|
Dubai: Air Arabia has earmarked up to Dh1.5 billion to acquire another airline in the region, according to an analyst's report.
In its latest study on the Sharjah-based budget airline, regional investment bank EFG-Hermes said Air Arabia is also positioned to boost its revenues by 27 per cent annually for the next three years.
In March, the carrier raised Dh2.57 billion through an initial public offering, adding to Dh700 million it raised earlier. The shares begin trading on the Dubai Financial Market July 17.
Between Dh1 billion to Dh1.5 billion has been set aside to "opportunistically look for suitable acquisitions," the report said.
EFG-Hermes said Air Arabia would seek an airline with a strategic location, high potential for growth and a large addressable market. The target airline could include a full-service airline to be converted to the low cost model.
An Air Arabia spokesperson told Gulf News, "We don't have any current plans for acquisitions. However, we will assess any potential opportunities as they come forward in the future."
Up to Dh2 billion will be used to purchase as many as 34 aircraft over the next nine years, primarily to beef up its schedules to India, Egypt, and Saudi Arabia, and begin new routes to Yemen, Bangladesh, Iran, India and Pakistan. The carrier currently flies to 34 destinations with a fleet of eight aircraft.
Another Dh160 million raised in the IPO might be used to develop complementary services such as a budget hotel, and between Dh300 million to Dh400 million has been set aside to build a second hub, most likely in the Levant or North Africa.
Through its no-frills approach, the airline has been able to survive, and thrive, in a market dominated by established brands such as Emirates and Etihad Airways.
The airline, which began flying in 2003, benefits from a lean management structure, close ties with Sharjah Airport and a first mover advantage into the region's low cost carrier market, EFG-Hermes said.
Part of its success is due to a lack of competition. "On the vast majority of routes, the airline offers the lowest fares as well as the highest frequency of flights," EFG-Hermes said. It even undercut rival Jazeera Airways, which operates a hub in Dubai International Airport, by as much as 40 per cent on some routes.
Comparison
The investment bank compared Air Arabia with four budget airlines, concluding, "it is very efficient and profitable, its load factor and utilisation rates are at the upper end of the peer group."
The airline operates under the classic budget carrier approach such as single-type aircraft, separate charges for in-flight services, and all economy class seating.
However, Air Arabia made other adaptations to fit the Middle East marketplace. It distributed tickets through a network of Air Arabia sales shops and money exchanges, allowing those without credit cards or internet access to fly.
Today, Air Arabia earns 95 per cent of its revenues from passenger flights. But the airline is expected to focus on diversifying its revenues. This month, it plans to launch an internet portal for its holiday booking service, Air Arabia Holidays.
FINDINGS
Aircraft purchaseson the agenda
- In March, the carrier raised Dh2.57 billion through an initial public offering, adding to Dh700 million it raised earlier.
- Between Dh1 billion to Dh1.5 billion has been set aside to "opportunistically look for suitable acquisitions," the report said.
- Up to Dh2 billion will be used to purchase as many as 34 aircraft over the next nine years.
- Another Dh160 million raised in the IPO might be used to develop complementary services such as a budget hotel.
- Between Dh300 million to Dh400 million has been set aside to build a second hub.
|
