there,” says Ali. “Neither was India. Today we are the biggest operator into both Saudi Arabia and India.
“But I think those countries have seen the benefit that a company like ours can bring; 10 out of the 14 airports in India that we fly to were once domestic airports. We went in there and changed people’s lives, both by creating jobs and allowing them to travel.”
Ali says that he remembers approaching big regional trading firms to represent the airline before its launch.
“They all said no – we don’t deal with low-cost carriers,” he recalls. “Needless to say, two years later they came back and asked us what it would take to become our agent.
“And when we were hiring people in that start-up phase, some of them decided to give up great jobs at very good airlines to come and join us. But not everybody – people like their comfort zone.”
For those who did take the punt on joining Air Arabia, the bet has certainly paid off. Other regional carriers have come and gone, during a period that has been tough on the global industry due to steadily rising oil prices. Just last year, Bahrain Air exited the market, after a couple of years of trying to secure enough routes and generate enough demand to make its business plan viable. Before that, it was Kuwait’s Wataniya, which went bust in 2011 after failing to ever make a profit. It was the same story for Saudi Arabia’s SAMA, which shut up shop in 2010.
Further afield, there have been some far more spectacular failures. India’s Kingfisher Airlines went belly up in February this year by steadily accumulating a whopping $1bn worth of losses over a six-year period. In the last decade, five big-name American carriers have also entered, and then eventually exited, bankruptcy.
“I always use this terminology – if you can’t paste, don’t copy,” says Ali, when asked why Air Arabia has managed to stay profitable where others have failed. “What I mean by that is that in business you have to have a belief and a very clear purpose about the results you want – whether it’s an airline or something else.
“Your objective also has to be that you want a return on your investment, and if those two things are clear, then you will succeed.
“What I think has happened is that people go into the airline business without realising it’s a risky business and also a very expensive one. You can’t just run a business purely by relying on a generic business plan dreamt up by someone sitting 5,000 miles away. Just because it was successful somewhere else doesn’t mean it will work here.”
If you were under the impression that Air Arabia would be sitting back and counting its profits after its first decade, then think again. The airline is still expanding at an alarming rate, with new destinations seemingly being announced on a monthly basis. Almost any city within a six-hour radius of the UAE is being watched closely by the carrier’s planners, and recent months have seen a focus on Central Asia and China. The airline’s strategy is simple; select a location with a reasonably large population, carry out a market study and then try and develop that market.
“You’ve got to take the risk – at the end of the day not everything, especially if nobody else is doing international flights out of that location, will work,” Ali says. “But you’ve got to take that risk, and you’ve also got to be prepared to say that if it doesn’t work, get out of it. Normally about 80 percent of them work, and that’s a good mark to go with.”
China is a particularly interesting proposition. The carrier recently announced that it would be testing the waters of the world’s most populous country, although the range of its aircraft means that access points will be relatively limited to Chinese provinces like Xinjiang, Tibet and possibly Yunnan.
“Of course other carriers have started in the main big cities, but even the other smaller cities and surroundings – in relative terms – have a population about the size of the GCC,” Ali says. “So even if only 1 percent of that market travels, it’s a big deal for us.
“I can only see this growing. We will go to wherever we can reach and there are about four or five airports that we can reach. I think we should be doing something in 2014. It’s all about the logistics; everything has to be in Chinese language and so on.”
Elsewhere, Air Arabia will be hoping to add to its capacity in India when the next round of bilateral talks take place between the South Asian nation and the UAE, while it will also be planning to expand its services to West Africa via its Morocco hub. However, Ali points out that the Moroccan government has effectively granted Royal Air Maroc (the flag-carrier) a monopoly on those routes, which has hobbled Air Arabia’s plans somewhat.
Those restrictions are part of a wider pattern of practices that Ali says is stifling the airline’s growth into even more destinations. He cites policies that protect government-owned airlines in Egypt, Algeria and a couple of the Central Asian countries.
“Ideally we would like to see the Damascus treaty of 2004 implemented, which will provide open skies across the Arab world, but one has to be realistic – it will take time,” he says. “We hope at least we’ll see some liberal aeropolitical policies coming out on the bilateral side before we get to the ultimate.”
