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MAX impact

Posted 12 March 2020 · Add Comment

Low-cost carrier, Flydubai, looks to the future as it operates against the backdrop of the grounding of the Boeing 737MAX. Alan Dron reports.

First, the good news: Flydubai’s CEO believes the future is essentially bright, with a growing regional market and visa restrictions gradually being relaxed in several of the low-cost carrier’s (LCC) destination countries.
However, those positives have been viewed over most of this year through the prism of uncertainty generated by the grounding since March of the airline’s fleet of Boeing 737 MAX aircraft.
“Financially, without the MAX it will be a challenging year for us,” CEO Ghaith Al Ghaith told Arabian Aerospace at the end of September.
Just 72 hours after his remarks, the airline’s half-year results to June 30 appeared and laid out the extent of the problem.
Those showed a loss of AED 196.7 million ($53.6 million). This was actually a 38% reduction, when compared to the first half of 2018. However, passenger numbers dropped 7.5% to 5 million during the first six months of the year as a result of the reduction in capacity caused by the absence of the MAX fleet from the schedules.
The company reported that 11 Boeing 737MAX 8 and three MAX 9 remained grounded. Compounding the problem, five of the existing fleet of Boeing 737-800s left the fleet in the half-year.
“We had reported in our 2018 full-year results that we were cautiously optimistic at the start of 2019,” Al Ghaith said in notes to the financial results. “We had seen positive results as our routes matured and, during the first few months of the year, we saw strong demand across the network. Our performance has, however, been significantly affected by the grounding of the Boeing 737MAX aircraft and our half-year results are not representative of what we had expected to report; we were expecting a significantly improved performance.”
Flydubai has suffered more than most MAX operators, given the relatively high percentage of the latest-generation 737 model in its fleet.
The loss of capacity saw 14 aircraft grounded in March, but the airline should have received a further six over the course of 2019, replacing Boeing 737-800s that were coming to the end of their leases. Taken as an average from the mid-March grounding to late September, the loss of capacity was 17%, Al Ghaith said.
The company was also unable to extend lease contracts for aircraft that were scheduled to leave in 2019: “You have to have 18 months, on average, for notification to extend those aircraft leases, because they already had [other] customers to go to.”
However, Flydubai has been able to extend until 2022 the leases of two 737-800s that were due to leave the fleet next year.
Naturally, the greatest priority for the airline has been to look after its customers in the ongoing situation and to give them the best possible product, considering the shortages faced.
“Usually, when you have a problem, it starts out as a big problem and gets smaller as you resolve it. This time, it’s the other way around,” said the CEO. The uncertainty has also made it difficult to draft in extra capacity, as nobody has been sure for how long it will be required.
Despite this problem, Flydubai believes the air travel market remains buoyant.
The Middle East has seen rapid growth in LCCs and hybrid carriers over the past decade, despite early predictions that the region’s travellers equated ‘low-cost’ with ‘poor quality’ and would be unlikely to abandon full-service airlines.
That has proved to be incorrect, as Gulf passengers have shown they like a bargain as much as anyone else. Not only that, Middle East LCCs have significantly stimulated the market, increasing the number of people flying.
This increase in rivals does not worry Al Ghaith: “For us, competition is not an issue. Competition is good. The biggest challenge is we don’t have an open market where you can operate without any restrictions. By having more competition, that proves there is a requirement for more lift.”
He hoped that the growing number of LCCs would increase the pressure on those nations that do not have ‘open skies’ agreements to ease their restrictions.
“We created our airline based on open skies in Dubai and the UAE. After 10 years we’re very proud of what we’ve achieved. We opened 65 new routes that previously didn’t have any direct routes to Dubai.”
The benefits of opening up a market could be seen in Saudi Arabia, said Al Ghaith. “We now have 14 or 15 destinations we operate to there, compared to three or four previously.”
The biggest challenge for Flydubai is India. Given the strength of India’s links with the UAE, routes between the two countries should be some of the busiest in the f network. Instead, Indian restrictions on flight frequencies mean that: “India represents 2-3% of our capacity, which is very, very small.”
Al Ghaith sees growth in south-east Asia, where Flydubai is expanding. “But I personally believe there’s more potential in the [Indian] sub-continent, Africa and the former Soviet Union, including Russia.” With a relaxation of visa requirements by the Russian authorities for UAE citizens: “Moscow has become very popular this year with UAE visitors.”
A major factor in the carrier’s development over the past two years has been the greatly enhanced cooperation with sister company, Emirates. Much greater coordination of services and a codeshare agreement has seen a considerably increased number of passengers transferring between the two companies’ services.
“When Flydubai was established, it was always intended to bring more routes, but I was told to make sure that we should work independently of Emirates to start with. I was to make sure that we stood on our own feet and created our own values,” explained the CEO.
Today, cooperation with Emirates, or flying jointly on services, is very much the name of the game.
At the World Aviation Festival in London in September, Emirates’ president, Sir Tim Clark, noted that Flydubai now opens up smaller routes on Emirates’ behalf, such as Thessaloniki in northern Greece, and Catania in Sicily. Additionally, Flydubai operates Emirates routes that are too quiet in winter to merit a Boeing 777-300, such as Zagreb in Croatia.
Another sign of the closer relationship with Emirates comes in the form of an increasing number of Flydubai services that have moved to Dubai International Airport’s Terminal 3, to ease transfers with the long-haul carrier.
“I think that’s a reflection of our close cooperation with Emirates but it’s also a reflection of reality,” said Al Ghaith. “Terminal 2 is limited in terms of capacity.”
Further challenges to the airline’s operations came in spring 2019, when the closure of one of Dubai International’s two runways for 45 days of refurbishment forced Flydubai to move flights to 39 destinations to Dubai World Central (DWC). It was not the first time the carrier has moved services there temporarily, but the new airport will play a larger part in the carrier’s plans in future. “We started flights from DWC in 2015, I believe. With the limited capacity at Dubai International, the only way to grow is in DWC and we think and believe there’s big potential there.”
In the immediate future, Al Ghaith is clear about the major challenges and opportunities facing the airline. “First, we need our MAX back. From our point of view, every year has its own challenges. Fuel prices continue to be around $60, which is good; if that goes up, that will be a challenge. But our main challenges don’t change – open access and border controls.”
 

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