Mid September 2012, Rotana Jet (IATA: RG; ICAO:RJD) started operating scheduled domestic flights within the United Arab Emirates from Abu Dhabi International Airport (AUH) to Fujairah International Airport (FJR) and to Al Ain international Airport (AAN). Abu Dhabi Al Bateen Airport (AZI), the airline’s base, followed later as a destination in the carrier’s network. The equipment utilized is two Embraer RJ 145 (ERJ 145) regional jets. The company had been operating VIP-charter flights on a Gulfstream 450 and flights under the mandate of the Tourism Development and Investment Company (TDIC) to the islands of Sir Bani Yas and Dalma just off the coast with the capital Abu Dhabi.
Almost six months into the venture, it is time to see what has materialized from the heavily announced first UAE domestic airline. After such a short operational time span, financial success or a break-even can hardly be expected. Yet, half a year should show the viability of the business model, its – hopefully correctable - flaws and its potential. For an operation of this relatively minor scale, six months into operations should give the owners the final go / no-go call, and we all hope that the guys at the steering helm are able to call out a loud and proud ‘GO!”
Let’s begin our short evaluation:
The ERJ 145 is a 50-seat regional jet airliner with 31 inch seat pitch (no-frills airline Air Arabia offers 31 inches or 32 inches on the A320) with rear-mounted Rolls-Royce turbofan engines. It is a stretched and modified version of the predecessor turbo-propeller aircraft EMB 120 Brasilia, and it made its first flight in 1995.
The aircraft’s maximum take-off weight is, depending on model and equipment used, around 22,000 kg. The maximum ceiling of the aircraft is Flight Level 370 (around 11 km depending on atmospheric conditions) and according to Embraer’s specifications, maximum endurance is achieved when flying at the maximum ceiling. With a full cabin, this endurance translates into roughly 1,550 NM (around 2,850 km). The ERJ 145 is known to be limited to a fairly high minimum temperature at altitude (and thus optimal flight economy) but with the prevailing climate in the UAE, this is probably not an issue for Rotana Jet. However, with the short routes the airline is operating, the optimum flight level of FL 370 seems hardly achievable. In its performance brochure, Embraer specifies 18 minutes of climb under ideal circumstances to reach FL 350 only; hardly a flight environment that the crowded UAE airspace is capable of delivering.
I have no inside information on Rotana Jet’s ERJ 145 operating budget. And to be honest, even if I did, I would not disclose it. I believe such numbers to be the property of the respective airline. Yet, in order to get a somewhat accurate picture over the financial feasibility of Rotana Jet’s operations, I use the numbers of a now defunct European carrier. Obviously, being European operations in the mid first decade of this century, personnel (higher) and especially fuel costs (much lower) are to some extent out of balance yet the overall ratio picture should look similar to this:
From experience, with the fairly short routes (I.e. higher specific fuel consumption) in-mind, and with current Jet A1 market prices, I would claim that fuel costs set the company back around 30% of the total bill.
On the route AUH – FJR (around 125 NM), Rotana Jet charges a minimum fare of AED 200 and a maximum fare of AED 400 one-way. There is no discount for return fares. The airline claims a block-time of 45 minutes but this time can be realistically reduced by a few minutes since neither AUH nor FJR know slot-times.
The fuel burn for this route should average 215 US Gallons. At a rate of US Dollar 3.50 per US Gallon uplifted, the fuel cost for this trip alone equals AED 2,750. Hence, as per the above break-up, the overall cost of the trip is around AED 9,200.
With an average fare bucket of AED 280 (including taxes), the maximum revenue achievable for this flight equals AED 14,000, leaving a maximum of AED 96 playing field per passenger for airport service charges and airline profit.
A similar picture stems from the airline’s Abu Dhabi to Al Ain route. Here, the airline charges a minimum one-way fare of AED 150 and a maximum of AED 320. The stated block-time is 30 minutes but again, this short flight should be operated in a few minutes less.
The fuel burn for this route should average 170 US Gallons. Again, at a rate of US Dollar 3.50 per US Gallon uplifted, the fuel cost for this trip alone equals AED 2,200 resulting in an overall trip cost of around AED 7,500.
With an average fare bucket of AED 220 (including taxes), the maximum revenue achievable for this flight equals AED 11,000, leaving an even smaller maximum of AED 70 playing field per passenger for airport service charges and airline profit.
Of course, it can be safely assumed that the TDIC will financially support in one way or another the airline’s operations to the islands. In a best case scenario, this so generated revenue could very well be used to counterbalance the loss making higher profile routes. Yet, with a highly marginal aircraft utilization – and fixed operating costs ticking – the business model used by Rotana Jet is probably rife for adaption.
I would assume that Rotana Jet’s business plan foresees a partnership of some sort with Abu Dhabi based Etihad Airwyas. Mitigating costs, incurred on less profitable short-haul routes, onto more profitable long-haul routes is a common practice in the airline industry all over the world. Rotana Jet’s Abu Dhabi arrival timings would certainly seem to indicate such an aspired partnership.
The flights from Fujairah arrive Abu Dhabi International Airport 12:15PM - although these flights are frequently cancelled – with possibilities to connect into the Subcontinent, Middle East and UK and 7:15PM - weekend flights operate into Abu Dhabi Bateen Airport – with possibilities to connect into the Subcontinent and Middle East. Flights from Al Ain arrive AUH 9:15PM connecting mainly into the Subcontinent.
Yet, so far – and contrary to the agreement RAK Airways of Ras Al Khaimah International Airport had in place – such a partnership has not been announced yet. This might have a simple reason, however: Etihad needs to audit actual operations first before committing to a partnership. Yet whatever the reason, Rotana Jet seems under quite some pressure since its load factors clearly indicate the immediate need for tying-up with big brother.
It is probably safe to claim that the by Rotana Jet utilized equipment, 50 seater jets that have limited OEM and maintenance support in the region and a fairly low cargo potential, is far from ideal on very short routes with a highly limited audience. A turboprop in the Saab 340 class would have been, purely from a financial point-of-view, a more suitable bet. Of course, the prevailing position on turboprops in the region is very well known so the marketing guys would indeed have needed to work just a little bit harder in such a case.
At the same time, connecting into AUH’s network of Middle Eastern and Subcontinent flights make little sense as well. Passengers from Fujairah will hardly fly west for 45 minutes in order to connect into an east-bound – and thus longer – flight to India when they have the choice of three major airports with numerous direct flights – including no-frills airline options - 75 minutes driving time from home.
And lastly, I have recently heard a fair amount of industry professional enquiring after the operational status of Rotana Jet. True, the carrier seems to cancel regularly its mid-day flights to/from FJR. Yet, the airline is very much operational. However, only a few people actually seem to be aware of this! The marketing plan and/or effort by the carrier display major flaws - the most notable ones certainly the absence of any marketing strategy. It should be a fairly easy exercise for the airline to utilize its employees to spread the word. By employing guerilla marketing tactics that usually work best for limited markets, such as the airline faces, expenses can be kept fairly low and returns would dramatically increase.
In the end, if the domestic operations of Rotana Jet have proven one thing only, it is that there is certainly a feasible UAE domestic air routes market. With the exception of the carrier’s fleet, all issues in the airline’s business plan can easily be sorted-out. It is up to the carrier to prove that they are not only capable to rely on peer planning but that they have the actual in-house skills and expertise to make the concept work! I for one wish them well.