Overview - Jazeera Airways

Jazeera – low cost comes to the epicentre of wealth

Perhaps the most persuasive evidence to support the argument that the appeal of low cost air service transcends income levels, Jazeera Airways was founded in 2004 by local businessman Marwan Boodai. The carrier, created after a governmental decree allowing private competition to Kuwait Airways, was the object of a vastly oversubscribed USD34 million public offering in 2004 (Mr Boodai states that one in every 25 Kuwaitis owns shares of the company).

Launching operations in Oct-05 with a service to Dubai, the carrier started flying to holiday and business destinations within the region. With the granting of rights, it in Jul-06 added services to Delhi, Kochi and Mumbai in India, home to much of the wealthy nation’s imported labour.

While claiming that its efficiency levels rival its LCC counterparts in the EU and US, it has used connectivity to capture more traffic than its small local base generates, especially to the labour markets of the Subcontinent. Providing economical services – it claims its fares average about 50% of those charged by its regional flag carrier competitors – it offers inexpensive one-stop services to migrant labour originating in other Gulf nations. 

The success of its offerings – it claims market leadership on numerous routes, notably including Kuwait City-Beirut – has led to plans for expansion. It has added six firm orders to its original tally of four A320s (it currently operates five of the type) and has spoken of activating another six options. In Feb-07, it opened a second base at similarly open Dubai, from where it will not only serve its home airport, but also such cities as Bahrain, Mumbai and Salalah in Oman.

To fund these capacity increases, the company conducted another offering to its original shareholders, raising a further USD34 million. A previously planned public listing on the Kuwait Stock Exchange has been postponed from 2Q07 to Sep-07, with the possibility also of a Dubai Exchange listing.

Unlike nearby LCC, Air Arabia, Jazeera does not operate a pure version of the LCC business plan. In addition to the connectivity it uses to create incremental traffic, it has tailored its offerings to its home base, with all leather seats and a premium class cabin.

However, its promotional fare offerings – as low as KWD10 roundtrip – and its high rate of asset utilisation speak to its application in the model’s core tenets.

Jazeera has gained a loyal following in its home market – with over 600,000 passengers carried in its first year of operation – refuting those who say that the oil-rich state’s citizens will stand for nothing less than full service. It also appears to have won the support of the Kuwaiti Government.

After years of protecting the flag carrier with air service agreements that restricted internal and external competition, Kuwait not only authorised Jazeera’s launch, but, perhaps following the lead of Lebanon, opened its markets on a unilateral basis.

Jazeera’s early results are positive, with the following financial/traffic highlights for the 12 months ended 31-Dec-06, its first full year of operations:

• Revenue: USD74.5 million;
• EBITDA: USD25.3 million;
• Net Profit: USD8.7 million;
• Average revenue per passenger: USD124;
• Passenger numbers: 600,618
• Load factor: 67%

According to Mr Boodai, the carrier is “very optimistic about both our future and the future of the industry in the hands of the private sector”. In 2007, Jazeera Air will continue its strategy of entering new, high-demand markets. The carrier has already launched services to Cyprus, Salalah, Muscat, Tehran and Shiraz in 2007. To enable its ambitious plans it placed a Jun-07 order for a further 30 A320s, which brings its in-service and on-order fleet to 45 units.

An important part of Jazeera’s long term plan is to establish a series of hubs through the Middle East, becoming a major regional carrier, as well as continuing to expand its network from established bases. In late Mar-07, the carrier received initial approval from the Saudi Civil Aviation Authority to operate services to Saudi destinations.

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