How Does the Low Cost Carrier Flydubai Manage to Increase Its Market Share - Research Paper Example

Flydubai Airline: Case Study Abstract The aviation industry is in the most competitive industry in the global market. Currently, there are many airlines fighting for control of the world airline travelers. To achieve competitiveness, each company tries to put in place the best strategies to win customers to its side over its competitors. In addition to offering customers an exclusive travel experience, airline companies have come with strategies to put in place different classes of travel targeting specific customer segment. Therefore, while most airlines battle for control of the luxurious segment, an ingenious innovation has emerged where airlines have shifted towards offering value for money in lower economy classes; these are the Low Cost Carriers. The principle in this case is to offer superior travel without the usual luxuries characteristic of many airlines. The main aim of LCCs is to ensure customers have a cheaper, reliable and effective service in encouraging more people to use air travel. The Dubai based Flydubai Airline is one of the LCCs that has succeeded in carving a considerable market niche for itself. The airline launched its operations in 2009 and has since spread its services to different parts of Asia, Europe and Africa. One aspect that has made the airline successful is innovation on unique strengths and not in competing with larger airlines for above customer segments. The principle behind LCC is to offer services to routes that are considered less lucrative for larger airlines to operate. In order to understand the operations of Flydubai, it is necessary to investigate how the company operates and how it has spread its routes in determining its strategies and its competitive advantage. The report will also investigate briefly how the company has performed since its launch, considering changes in the number of routes served, the number of fleets and the average growth in the number of customers served in the short term that the carrier has been in operation. In addition, the report will investigate the strategies that the airline has put in place since its launch, and how these have contributed to the growth and expansion of the airline. This will indicate how the airline stands in comparison with other large airlines such as Emirates and regional LCCs in Middle East. The report will show that strategic management and innovations are the most important factors that explain the rapid growth of Flydubai in the short time since its launch. Flydubai Airline Introduction/ Literature Review Flydubai is a low cost airline with its operations based in Dubai International Airport. The company was founded in 19 March 2008, but did not commence its operations until 1st June 2009. The airline offers its services in various destinations within the Middle East region, Europe, Africa and other Asian countries. The company has a good fleet of Boeing 737NGs, at its disposal, which are part of the latest lines of airplanes that have facilitated the company to compete effectively in the market (CAPA, 2011). Flydubai was founded by Ahmed bin Saeed, the then Emirates chairman as a special brand of Emirates to offer low cost option to tourists and business operators within the region. Though the airline operates as an independent airline and even competes with Emirates, they offer some services in cooperation with Emirates, which include facilitating passenger connectivity in relation to dual boarding in issuance of passes and baggage on specific destination. Immediately after its launch, Flydubai remained in the black for about two years without reporting any figures. However, in February 2013, the company surprised many by reporting they had made a net profit of $ 41 million in 2012, with $756 million dollars in revenue (CAPA, 2013). The rapid growth over its two years of operations opened another chapter in Dubai that proved the need to have more LCC in the rapidly expanding Dubai market. By march 2013, Flydubai had expanded its tentacles to 51 destinations in the areas mentioned above and had carried about 5 million passengers, which portrays the increasing need of LCC in the Dubai market. Therefore, Flydubai repositioned itself in time to take advantage of the immense opportunities untapped in the region regarding use of LCC. Upon registering its first profits in 2013, the company is planning more rapid expansions to more destinations in the region and away. Surprisingly, over the short duration since its launch, the company had surpassed Air Arabia as the largest and most profitable LCC in Middle East region based on seat capacity; the company is looking forward to expand its fleet further to compete with other airlines in the region, and has already ordered about new 50 narrow body airplanes (CAPA, 2013). Currently, Flydubai is considering expanding its fleet from the current 28 Boeing 737-800s to about 50 planes by early 2015 (CAPA, 2013). The company is flexing its muscles to compete effectively with larger airlines such as Emirates in the region. This move is motivated by the company’s immense opportunities noting that most of its destinations have less than daily frequencies. The fact that most areas in the Middle east and other routes have increased demands due to the fast growing emerging markets that are