Air transport is an important sector as it facilitates global economic and social growth, tourism, world trade, and globalization. Currently, low cost and legacy carriers dominate this vibrant industry and have played a vital role in international transport regarding speed, reliability, and cost efficiency (Sarker, Hossan, & Zaman 2012). It is worth noting that although low-cost carriers have achieved notable maturity, they exhibit some setbacks capable of scaring away new entrants. Nonetheless, a few airlines have survived against the odds to become world leading low-cost carriers. Air Arabia is one such example. Therefore, an analysis of air transport with a primary focus on the Air Arabia is necessary to understand and foretell the sustainability of LCCs. Particularly, this study looks at factors and analysis of Air Arabia, product and marketing strategies, its business strategy, trends, and challenges.
Air Arabia: Factors and Analysis
Air Arabia is a large, low-cost airline based in Sharjah UAE. It was founded in October 2003 and has grown to become the biggest LCC in the MENA region (The Middle East and North Africa) with about 101 destinations across the Middle East, North Africa, Europe, and Asia (Airarabia.com). Notably, this section examines Air Arabia’s environment, business model, differentiation, and positioning. It also offers recommendations toward strategic and operational improvement in the airline.
Air Arabia SWOT Analysis
Air Arabia’s strengths lie in its strong financial position, an active command in the market, and exceptional performance (Rani & Mohamed 2016). The company’s financial position is important in its access to credit facilities and repayments, thus improving its operations. According to Rani and Mohamed (2016), Air Arabia’s solvency position has improved significantly because of ‘limited funding than equity, recording a 0.4 debt-to-dept equity ratio and 2.3 percent rise in equity during the financial year 2013’. Such a position shows that the airline’s creditworthiness is higher than its major competitors that include Jazeera Airways and El Al Israel airlines.
High market command. Air Arabia’s strong market authority has strengthened its brand equity and underlined it as a leader in the Middle East with a 40-aircraft fleet and three major centers in the UAE, Egypt, and Morocco (Rani & Mohamed 2016). It has received several performance awards including the best Airbus operator and the lowest operational cost airline (Rani & Mohamed 2016; Air Arabia 2014). For this reason, it can attract and retain customers and at the same time improve its performance as a top liner. Besides, the company’s endeavor to ‘bring the world together’ proves its dedication to its mission and visions. For example, it has spread its network with new routes to Turkey, Iran, Russia, Saudi Arabia, Georgia, Tbilisi, Pakistan Muscat, and Bangladesh (airarabia.com 2014). Consequently, its presence can be felt by the fast-growing tourism sector in the UAE.
Exceptional performance. Air Arabia continues to demonstrate an excellent performance record as evident in its 12.4 percent annual revenue growth in the financial year 2013 (Rani & Mohamed 2016). According to Rani and Mohamed (2016), this achievement is attributable to partnerships as well as new services and products. Markedly, such an outstanding accomplishment in the field and against its competitors is valuable in its efforts to boost shareholders’ interests and overall growth.
The most notable flaw in the context of Air Arabia is the declining liquidity and cash ratio. According to Rani and Mohamed (2016), the airline’s current ratio stood at 1.2 in the financial year 2013, a 0.3 decline in FY 2012. The weak financial position implies the company’s incapability to handle its short-term obligations as well as rising market gaps, thus the likelihood of a reduced competitive edge.
The opportunities for Air Arabia exist in three primary areas: the company’s strategic growth initiatives, high gross domestic production, and liberalized global air travel. Firstly, the airline has dedicated resources to strategic initiatives since the year 2014 with Airbus flights to Jeddah, Muscat, Cairo, Islamabad, Lahore, Peshawar, Dhaka, and Calicut (Rani & Mohamed 2016; airarabia.com 2014). Notably, these initiatives have the potential to expand the company’s hubs, capitalize on tourist travels, and thus align its operations with those of the industry as well as engender more returns.
The extraction and refinery of crude oil are a major economic activity in the United Arab Emirates (Sarker, Hossan, & Zaman 2012). The result is a growing GDP and improved economy. For this reason, Air Arabia can capitalize in this economic boost and make its LCC prominent in the region. Regarding the liberalized global air travel, Air Arabia can benefit primarily from the increased world air traffic expected to achieve an annual average of 5.3 percent (Rani & Mohamed 2016). The point here is that the company can allocate more resources to meet the rising global demand for air travel given that its presence has always been felt.
Fuel hedges. Air Arabia anticipates risks from fuel hedges due to the decline in oil prices. According to Reuters (2015), “if the oil price falls below the hedged level, though, the airline is forced into taking an accounting loss against the difference.” As a result, the company’s profits are likely to decline as evident in the FY2014’s 30% decline owed to the drop in prices below its hedged level besides a 14 % fall in the same in 2015’s second quarter earnings (Reuters 2015).
