Air Arabia - Sustainable Solutions - Report Example

Air Arabia: Sustainable Solutions Paper SUSTAINABLE SOLUTION PAPER Executive Summary: Summary Focus Air Arabia has adopted the model of the stakeholder. In the example, the company has focused on the internal and external shareholders. In the attempt of Air Arabia taking into consideration the model of the stakeholder the strategy at the enterprise level has been adopted. In promoting the culture, the company maintains and promotes the corporate governance of the industry. The company majorly formulates and adopts work culture that is participative which will facilitate towards contributing and enhancing the strategic planning. In addition to the model of the stakeholder, the company implements and formulates the strategy of enterprise level to improve its business operations. The culture majorly plays a vital and important role in the formulation and implementation of concepts and strategies that are related to the learning of the organization, system thinking. They are also linked to the double loop learning the culture and the company’s enterprise-level strategy that are combined for the attaining of objectives and the company achieves its goals. The threat of alternatives or substitute services that the company experiences are the feasibility and availability that are being provided by the corporation. For this reason, the company develops and maintains the services that it offers to its passengers or customers (Stacey, 2011). Introduction The main purpose of the sustainable solutions paper is to analyze the strategic position of Air Arabia. The Sustainable Solutions document will include different tools that are strategic. Air Arabia started its operations in the year 2003, and it provides flight services to about 88 destinations. In the sustainable solutions paper, the strategic management’s core concept could be seen below; Theories of strategic management relating to the identification of stakeholders and analysis of the value. There is also the general forces analysis, the five forces industry analysis of Porter, relative analysis, and value chain analysis. In addition, SWOT/SCOT analysis will be demonstrated in detail, followed by a discussion of the strategy type of the company and strategic moves of the enterprise. Also not forgetting the alignment and goals analysis. In the paper, there would be other analytical tools to be included such as analysis of the fitness landscape, bold analysis. Also, assessment of the life cycle, industry evolution modeling, compliance with innovation analysis and sustainable value framework (Aime, 2013). Key Takeaway The company is at the maturity stage, and it satisfies and meets all the needs and requirements of its passengers or customers. Air Arabia is currently recognized as the most well known and largest aviation Company that offers an affordable low cost of traveling to its passengers. The economic indicator has no recognizable influence on the day-to-day operations of the business and the price fluctuates due to the variation in exchange rates between countries. The model of the fitness landscape has been analyzed by the enterprise. It has been assessed to determine the current position and situation of the company. In addition, it indicates the trend of development of the company and the scope of improvement of the business (Air Arabia, 2014). Integration concepts Bold analysis has been conducted to determine and evaluate the complexity that exists in the company. It also identifies the relationship that exists between the stakeholders and shareholders of the enterprise and estimates the risk of the business. The Corporation has utilized the five forces model of Porter and SWOT analysis for evaluating and determining the competitive advantage of the company. Currently, the company is facilitating its operations and has increased its destinations. In addition, the assessment of the life cycle has also been conducted, and it has been realized that the life cycle process of Air Arabia is at maturity stage. The company has also carried out and developed the sustainability framework to evaluate its strategies that are to be implemented very soon and plans that are supposed to be introduced and formulated for future implementation. It deals with the various internal and the external factors that influence and determine the position of the company in the industry. Air Arabia has threats or fear from the premium and high-class airlines that provide quality services that are superior to their passengers or customers (Stacey, 2007). Stakeholder Identification and Value Analysis of the stakeholder is usually carried out to determine relevant stakeholders who will assist in developing the long-term sustainable solutions for Air Arabia. The vision of the company is to; become the market leader n the world in low-cost airlines segment. Air Arabia is a public joint company that indicates that it possesses a vast array of public awareness (Arab News, 2014). Enterprise Level Strategy As explained by Freeman (2010), firms that lack an enterprise strategy are not often socially viable at times. Stakeholder’s theory is a company’s management framework that was proposed by R. Edward Freeman. The Stakeholder models, as demonstrated in figure 1, describe the methods adopted by the Directorate to suit interests of groups (Freeman, 2010). (Freeman, 2010). Figure 1: Stakeholder Model The theory of normative stakeholder identifies the particular stakeholders of a firm. The descriptive theory that relates to stakeholder salience is all about the