It is hard to believe Jazeera Airways only has five aircraft when you examine the Kuwaiti low-cost carrier’s far-flung network, which spans 13 countries in three continents.
Jazeera now operates 14 routes from its main base in Kuwait City and another seven routes from a base in Dubai that it opened earlier this year. An average of more than four routes per aircraft is unheard of in the low-cost industry, but founder, chairman and chief executive Marwan Boodai has made it work.
Jazeera, which launched in October 2005, is already profitable, turning a $8.7 million profit last year on revenues of $74.5 million. Boodai says it has been able to achieve profitability only one year after launching and despite operating a low-frequency schedule because its yields are higher than most low-cost carriers.
“We have better margins than low-cost carriers elsewhere. The Middle East is different from Europe. The legacy carriers here you’re talking seven-star airlines not five,” he says.
As a result, he says Jazeera can charge more than low-cost carriers easyJet or Ryanair while still offering a significant discount compared to flag carriers. But passengers in the Middle East also expect a higher level of service. “You need to satisfy their needs with leather seats, two classes and some light entertainment,” Boodai says.
Jazeera still charges economy passengers for food, drink and in-flight entertainment headsets. Business class passengers receive this for free as well as lounge access and a higher luggage allowance. The first 12 rows of every Jazeera Airbus A320 can be converted into business class by placing a table over the middle seat. This gives the carrier the flexibility to offer a premium product on business routes, such as Kuwait-Dubai and Kuwait-Bahrain, while operating an all-economy configuration on leisure routes.
“You need to adapt to your own region,” Boodai says.
He adds Jazeera had to come up with a new model for the region in order to avoid competing against subsidised government-owned carriers. He is proud to say Jazeera was the Middle East’s first private airline.
“It’s not easy to operate legacy carriers in this part of the world when you have so much government-owned legacy carriers in the region. That’s why we chose the low-cost model,” Boodai says. “We like our model.”
Rapid growth
Jazeera started with only five routes but has quickly added 16 within the last year. Boodai says this shows “how much opportunity we have and what open skies policies we have in the region”.
He acknowledges several Middle Eastern countries still restrict access to low-cost carriers but says they too are opening up. For example, he says Jazeera has just secured access to Cairo and all three major cities in Saudi Arabia. That will give it at least 18 routes from Kuwait by the end of this year.
“There’s great potential in the market here. Look at how we stimulated the market here in Kuwait.”
Last year the Kuwaiti market grew from 5.3 million to 6.5 million passengers. Jazeera accounted for half of this increase or 600,000 passengers.
Traffic on the Kuwait-Damascus route alone grew 65% last year, with Jazeera already holding a 51% market share. Boodai says traffic from Kuwait to Jordan and Oman also grew nearly 30% and would have grown more if Jazeera had more rights to serve Amman and Muscat. Access to these two cities will soon no longer be a problem, Boodai adds, because Jordan is opening up and Oman will announce open skies with Kuwait at the end of April.
The only problem is Jazeera does not have enough aircraft to expand as fast as demand is increasing and governments are liberalising. “Our issue right now is capacity,” Boodai says.
Jazeera is now slated to take only one additional A320 this year, followed by two in 2008 and two in 2009. Boodai adds Jazeera is interested in swapping its current delivery slots for earlier aircraft and increasing its original 10-aircraft order.
But he says he is “struggling with Airbus” now to secure earlier delivery slots and is hoping other A320 operators holding near-term delivery slots cancel or defer their orders. Boodai in particular has his eyes on India, where five domestic low-cost carriers continue to take delivery of new narrowbody aircraft at a rapid rate, although all of them are unprofitable. Three of these Indian carriers - Air Deccan, GoAir and IndiGo Airlines – combined have outstanding orders for over 150 A320s.
“We’re looking at the Indian market very closely these days,” Boodai says.
More capacity
He adds Jazeera needs more capacity to grow its Dubai base, which he says currently accounts for less than one-quarter of Jazeera’s overall operation. Eventually Dubai will likely be larger than its Kuwait hub and will have at least 20 destinations.
“It’s an exciting destination and it’s happening. We have to part of that,” Boodai says of Dubai. “The city there is expanding so fast. Ultimately we’ll have a big number of aircraft operating there … We call it a base now and it will turn into a hub as we add more aircraft.”
Jazeera also plans to open up to three more bases over the next three years. Jazeera in Arabic means “Arabian peninsula” and the carrier’s vision has always been to have bases across the region. “Looking at the Middle East surely you can have five hubs in the region,” Boodai says. “[But] we won’t expand for the sake of expanding. We want to expand to make money.”
Boodai also sees more growth opportunities in Kuwait, with several new routes to be launched over the next year including to Cairo, Damman, Jeddah and Riyadh. There are only 2.7 million people living in Kuwait, including almost two million expatriates, and Jazeera now has only a 10% share of the market.
Boodai says it is “difficult to tell” how many aircraft Jazeera will ultimately require, but says a 10-aircraft fleet is too small given the opportunities throughout the Middle East and “even doubling that won’t surprise me”.
For now, it will do as much as it possibly can with only five aircraft. It now uses each aircraft 14 hours per day on average, flying to and from India at night to keep utilisation high. Boodai says night flights to India make sense because it is a relatively low-yield market catering to migrant workers while Middle East routes are much more lucrative.
“We try to do as much as we can and then we’ll build up our fleet,” he says. “We want to stimulate the market and see how low-cost works in the region and appreciate it.”
Owners
Boodai’s company, the Boodai Group, is the largest single shareholder in Jazeera but is by no means the only shareholder. He says 36,000 Kuwaitis own the company, a remarkable statistic given there are only 800,000 Kuwaitis in Kuwait. These public shareholders, who bought into the company in a pre-launch initial public offering, own a 70% stake in the company. The other 30% is held by a group of private investors, led by the Boodai Group, a diversified Kuwait industrial and transport company.
Jazeera is now in the process of getting listed on the Kuwaiti stock exchange. The listing will not give Jazeera access to more capital, at least not initially. But Boodai says the company in a few weeks will complete a doubling of its capital to KD20 million ($69 million), a process it began last year with its existing shareholders.
“We want our company to be transparent. The stock listing does it,” Boodai says.
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Source: Airline Business
