The Low Cost Airline: Air Arabia

Air Arabia is one of the low cost airlines of UAE, based in Sharjah. It presently is operating in more than 45 destinations comprising of major cities in south-east Asia, Middle-East and few regions of central Asia and Africa. Air Arabia is also registered in AACO or “Arab Air Carriers Organization”

In the recent years the threat due to its substitute competitors was almost nullified. They stood nowhere in front of Air Arabia but there had been a constant threat from the upcoming new competitors. Though the new competitors were not enough to challenge Air Arabia, there was still some kind of threat because the numbers of such competitors were increasing day by day. In UAE initially there were many air service providers, but in the recent times Air Arabia has proved to be the most effective one compared to its previous competitors. With the increasing oil prices the competitors of Air Arabia increased their prices, but Air Arabia kept its low budget fares in order to gain more and more public support at the cost of temporary loss or little marginal gain.

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The low cost carriers are so effective that they helped Air Arabia win Merit Award for CAPA Low Cost Airline of the Year 2006 and the World Airline Award for Best Low-Cost Airline in the Middle East in 2007. The biggest threat that Air Arabia has is from its competitors. The reason for the same is that once a company gets a remark of dissatisfying its customers by not doing as advertised, the competitors take advantage.

Key strategies include:

Entering in new segments and thus removing dependency on singe segment (low cost carrier).

Arranging funds to buy more funds.

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Balancing between increasing inflation and controlling the prices of the tickets.

Acquiring new and small airlines for faster expansion.

Getting listed at new airports and starting operation in new places.

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Supporting government’s Emiritization strategy to get more federal support.

Talking about the implementation of strategies, for increasing its marketing dimension, the company has invested over DH one million in terms of Ads, both online and print media. This would result in a long term profit for the company, though it’s quite a heavy amount on the basis of company’s current scenario. More includes:

International flight connecting Abu Dhabi to more than 45 international destinations in USA, Indian subcontinent etc. Air Arabia carried over 4.6 million passengers, an augment of approximately 65.8% over in 2006. (Lowcostairlinesworld, 2009)

Along with this, it also griped 175,000 tons of freight in 2007, which is an increase of over 75% than the year 2006.

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Introduction:

Air Arabia is one of the low cost airlines of UAE, based in Sharjah. It presently is operating in more than 45 destinations comprising of major cities in south-east Asia, Middle-East and few regions of central Asia and Africa. Air Arabia is also registered in AACO or “Arab Air Carriers Organization”. It was the first low-fare organization in the Middle-East, started on 3rd February in the year 2003. It offers almost 40% less price than the other airlines. The main base of the airline is Sharjah. In 2007 it was the first to offer public 55% of its stock. It basically aims at attracting the people. After its foundation it kept on spreading in services. For the time in 2008 it had to back out from the Nepal region due to some uncertain political and economic issues. It has collaborated with many other airlines in many parts of the world.

Vision:

The ultimate goal of the company is to position itself at the top of all the Low-fare airlines in UAE and in Gulf. The key features of Vision of the company are as follows:

• Expanding its aircraft range

• To provide service on more number of routes

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• To enhance efficiency of operations

• And to increase its revenue maintaining a low and simple structure of low air-fare industry.

Mission:

The company’s mission includes building and creating multi-functional team, increase revenue and offering a value for money services in the region. The ultimate mission is to bring a revolution in the fright industry by new and innovative corporate standards.

Industry background:

The airlines industry of UAE is vast if we look at the number of service providers. There are number of low cost airlines. National airlines of UAE other than air Arabia include Gulf Air, Emirates and Etihad. Gulf air was started long ago in 1950. It provides a number of facilities to its users. Firstly it has provided many onboard facilities to children below the age of 12. For the business related people it provides the BBC world news. It also provides separate dinning for the passengers. It is treated as a standard national flight for most of the purposes. Emirates airlines were introduced after Gulf Air in 1985. It is also considered as a national flight. It has won several awards for its services. This airline consists of many air planes both for public and private issues. Etihad is the most recent one and was introduced after air Arabia in the same year. It had also become quite popular but could not compete with Air Arabia on low cost. A Kam air fare is also considered as one of the low cost airlines in UAE. Among all the existing national airlines till date Air Arabia is considered to be the cheapest one. It is not considered to be a flight with the best facility on board but of course it offers a cheap fare t its customers. The facilities provided by these national airlines to their customers vary from each other. All these airlines greatly contribute to the national economy of UAE.