strategies of management to treat the group members. The Enterprise level approach of Air Arabia is to be one of the leading budget airlines in the world. It also focuses to ensure there is operational excellence, innovation, reputation and profit margin (Boons, 2008). Culture Type The values of the organization and culture are an essential component of efficient management. The company is headed towards promoting corporate governance. Air Arabia follows participative work culture where all members of the team are encouraged to contribute towards strategic planning. The practices of the firm are in line with the laws and regulations of the UAE. Every stakeholder has to be in line with certain policies like whistle blowing, share dealings, and dividend distribution (Shrivastava, 1993). Integrated Concepts from Readings Enterprise level strategy is concerned with the contribution of stakeholders in the operation of the business. In addition, culture plays a crucial role in the formulation of policy, and there are different concepts that are related to culture like double loop learning, systems thinking and learning organization. Air Arabia can be seen as a learning organization since the changes that occur in the external environment are well integrated into its system. Enterprise level strategy and culture are aligned to the mission or vision of Air Arabia. The reason is that the strategy of the company enhances competitive position in the airline industry (Carlisle, & McMillan, 2006). Evidence and implications The operations of Air Arabia are the same to the organizational cultural framework because it is a learning organization. Over the previous years, the low-cost airtime has issued quality services to all its passengers. The similarities are mainly seen in the form of cultural practices. Because the level of enterprise strategic framework is not the same to Air Arabia’s strategy. All stakeholders’ contributions are not adequately highlighted in its policies of the business (Senge, Smith, Kruschwitz, Laur & Schley, 2010). General Force Analysis: External – Remote Environment General Force Matrix Analysis. According to Robinson and Pearce (2003), there is the presence of the five external environmental forces like economics, social/culture/demographics, physical environment, technology and government/military/legal. The general force Matrix is an analytical tool that is crucial because it is used for scanning external environmental conditions. It helps to determine external forces that are remote to an organization and its essential impact upon an organization. Output of GFA framework can be forecasted, trends and events. The outputs gotten from this tool are considered as opportunities or threats of an organization. There would be two or three opportunities and threats which shall be used in SCOT and SWOT analysis. The bigger aim of this framework is to discover opportunities and threats facing a particular industry. There are different forces that affect sustainability of Air Arabia and will be analyzed in respective sections (Cornwell, 2013). Demographics / social / culture Considering the 2006 estimates, the total population in the UAE is 851,164 (i.e. 430,646 male and 420,518 female). In which the total population in the Sharjah – where Air Arabia is situated, is 141,281 (i.e. 72,756 male and 68,525 female) (United Arab Emirates - National Bureau of Statistics, 2010). Especially the total population in the UAE and Sharjah has moved up to 947,977 (i.e. 497,109 male and 468,888 female) and 153,365 (i.e. 78,818 male and 74,547 female) in 2010 respectively (2010). More so, the total number of non-nationals in the UAE have gone up from 4.16 million in 2006 up to 8.26 million in 2010 (United Arab Emirates - National Bureau of Statistics, 2010). With a population rate of growth of about 2.71%, the number of population in the UAE significantly went down to 5.63 million in 2014 (Cornwell, 2013). These numbers strongly indicate that the trend of the demand for both domestic and international flight services is to a very much extent increasing over the years. (See Table 2 – Trend in UAE and Sharjah Population between 2006 to 2010) (Senge, & Carstedt, 2001). Table 2 Trend of the UAE and Sharjah Population between 2006 to 2010 Population 2006 2007 2008 2009 2010 UAE 851,164 877,741 904,857 933,381 947,997 Sharjah 141,281 144,319 147,855 151,506 153,365 National 851,164 877,741 904,857 933,381 947,997 Non-National 4,161,220 6,219,006 7,168,769 8,199,996 7,316,073 Note. Adapted from “Population - 2006 to 2010”, by United Arab Emirates - National Bureau of Statistics, 2010, p. 6 - 10 (Senge, & Carstedt, 2001). The population growth among the UAE countries has been to an immense increasing on a relatively minimum pace. This may be compared to the total population of nationals in the UAE. It can be observed that fluctuations in the number of non-nationals or migrants present in the UAE will affect the future demand for UAE’s domestic and international flights. The net migration rate pertains to the difference between the number of persons leaving or entering the UAE per 1,000 people each year (AIME, 2013). Even though, the number of non-nationals who are nowadays residing in the UAE remains higher than the number of nationals. In this nation, the net migration rate, or the number of individuals who enter and leave the UAE has been following a reducing trend since 2007 (Index Mundi, 2014). The net rate of migration in the UAE moved down to 13.58 migrants per 1,000 populations based on 2014 estimate (CIA, 2014). Especially the decreasing trend in the number of people who enter and leave UAE can significantly or adversely affect the demand for Air Arabia’s flight services (Harvard Business School Press. 