In tandem with that call, Air Arabia is also fighting against airport policies that Ali says penalise low-cost carriers.
“If I’m using the park for 35 minutes rather than an hour and 35 minutes, then I should pay for just that 35 minutes,” he says.
“If I don’t need 20 ground staff around my aircraft and only need four, then I should be charged accordingly.
“Some of the behaviours that penalise low-cost carriers should be taken away and there should be an incentive because we are driving the cost of the industry down. The result of those changes would, I think, encourage more passengers to go low cost, which may lead to a requirement for more low-cost carriers in the future.”
Ali is also looking at further hubs to add to Egypt and Morocco – “likely two in the next five years”. A couple of years ago, Jordan was very much in the frame, but the CEO appears to be a little less keen on the idea right now.
“There were quite a lot of plans and Jordan was one of them,” he says. “We’re seeing the bottom of the economic crisis and regional political stability coming back slowly, and once those two issues are resolved, we’ll need to relook at our plans.
“Maybe Jordan, maybe somewhere else – it depends on how the whole map pans out and who will be more open, and where we see the benefits to our business.”
If not Jordan, where? Ali isn’t giving too much away but there are a couple of strong options. As a connecting point to Europe, and given the strength of the Turkish economy and the massive infrastructure development planned for Istanbul, does he see that as a future base?
“It has all the criteria; 70 million people, the economy is going from strength to strength, inbound tourism is huge and the industrial side is positive,” Ali says. “It’s an extremely competitive route – there are good Turkish carriers, plus international carriers.
“I think if we found the right partner - because everywhere you go you can only get into those markets with a maximum of 49 percent – and if the right opportunity came in at the right place, we would look at it. Anything that comes in with that sort of strong criteria, we would be daft not to look at it and evaluate it.”
Another potential location – to the casual observer at least – would be Saudi Arabia. Last year, the kingdom announced that it would finally open up its domestic market, allowing outside carriers to join Saudi Arabian Airlines and Nas Air in servicing a high-demand market in the Arab world’s biggest econonomy. So far, Qatar Airways has taken the bait, although it is still unclear either when it will start flying, or under which conditions.
The two existing carriers in Saudi Arabia are forced to subsidise ticket prices, while the country’s flag carrier also benefits from subsidised fuel – a courtesy not extended to Nas Air. It’s still unclear as to whether any new airline in the country would be forced to operate under the same terms.
But at first glance, the market would be perfect for Air Arabia; it has experience in setting up separate hubs, an efficient operation and the brand fits the market. But at the time the announcement was made, Air Arabia didn’t throw its hat into the ring.
“We still, until today, we’re not clear about the total framework of that proposition,” Ali says. “Is it domestic? Is it international? Can you go to any airport in Saudi? It’s for the same reason that we haven’t gone into India.
“We would love to have a hub in Saudi Arabia because it’s the perfect scenario. But I think we need to wait and see; there’s a lot of change happening in the aviation industry there. We just need to make sure we have clarity of why we’re there and what it means.”
Other plans in the pipeline include new aircraft. Air Arabia will receive the last of its 44 A320 aircraft from Airbus in 2016, and is right now working hard to prepare for 2017 onwards, with a new order scheduled as early as next year. “We’re looking at A320 Neos [the next-generation version of the A320 with extended range), the 737-MAXs and the C-Series [manufactured by Canada’s Bombardier,” he says. “There’s a team spending a lot of time talking to manufacturers looking at our requirements. We’re hoping that if all goes well, some time in 2014 we’ll be looking at another order of aircraft.”
But as Air Arabia pushes into its second decade of operations, you get the feeling that Ali isn’t planning on changing the way he has led the company.
“You need to be close to the business, to feel it, to smell it,” he says. “From 8am for two hours most days, I’m in the operations building, feeling the operation of our business. That happened much more 10 years ago, I do it much less now. But the day I’m distant, that’s when we lose it.
“Your employees are only as good as you want them to be; if you’re part of them, and you sweat with them, then they will achieve everything you want to achieve.”
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