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Statement of problem:

In this report, we will talk about the key strategies of Air Arabia, alternate strategies available, implementation, and SWOT, PEST and competitor analysis of Air Arabia. For this concern, an interview with a manager of the company is organized. The Manager stated that Air Arabia is doing substantially well in its domain which is presently concentrated to low cost airline segment. For long term perspective, the company is aiming to enter in more segments than this alone. There are number of strategic problems the company is facing. These are:

Entering in new segments and thus removing dependency on singe segment (low cost carrier).

Arranging funds to buy more funds.

Balancing between increasing inflation and controlling the prices of the tickets.

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Acquiring new and small airlines for faster expansion.

Getting listed at new airports and starting operation in new places.

Supporting government’s Emiritization strategy to get more federal support.

Analysis:

Environmental or Industrial Analysis:

Air Arabia believes in providing a superior and cost efficient life support system by introducing advanced facilities and more availability to gain customer satisfaction. It aims to be a company that has value and importance based on kind of services it provides. The organization has certain morals when it comes to staffing and team work, maintaining customer relationship, honesty, truthfulness, and flexibility are that satisfy the grounds.

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The customers of the Air industry are in all forms. The aircrafts are used for the security of nations and so go to the government. Then importers and exporters of the market that import goods from as small as vegetables to cars. So in turn we also are using these services. They are used for the people to travel. The aircrafts are the majority form of transportation in the recent times.

Porter’s five forces analysis

The threat of substitute competitors:

In the recent years the threat due to its substitute competitors was almost nullified. They stood nowhere in front of Air Arabia. The other substitutes kept on declining and the company Air Arabia kept on improving talking in terms of profit in the market. The other companies could not offer such a low fares as compared to Air Arabia whose fares were remarkable.

The threat of the entry of new competitors

There had been a constant threat from the upcoming new competitors. Every now and then many new companies were launched along with the existing ones. They all tried to match up to the level of Air Arabia but ultimately failed to continue on a long run. They met with huge loss and ultimately ended up in increasing the cost. All these competitors tried to copy Air Arabia based on service it provides, but they failed to regulate them on a regular basis based on public satisfaction and demand.

The intensity of competitive rivalry

Though Air Arabia continued to dominate the market in the recent years, it had not been an easy job. It always had to keep itself alert and changing. Though the new competitors were not enough to challenge Air Arabia, there was still some kind of threat because the numbers of such competitors were increasing day by day. Air Arabia had to keep a survey of the prevailing market conditions and take safe decisions to keep going. Marketing aspect of the company became crucial in maintaining the market position.

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The bargaining power of customers

Considering the bargaining power in case of Air Arabia is a mere thing if we compare it with the facilities it provides and the lack of able competitors. People were not much into bargaining because Air Arabia had been the best available among all the others. However, in times of strong competition by some new rivals there had been some kind of bargaining by the customers, which was gracefully accepted for that period.

The bargaining power of suppliers

Suppliers in this case refer to the stock holders of the company. They also got a huge discount on available stocks. Also the amount of available public stocks was considerably increased. They also get a good amount of annual dividend. Also due to expansion of their business the stock holders made a huge profit.

Competitor Analysis:

In UAE initially there were many air service providers, but in the recent times Air Arabia has proved to be the most effective one compared to its previous competitors. With the increasing oil prices the competitors of Air Arabia increased their prices, but Air Arabia kept its low budget fares in order to gain more and more public support at the cost of temporary loss or little marginal gain. This was very crucial in giving Air Arabia a position quite different from others. Among all the existing national airlines till date Air Arabia is considered to be the cheapest one. It is not considered to be a flight with the best facility on board but of course it offers a cheap fare t its customers. The facilities provided by these national airlines to their customers vary from each other. All these airlines greatly contribute to the national economy of UAE.

