Analytical Perspective of Gulf Air - Case Study Example

Gulf Air case study Contents Introduction to the case 3 2.Company Overview 3 3.Industry Overview 4 4.Two key questions the case attempts to answer 6 5.Introduction to the problem/theme of the case 7 6.Analysis/understanding of issues of the case 8 7.Originality of analytical perspective and personal conclusions where appropriate 12 8.Conclusion/Future outlook for the company 13 References 14 Bibliography 16 1. Introduction to the case The case explores the airline industry, the Gulf Air which is the oldest operating airlines. It aims to talk about the issue with regards to the airline industry, such as issues with airport capacity, route issues, technology, fuel cost, labor, alliance, competition and others. The case starts with overview about the airline company, the Gulf Air followed by industry overview. The ongoing problem with airline industry has been identified followed by an analysis on the case and finally deriving on the conclusion. In addition the case study also attempted to find out two main key questions concerning the Gulf Air and the airline industry. 2. Company Overview Gulf Air operates as national airline of kingdom of Bahrain and Gulf Air has played vital role i the establishment of various important links between Middle East, Gulf, Europe , Far east and Indian subcontinent. Gulf Air has about 55 years of experiencing in flying cargo across the region and world and today it offers the most experienced professional cargo services within its region. Gulf Air was founded in 1950 and owned by Kingdom of Bahrain and operates as pan Gulf carrier in the region of Middle East. Bahrain remains to be the main hub for Gulf Air and dedicated personnel tends to provide 24 hour coverage with respect to all transit cargo so that the transfer is swift and smooth. The geographical, regional along with cultural value which the airline had embraced over the years are still central and plays vital role in service and brand ethos. The network of Gulf Air stretches right from Europe to Asia which covers 26 countries and 40 cities among those countries. The fleet comprises of 28 aircrafts and also has distinct benefit of possessing the strongest network across Middle East. As part of two phased turn around program which was announced in 2007, a new strategy has been implemented to create platform for commercial operation by the management. Gulf Air service caters towards providing high quality product and services which includes innovative, unique among with award winning sky nannies and sky chefs (Gulf Air, 2010). Gulf Air since its launch in 1950 as Gulf Aviation Company is now fully owned by the Kingdom of Bahrain and in the current scenario it is one of the major international airlines which serve more than 40 destinations across the world. The goal of Gulf Air remains the same since its inception, commitment towards the latest aviation technology along with adherence for traditional Arabian hospitality. In the year 2000, Gulf Air completed its 50 year of operation and also launched service to Milan. In the following year the airlines announced code share agreement with American airlines, Oman air, Air Malta, Royal Air Maroc and also with Philippines Airlines. In 2002, the turnaround program was launched with local as well international management. It became the first airline to introduce in flight chefs in order o serve the first class passengers. After many years of service Gulf Air was awarded as the best airline which promoted corporate social responsibility in Dubai (Gulf Air-a, 2010). 3. Industry Overview Airline industry across the globe has been facing pinch of rising petrol and also affected by the global economic downturn. But despite some unfavorable condition, airline industry in Middle East has shown tremendous growth in past few years and is poised against shortcoming in the future. According to Middle East Aviation market analysis and OAG’s India, Middle East is among the fastest growing aviation market globally due to advantageous geographical position of the region, with increase in demand for air travel, rise in orders for aircrafts, modernization of airport, tourism and local investment. IATA predicted that Middle East would make profit of $500million in 2012 but the financial performance seemed to be better than predicted where the airline industry was able to upgrade itself from $400million to about $1billion. MENA regions seems to be performing well despite the financial crises with capacity growth in Middle East in march 2012 stood at 10% in compared to global aviation performance. At the current scenario the aviation industry in Middle East have started to spread its wings across the world, with new routes on monthly basis. Gulf Air the leading international airline has also launched new routes to china, Chennai, Qatar, Doha along with Sana Yemen. The airline industry of MENA to sustain stable growth and expand the business opportunity has focused on cross Industrial Corporation along with modernization of technology. As per reports of OAG aviation the airlines a Middle Eastern region were the biggest client of Airbus and Boeing. In relation to this Gulf Air has received about 4 new aircrafts with the latest technology (TTG, 2008). The aviation industry has supported about 2.7million jobs and generated GDP of $129billion in Middle East. The number of jobs generated through air transport industry has reached 434000 in the year 2010. On global basis the region of Middle East represents about 5% of total jobs and about 6% of GDP. As per recent study by Oxford Economies a significant economic impact is set to grow over the next 20 years or so where passengers are expected to increase from about 77.1million to about 220.4million in 2030. The projected