Competitive rivalry. Air Arabia faces stiff competition from airlines, such as Fly Dubai, Turk Hava Yollari, and El Al Israel Airlines (Rizvi 2011). However, these competitors have recorded declines in profit margins and market shares since they cannot match Air Arabia’s low-cost wings.
New competitors’ threat. Upcoming opponents have always posed a threat to Air Arabia. However, just like existing carriers, they cannot match Air Arabia’s low-cost wings except for the Fly Emirates, which connects east and central Africa to the Middle East and United Arabs Emirates on a different model (Ali 2014). It has airbuses and is among the most promising LCCs in the UAE.
Customer’s bargaining power. Air Arabia offers highly competitive facilities and customer friendly prices for their services. Therefore, clients have remained relatively comfortable with the airline. However, the rise of Qatar air and others in the LCC category is likely to prompt customers’ bargaining power if these competitors offer relatively lower prices, available networks and flights, and higher quality services (airarabia.com 2014).
Suppliers bargain. In the context of airline companies, the company shareholders (investors) are the providers. Since Air Arabia was listed on the stock market, it has been fairing well, and thus won investors’ confidence in terms of dividends.
The renowned Arab Spring that erupted in the year 2010 continues to be a significant challenge in MENA region and Arab countries. However, Air Arabia maintains its activities within its hubs thanks to operation reviews and avoiding compromising situations, such as bomb threats and political demonstrations, especially in Egypt and Sanaa, Yemen (Airarabia.com 2012). Moreover, the airline has stopped its operations in Latakia, Damascus, and Allepo Syria due to political wars (Airarabia.com 2012).
The economic environment in the Middle East and United Arabs Emirates is widely dependent on oil ventures and tourism. Unstable oil prices in the region, in recent times, affect Air Arabia’s operations, leading to slight falls in its profit. However, the company has extended its services to enjoy economies of scale and minimize losses (Airarabia.com 2014).
Air Arabia is a socially responsible corporate committed to ‘uplifting the lives of the less fortunate’ (Airarabia.com 2014). According to this report, the airline extends its kindness both locally and internationally in health care and education as well as the ‘charity Cloud’ project. Besides, Air Arabia maintains a cultural diversity in its services to accommodate customers from all cultures.
Air Arabia has continued to adjust its operations and management to fit the digital environment in terms of IT applications, paperless databases, and flight information. According to aircraft operations (2016), companies can tap into smartphones and mobile technologies to avail ‘real-time data to pilots in flight and deck fuel advisor for effective flights.’
Air Arabia Business Model
The airline consists of companies and airlines that offer low-cost travel and tourism services across the world with major hubs in Sharjah, Borg Al Arab, and Mohamed V International Airports (Rehlat 2017). Besides, “Air Arabia ventures in aircraft trading, the sale of telecommunication devices and spare parts, aircraft trading, repair, maintenance, and aviation training” (Rani and Mohamed 2016). It utilizes the low-cost carrier/budget business model and establishes growth opportunities in the low-cost aviation market (Rizvi 2013). It also exploits opportunities in MENA and beyond, building new hubs accordingly. However, it is worth noting that such opportunities must be financially feasible and aligned with the company’s business strategy. According to the chief executive, the company’s primary focus is to launch more services to the region’s secondary airports (Rizvi 2013). Besides, the airline explores new markets in countries, such as China, European nations, Egypt, Central Russia, Pakistan, Iran, and India, as they have new potential market gaps. Air Arabia also focuses on fleet expansion to widen its connectivity and destination and lure more passengers (Rizvi 2013).
Differentiation and Positioning
Air Arabia emphasizes on cost leadership, thus becoming the most successful low-cost carrier in the Middle East and North Africa region. Moreover, it ranks among the world’s top ten LCCs (Air Arabia 2016). The airline believes that offering differentiated products at low cost is key to success as they prove to be unique to customer values in the global borderline. According to MBAskool.com, Air Arabia provides quality services based on clients’ needs and convenience at affordable prices by standardizing premium in-flight services.
Air Arabia offers a fast turn around and point-to-point destinations with a 40-aircraft fleet and major centers in UAE, Egypt, Morocco, and over 100 destinations worldwide (Rani & Mohamed 2016). It has an airbus fleet and the highest operational reliability and aircraft utilization with fixed aircraft costs and leading utility hours (Air Arabia investor presentation, 2014). In its product mix, Air Arabia offers a simple combination: passenger only and no cargo. However, it offers customers the chance to pay only for the luggage they need (air Arabia.com). They can choose checked luggage weight from 20 kg to 40 kg. The company also offers high standard services with seat selection. Food is not included in their ticket prices, but passengers are allowed to place pre-orders for in-flight meals or buy in-flight meals ‘from the sky café’ (Loukas, Nik 2017). Air Arabia also offers convenient ticket prices and service options including online ticketing, and 10 percent of their ticketing and booking is done via the call center.