SWOT Analysis:

Strengths

Considering the case of Air Arabia, the low cost fare plays a crucial role in gaining the public interest. The low cost carriers are so effective that they helped Air Arabia win Merit Award for CAPA Low Cost Airline of the Year 2006 and the World Airline Award for Best Low-Cost Airline in the Middle East in 2007.

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With the increasing infrastructure, high regional GDP and a huge demand in various regions, air travels are contributing to the success of low cost carriers in UAE.

The reason for Air Arabia being so popular among all the regions of the world is its award winning strategies. These awards add a great deal in their marketing strategy which helps to bag future success.

Air Arabia has been able to advertise its business in the following ways:

Travel agency commissions stopped

Removal of interline, code-share relationships

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Usage of secondary or alternate city airports (Eyefortravel, 2008)

As a number of people have begun to feel the same, it is certainly a positive aspect of advertising for Air Arabia.

Weakness

The greatest weakness that most of the airlines companies are facing nowadays is that they have not been able to live up to their expectations. On many occasions, Air Arabia has agreed on certain flying to certain destinations but it has not lived up to it.

One such concern is that when the airline company promised to fly to some of the most restricted destinations in the world, it could not make it to Cairo as it most highly expected by the tourists and other regular passengers. So, as the advertisement said they did not book their expensive tickets through different airline companies but at the same time did not get the opportunity to travel at all.

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Some of the major accessories as expected by the passengers in Air Arabia in spite of its low cost are as follows:

Amenity Kits

Air Sickness Bags

In-flight socks

Eye shades

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Opportunities

High GDP Growth Rates: Petroleum extraction and refining operations have been on an all time high in the UAE in the past few years. This has helped in the boost of the economy of UAE. Air Arabia can take advantage of this fact and can help make the use of its low cost carriers more prominent.

Positive Demographics: The percentage of youth (under 30 years) in the UAE is 64%. This will provide a high in the future market as liberalization opens market even to air travel. It is one of the important factors for Air Arabia to select its targeting strategy.

Strong Tourism: The energy and entrepreneurial spirit of the middle-east region is attracting tourism and business traffic in its own right. Advertisement can be done with all the tourism companies so as to make the tour highly affordable for the tourists.

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Threats

The biggest threat that Air Arabia has is from its competitors. The reason for the same is that once a company gets a remark of dissatisfying its customers by not doing as advertised, the competitors take advantage.

The other reason of threat for Air Arabia is that all the newly merging airline companies are in a spree to capture the market by making a strong reputation. Once they come up with price fares lesser than Air Arabia then even the best of advertising would fail.

Company’s performance:

Air Arabia is one of the low cost airlines of UAE, based in Sharjah. It presently is operating in more than 45 destinations comprising of major cities in south-east Asia, Middle-East and few regions of central Asia and Africa. Air Arabia is also registered in AACO or “Arab Air Carriers Organization”. The company’s mission includes building and creating multi-functional team, increase revenue and offering a value for money services in the region. It was the first low-fare organization in the Middle-East, started on 3rd February in the year 2003. It offers almost 40% less price than the other airlines. The main base of the airline is Sharjah. In 2007 it was the first to offer public 55% of its stock. It basically aims at attracting the people. After its foundation it kept on spreading in services. For the time in 2008 it had to back out from the Nepal region due to some uncertain political and economic issues. It has collaborated with many other airlines in many parts of the world. (Ameinfo, 2009)

Key Strategies:

A key strategic issue includes:

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Entering in new segments and thus removing dependency on singe segment (low cost carrier).

Arranging funds to buy more funds.

Balancing between increasing inflation and controlling the prices of the tickets.

Acquiring new and small airlines for faster expansion.

Getting listed at new airports and starting operation in new places.

