‘Value-focused does not mean no-frills’

Even as Arab carriers begin exploring synergistic solutions, the Middle East airline market is ripe for the expansion of VFCs, Sabre’s Nejib Ben-Kheder tells TTN’s Manisha Koshy
Ben-Khaider: complexity can bring in high yeilds

SEVEN Middle Eastern air carriers are exploring synergistic solutions that will help them optimize market share through streamlining operations and maximizing revenue streams.

In an interview with TTN, Nejib Ben-Kheder, president and managing partner, aviation consulting practice, Sabre Airlines Solutions, revealed that currently Gulf Air, Egypt Air, Royal Jordanian, Saudia, Tunisia, Yemenia and Middle East Airlines are seeking ways to mitigate emerging competition from global operators and the emerging low cost carriers in the GCC.
Speaking on the sidelines of the GCC Low Cost Airlines Conference in Dubai last month, he explained, “The first thrust will be on the commercial operations side. Conventional airline wisdom believes that getting into North American airspace is the ultimate solution to improving bottom-lines. But such a move is not always feasible for smaller airlines.”
A 2004 IATA survey of the Arab traveller revealed that passenger schedule, convenience and punctuality took precedence to price considerations. “Sabre, which works closely with AACO, the Arab Air Carriers Organisation recommended a refocusing of strategy that concentrates on offering convenient schedules, increasing frequency and offering better destinations to passengers by tapping into the synergies of these seven airlines,” says Ben-Kheder.

Sabre recently enhanced its presence in the Middle East with a new regional office in Jeddah and signed a contract with Attar Travel, one of the leading travel agencies in Saudi Arabia. As part of the agreement, the latest in desktop technology is being installed at all Attar Travel’s branches, along with MySabre, Sabre’s internet booking platform. Sabre will also provide specific training to facilitate the agency's operational skill set and allow travel agents to make full use of the Sabre tools that help them drive operational efficiency, enhance customer service, reduce costs and increase revenues.
Sabre will be one of the two global distribution systems used by Attar Travel.
“The opening of our new offices in Jeddah has provided us with a unique opportunity to build strong relationships with the agencies in the Kingdom, bringing us closer to them geographically,” says Ben-Kheder. “Attar Travel will have the benefit of being one of the first to be trained and supported by our on-the-ground account managers, training specialists and technical support staff. They will, in turn, be supported by our head office in Bahrain, with full access to all our services.”
Sabre’s recent arrival to the Middle East is well-timed. The move will help it come closer to its biggest global customers, Gulf Air, besides it will assist Sabre in exploiting the tremendous potential in the region. “Globally, the airline industry is recovering well,” says Ben Kheder. “Scheduled airlines’ operating revenues crossed the $400 billion mark in 2005. Yields are also improving, and reached 11.1 US cents per revenue passenger kilometre (RPK) last year, compared with just over 10.3 cents per RPK in 2002. Within this healthy picture, the Middle East’s own share of worldwide airline revenues is growing, too. This stood at 4.5 per cent last year, compared to 3.7 percent in 2002 and 2003.”
Total revenues of airlines based in the Middle East have been growing at double-digit rates for the past few years, Ben-Kheder said. This has been fuelled particularly by Dubai, with its importance as a financial sector, burgeoning tourism industry and demand for labour from around the world to assist with infrastructural growth.
Traditional network carriers in the Middle East are investing hugely in growth opportunities, he said. Some carriers in the region have projected compound annual growth rates of 16 percent between now and 2015.
The local office will consolidate its business on the travel agency networks front.  Ben Kheder says, “Galileo is still ahead because of its existing relationship with Saudi Arabian Airlines and Kuwait Airways while Amadeus holds Qatar Airways and Gulf Air accounts, however, our physical presence here will help us consolidate our presence.”
IATA’s ‘Simplifying the Business’ strategy calls for 100 percent e-ticketing by the end of 2007. Collectively, Sabre Travel Network airline customers broke through the 80 percent barrier in March, meaning that now only one in five tickets issued through the Sabre GDS is paper. But regionally the numbers have yet to meet the mark. Ben Kheder says, “The Middle East is lagging behind in e-ticketing initiatives as there are discrepancies between airlines here in the region. You’ve seen new moves being taken by Gulf Air and Emirates too is making huge strides but others are trailing behind. But the Arab Air Carriers Organisation is promoting awareness and assisting airlines in putting together the e-ticketing functionality which is a very complex procedure and airlines need to be prepared to make the transition. 

On the emergence and growth of low cost carriers, Ben Kheder believes that Arabian airlines have much to learn from the lessons of the mature markets of the world.
“Understanding your customers well is crucial. The no-frills no-service types operations may not be the best fit for the region and may suit only certain segments. If you really need to broaden your offering, people should be offered choice. Although airlines want to simplify as much as possible, in the long run this does not always translate into high yields. Sometimes complexity can be leveraged to bring in high yields.
“The new breed of airline that is emerging in this scenario is called a value-focused carrier (VFC). This model is set to gain a significant share of the leisure and cost-conscious business travel market in future. VFCs are identified by their focused route networks, simple fare structures, relatively cheap sales and distribution arrangements, limited array of partnerships and streamlined ground operations.
Sabre defines a VFC as an airline that applies its resources in very specific markets, competing on a combination of price and a product that differentiates it from traditional carriers, while managing costs tightly.”
The new business model is gaining ground as no-frills carriers and traditional airlines around the world converge to become VFCs, Ben-Kheder says. He pointed to dozens of examples of airlines in the Middle East, Europe, the Americas and the Asia-Pacific regions as examples of this transformation.
“It’s important to note that ‘value-focused’ does not mean ‘no-frills’,” Ben-Kheder said. “VFCs such as Flybe in the UK, JetBlue in the US and Kingfisher in India do offer complete services and could never be described accurately as ‘no-frills’, but neither would they fit the profile of your typical traditional carrier such as British Airways, Qantas or Singapore Airlines.”
Sabre says VFCs ultimately will gain a significant share of the market for leisure and cost-conscious business travel. It estimates that these carriers currently handle 12 percent of this traffic around the world, compared to 6 percent in 2001.
Factors influencing the growth of VFCs include; a discernable move away from a supplier-driven business model to one in which travel-wise consumers are increasingly able to exercise choice; price transparency and the ability of the Internet to present travellers with different travel options; increasingly simple pricing models; and the increasing demand for premium fares to represent some tangible value to the business traveller.
Ben-Kheder says Sabre has developed a full range of operational and decision-support products to service the emerging VFC sector. “These airlines need tools that enable them to be highly flexible to adapt rapidly to changing market conditions', he said. 'The ability to deploy aircraft and crews on more profitable or emerging routes quickly and easily is crucial to this business model, as is the ability to adjust fares quickly to market or competitor activity, or alter flight plans and fuelling arrangements to take advantage of prevailing flight conditions.
Ben-Kheder says the Middle East is ripe for expansion by VFCs.