Factors and Analysis of Air Arabia (Case Study Sample)

AIR ARABIA
By (Name)
The Name of the Class (Course)
Professor (Tutor)
The Name of the School (University)
The City and State where it is located
The Date
Air Arabia
Introduction
On third February 2003, Sharjah’s ruler, Sultan bin Muhammad issued a decree that created Air Arabia in United Arab Emirates. It current flies over 51 destinations spanning across five continents: the destinations are grouped as Europe, central Asia, North Africa, as well as Middle East. Its vision is to become the leading low cost airline in the world that embraces innovation, reputation, as well as operational excellence (Ba-Fail, Abed, & Jasimuddin, 2000, p.55).
The airline is headquartered in Sharjah at Sharjah Airport Freight Centre, which is approximately 15 kilometers away from Dubai city. The airline has remained profitable since its first year of operation in 2003, and later in 2007, Air Arabia launched its first initial public offering, which gave away 55% of its stock. By ditching expensive overheads such as free drinks and foods, Air Arabia has successfully revolutionized the airline industry and created a different working environment that has helped it minimize costs. It sells tickets electronically via internet and over the telephone thereby ditching the traditional paperwork.
Factors and Analysis of Air Arabia
1 Environment Analysis
* PESTLE Analysis
Political factors
* The government does not directly support the airline’s business activities by allocating some budget to it
* The government of United Arab Emirates neither strongly regulate the aviation industry nor impose hefty taxes which has enabled the airline to conduct its business freely in the market and remained highly profitable
* United Arab Emirates continues to enjoy periods of political stability and good governance thereby boosting the airline’s business activities
Economic factors
* The recent inflation of fuel prices has significantly reduced the airline’s operational costs thereby increasing its profitability level; fuel prices is anticipated to continue falling in UAE and other countries
* The purchasing power of its customers have improved over the past due to increased income per capita thereby making it easy for them to book flights frequently thereby boosting the airline’s business activities
* The long-term global future prospect of the aviation industry is looking good because of the booming tourism and globalization which makes more people to travel outside their locality
Sociocultural factors
* Tight work schedules is a major concern because people are not getting enough leave time and travel to other countries; this might reduce the number of flights offered by Air Arabia
* However, most expatriates need to travel often because they have families in other countries thus an increase in the demand of frequent flights
* Many people are interested in travelling and seeing the world
Technological factors
* New computer and internet technologies have improved the airline’s business by enhancing booking system. The airline is open to the use of new technologies in enhancing its business activities
* The airline uses technology to save cost on human labour, which has resulted in improved profitability; technology is also improving its operations (Katsioloudes & Hadjidakis, 2007, p.68)
Legal factors
* The consumer laws, labour laws, and safety standards in United Arab Emirates are favourable to Air Arabia’s business
* The employment condition in United Arab Emirates is very favourable because there is no law that give nationality to expatriates
Environmental factors
* The increased environmental concern of air pollution is a great concern to Air Arabia since some international laws have been passed to reduce atmospheric carbon dioxide emission
* The geostrategic location of United Arab Emirates is suitable for enhancing the airline’s services and linking all its market segments
* Porter’s Five Forces Model
The threat of new entry
* There is high cost of market entry because the aviation industry, in general, need to buy aircrafts in bulk to enter new markets
* However, the market highly attracts new entrants because of the potential of making huge profit margins
* New entrants in the market offer greatest threat to Air Arabia in terms of cost of flights, types of services as well as destinations covered
* Because Air Arabia is now well established in the airline industry, it will not be easy for new entrants to easily sustain themselves in the market
* Within Air Arabia’s niche, there exist huge barriers to new market entry due to high cost of establishing new airline businesses as well as low pricing strategy adopted by the airline
The bargaining power of buyers
* The airline industry, especially in North Africa and Middle East faces strong bargaining power of buyers because the market has many large players
* Loyal customers enjoys low switching costs while the buyer’s power to bargain for low cost and better services is very high
* Customers can easily shop around for better and low cost airline services because of the availability of large number of options
* Air Arabia has to maintain high quality services because and low cost pricing strategy in order to weaken the strong buyers’ force
The bargaining power of suppliers
* Fragmented customers in the airline industry especially in Air Arabia’s niche increase the power of suppliers
* There are very few specific suppliers in the airline industry such as Airbus and Boeing from which Air Arabia can get its aircrafts; thus, the supplier’s production unit is limited, which gives them greater power to control prices and bargain
* On the other hand, the fuel suppliers in the airline industry has high bargaining power to control flight prices
* The individual companies cannot easily alter oil prices, which is a threat to the Air Arabia
The threat of substitution
* Trains, cars, ships, and buses are the greatest substitute to aircrafts, however, their availability and feasibility in some areas is limited
* In United Arab Emirates, train is not a better alternative to aircraft due to the hot and dry climate conditions
* Furthermore, there is possibility of a number of low-cost airlines can easily join the industry
* The main competitors can easily start up subsidiary low-cost airlines
* Alternative modes such as roads and trains are more efficient and affordable
Competitive Rivalry
* Airline start have operated for long time offer better deals in terms of new routes and market segmentation
* High competition is pushing the ticket prices down which leads to reduced profitability (Khan, 2000, p.108)
* The competition level in the airline industry is very high due to the presence of many companies offering the same type of service
* There are many international airlines in the Middle East, Europe, Central Asia, and North Africa offering same type of service as Air Arabia
* SWOT Analysis
Strength
* The company uses a powerful online ticketing system
* Air Arabia offers its customers affordable airfares
* Less human capital is needed by the company in offering its services
* The company has developed an accessible distribution channels

Weakness
* The company does not have a powerful customer retention policy
* The company does not offer business class flights
* Some of the company’s staffs are less knowledgeable and experienced

Opportunities
* Accessibility to new destinations in the airline industry
* More flexible flight schedules
* Large customer base in emerging markets

Threats
* More well established monopoly international airlines
* Non-budget airlines continuously decrease ticket costs
* The airline experiences some difficulties in expanding to viable routes

2 The Airline’s Business Model
Because Air Arabia is a low cost carrier, it subscribes to a business model depicted by the graph below. However, in most cases, it tweaks the business model to match its market differentiation strategy as well as its specific needs: the airline’s business model has been strongly shaped by market competition and applicable local laws.
3 Competitive Differentiators and Positioning
Air Arabia has differentiated itself as a low cost carrier thereby gaining significant market share. In addition, it has positioned and established itself in the low budget niche by following the market environment and offering prices that march the per capita income of its clients. In order to keep on attracting more customers, the airline usually keeps their very low through the help of various strategies such as rapid turnaround, point-to-point service, as well as fuel hedging among others (Michael & Sven, 2016, p.99).
4 Recommendations
In order to achieve substantial strategic and operational improvement, it is recommended for Air Arabia to improve efficiency of its staffs and enhan...