annual growth rate for international traffic is high for Middle East with 7.9%followed by Asia Pacific with 6.9%, Africa with 6.1% and others shown in figure 1 (Aviation Benefits beyond Borders, n.d, p. 31-32). Figure 1: Projected Annual growth rate Therefore it can be concluded that Middle East airline industry is set to grow as the above figure also shows that the percentage of Middle East annual growth rate is much higher even when compared in global basis. The profit forecast for Middle East was the latest regional profit by IATA but it does not mean that the airline industry is not suffering from other major concerns (CAPA, 2012). Thus the next topic talks about the problem of the case 4. Two key questions the case attempts to answer The two key questions that the case attempted to answer are as follows, Issues with regards to the airline industry in Middle East in particular in Bahrain where it is the main hub for Gulf Air along with Bahrain Air. Secondly the case study aims to answer the future potential of Gulf Air not only in the Middle Eastern region but globally also and compete on a global basis. 5. Introduction to the problem/theme of the case From the above section it has been analyzed that the airline industry in Middle East has been growing at a faster rate and is expected to incur more profits with years to come. The recent financial downturn also did not affect much the Middle East airline industry and as such Gulf Air which is among the top international airline operating in MENA regions and globally has also seems to have benefitted from the same. However some of the major issues encountered with the airline industry such as airport capacity, route issues, fuel cost, technology, competition and others. The Gulf Air which is the flag carrier of kingdom of Bahrain and operates from Bahrain International airport and is the primary hub for both Bahrain Air and Gulf Air. The Bahrain International airport was facing issues with regards to airport capacity as more and more numbers of travelers seems to prefer going by airlines as a result the airport could not manage the needs and requirements of the passenger effectively. Second issue of the airline industry particularly for Gulf Air is issues dealing with routes. With rising political tension in an across the country of Middle East, Gulf Air has suffered a serious setback in 2011 where traffic was down by 25%. In addition the Bahrain government has also put ban on operation to Iran, Iraq and Lebanon. While Gulf Air has been serving Lebanon but it remains shut down in the Iraqi and Iranian markets and as result in order to compensate has been forced to shift to other markets such as Saudi Arabia. The third issue faced by the airline industry is the cost of rising fuel and new technology. As more and more advanced technologies have been introduced, it tends to pressurize the airline to adapt to the new forms in order to provide effective and efficient service to the customers. This also leads to rise in competition. Another major issue concerning the airline industry is the rise of cost of fuel. Another issue surrounding the Gulf Air is the rise in number of competition in the airline industry. Gulf Air tends to face new challenges from new competition from Bahrain Air and others. Along with competition from Bahrain Air other issues like alliances acquisition and other factors. Since Gulf Air has been suffering losses the government had decided to shut down or to let it acquire by some local or foreign investors. However the government has been putting in effort to keep the airline going and thus incur profits in years to come. The detailed analysis is thus provided in the next section of the case study. 6. Analysis/understanding of issues of the case The first issue of the case was with respect to capacity issue of the Bahrain international airport. Thus analyzing the airline industry of Middle East it can be said that an increase in the number of travelers seems to increase with years to come. Bahrain Airport Company has decided to improve the parking facilities of the airport in order to enhance the overall experience. The company has already abreast the current issue and thus have been acting proactively so to tackle the restriction which are imposed by the airport use of limited area of land. The company has laid out plans in order to re-innovate the experience of airport. The expansion plan will include valet parking service along with policies which are devised in order to encourage the visitors to make use of the long stay service and the short stay parking will be purely for the daily visitors in airport. The parking facilities will be thus followed by constructing a multi storey parking area (Bahrain International Airport, 2010). The airport which handles now about 4.2million passenger a year with 12 carriers from Middle East which is led by Gulf Air and operates about 300 flights in about 50 destinations in Middle East and Gulf. Therefore it is expected that status of Bahrain airport as one of the prominent gulf regional hub will be further enhanced by expanding and upgrading the facilities (Ministry of Industry & Commerce, 2012). Therefore analyzing the current trend, the Bahrain Airport Company has thus announced plans to further expand the Bahrain international airport in 2013. The project will involve expansion of main passenger along with construction of major service center. The international airport serves maximum 9million passenger in a year and under the current plan of expansion, the capacity of airport would expand 13.5million passengers. According to the CEO of Bahrain Airport a major purpose of expansion is o sustain competitive advantage which BIA has in the Middle Eastern region (PR Newswire, 2012). Bahrain International Airport is