By buying a major stake in Petra Airlines, low-cost giant Air Arabia has created a new carrier which will use Amman as a hub to further its ambitious expansion plans.
By Laith Abou-Ragheb
Jordan’s aviation and tourism sectors were given a major lift last month when the UAE’s Air Arabia announced it was making Amman its fifth hub through a 49 percent acquisition of Petra Airlines, a small low-cost carrier based at QAIA that will be relaunched and expanded as Air Arabia Jordan.
The cost of the deal hasn’t been revealed, but the new airline will be managed by Air Arabia and is expected to start operating from QAIA next month. Its two Airbus A320s will initially fly direct to several destinations across the Middle East, before gradually expanding to Europe. “We will add more destinations, but we need to stimulate demand first. Accordingly, we’ll add more aircraft and increase the size of our fleet,” explained Riad Khashman, the chairman of the RUM Group which founded Petra Airlines in 2005 and now retains a 51 percent stake in Air Arabia Jordan.
Sharjah-based Air Arabia, which flies to 100 destinations across the MENA region and Europe, has long wanted to set up a base in Jordan, a strategically placed country with a fast growing and recently revamped international airport. “The establishment of a new hub in Jordan extends Air Arabia’s operational footprint into the heart of the Levant and brings us a step closer to achieving our stated goal of connecting the entire Arab world,” said Air Arabia Chairman Sheikh Abdullah Bin Mohammad Al Thani.
Partnering with RUM Group’s established carrier means Air Arabia Jordan can reach its full potential in a shorter time span, Al Thani added. Some analysts believe Air Arabia was wise to buy into a small existing carrier to further its growth, rather than undertaking the potentially expensive and lengthy regulatory process needed to set up a hub in Amman by itself. “Launching new airlines is costly, timely, and ultimately uncertain,” aviation analyst Will Horton told The National, adding that Air Arabia appeared to be buying a stake in Petra Airlines for its existing license. While Arqaam Capital’s Mohammad Kamal told the Emirati newspaper that, just like it had done with its hubs in Egypt and Morocco, Air Arabia was effectively buying the right to operate in Jordan and could scale its operations up or down depending on the economic or political circumstances within its catchment area.
Exploiting Jordan’s 2010 open-skies agreement with the EU was likely another big drawcard for Air Arabia, which is headquartered in a Gulf country that has yet to strike a similar deal. “Jordan has open skies agreements with Europe, which is a very attractive situation to be in,” Air Arabia CEO Adel Ali told Bloomberg. Mohammad Amin al Quran, the CEO of the Jordanian Civil Aviation Regulatory Commission, said Jordan fought hard for the open-skies deal and was now finally reaping the rewards. “This is an incentive for investors,” he said at a ceremony held in Amman to announce the launch of Air Arabia Jordan. “I am very happy that this partnership represents the start of Jordan benefiting from the distinctions it got after signing the deal.”
We Like Low-Cost
Demand for low-cost air travel is booming across the world, not least in the Middle East. Air Arabia served over 5 million passengers in the first nine months of 2014, a 13 percent year-on-year increase. This remarkable rate of growth hasn’t gone unnoticed by Abdel Razzaq Arabiyat, the managing director of the Jordan Tourism board. Citing statistics published by the United Nations World Tourism Organization, he said low-cost carriers now undertake 60 percent of all tourism flights annually. While standard flights booked with costly legacy carriers, which Jordan’s struggling tourism industry has historically relied upon, only make up 9 percent of flights. So in his view, Jordan is clearly missing out by not adapting to how tourists increasingly prefer to travel. “Tourists want experiential tourism. They want to pay the minimum for the transportation and hotel, and the rest of their budget they want to spend on experiences,” said Arabiyat.
Arabiyat is therefore pleased with Air Arabia’s decision to set up a hub in Amman, and recognizes it could dramatically boost the number of tourists making their way to Jordan. For example, he suggested that Air Arabia could work with tour operators to attract tourists from Asia as part of dual destination packages, taking in both the UAE and Jordan. Travel writer and journalist Matthew Teller was equally enthusiastic about the possibilities. “The long-awaited arrival of Air Arabia in the Jordanian market—via a new hub at QAIA—can only be a resoundingly good thing for Jordan, Jordanian business, locals, and tourists alike,” he said.
But Arabiyat warned the potential offered by budget airlines might be limited if the government doesn’t reduce or even abolish the $60 airport tax it places on cost-conscious travelers that would potentially use Air Arabia Jordan to reach the Kingdom. European budget airline giant easyJet was widely thought to have cancelled its London to Amman route in 2014 after just two years in part because of the high rate of tax.
Teller said it wasn’t just up to the government to make the most of Air Arabia’s new hub. “After the experience of the disastrous loss of easyJet, this is no time for complacency,” said Teller. “I would love to see this news leading to active efforts on the part of the Jordanian business community to encourage growth and competition in the aviation sector by working to draw easyJet and other European low-cost carriers into QAIA as well. Jordan would then be uniquely placed as the setting for unprecedented innovation, with low-cost carriers from two separate short-haul markets, Arabia and Europe, taking each other on, head-to-head.”
The prospect of increased competition will surely be welcomed by Jordanian travelers expecting greater competition to push down ticket prices. But Air Arabia’s announcement is unlikely to be receiving the same enthusiastic response from other airline’s using QAIA, and particularly not Jordan’s troubled national carrier. Royal Jordanian might have banked on record low oil prices, coupled with a corporate shake-up, to help it wave goodbye to its financial woes in 2015. But Air Arabia’s aggressive push into RJ’s backyard might force a rethink. “It will be … interesting to see what, if any, moves that Royal Jordanian makes to counter this pairing. Because if successful, Amman could become another bastion of low-cost activity which could sideline the higher yielding fares that Royal Jordanian relies heavily upon,” aviation analyst Saj Ahmad told Arabian Aerospace magazine.
The partnership between Air Arabia and Petra Airlines can be viewed as part of a wider consolidation trend in the global airline business. Whether it’s Etihad buying a big stake in Alitalia, or American Airlines merging outright with US Airways, carriers are being forced to adapt to new market realities as they compete for passengers across territories. “This requires integrated partnerships between regional airlines and not competition,” explained al Quran of the Jordanian Civil Aviation Regulatory Commission. So perhaps we shouldn’t expect the creation of Air Arabia Jordan to be a one-off event.