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Supporting government’s Emiritization strategy to get more federal support.

The company is trying to introduce low cost flights so that more and more people avail them. There are basically targeting on two areas. First of all they are reducing some unnecessary facilities on short time journeys. Removing these facilities based on such a low cost hardly affects public interest. Secondly, they are trying to reduce the fair on some routes and at the same time increasing the number of flights on these routes. This means gaining public interest and support based on low marginal profit. Other than offering incentives to its customers it also offers heavy dividend and discounts to stock holders. It was the first flight to provide so much of rebate to its customers and stock holders. It keeps on increasing the facilities offered in order to keep the interest maintained. (Ameinfo, 2009)

Air Arabia has recently expanded its aircraft ranges. It has tried to expand the business in by introducing new routes in many parts of the region. There are more and number of aircrafts in the regions where there were less no of aircrafts. Now the flights are available more frequently in some routes based on amount of profit made in the existing routes. In order to increase the value of its stocks in the market, the company has released more no of stocks to the public with discounts. The strategies, the growth and the future plans offered by Air Arabia are sufficient to attract more and more stock holders which ultimately lead to expansion in terms to money, power and public support. It has also appeared on many other stock lists and transactions are also about to start. (Eyefortravel, 2008)

The company had been very particular in deciding the cost of transport. It kept in mind the rising and the falling prices of oil and other equipments, directly or indirectly related to their business. In other words, they maintained a complete survey of the prevailing market. With the increase in the fuel prices many airlines companies increased their prices and vice versa.

There are other strategies which were used for marketing at financial level. The company has gained a lot from them. The profit margin has increased by 40% in the recent years and there are still chances of further increase. These all strategies have proved fruitful both for the company and the company stock holders which are directly or indirectly related to the company. The company has been able to hold up to the expectations of its employees and its customers. Air Arabia greatly contributes in the UAE economy. Recently it got an approval to appear on Dubai financial list. The Air Arabia is going to appear on stock list of Dubai financial market and trading it will be started in few days. The way Air Arabia is using the budget and the way it is applying the strategies it is believed that in the time to come if there is a slow economy progress, Air Arabia alone can handle it.

Strategic Alternatives:

Some strategies of Air Arabia for future few years are as follows:

Expanding its aircraft range: One important constraint in company’s expansion plan is the limited number of cargo and passenger planes available to the company. The company will place periodic orders for new aircrafts to support its expansions plans.

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To provide service on more number of routes: The company would like to serve in European countries and other untouched destinations in North and South America. The expansion will give a vast increment in company’s present market size.

To enhance efficiency of operations: As a long term strategy, the company would like to implement TQM strategies in its operations.

Increase its revenue maintaining high and quality structure of luxurious aircraft industry

Another one is Emiritization and advancement of UAE people. The company has a number of plans in this direction with long term interest which are mentioned as follows:

“UAE National Cadet Pilots Training or UNCPT”

The company invites aspirants who what to become a pilot with a statement like “We are giving wings to your dreams”. Its pilot training program is one of the finest in the nation.

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The company states that as the public Airline of the United Arab Emirate, it has an immense vision. To see further Emiratis taking their correct position as pilots in lone of the fastest mounting airlines on the planet.

“UAE National Graduate Entry Management Plan”

The public airline of the UAE, Air Arabia, is investing in its outlook and would consequently like to spend in people by giving them the chance to be 1 of the privileged students chosen to join its UNGEM program.

It states that by this program, graduates will develop sturdy leadership abilities and form a collection of professionals who are organized to meet quickly expanding and developing leadership wants in various branches within the company. (Eyefortravel, 2008)

Enhancing the cargo carrier’s flights: – As shown from the contribution of profit from the cargo and customer units, the cargo unit contributes around 65% of the company’s turnover, which depict the clear dominance of cargo unit over the customer unit in terms of profit. The company would like to utilize this faith of people in Air Arabia’s cargo unit to gain additional market share. Thus as an expansion plan for cargo unit, the company is ordering more share of cargo planes as compared to that of passenger planes.