thus undergoing development plan to elevate the status into international standards. The second issue was in relation to routes of Gulf Air, which was banned by the government to operate in various countries. As seen in the above paragraphs that due to political tension Gulf Air was not allowed to fly to countries like Iran, Iraq and Lebanon which was mainly due to security issues. Under the restructuring attempt had also cut off its network in areas such as Africa, Europe and also Asia Pacific. According to Gulf Air, cut were made in order to allow the airline to concentrate on its resources and fleet efficiently and focusing primarily on high demand and yield routes. The service of Gulf Air towards Entebbe and Geneva were also terminated. The route to Entebbe was terminated only after two months of operation and Geneva was terminated in less than 12 months of its operation. This was followed by cuts of routes towards Athens, Milan, Damascus and also Kuala Lumpur. Gulf Air had also reduced capacity from Kuala Lumpur and switching flights from A320 to E170. The airways had to delay the launch of new route to Juba. However in spite of cancellation of routes, Gulf air has reinforced regional approach and has added three destination in Saudi Arabia and also plans to expand it even further by increasing frequency to Jeddah from 10 to about 14 times weekly and to Riyadh by two to three times daily. Figure 2: Gulf Air routes The airline is also seeking permission to operate in more destinations o Bangladesh and India. In addition to the two countries, the South Asian nations are also target for Gulf Air although it ends to face stiff competition from LCC and full service in the region (CAPA-a, 2012). Major Key external challenge for the airline industry has been volatile oil prices. Oil price are of deep concern mainly for the economy of the country. Higher oil prices have been in the picture since 1999 and the policies concerning the supply management has contributed towards the economic downturn in 2000 and 2001. Airline tends to face many new issues and increase in fuel rates is among the man issues faced by the airline industry. As per the latest statistics derived from General Aviation Bureau, because of surge in fuel price, the cost of fuel has accounted to 31% of cost of business in the airline sector. The airline sector has afforded an additional expenditure of 1.27billion. Increase in fuel price has affected the airline industry in two ways, direct impact on cost of operation and has repeatedly triggered recession resulting in low demand for air cargo and air travel (Hub Pages, 2012). Gulf Air which is the national carrier of Bahrain is paying as high as seven times more just to buy fuel as compared to other regional rivals. In 2011 the global fuel hi by $500 million represented to about 35% of cost. As per sources every one cent rise in oil price in the city of Bahrain accounted to $1.5million extra for Gulf Air. In Bahrain the airline pays about $3.40 per gallon, Kuwait amounts to $3.10 per gallon and in Frankfurt it cost $3.35 per gallon and in Bangkok it cost $3.25. It has been speculated that all the leading Gulf carriers receives subsidies on fuel as in Saudi Arabia the airline pays 50% per gallon. As Gulf Air departs from the Bahrain International Airport almost 70% of it departs from Bahrain airport. Thus as one of the largest hub and key infrastructure assets Gulf Air gets the fuel at competitive rate based on volume which the airline purchases. Such practices thus hamper the profit potential of Gulf Air and also strangling the growth rate. The airline had purchased about 159.8million gallons of jet fuel costing about $500million out of which 35% represented Gulf Air cost for that respective year. Although Gulf Air is based in an oil producing nation and is fully owned by the government it should thus not be exposed to the impact of fuel hike. But unfortunately the pricing of Gulf Air receives based on the standard market pricing and do not get any preferential treatment for refueling the airline in the Bahrain International airport (Trade Arabia, 2012). As technology plays an important role in the development of airlines and due to lack of advanced technology many airlines have suffered a serious setback. As in case of Gulf Air, the technical and operational team consists of all experienced and professionals who work together both off the ground and in the ground to operate flights of gulf air safely from various destinations (Gulf Air-c, 2010). Thus it can be said that technology wise the airline has proved itself to be effective and implies all the latest technology to match the needs and standards of its customers. It has been founded that Bahrain Air is one of the key competitor for Gulf Air and I has been doing comparatively well in terms of profit gaining, routes and other factors. The main issue for the airline was that it had identical routes of its competitors. It thus targeted the same market as its other big competitors and thus remained in the position as follower and not a leader in the airline industry. In addition to Bahrain Air other prevailing airline providing service in the same route also forms part of competition. As rivalry is high in airline industry thus rivalry among the firms are also said to be high. 7. Originality of analytical perspective and personal conclusions where appropriate Analyzing the airline industry and Gulf Air which is the traditional carrier in Bahrain seems to have been suffering from certain issues and in the recent past has been resulted in complete failure. It had cut back various operations in various countries due to geo-political issues of Bahrain. The government has been looking after the airline but still could not make it profitable. Another major issue encounter was that none of the CEO could hold the position and resigned from the post of CEO very early. Thus it could be concluded that due to rise in competition the airline was not able to match up with the new rules, policies and changes in the airline industry. The Gulf Air remained to be the traditional one whereas it competitors had moved way above. Also with decrease in the number of passengers the airline had suffered losses in last few years and is also expected that in the current year the airline will continue to incur losses. Thus in order to incur the profit it will be suitable for the airline to handle itself to private sector or get acquired by other airlines so that loses can be reduced at a certain extend. 