Formation of another budget air carrier in the United Arab Emirates (UAE), which is the fifth airline and third low-cost carrier in the Gulf state, is expected to intensify competition in the airline industry in the region.
Air Arabia and Etihad Airways have agreed to set up a joint venture airline – Air Arabia Abu Dhabi – in an apparent move to tap tourists who prefer budget travel and support inflow of tourists to the UAE capital. The new carrier, which will be the first budget carrier of Abu Dhabi emirate, will operate out of Abu Dhabi International Airport.
"This exciting partnership supports our transformation programme and will offer our guests a new option for low-cost travel to and from Abu Dhabi, supplementing our own services," Tony Douglas, group chief executive of Etihad Aviation Group, was quoted as saying by the National newspaper.
Like the other two budget airlines – Air Arabia and flydubai – in the UAE, Air Arabia Abu Dhabi will largely rely on low-income workers from Indian sub-continent and untapped new destinations in countries such as India, Sri Lanka, Pakistan, Bangladesh, the Philippines and some of the CIS countries.
However, aviation experts believe that the UAE market is overcrowded with the existing large network of four airlines – Emirates, Etihad, Air Arabia and flydubai – that position the Gulf state's airports as their hubs for connecting hundreds of destinations across the world.
But travel demand in low-cost carriers, which accounted for 17 per cent of seat capacity in the Middle East in 2018, has been growing rapidly in the Mena region, ever since the first such airline started operation way back in 2003.
Dubai alone handles nearly 90 million travellers a year, which include 89 million overseas passengers. According to an estimate by the International Air Transport Association (IATA), air transport market in the UAE is expected to grow by 170 per cent in the next two decades, resulting in an additional 101 million passenger journeys by 2037. This increased demand would support about $127.7 billion of gross domestic product (GDP) and around 1.4 million jobs.
Etihad Airways, which started a five-year turnaround plan in 2017, has been looking for growth opportunities through joint ventures and strategic cooperation. It is the first major partnership of Etihad after it retreated from a strategy of inorganic growth through minority stake investments in global carriers.
While Air Arabia has two UAE hubs in Sharjah and Ras al Khaimah, Emirates, the world's biggest long-haul carrier, has already forged closer ties with its sister airline flydubai.