AirAsia considering Ras Al Khaimah or Saudi Arabia for Gulf hub, CEO says

Malaysian budget airline AirAsia is planning to set up a Gulf hub this year as it seeks to capitalise on Europe connectivity from the region and strengthen air links between South-East Asia and the Gulf.

The budget airline has four airports on the shortlist, including the one in Ras Al Khaimah and a destination in Saudi Arabia, founder and chief executive Tony Fernandes said on Monday in an interview with the Dubai Eye radio channel.

“We are in discussion with four cities, to be absolutely fair and transparent … [but] I don't want to make any comment right now on who we are talking to. But I can be very open that countries that are interested in us and [those] we are interested in … includes Saudi Arabia, [and] Ras Al Khaimah as well,” he said, adding that Dubai and Sharjah were not on the cards.

“Sharjah is well served by a very good airline, Air Arabia. And Dubai wouldn't be somewhere that we looked at. That's a big airport, a complicated airport,” Mr Fernandes said.

“Dubai wouldn't really benefit from an AirAsia. It's so successful already. But other Emirates, other places in the Gulf would benefit tremendously from the traffic we could bring both ways,” he added.

The airline did not respond to a request for comment from The National.

The move comes as AirAsia emerges from a bankruptcy-like restructuring post Covid-19. The airline faced a financial crisis that caused massive losses, with the company’s performance plummeting.

Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), has been reportedly preparing to invest about $100 million in the Kuala Lumpur-based airline.

AirAsia parent company Capital A said in May that it is planning a significant expansion into Saudi Arabia, including new routes to Riyadh and Dammam, and increased frequency to Jeddah from Kuala Lumpur.

Mr Fernandes held talks with government officials from Gulf states at the recent Paris Air Show about setting up a regional hub and is unfazed by the threat of war in the region following the recent conflict between Israel, the US and Iran, the Financial Times reported on Sunday.

According to Saj Ahmad, chief analyst at StrategicAero Research, the Gulf is awash with robust, established and often state-backed airlines, which might pose a challenge for AirAsia's growth.

“Stepping into the UAE would be immensely difficult. The compelling product and network advantage UAE airlines enjoy is insurmountable. Sure, AirAsia may pick off low hanging fruit from other airlines operating in the UAE that don’t have as much dominance, but that hardly augurs long term success,” he told The National.

“Almost certainly, a new entrant provides incentives and low fares to attract people to fly with them – and AirAsia does have a sizeable base in Malaysia for connections to the rest of Asia. The challenge is being able to draw in people in sizeable numbers.”

He added that Kuwait, Oman or Bahrain “represent better, less risky and less costly options given that these countries have fewer domestic airlines”.

As for Ras Al Khaimah, Mr Ahmad said it's more likely that the introduction of a casino in the emirate and the growth in real estate and hotels is “seen more as a regional getaway location as opposed to a Dubai-style gateway”.

“In isolation, a casino is not a game changer and won't be for everyone – it's earmarked for the select few that relish such activities,” he said.

Meanwhile, asked if the new Gulf hub could involve a partner or sovereign investment from the UAE or Saudi Arabia, Mr Fernandes said that was “not critical”.

“But it's nice to have … we have to treat these two things as independent,” he told the radio channel.

This would be the airline's second attempt to set up a hub in the Gulf, after AirAsia X pulled out of Abu Dhabi back in 2010 for operational reasons. Two years later, the airline considered setting up a low-cost carrier to serve the Gulf region.

AirAsia, which saw its fleet size grow to 225 aircraft as of the end of the first quarter this year, has been working with Airbus to secure a long-range aircraft, Mr Fernandes said on Monday.

“We now have one or two, actually. One is the Airbus 321 Long Range and the second one is a 321XLR. That allows us with one stop to probably get to most of the world,” he said. “We want to extend our successful Asian operation to the world and allow people in South-East Asia and Asean and people in Europe to go to places.”