2005). (See Figure 3 – Net Migration Rate in UAE per 1,000 Populations) Figure 3 Net Migration Rate in UAE per 1,000 Population Note. “Net migration rate (migrant(s)/1,000 population)” by Index Mundi, 2014. Appendix 1 demonstrates economic issues that would affect business operations of Air Arabia. Labor force has an ongoing trend that shall benefit the company on a long-term basis. High rate of unemployment indicates more disposable income of persons to be spent on traveling. Air Arabia is expected to acquire more customers since expatriate constitute 85% of overall labor force as highlighted in Appendix 2. On the other hand, there is the continuous demand for UAE airlines that contributes to influencing state agencies to invest in this industry. That is an opportunity for the company in terms of expanding its destination base. Economic forces apart from the high rate of inflation might prove to be advantageous for airline businesses in the particular industry (Rusinko, 2005). Technology Technology holds a critical essential in the aviation industry. This factor has a high impact on business operations of the airline sector. As of 2013, the strongest support of Gulf Cooperation Council (GCC) and the UAE included decided to embark on “AED 1 billion aircraft seats international joint venture.” Which was publicly announced which serves as a sign that UAE’s aviation industry and is one of the fastest in terms of global expansion (AIME, 2013). Technological aspect associated with this industry has been demonstrated in Appendix 1. Investment in this field assists to facilitate brand image along with operational efficiency. Target customers of low budget airlines are more headed towards cheaper airfare rather than opting for any technological benefits. However, the technical aspect has been able to reduce flight duration and facilitated the level of convenience. The factor has contributed towards fuel efficiency and aircrafts aerodynamic. In addition, context technology offers widespread opportunities to companies belonging to the aviation industry (Kaplan & Norton, 2008). Governmental support is necessary for success of any firm and in UAE that seems to be a positive aspect for the aviation industry. The UAE government has been able to manage approximately 66 countries in terms of signing agreement of the double taxation. That is an added advantage for the firm since the aviation industry will be free from paying freight taxes. For companies operating in the sector, it shall be an opportunity in terms of gaining great Profit margins (Porter & Millar, 1985). Physical environment In general, traveling via air has a tremendous impact on the world’s climate change (ETA, 2014; IATA, 2014; Sewill, 2003). Apart from the usual carbon dioxide emissions, ETA (2014) reported that traveling via air removes more harmful substances in the air. Studies have shown air travel is the safest technique of removing down the frequency of hazardous items in the air (ETA, 2014). Implemented back on December 11, 1997, the Kyoto Protocol was built to serve as an international agreement. The covenant is aimed at solving problems related to global climate change (United Nations Framework Convention on Climate Change, 2014). Apart from air pollution, noise pollution is also caused by aviation industry. Air traffic congestion results due to large number of low-cost airlines. Environmental regulation and standards would prove to be a threat to the air transport sector. That is because the alternatives of fuels have to be discovered so as to minimize the rate of air pollution. The alternatives shall tend to increase operational costs due to lump sum investment. It is a threat majorly for low-cost airlines since they need to offer airfare at least the price possible (King, 2008). Implications of General Force Threats The first danger to the industry is reducing the net immigration rate in UAE market. The aspect is closely united with the force of demographics, social and culture. There are three other threats highlighted by the power of the physical environment such as global climatic change, increased level of noise pollution and destruction of landscape, wildlife, and heritage. The two most significant threats that can adversely affect business operations in the aviation industry reducing the migration rate and noise pollution. These two threats might lead to disruption of brand image and initiate more investment. The net immigration rate is directly linked to the usage of flight services and pollution of the nose results into, not staying aligned with the environmental standards (Pearce, 2008). Opportunities Opportunities have been demonstrated based on GFA framework. Demographic forces lead to the increase in population in terms of non-nationals and nationals in UAE market. In the economic context, there is increasing labor strength and lump sum investment that would be made in aviation for further growth. In legal aspect, opportunity is linked with double taxation avoidance agreement to be signed by UAE and 66 other countries. Technological force has led towards increasing seat capacity, so as to accommodate more customers. However, the two most appropriate opportunities for the industry are future investment in this industry and avoidance of the double taxation. Both these possibilities are associated with gaining high-profit margins and acquiring sustainable market position in the future