underserved and need more reliable and effective connectivity with Dubai places the company in a better advantage over its competitors that have not embraced the LCC (CAPA, 2013). Moreover, more than half of the company’s routes are not served by the robust Emirates airline, leaving the company with much less competition from regional airlines; a great opportunity that has contributed to the rapid growth of the company. The airline has more capacity within the Middle East region, though they have more flights in other routes due to the low frequency in which they serve most regional towns that need connection to Dubai. Adopted from http://centreforaviation.com/analysis/flydubai-has-bright-outlook-after-recording-first-profit-and-emerging-as-close-partner-to-emirates-98088 As the figure above shows, Flydubai has 70% of its seat capacity allocated to 21 routes in the Middle East, 55% of which are reserved for passengers in the Gulf Cooperation Council (CAPA, 2013). In addition, South Asia is allocated 13% capacity in 9 routes and Eastern Europe allocated 14 routes with more emphasis on the Russian market and CIS region at 10% capacity. The rest of its capacity is allocated to serve the African market at 5% representing 5 routes and 2% or two routes for Central Asian market (CAPA, 2013). The low cost carrier concept has emerged to be very popular among most travelers in the Middle East, though the concept has not been well understood. In the first two years of its inception, Flydubai managed to achieve 200% passengers increase, 100% increase in its fleet, 78% increase in the number of flights to different destinations, and 150% in tis flight routes (Saxena and Gupta 2012, p.1). These figures indicate that the low cost initiative, a new concept in the Middle East routes facilitated the company to achieve its immense growth to compete effectively with larger airlines such as Emirates. Moreover, most of its routes are not served by Emirates, which insures the company from cut-throat competition. Considering that Dubai is a rapidly growing tourist and commercial center, the airline has proved instrumental in supporting this growth by offering a cheaper travel option. Other great achievements that offer the company a competitive edge include enhancing its interior environment with Lumexis’s Fibre-To-The-Screen, the Boeing’s Sky Interior and In-Flight Entertainment Systems (IFE) (CAPA, 2010). Another winning strategy used is offering passengers value-for-money in all their travel. The principle behind Flydubai fare is that a passenger has to pay an all-inclusive fare. Such fare has to include: seat price, all payable axes and passenger’s hand baggage among other costs. A passenger has only to cater for optional costs such as extra legroom if needed, refreshments on board, in-flight entertainment, and checked baggage. Considering that both Qatar airways and Emirates position themselves as luxurious airlines offering executive services (Baaghil 2013, p.131), FlyDubai in its LCC principle took advantage of a highly lucrative market that thirsted for cheaper, but reliable services especially for shorter GCC routes. This strategy proved to work excellently based on the company’s performance since launching. As a cheaper model of the Emirate Group, the airline has portrayed the power of Emirate brand in the global airline industry. Moreover, Flydubai was a strategic decision to compete effectively with Qatar airlines in the region, a company that has both narrow and wide aircrafts and operates with more frequencies in its routes. The fact that Emirates did not have any narrow body aircraft necessitated the Emirate Group to come up with such an ingenious idea. Consequently, in the UAE-Qatar market, while Qatar Airways is leading with 37% share, Emirates commands a 24% share while Flydubai commands a 23% market share with vast opportunities for growth. The duo commands a whopping 47% share in the Gulf market, while Arabian airlines commands a partly 5% market share (CAPA, 2013). As the figures portray, Emirates through Flydubai managed to carve out almost half of the Middle East market share to itself, making Flydubai the best low cost carrier in performance in the last 20 years. Research Methods The research methodology applied in this case is the phenomenological methodology, involving a case study in an illustrative and descriptive approach. However, a pure phenomenological research was not possible as it would require that data be described only and not explained, which is against the humanist perspective that requires interpretations to make meanings from data clearer (Lester 1999, p.1) A case study facilitates examination of a specific organization in more depth to understand the functioning and operations trends in such a company. Generally, case studies will involve gathering information about a company, and analyzing both quantitative and qualitative data to understand operation dynamics in such a company (School of Management, 2010). Through a case study, it is possible to formulate the required theories on how a certain firm performs and give reasons for its success. Consequently, undertaking a descriptive and illustrative case study for Flydubai facilitated collection of data about the firm’s performance and analyzing the data in understanding the reasons behind the high performance and the firm’s current position in the competitive