Segmentation and targeting: The Company had divided the consumer market into various segments based on income and profession. The segment which appears to be the center of consideration for the company is those of high earning boniness people who need to travel consistently and comfortably.

Positioning: It’s actually consumer’s perception about the service. Royal Jet, from the beginning has tried to establish as a symbol for a cheap but reliable air traffic business partner.

Implementation:

Air Arabia greatly contributes in the UAE economy. Recently it got an approval to appear on Dubai financial list. The Air Arabia is going to appear on stock list of Dubai financial market and trading it will be started in few days. It has already started offering rebates on stocks to its customers. The national economy of UAE is going to be benefited by the kind of strategies being forwarded by Air Arabia. Not only are they going to have a huge business but also a huge investment in the stocks by the common people. The market is going to be greatly affected. Many new services are being started. The UAE government believes that Air Arabia can alone increase the UAE economy from going down. It has now met with 32% profit which is the highest ever in the recent years.

For increasing its marketing dimension, the company has invested over DH one million in terms of Ads, both online and print media. This would result in a long term profit for the company, though it’s quite a heavy amount on the basis of company’s current scenario. (Arabia, 2009)

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Use of technology: The Company has recently brought 7 new aircrafts with increased capacities and advance technology. As the company is still very new, almost all of the aircrafts are in good condition. Talking about other technological diffusion parameters, the company has recently brought a SAP system which is an expert system from Sap international. This expert system is Artificial Intelligence based and works on knowledge representation rather than data manipulation, thus is highly technical and advance. The operation unit exploits the SAP system to efficiently monitor the various aspects and inventory constituents. The company also has an online terminal to book tickets and offers various plans in flights according to customer requirements.

International flight connecting Abu Dhabi to more than 45 international destinations in USA, Indian subcontinent etc. Air Arabia carried over 4.6 million passengers, an augment of approximately 65.8% over in 2006.

Along with this, it also griped 175,000 tons of freight in 2007, which is an increase of over 75% than the year 2006. (Ameinfo, 2009)

Air Arabia owns complete share is its two subsidiaries, Air Arabia Holidays, a travel group and vehicle rental company and “Air Arabia Crystal Cargo”, which provides freight handling services.

Air Arabia had a 24 hour help line for its customers.

Air Arabia also provides hospitality services by providing temporary accommodation in hotels. (Arabia, 2009)

The Air Arabia owned a group of 37 traveler and cargo airplanes, as depicted by the data of January 2008 and it plan is to increase its aircraft group to 300 by the year 2020.

Air Arabia is also planning to fly over 25 million customers per year by 2020 and to twofold the number of metropolitans served from 50 to make it near 100.

Market segmentation:

Presently the market is segmented on the basis of income and travelling frequency of the people. It results in generation of segments like high business class consumers, consumers travelling too often but expending less, tourism based consumers (not fixed) etc.

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Apart from these segments, a variety of new segments can be created like low-spending domestic class, mainly for tourism. As example of this segment can be India’s growing domestic aviation market which depends little spending but large sized segment.

Talking about the competitor’s involvement in these segments, Etihad is a big player of cheap flights segments along with Easy jet. Some other like Palm operates in multiple segments. Some competitors are head to head rival of Air Arabia in Luxury market like Sky jets etc. Thus the competitors are widely spread in these segments.

References:

Ameinfo (2009), “Air Arabia marketing team takes centre stage”, retrieved on 1st November, from http://www.ameinfo.com/29672.html

Eyefortravel (2008), “Air Arabia plans expansion”, retrieved on 1st November, from http://www.eyefortravel.com/news/middle-east/air-arabia-plans-expansionddle-east/air-arabia-plans-expansion

Lowcostairlinesworld (2009), “Innovation and opportunity for traditional and low cost carriers and investors”, retrieved on 31st October from http://www.lowcostairlinesworld.com/sg/programme.stm

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Air Arabia (2009), “Know us”, retrieved on 1st November, from http://www.airarabia.com/crp_1/know-more

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