years (Kunsch, Theys, & Brans, 2007). Porter’s Five Forces Industry Analysis: External – Industry Environment Five Forces Matrix Analysis Michael Porter’s five forces analysis is utilized to determine competitive forces prevalent in the aviation industry. There are five forces affecting the Air Arabia like bargaining power of customers, suppliers, threat of new entrants, competitive rivalry, and threat of new substitutes (Porter, 1998). Barriers to entry According to Michael Porter, barriers to new entrants can be categorized as capital requirements, product differentiation, economies of scale, switching costs, government policies, etc. In the aviation industry lump, sum investment is expected for setting up a new business. Threat of new entrants is low since UAE’s aviation industry is regulated by General Civil Authority of UAE. The aspect has been further highlighted in Appendix 3. It clearly states that there are existing barriers in the industry which prevents a new player to set up its market position (Leuenberger, 2006). Substitutes Threat of substitutes is relatively high for those industrial segments where individual hidden demand remains unaddressed by firms. In UAE’s airline industry, threat of substitutes can be stated as low to moderate. There are two carriers that are lost in this market offering the same services like fly Dubai and flynas. More so, the primary form of substitutes is other modes of transportation like bus, trains, and cars. On the contrary, convenience level provided by airlines in terms of reduced time of travel, exploring maximum destinations, etc., cannot be offered by other transportation modes (Morçöl, 2005). Bargaining Power of Suppliers Bargaining power of vendors will depend on the number of suppliers that exist within the industry. In airline industry, bargaining power of suppliers is moderate to high as highlighted in Appendix 4. There are two main suppliers in aircraft manufacturing like Airbus and Boeing. Fuel prices cannot be controlled by Airlines, but Air Arabia could have an added advantage in the context of purchasing fuel from a supplier that is single. There are many companies in Middle East who is competing for the position of low-cost aircraft. Such competition may enhance bargaining power of suppliers (Lichtenstein, Uhl-Bien, Marion, Seers, Orton, & Schreiber, 2006). Bargaining Power of Buyers Bargaining power of buyers is significantly dependent on the actual size of airline companies and the market demand. In the aviation industry of UAE, bargaining power of customers is moderate to high. Air Arabia operates in a highly price sensitive market segment where airlines can be adequately compared online ( Mintzberg, 1990). Competitive rivalry The principal components in competitive rivalry have been elaborated in Appendix 5. Competitive rivalry is a primary threat to companies in the aviation industry in UAE. Air Arabia’s main competitors are Emirates, Saudi Airlines, Etihad Airways, NAS Air, RAK Airways, and Cathay Pacific. Flydubai is another low budget airline with whom Air Arabia is competing since the past few years ( Mintzberg, 1990). Implications of the five forces Threats The primary risk for companies in the aviation industry is intense competition as commenced by the factor of competitive rivalry. Other risks in this industry are high bargaining power of suppliers and customers, and the threat of substitutes. In addition, the two most critical risks are enhanced by bargaining power of clients since it significantly affects brand image. The other one is competition due to its adverse impact on margins of profitability (Mabin, Davies, and Cox, 2006). Opportunities In the whole context, there are two opportunities for companies operating in the aviation industry. Firstly, little threat of substitutes since it enables the scope for future growth and development. Secondly, barriers for new entrants restrict competition for companies in the aviation industry and initiates huge revenue margins (Mabin, Davies, and Cox, 2006). Detailed Value Chain Analysis: Internal Environment The value chain analysis should be carried out to determine whether or not Air Arabia is capable of delivering valuable service quality to its valued passengers. Within the firm level, the value chain examines the entire business operations of the company, i.e. marketing, service quality, sales, logistics, HR management, and procurement (Porter, 1985). Within the international level, the global value chain looks into not only the end-result of foreign investments; but also the impact of government intervention policies. For instance, it scrutinizes impacts of imposed taxes on the performance the company. Also, effectiveness of the marketing activities in another country, efficiency of the R&D goals and practices and so on (Stacey, 2011). In the process of building profit margin, the company can produce competitive advantage when compared to its close competitors (Mabin, Davies, and Cox, 2006). Customized Value Chain of Activities in Table Form Michael Porter’s value chain comprises of nine elements such as human resources, procurement, general administration, inbound logistics, R&D, outbound logistics, marketing and sales, service and operations. Weaknesses and strengths are shown in the value chain framework in relation to competition. Appendix 6 represents the comparative essential skills and capabilities between Air Arabia and its two other close competitors - fly Dubai and flynas. Within the affordable-cost airline industry, evidence shows that both operates Dubai and flynas are importantly focused on