airline market. A case study approach is necessary in this case as it allows collection of data from various sources, which describes the performance of the firm from varying dimensions. Such data when gathered helps to formulate a general understanding of the company in respect to its markets of operation. This makes case studies powerful tool to understand the operating dynamics of a company. Considering that a case study involves both qualitative and quantitative approach in data analysis (School of Management, 2010), The phenomenological approach becomes the best approach to use descriptive information as well as supporting it with quantitative data in constituting a solid case study about the specific company. Mixing qualitative and quantitative analysis in a single case offers the best platform to formulate evidence based cases that are arguably supported by descriptive information. This helps in formulating a detailed case that narrates of the current and near future position of the specific company. This approach was considered to be the best in this particular case due to its promise of unraveling varied information from different sources to construct a solid understanding about Flydubai’s operations and market. Such understanding may also be used to put in place theories to explain its performance in the market today. Understanding the performance of the company from reported quantitative and descriptive data collected from several sources would in most cases offer a better case compared to undertaking a study in the company, which may sometimes fail in revealing some information that would be obtained from various analysts. Data Findings From the research, it was observed that Flydubai since its inception managed model itself as a regional airline to compete with larger airlines such as Emirates and Qatar airways. The research revealed that the airline has superior strategies that it employs in the Middle East market to ensure rapid penetration into the market. For instance, besides many airlines being badly affected by the growing obstacles in the aviation industry, Flydubai has on the contrary managed to grow stronger year by year (O’Connell and Williams 2011, p.15). This indicates that the carrier had turned theories of strategic management on paper into a reality in forming a solid company; in its two years of operations, Flydubai managed to be the second largest carrier operating from Dubai (Saxena and Gupta 2012, p.2). One of the factors that contributed to Flydubai’s immense growth is capitalizing on a market niche that had been ignored by many airlines before. Flydubai in its LCC principles managed to take the market by a storm in offering tourists and businessmen a lower cost alternative with excellent services and which were reliable for short distances (Dubai Airline Report 2012, p.3). Therefore, most tourists and businessmen did not need to take the more expensive Qatar or Emirates, but chose the new alternative. This factor mainly explains the exponential growth of Flydubai in such a short time. In addition, Flydubai capitalized on most routes that the larger and more executive airlines did not take into considerations. These included increasing its penetration to the CIS region that was greatly underserved (Oxford Business Group 2012, p.123). Some of the CIS routes the airline managed to venture, and which had been ignored for a long time included Armenia, Georgia, Kyrgyzstan, Afghanistan, among others. In all the above destinations, Emirates had no flights meaning that Flydubai added value to ignored but yet lucrative routes, which propelled it to the current exponential growth; Kieve and Kabul have specifically remained as some of the most lucrative routes for Flydubai (CAPA, 2013). In addition to differentiating in choosing alternatives routes that Emirates and Qatar did not consider lucrative, Flydubai managed to embrace the Singapore Airline’s model in offering regional full service packages. Flydubaia and Emirates worked together in a technical agreement that impacted greatly on the airline. Similar to the operation between Silk Air and Singapore airlines, Emirates and Flydubai made an agreement on passengers’ connectivity. Moreover, Flydubai has differentiated itself to as low class airline with no prospects of offering any business class services (Oxford Business Group 2012, p.123). The airline offers no checked bags or foods, but sticks on its low cost services and with more emphasis on ancillaries that contributed to 16.5% of the airline’s revenues in 2012. Such ancillary serves include checked cargo handbags, in-flight entertainment and a few others. Therefore, strategic management and differentiated services were the major factors behind Flydubai’s success. These factors offer the company greater potentials for growth with enough strengths to compete with larger airlines. Conclusion and Limitations Flydubai though a new airline has portrayed tremendous growth prospects since its inception, and is currently the second largest airline operating from Dubai. This implies that the airline has edged most of its competitors through competitive and strategic policies that have enabled it to stand out among the rest. One policy that has ensured unequalled success to Flydubai is differentiated services by sticking to its LCC principles and having no intention of venturing into offering executive