Recommendations towards Strategic and Operational Improvement
In such a competitive field, the company must consider cost-sensitivity and customer satisfaction and loyalty. Therefore, it should monitor its operations carefully right from the ground to the client’s desk. Air Arabia should also utilize technology to integrate its solutions into its business model to achieve operational efficiency. For this reason, the airline will be in a position to maintain and transmit data from the head office, airports, hangar, and major hubs. It should also revise its fuel hedging policy to minimize losses associated with unstable global fuel prices.
Given that Air Arabia has encountered the challenge of declining liquidity and cash ratio since the year 2012, the management should consider strategies meant to service company debts and long-term credit (Rani & Mohamed 2016). Consequently, the airline will be in a position to boost its competitive edge and handle short-term obligations as well as emerging market gaps.
Air Arabia’s 6Ps Marketing Mix
The airline provides several services depending on their segmentation. It offers online ticketing and flight booking services, thus reducing the time and cost associated with agent-booking (Airarabia.com 2016). Besides, customers have access to hotel and accommodation services that reflect low-cost budgets and customer satisfaction. For example, the Centro Sharjah, a 306-room budget hotel, launched in 2011, provides 5-star services, standard suites, and rooms to customers using Sharjah airport as well as those transiting to Dubai (Airarabia.com 2014).
Air Arabia employs the LCC model and is, therefore, capable of providing services at prices lower than competing entities prices by standardizing premium in-flight services (MBAskool.com). The strategy is mindful of the ordinary travelers wishing to fly more at affordable prices.
Air Arabia continues to extend its presence in the world beyond its major hubs in Sharjah, Egypt, and Morocco. Customers can visit Air Arabia online to book or check flights, offers, and accommodation.
The airline promotes its services through publications on newspapers and business magazines, such as Khaleej Times targeting customers from across the world and all walks of life. Its website presents target consumers with details and services, such as seat, flight bookings, and schedules, and runs adverts in the main electronic media all over the world.
Air Arabia acknowledges the significance of its staff, flight attendants, agents, cabin crews, call center agents, and management at large. For this reason, the company ensures that there exists the right mixture of knowledge and experience to enhance their service delivery. The airline has an aviation training academy and rewards system for performers. Such facilities and systems ensure that Air Arabia offers safe air travel, response to customers’ needs, and building excellent relationships with business partners and clients.
Air Arabia has established itself as a leading LCC through exceptional marketing strategies including direct sales and call centers (Airarabia.com 2016). Furthermore, due to the airline’s repute in the promotion of education healthcare and sporting events in various parts of the world, it has an established market demand (Airarabia.com 2016). It identifies its clients through such events and online platforms like the website and social media. The company understands that digital technologies influence consumers’ tendencies, and thus includes indirect and direct sales procedures that are popular in the current world. It has online travel agents and pursues partnerships with digital technology.
Air Arabia focuses on travelers who are budget conscious and sensitive to prices. Most of them earn low incomes and attach themselves to no given airlines (Airarabia.com 2012). Consequently, the airline focuses on this category and modifies its services specifically to suit them. In fact, its success is attributed to its operation, specifically serving clients using the same hubs. The company has positioned its status on price since it targets individuals in the low-income category. It ensures its customers of the capacity to fly more and save more but with little inconveniences during flights (Ali 2014).
Brand, Product, and Price Management
Air Arabia uses the following strategies to manage brand, product and pricing:
Building Brand Value
The airline understands that customers prefer certain brands to others based on the provider’s reputation. For this reason, air Arabia focuses its advertisement and promotional resources building and retaining a strong brand (Airarabia.com 2014). Markedly, they are dedicated to maintaining an excellent corporate image through the delivery of consistent services at almost unchanging prices. In fact, the airline adjusts its pricing based on prevailing economic conditions, but the changes are tailored to the customer’s benefit and budget (Airarabia.com 2016). The argument here is that Air Arabia adheres to its mission: offering air travel services at better prices than those of competitors in the region and industry based on their market segment. Besides, the company has an excellent brand building team led by its executive that warrants the creation of a rich and bright identity.
The airline utilizes public relation tactics, a transparent service delivery culture, and ever improving customer service (Rani & Mohamed 2016). Air Arabia has localized its brand name. As it suggests, the name identifies with the broader Arabian region and seems to extend its territory every year through network expansion.
