MBA Thesis: REGIONAL AIR PASSENGER SERVICES IN THE GCC: AN ECONOMIC VIABLE MODEL?

The executive summary of my MBA thesis. It took a long time to get to this stage and although I fully realize the shortcomings of my publication, I am still pretty proud of the achievement. After all, it is already hard enough to successfully balance your professional life with your personal life when you are setting-up airlines in remote/hostile areas for a living. Adding a full MBA study to a day that has only 24 hours is even more challenging. Apologies to my son for not being able to play "pirates" with me as often as he wanted to. I make it up to you!

As always, if you liked more information, please do not hesitate to contact me!

The Gulf Cooperation Council member states are nowadays at the forefront of aviation technology. A smart vision, in combination with funding generated by hydrocarbon generated wealth and strategic planning has led a number of GCC countries to become global aviation hubs. However, the prevailing airline models utilized in the region prominently miss the one of a dedicated regional air carrier. Traditionally, regional air carriers operating smaller aircraft are perceived as old-fashioned, even unsafe. In addition, with profit margins on regional airlines usually being smaller than with traditional long-haul carriers due to overhead spread, the model generally lacks of highly needed funding, be it seed or bridge capital.

As a potential consequence and with the exception of early aviation days in the GCC, there has been little interest in regional passenger air services. The aircraft used early on by airlines were mostly twin engine piston aircraft, such as the famous DC 3 that missed the range capabilities of current modern airliners. At the same time, European airlines, such as KLM, had already an extensive long range route network between Europe and the Far East with technical stops in the Middle East making it difficult for new airlines to enter the already served market.

Current legislation does not foresee for a firm definition of the term regional airline. Hence, this study establishes its own within relevant parameters as airlines operating the majority of their fleet in a passenger configuration of less than 108 seats or its weight equivalent in a cargo configuration. The typical route network consists of low-density scheduled routes usually with a flight-time of less than two hours.

This study evaluates the model of a so defined dedicated regional air carrier. It scrutinizes historic, present and future trends, financials, and threats to the model of a regional airline within the GCC. It relies on three detached sets of research data, namely an on-line to the general public living in the UAE distributed survey questionnaire, an in-depth interview with aviation experts living in the UAE, and the business plan drafted by Gulf Executive Aviation for Eastern Express, a start-up dedicated regional air carrier out of Fujairah, United Arab Emirates.

The so received data - the primary research questionnaire has been sampled according to the stratified random probability method with the strata in-line with the target audience groups established by Eastern Express - has been further analyzed and a best practice model including recommendations to current and potential regional airlines in the GCC has been established. In the discussion of this study, the evaluated model is compared with the one in the business plan by Gulf Executive Aviation, the outcome of which contributing to general regional carrier model in the GCC.

With aircraft capabilities and technology changing and improving, there is a realistic possibility that the GCC will be unable to rely on its current transit model for much longer. If the region wants to continue being at the forefront of aviation, alternatives need to be thought of and with the missing ground infrastructure for regional travel, dedicated regional airlines might very well be part of the alternative.

Yet a newly to be established air service dedicated to regional traffic would probably be not without risks to implement. Not only knows the GCC few secondary airports that are able to cater for smaller aircraft, the model has also not been tested before in the region making it a fairly high risk one for its shareholders. Operational and financial benchmarking for any start-up regional carrier is therefore almost impossible.

In addition, one can argue that at some point the already planned expansion of regional land services infrastructure will indeed be commissioned, taking away at least some share of the regional air service. Profitability could therefore very well be reduced to unsustainable levels if the projected demand exceeds reality.

In order to evaluate the (financial) risk of a dedicated regional airline in the GCC, this study frames its research questions asked as follows:

• Why has there historically been little interest by the established GCC carriers to address regional air passenger services?
• What are the key success factors for a regional airline within the GCC?
• Similarly, what are the main challenges for a new entrant to the regional air industry in the GCC?

The research outcome not only serves as a supporting model for existing and potential regional airlines in the GCC, it also enhances available literature on regional airlines in general. A highly needed objective since relevant literature and benchmarks on regional air carriers, and especially in the GCC region, are limited available.

Due to travel and time constraints, this study is limited to a potential UAE base of the regional operations. At the same time, it opens doors for further research into adjacent topics, such as regional airlines’ modus operandi worldwide and in the region, their key performance indicators, their alternatives (especially in the GCC), and their overall best practices model is needed.

One might argue that airline is airline, be it a long-haul, no-frills, or regional one. Yet, as this study shows, there are small but relevant differences between the three models. Especially when operational costs are concerned, where aircraft fuel costs within a regional airline is not capable of being spread-out over a large number of available seat-kilometers, directly influencing ticket prices.

As with any new entrant to an industry, challenges and threats are part of the business model. In the case of a dedicated regional airline in the GCC, this study concludes the following ones:

• Personal cars on short routes;
• Established airlines on longer routes; and potentially
• Potentially a perceived negative stigma of financially viable turbo-prop aircraft.

This study concludes that a dedicated regional air carrier in the GCC has good potential to be an economic viable model, albeit a risky one, if certain strategic parameters and key success factors are managed properly, them being:

• Frequency offered;
• Ticket price;
• Connectivity created;
• Aircraft type operated;
• Services offered; and
• Sales outlets strategy.

By doing so, the projected 800% increase in passenger numbers by the consultancy company Gulf Executive Aviation over a span of a few years only might certainly be realistic. Yet, at the same time, any dedicated regional airline is advised to focus on the essentials, the demand spectrum by the airline’s targeted audience, and to keep as flexible a model as possible in order to be able to adapt the business model, by nature always a smaller, and thus less static one than the one of the larger long-haul carriers, rapidly to changing market demands.