Air Arabia's Macro Environment - Research Paper Example

ANALYSIS OF AIR ARABIA Analysis of Air Arabia Air Arabia is one of the leading low-cost carriersto operate in North Africa and Middle East. It opened doors for air operations a decade ago and has created a noteworthy portfolio of successful business throughout the years. The following is an analysis of its macro and micro environment, SWOT, marketing mix and recommendations on how to improve its marketing mix to get more customer response Air Arabia’s Macro Environment Natural Environment Air Arabia has operates in several hubs spread across Middle East and North Africa. The main hub is located in Sharjah Airport, United Arab Emirates, Cairo, and Morocco. The hubs are world’s tourist destinations. The strategic position of the airline gives it the power to establish business with local investors (Airarabia.com, 2014). Economic Environment There have been vagaries within the regional economic platform of Middle East, but Air Arabia has managed to make a profit consistently. It has proved to be a cost-effective airline despite the increasing oil prices. The airline also has survived the rising inflation in Saudi Arabia market since 2008. It has maintained its budget airfares to gain public support. Political Environment The airline has operated in situations of political unrest in Middle East and North Africa. Its business survived the political unrest in 2011 and Libya ousting of Gaddafi. It boasts of strict adherence to Shariah Laws because most of its destinations are in Islam-dominant countries (Katsioloudes and Hadjidakis, 2007, p.593). Demographic Environment Air Arabia has established a sound business portfolio over the years and has gained the attention of passengers who want to travel between Middle East and North Africa among other subsidiary destinations. It caters for clientele seeking cargo facilities between the destinations covered by the airline. Cultural Environment It chose Sharjah as the central hub for its flights. Sharjah is an Islamic cultural destination that boosts high tourist influx annually. The airline also operates across 90 destinations with diverse cultures, but the help of agencies has helped it to offer a customized service for each cultural group. Technological Environment The airline carved a unique technological niche whereby it operates in remote aviation hubs with outstanding adherence to current IT developments. In a bid to increase brand awareness, Air Arabia has been compelled to adopt In-Flight advertising campaigns that have been by initiated in United Arab Emirates airlines. Moreover, the airline industry now demands technological adjustments in the form of in-flight entertainment system, overhead bin doors and graphic tray tables (Lück, 2013, p.65). Air Arabia’s Micro Environment Air Arabia is an airline company that operates in Sharjah Airport. UAE, Egypt, Morocco and other destinations spread across Africa, Europe, South and Central Asia, Middle East and India. The airline is the first low-cost carrier within Middle East and North Africa. The main competitors of Air Arabia include Emirates Airline, Etihad Airways and Air India Express and Jazeera Airways. Air Arabia competes closely with Jazeera Airways in terms of budget flights and destinations. The customers of Air Arabia are passengers of diverse backgrounds looking for low-cost flights. It has spread its wings across major world destinations such as Europe and Middle East. The low-cost carrier’s interest has grown in the public over the years. Air Arabia marketing intermediaries are spread across its hubs around the world. It established a joint venture in Egypt travel and Tourism Company in 2009 and received its operating license. Tantash Group in Jordan established a partnership with Air Arabia to create a hub for flights in Middle East. However, it has faced setbacks such as political unrest and increasing fuel prices. Air Arabia Maroc in Morocco serves the European destinations (McKechnie, Grant and Fahmi, 2007, p. 19). It has maintained close contact with aircraft manufacturing companies such as Boeing and Airbus. There are limited aircraft manufacturers which have upset the bargaining power of the company’s aircraft prices. Air BP supplies Air Arabia with fuel, and it is a major shareholder in Sharjah Aviation Services Corporation. Air Arabia’s Target Market and Their Positioning within the Market Air Arabia targets passengers with low income who are looking for budget flights. It operates in the low-cost carrier flight industry amid stiff competition from Jazeera Airways. The airline’s current portfolio of business has been successful because of targeting destinations such as Alexandria in Egypt. The destination became the next best alternative for passengers who used to overcrowd in Cairo’s airports. The company also hopes to woo business travelers seeking less time in their flights at a low cost. United Arab Emirates expatriate number has been increasing, but the market has remained untapped. Air Arabia aim at converting the business people travelling in buses in Oman, Alexandria, and Syria to loyal passengers of the airline. Air Arabia initiated its low-cost carrier service with an aim of providing low-income earners with safe and cost-effective air travel. However, it has also expanded its target market to people with high income who are looking for ways to save their money for a better future (Katsioloudes and Hadjidakis, 2007, p.598). Air Arabia positions the target market across its main hubs. Sharjah airport, Mohamed V, and other prime destinations across Middle East, Africa, Asia, and Europe have helped the airline to unleash befitting business strategies. It has continued to stay ahead of its competitors by maintaining cheap ticket prices. It has sustained its share of demand despite facing stiff competition from Jazeera Airways and other airlines targeting the same niche. Air Arabia’s SWOT Analysis Strengths Air Arabia is the largest and first low-cost airline in the Gulf Cooperation Council region. It has taken time for other airlines to invade the market considering the massive investment required