Air Arabia communicates its values through online channels by designing famous brand logos, strap statements, and logo, brand experience, and promise. Consequently, the company can win the online customer loyalty through interpersonal interactions (Ross n. d). Air Arabia’s online brand includes its missions, values, and visions intended to reach the external world.
Corporate Social Image
Air Arabia has a unique social responsibility evident in its commitment to promoting environmental protection, education, sports, and healthcare among other humanitarian approaches (Airarabia.com 2013). Eventually, the social image makes people/beneficiaries to identify with Air Arabia, thus attracting more customers (Ross n. d). The prove that Air Arabia stands for something increases people’s trust in its brand and prompts word of mouth promotion whether online or offline.
Business Strategies, Trends, and Challenges
Air Arabia Unique Value Proposition
The company’s efficiency in operations is attributable to its successful route expansions plan as well as attractive value-add service proposition. In fact, the scheme positions it in a way it can examine current challenges found in the regions from which it operates (Rani & Mohamed 2016). Air Arabia’s operational strategies are based on ‘more than just low fares’ and laying much emphasis on helping people fly often at their convenience.
According to air Arabia.com, the airline’s strategies go beyond the provision of affordable air travel: it values social responsibility as a way to increase its presence and global awareness and uplifts the less unfortunate locally and internationally. In the process, the carrier plans to implement more CRS programs alongside its route expansion, cost leadership, fast turnaround, point-to-point destinations, reliable fleet acquisition, and simple but high-quality market mix plans (Airarabia.com 2013).
Airline’s Best Practice and Contribution to Revenue Generation and Operating Margins
Air Arabia is renowned for its cost-efficiency and penetration into various destinations courtesy of its network expansion strategy as well as the prominence of its hubs in Morocco, Sharjah, Egypt, and the entire MENA region (Airarabia.com 2016; Rani & Mohamed 2016). Its performance depicts an outstanding operational process. Precisely, its achievement is based on its low-cost carrier model that focuses on quality services, a broad network, consistency, and cost-efficiency. The company uses performance to measure its marketing effectiveness and shareholder value. For this reason, it has continued to record significant revenues. For instance, according to Air Arabia annual report for the financial year 2016, it generated a net profit of AED114 million for the three months ending March 31, 2016, 34 percent higher than the corresponding 2015 figure of AED85 million (Arab News 2016). Besides, it took over ISA in 2014, a renowned IT solutions provider, thus establishing a leading reservation system (Airarabia.com 2014). Through partnerships and identifying potential market niches in Africa, Europe, Asia, and the Middle East, Air Arabia has increased its turnover from AED946 million to AED886 million as at the end of the financial year 2016 (Airarabia.com 2016).
Trends and Challenges
Air Arabia has demonstrated the following trends:
First mover advantage as it capitalizes “on the multi-hub model, taking key emerging markets as a basis to penetrating new regions and grow network” (Aiararabia.com 2014).
Independent trend to profitability and expansion.
Linking the world with Arab countries to the extent of being viewed as a pan-Arab airline (2014 investors’ presentation)
Running the field’s highest seat load factor with about 80 per cent seat factor in the financial year 2013 (Airarabia.com 2013).
Challenges and Uncertainties
According to Gulf News article, Air Arabia swings to Dh38.6m loss in Q4. It attributes its challenges to the rise in operational costs and losses, in the last few years, to economic and political uncertainties and global aviation market issues (Diaa 2017). Notably, they include deteriorating yield margins, increased fuel costs, weakening global currencies, and unstable political conditions, such as Arab Springs (Diaa 2017; Airarabia.com 2012). Certainly, these trends are likely to affect the airline’s development in years to come and call for appropriate interventions.
Recommendations to Overcome Uncertain Economic Environments
To overcome challenges mentioned earlier and economic uncertainty, Air Arabia should:
Introduce measures to reduce its operational cost and stimulate organic growth.
Allocate resources appropriate to widening its flight network to take advantage of the projected growth of airline passengers, especially in world emerging economies including Latin America, Asia-pacific, Middle East, and China (Rani & Mohamed 2016).
To wind up, it is apparent that the success story of Air Arabia cannot be complete without mentioning its mix of growth strategies, cost leadership, and dedication to extending travel routes beyond the UAE and MENA region that make it a top choice LCC. The analysis of the airline concerning product and marketing strategies, business strategy, trends, and challenges, proves that it has lived to its mission to be one of the world’s leading budget airlines. Given the rapidly changing environment in the aviation field and economic and political uncertainties, the airline has embraced change for prosperity for about 13 years. Moreover, Air Arabia has cut costs and increased load factor successfully due to its route expansion strategy.
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