creating and implementing business strategies that will enable them capture a bigger market share from Air Arabia. Consequently, if Air Arabia does not maintain the quality service it provides to its existing customers may choose alternative flights. There is a high likelihood of having passengers choosing airline services offered by either fly Dubai or flynas. Air Arabia, fly Dubai and flynas financially invested significant sums to develop and maintain their IT infrastructure. Recently, both fly Dubai and flynas shifted from strictly following the business model of a low-cost carrier to a hybrid carrier (Stacey, 2007). It means that both fly Dubai and flynas are capable of offering their customers with business class flight services, which is not available in Air Arabia. This alone provides both fly Dubai and flynas more competitive advantage compared to Air Arabia (Air Arabia, 2013b). To establish more competitive edge compared to travel Dubai, Air Arabia should develop more efficient marketing strategies other than advocating its “Pay Less. Fly More” campaign (Air Arabia, 2012). Both fly Dubai and flynas have more competitive advantage than Air Arabia when it comes to hiring and retaining qualified employees. As a result, Air Arabia’s HR management scores “5” (Arab News, 2014). It means that what they offer to job applicants is average and within the airline industry standards (Mabin, Davies and Cox, 2006). Conclusion The main purpose of the sustainable solutions paper is to analyze the strategic position of Air Arabia. The Sustainable Solutions document will include different tools that are strategic. Air Arabia started its operations in the year 2003, and it provides flight services to about 88 destinations. In the sustainable solutions paper, the strategic management’s core concept could be seen below; Theories of strategic management relating to the identification of stakeholders and analysis of the value. There is also the general forces analysis, the five forces industry analysis of Porter, relative analysis, and value chain analysis. In addition, SWOT/SCOT analysis will be demonstrated in detail, followed by a discussion of the strategy type of the company and strategic moves of the enterprise. Also not forgetting the alignment and goals analysis (Morçöl, 2005). The primary threat to companies in the aviation industry is intense competition as commenced by the factor of competitive rivalry. Other risks in this industry are high bargaining power of suppliers and customers, and the threat of substitutes. In addition, the two most significant risks are enhanced by bargaining power of clients since it significantly affects brand image. The other one is competition due to its adverse impact on margins of profitability (Morçöl, 2005). References Aime. (2013). UAE and GCC investors support AED 1 billion aircraft seats international joint venture. Retrieved January 13, 2015, from http://www.aime.aero/press/press-releases/uae-and-gcc-investors-support-aed-1-billion-aircraft-seats-international-joint- Air Arabia. (2014). 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APPENDICES Appendix 1 Underlying Issue Impact on the Business (i.e. high, medium, or low) Timeframe (i.e. immediate, within a year, after a year, etc.) Type of Change (i.e. positive, negative, no change, etc.) Importance to the Industry (i.e. critical, important, not important, or unknown) Demographics, Social, and Culture 1. Increasing population for both nationals and non-nationals in UAE. Medium to Low Immediate Positive Important 2. Net migration rate in UAE is decreasing. High Immediate Negative Critical Economics 1. Increasing labor force. High Within a Year. Positive Important 2. Expatriates accounts for 85% of the total labor force. High Within a Year. Positive Critical 3. Low inflation rate at 1.3% in 2013. Medium to Low Within a Year. No Change Not Important 4. Exchange rate at 3.673 based on 2013 estimate. Low - No Change Not Important 5. UAE aviation industry will receive Dh500 billion or US$136.12 billion worth of investment. High Within the next 10 years. Positive Critical Government, Legal, and Military 1. All cabin crew members, flight engineers, and pilot should have UAE license before they can be employed by airline companies. High Immediate Positive Important 2. All airline companies that operate in UAE are required to meet a minimum insurance for the benefits of the general public. High Immediate Positive Critical 3. A total of 66 countries worldwide signed UAE’s “double taxation avoidance agreements”. High Immediate Positive Critical Physical Environment 1. Issue on global climate change. High Immediate Negative Critical 2. Issue on noise pollution. Medium After a year Negative Important 3. Destruction of wildlife, heritage, and landscape. High Immediate Negative Critical Technology 1. GCC and UAE support the “AED1 billion aircraft seats international joint venture”. High Immediate Positive Critical Appendix 2 Labor Force in UAE between 1998 to 2012 Appendix 3 Porter’s Five Forces Appendix 4 Bargaining power of suppliers Ranking Element(s) Rating Scale Impact 1 Few companies like Boeing that manufactures aircrafts 1 Bad 2 Fluctuations in the market prices of oil 3 Bad 3 Limited gate slots in both domestic and international airports 7 Positive 4 Airline companies compete for licensed cabin crew members, flight engineers, and pilot 5 Neutral Appendix 5 Competitive Rivalry Elements Ranking Element(s) Rating Scale Impact 1 Oligopoly as market structure 2 Bad 2 Low product differentiation 6 Good 3 High barriers to exit 5 Neutral Read More