8. Conclusion/Future outlook for the company Gulf Air despite of being technically sound and national flag carrier, Gulf Air has been suffered serious setback for which joint Bahrain parliament and Shura council was established in order to determine the state of Gulf Air. Gulf Air has struggled in order to become profitable. The committee will thus look after the affairs of Gulf Air which also experienced a sharp drop in the number of passenger travelling. The government thus presented four options which are maintain status quo, shutting down of the company and dismissing the staffs, introducing new local as well as foreign investors or downsizing the airline. But eventually after months of uncertainty gulf Air would continue to fly from Bahrain International Airport and at a meeting I was decided by the deputy premier of Bahrain, the finance minister along with other heads to invest additional funds in order to keep the airline afloat. At present, Gulf Air operates in London, Paris, Rome, Copenhagen, Larnaca, Istanbul and Frankfurt and out of these the airline will keep operating in London, Paris and Heathrow as part of European destination. In 2012 the airline ended its services to Athens, Geneva and also to Milan and concentrated in Middle East and Africa and has added routes to these regions along with India. In the previous financial year the airline had encountered loss of BHD95million due to geo-political situation. However loses are expected to be high in 2012. Thus the overall objective for the airline is to cut down heavy losses for the carrier to sustain. In order to turn around the operation, the airline has focused on regional connectivity and towards operation in Gulf market. Gulf Air has put an attempt to cash in the MRO boom which was created by swelling aircraft in Middle East. Thus analyzing all the factors of Gulf Air it can thus be concluded that in the next coming years where Gulf Ai will lead is not yet clear as it still faces from various issues and difficulties concerning its operation. The CEO of Gulf Air, Samer Majali had resigned and with it the troubled as well as politically muddled airline tends to stumbles with political meddling and no clear direction for the future. With the resignation of Mr. Majali, the future prospect for Gulf Air had become much more slender. Gulf Air remains to be the oldest carrier but with years it became shrunken. Although it still have support from the Bahrain government along with Bahrain Mumtalakat holding company. The member who becomes the next CEO faces tremendous pressure in bringing back the airline into profitable mode. References Aviation Benefits beyond Borders, No Date. Regional and group analysis: Middle East. [Pdf]. Available at: < http://www.aviationbenefitsbeyondborders.org/sites/default/files/pdfs/REGIONAL_ANALYSIS_ABBB_MiddleEast1.pdf> [Accessed 28 December 2012]. Bahrain International Airport, 2010. Bahrain Airport Company Plans to Take the Airport to New Heights of Performance. [Online]. Available at: [Accessed 31 December 2012]. CAPA-a, 2012. Gulf Air further trims network as Arab Spring losses continue to mount. [Online]. Available at: http://centreforaviation.com/blogs/aviation-blog/gulf-air-further-trims-network-as-arab-spring-losses-continue-to-mount-68632 [Accessed 31 December 2012] CAPA, 2012. Middle East regional carriers have profitable outlook for 2012. [Online]. Available at: < http://centreforaviation.com/analysis/middle-east-regional-carriers-have-profitable-outlook-for-2012-70718> [Accessed 28 December 2012]. Gulf Air, 2010. About Gulf Air. [Online]. Available at: < http://www.gulfaircareers.com/English/aboutgulfair/Pages/default.aspx> [Accessed 28 December 2012] Gulf Air-a, 2010. History. [Online]. [Accessed 28 December 2012] Gulf Air-c, 2010. Gulf Air Wins ‘Arab Technology Award 2012’ [Online]. Available at: < http://www.gulfair.com/English/aboutgulfair/Pages/News.aspx?newsno=497> [Accessed 31 December 2012] Hub Pages, 2012. How a rise in fuel prices affect the airline industry. [Online]. Available at: [Accessed 31 December 2012] Ministry of Industry & Commerce, 2012. Bahrain International Airport. [Online]. Available at: < http://www.moic.gov.bh/MoIC/En/MoIC+Centers/BahrainInvestorsCenter/BusinessEnv/Connectivity/Bahrain+International+Airport.htm> [Accessed 28 December 2012] PR Newswire, 2012. Bahrain International Airport to Expand Capacity in 2013. [Online]. Available at: < http://www.prnewswire.com/news-releases/bahrain-international-airport-to-expand-capacity-in-2013-183363551.html> [Accessed 28 December 2012]. Trade Arabia, 2012. High fuel costs hitting Gulf Air profits. [Online]. Available at: [Accessed 31 December 2012]. TTG, 2008. Analysis Airlines. [Online]. Available at: http://www.ttgmena.com/Analysis-Airlines/ [Accessed 28 December 2012]. Bibliography Delfmann, W., 2005. Strategic Management in the Aviation Industry. Ashgate Publishing, Ltd. Katsioloudes, M. & Hadjidakis, S., 2012. International Business. Routledge. Oxford Business Group, 2010. The Report: Bahrain 2010. Oxford Business Group. Read More