Are Air Arabia and Etihad risking the success of the low-cost airline?

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The airlines announced that the low-cost Abu Dhabi-based airline in a joint venture will be operating in Q2 2020 and the airlines have no plans of delaying the launch. However, Covid-19 has brought international travel to a halt.

The future is extremely uncertain as the lengths of all travel restrictions remain very much unclear. The decision to not delay the launch is questionable as it could be a long time until the airline industry regains some sort of normality.

Other airlines have delayed launches due to travel restrictions. Qatar Airways announced the launch of new flight routes until July and later said this will be pushed back further. This is sensible considering the current situation in the airline industry.

Launching the airline may prove to be an economic challenge due to current low demand. Many airlines are grounding fleets and are seeking government help. This leads to asking the question, will outgoings outweigh profit?

Air Arabia and Etihad announced the joint plan to set up a low-cost carrier in Q4 2019. The airlines wanted to tap into a growing demand for budget travel from Abu Dhabi. This proves the budget airline will be a success in the long term due to an obvious gap in the market.

As seen in Europe, budget airlines are successful and can dominate market share. A no-frills concept allows affordable travel for travelers, which is highly attractive. According to GlobalData Q3 2018 consumer survey results, 54% of UAE respondents stated affordability is a major motivator when going on holiday.

The United Arab Emirates (UAE) has approximately 5,000 confirmed cases and 28 deaths, compared to other countries, it has seen a low rate of confirmed cases and deaths. The UAE has implemented various strategies to combat the virus, such as imposing a curfew while the streets are cleaned and sterilized.

Health officials predict the country may reach a peak in four weeks if the UAE continues with strict lockdowns and hygiene measures. If the peak is reached soon, travel restrictions may be lifted sooner than expected. However, the demand for travel will take time to recover.

We are a long way from seeing light at the end of the tunnel and the situation remains highly challenging. Air Arabia and Etihad must react to evolving news updates and react appropriately to ensure the success of the budget airline.

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