to set up an airline (Lück, 2013, p.121). It has won Merit Award and World Airline Award as a LCC in 2006 and 2007 respectively. Air Arabia gets waivers from Sharjah Airport in the form of landing and parking fees, and it helps the airline to save up on operation cost. It has managed to generate consistent profit margins of 200% though it has a young history. It recorded its maiden net profit after just two years of operation. Weaknesses It has less number of aircrafts due to the scarcity of aircraft manufacturers. It depends on the schedule of Airbus and Boeing to get new aircrafts, and it becomes impossible to meet increasing customer numbers. It operates in a fuel market that is experiencing high fuel prices. The fuel costs offset the expected profit margins because they contribute to 38% of the operating costs (Lück, 2013, p. 126). Opportunities Air Arabia is poised for growth given the pending order of more carrier aircrafts. It will use the extra number of airplanes to expand its hub and add more destinations to its growing portfolio. The airline stands to benefit from UAE and GCC strategy to attract more foreign tourists in the region. The tourist will become prime customers to the service who looking for ways to save up on travel cost. Air Arabia continues to thrive in a young competitive market with the likes of Jazeera and Etihad airways. It will use the opportunity to solidify its position in low-cost carrier market. Threats The rising fuel prices form an integral part of operating costs, and they will likely hinder the performance of Air Arabia. The airline is struggling to stay in business because of the rising energy cost. The recent penetration of fresh LCCs such as Sama, RAK Airways, Fly Dubai, and Nas will dilute the profitability of the market. Air Arabia should find ways of diluting the effect brought by the new firms (Airarabia.com, 2014). The airline has been compelled to adjust itself to delivery schedules of aircraft manufacturers due to the limitation of aircraft suppliers. Analysis of Current Marketing Mix of Air Arabia Air Arabia offers a wide range of products and services in an effort to sustain its low-cost strategy. The following is a marketing mix of Air Arabia. Product or service Air Arabia offers a wide range of services according to the target segment. It has customers for online booking and hotel reservation system. Both services reduce the time a customer would take to contact the agency and book a particular flight. They are customized to meet specific needs and budgets of customers Price The airline was unveiled of providing low-cost flights, and it has sustained the low-cost strategy throughout its history of operation. The strategy is aimed at people with low and medium income levels, but it has focused on high-end business travelers. The prices are meant for customers wishing to make many flights at an affordable rate (Lück, 2013, p.130). Place Air Arabia has maintained its main hub in Sharjah Airport in UAE, but it has also taken its flight services to hubs in Morocco, Egypt and Jordan (McKechnie, Grant and Fahmi, 2007, p.600). It unveiled an online website platform where customers can book flights and accommodation remotely. The website also comes in handy for customers who are looking for latest offers in hotel and other means of travel. Promotion Air Arabia target audience from Arabic and English speaking nations. It has local and international advertisement strategies that utilize components such as newspapers, business, family, and social magazines. Its website offers a convenient platform for online booking, accommodation, and travel destinations. It also invests in media adverts with companies such as Gulf News and MSN. Recommendations for Improving the Marketing Mix to Maximize Customer Satisfaction and Create Closer Connections to the Customer Air Arabia can explore the expansive travel and tourism industry by expanding to other hubs besides Sharjah, Mohamed V and Cairo Airport. There is a rapid increase of flight travels in the world. It should have agencies that cater for hotel reservations and booking beyond the limits of its online website platform. The expansion to new segments in travel and tourism industry will reduce dependency on a single segment of low-cost carriage. Its empire has room for growth gauging by the performance of its subsidiaries. It has Air Arabia Holidays that handles vehicle rentals and travel groups and Air Arabia Crystal Cargo which majors in freight handling services (McKechnie, Grant and Fahmi, 2007, p. 602). The airline can invest in cargo carrier flights because they contribute to the profit margin of the airline. It is a source of additional market share given that the industry is slowly gaining attention from major airlines such as Etihad Airways. Ordering for more cargo planes in addition to passenger aircrafts will increase its overall command in the market. It should invest in modern aircrafts to meet the changing demands of passengers going for business and tourism trips. The company has planned to expand its central hub with 2 billion investments in new aircrafts by 2015, but the plan should be long-term. A long-term plan will allow Air Arabia to accommodate and increase the frequency of flights to particular routes. The move will increase the expected profit margins since the number of flights in a day might double (Airarabia.com, 2014). The prevailing inflation in Middle East coupled by rising fuel costs will influence the ticket prices for the airline. Air Arabia should strike a balance between increasing inflation and controlling the prices of the air tickets in order to sustain customer numbers and overall market share. Reference List Airarabia.com, (2014). About us | Air Arabia. [online] Available at: http://www.airarabia.com/en/about-us [Accessed 29 Oct. 2014]. Katsioloudes, M. and Hadjidakis, S. (2007). International business. Amsterdam: Butterworth-Heinemann. Lück, M. (2013). The low cost carrier worldwide. McKechnie, D., Grant, J. and Fahmi, M. (2007). Carving a niche for the no-frills carrier, Air Arabia, in oil-rich skies. Journal of Air Transportation, 12(1). Read More