class services to compete with Qatar and Emirate Airlines in that segment. The great success in the LCC segment that the company has managed to achieve shows there was untapped opportunities in the Middle East region; Flydubai’s success was in tapping in the unutilized opportunity. Consequently, the LCC principle marched perfectly with increasing numbers of tourists and business activities in Dubai as a central tourism and commercial hub. In addition, the company managed to venture into lucrative routes that had been ignored by many airlines Venturing in the CIS region was one of the best strategies that led to Flydubai’s success. Afghanistan had for many years been wrecked by wars and many airlines were not considering their presence in the country. However, Flydubia in its risk taking adventure to try new services in the market resonated perfectly with passengers in this route as well as in the Kiev routes; the two routes have stood out to be the most lucrative routes for Flydubai to date. Another approach that contributed to the success of the company is the passenger connectivity policy in collaboration with Emirates that facilitate passengers to transit from Emirates to Flydubai and vice vasa in specific routes. This arrangement facilitated a metamorphosis in Flydubai to a regional hybrid career, a concept that has attracted more customers especially when choosing to connect flights to some destinations. Therefore, a hybrid of strategic management approaches and policies and the ability of the airline to carve out its market niche in specializing on different routes than competing for existing routes are the main reasons behind Flydubai’s great success (Flydubai, 2012). All the same, the study may have failed to bring out all aspects especially due to the limitations of available literature about Flydubai in formulating this case study. In addition, the information provided was not authenticated since it was collected and analyzed from secondary sources that have reported on Flydubai. Though the information was treated as factual in describing the status of the airline, no attempt was made to authenticate the information by requesting more information from the company itself to assert the correctness of the data or otherwise. Considering that the company was launched about three years ago, there lacks enough scholarly work that has been done on the company in details, limiting the number of authoritative sources that were used for the research. Recommendations In order for Flydubai to maintain its dominance in Middle East as a LCC, the company has to undertake more research on enriching their services in the LCC market segment. As argued, the company should not approach direct compete with large body aircrafts, but has to cultivate its market niche where it will ground its strengths. In addition, the airline has very few LCC services in most of the Asian continent and has to expand more in this region. Flydubai’s LCC concept may resonate perfectly with travelers in developing world such as in Africa. The company has to expand its tentacles in this market, where Emirates and Qatar are slowly extending their services. This is because, most African countries are currently experiencing an impressive growth trend, with increased business operations and tourism. Such travelers would more likely choose to have an LCC regional service as an alternative to the luxurious services offered by Qatar and Emirates. Dubai being a growing commercial center attracts many business operators from African countries who would appreciate having a service that delivers value for money; this is a great opportunity for Flydubai to grow even stronger. References Baaghil, S.A. 2013. The Power of Belonging: A Marketing Strategy for Branding. Bloomington, IN: iUniverse. CAPA, 2013.Flydubai has bright outlook after recording first profit and emerging as close partner to Emirates. [online] Available at: http://centreforaviation.com/analysis/flydubai-has-bright-outlook-after-recording-first-profit-and-emerging-as-close-partner-to-emirates-98088 [Accessed 14 August 2013] CAPA. 2010. Flydubai. CAPA Center for Aviation. [online] Available at: http://centreforaviation.com/profiles/airlines/flydubai-fz [Accessed 14 August 2013] Dubai Airline Report. 2012. Connecting the world today & tomorrow Strategic Plan 2020. [online] Available at: http://www.dubaiairport.com/en/media-centre/Documents/Dubai%20Airports%20Brochure_front%20FINAL.pdf [Accessed 14 August 2013] Flydubai. 2012. Flydubai. [online] Available at: http://uae.superbrandsmena.com/pdf/pdffile1345109889.pdf. [Accessed 13 August 2013] Lester, S (1999) An introduction to phenomenological research, Taunton UK, [online] Available at: www.sld.demon.co.uk/resmethy.pdf. [Accessed 14 August 2013] O’Connell, J.F. & Williams, G. 2011. Air Transport in the 21st Century: Key Strategic Developments. Farnham: Ashgate. Oxford Business Group. 2012. The repot : Qatar 2011. London: Oxford Business Group. Saxena, R. & Gupta, B. 2012. Flydubai- moving aggressively to dominate sector. 2nd Advances in Hospitality and Tourism Marketing & Management Conference, Greece. School of Management . 2010. Introduction to Research and Research Methods. Branford University. [online] Available at: http://www.brad.ac.uk/management/media/management/els/Introduction-to-Research-and-Research-Methods.pdf [Accessed 14 August 2013] Read More