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Air Arabia sets up Egyptian carrier, third hub

DUBAI - Low-cost carrier Air Arabia is launching a new budget airline with an Egyptian partner, enabling it to open its third hub and diversify away from increased pressure in its home market.

The Arab world’s largest listed airline by market value said on Wednesday it had set up the joint venture firm with Egypt’s Travco Group, driving shares almost 4 percent higher on the news.

“The new carrier will serve Europe, Middle East and African markets and will represent Air Arabia’s third hub after UAE and Morocco,” Air Arabia said in a statement.

Air Arabia already operates in Morocco, flying from its Casablanca hub earlier this year, and said in August it planned to set up a new hub between its base at Sharjah and North Africa to diversify its revenues and boost its catchment area.

Formed in 2003, it has a fleet of 20 Airbus A320 aircraft and has placed an order for 44 more A320s, a unit of EADS.

“The pressure is in the market because there is a lot of supply at the same time so the way they execute their business is very important ... it’s perfect in execution as we had Morocco, now Egypt so it shows they are on the right path,” Dheeraj Lakhwani, analyst at Dubai-based Prime Emirates said.

Group Chief Executive Adel Ali told Reuters in an interview in August that the next three to six months would remain difficult for the industry, but said he was confident Air Arabia would be in “good shape” in 2009 and beyond.

The airline posted a 10 percent rise in second-quarter net profit to 90 million Dirhams ($24.50 million) last month.

Prime Emirates’ Lakhwani said he expected Egyptian operations to begin within six months.

The aviation sector received a strong blow in 2008 first from rising fuel costs, then from the global financial crisis, although low-cost carriers typically perform better in an economic downturn than national carriers, by competing on price.

Shares reversed some gains, but were up 2.86 percent to 1.08 Dirhams at 0834 GMT in Dubai, outperforming the market, which was up 0.5 percent.