Air Transport World

Africa/Middle East.(WORLD AIRLINE REPORT)(El Al Israel Airlines face financial problems)(Emirates Airline sees increase in profits)(Ethiopian Airlines new marketing strategy)


When the Sharjah-based LCC launched operations in 2003, there were a host of doubters saying its business model would be a poor fit in the Middle East. "We're operating in a region where in terms of aviation, people are used to the 'normal' legacy airline business . . . and there was the perception that low-cost meant low quality, no safety, no security, bad aircraft," CEO Adel Ali explained (ATW, 2/07, p. 44). "Surprisingly, it did not take long for people to change their perception."

That change was evidenced by a successful March IPO that closed with 40,000 subscribers buying up 2.57 billion shares representing 55% of the company's share capital. The AED2.57 billion ($698.8 million) offering was 150% oversubscribed and provided financing for the carrier's planned expansion from the nine leased A320s it operates to at least 34 aircraft by 2016. It marked the first time a Middle East airline had gone public.

With shares now listed on the Dubai Financial Market, Ali pointed out that Air Arabia's perceived disadvantages in 2003--that it wouldn't be linked with a country like longstanding Middle East airlines and wouldn't cater to wealthy passengers--are now advantages that set it apart. It is the carrier for all travelers in the region, he said: "We carry everybody --wealthy families, students, middle class and laborers."

The airline reported a 2006 full-year profit of AED101 million ($27.5 million), more than three times its 2005 earnings. Revenue soared 82% to AED749.2 million and passenger numbers grew 54% to 1.8 million. Load factor was 81.2%.



The carrier's steady momentum since its 2004 privatization slowed last year as it contended with increased competition from other Israeli airlines and reduced demand owing to conflict in the region. It lost $44.4 million in 2006, reversed from the $64.1 million it earned in the prior year. But officials assert that it is still on strong footing long-term. Chairman Israel Borovich said his family's $7.4 million purchase in May of an additional 5% stake in Knafaim Holdings, which owns a controlling stake in El Al, was a "vote of confidence" for the flag carrier.

The additional shares brought the family's total holding in Knafaim to 51.7% and it has an option to buy another 4.2% this year. But Borovich clearly is focused on cost-cutting to maximize his family's investment. El Al's financial difficulties were apparent last November when it canceled 10 787 options and Boeing returned a $1. …

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