Sample Aviation Essay Paper on Air Arabia

Air Arabia

Introduction

This is the first and largest Low Cost Carrier that has been operating in Middle East and the north horn of Africa. It is affirmed that it began operating in October 2003 and has held a great portfolio of how a successful airline carrier should be, it has performed exemplarily well and many consider it a successful business enterprise. Sharjah Airport in United Arab Emirates and Mohamed V airport in Casablanca Morocco have been considered the main hub of the airline as they provide enabling and fostered environment for operations by the airline. Another hub in Egypt was opened in line with goals and visions enshrined in the long term growth and development of the airline company and that of the entire industry (De etal, 2013). The airline and its management have received several awards and accolades with the CEO Mr. Adel receiving the award for the best airline CEO for three years running while the airline company becoming the best Low Cost Carrier.

            The report seeks to investigate the internal and external operation of the airline by highlighting on the financial information, competition, sales, profit and the market share that it controls. Consequently, the report will highlight the strengths, weaknesses, opportunities and threats associated with the airline company and the marketing mix that the company employs to reach its potential customers. Accordingly, the report also aims at providing information on the current market and prospects for future growth and success.

The Market Environment of Air Arabia

The Airline has its headquarters in Sharjah in the United Arab Emirates with the airline occupying Sharjah International Airport where it operates scheduled services in 51 other destinations across the world. The varied destinations include those in the Middle East, North Africa, Central Asia and some European countries, the hub focuses on cities such as Alexandria and Casablanca. To blend well with other airline companies, Air Arabia is a member of Arab Air carriers Association that controls and provides oversight for the industry and its players. The airline was established courtesy of a decree by Sultan bin Muhammad who was a member of Supreme Council of UAE and thus becoming the first low cost airline region in October 2003.

Ever since it was launched the airline has been listed in Dubai financial Market and currently holds assets worth over AED 10 billion. As part of its resolve to generate more revenues, the airline coined several airlines and companies grouped to offer travel and tourism services across its major destinations in Middle East and North Africa. The management team is composed of 7 members who oversee the general operations of the company, the current board occupied office in March 2014 to serve a term of 3 years.

In the course of its operation, the airline has created joint ventures with other international bodies with countries like Egypt Jordan and Nepal. In Egypt for instance, the airline announced on September 2009 that it was collaborating with Egyptian travel and Tourism Company called Travco groups situated in Alexandria, Egypt. This was aimed at promoting the airline to the Egyptians so as to generate more revenue as it traverses across the country transporting tourist to various destinations. Likewise in Jordan, the airline acquired 49 percent stake in Petra airlines with the intention of developing a new hub in Amman so as to reach a wider geographical areas of Kuwait, Erbil and Jeddah. The same is true in Morocco where the airline entered into business agreement with Morocco investors to establish Air Arabia Maroc and in the processing setting a secondary hub in Casablanca. It was unfortunate that a joint venture in Nepal was suspended due economic and political uncertainties despite the signing of an agreement with Yeti airlines that would have the airline expand its destination internationally.

The airline has experienced tremendous growth anchored on increased turnover, profits, number of passengers, passenger load factor, number of aircrafts and destinations. The airline has retained its aircraft design since its establishment where the body is painted red, grey and white with the tail of its aircrafts bearing the company logo. In addition to varied services offered by the company other services are accessible and include ticketing for flights, increased baggage carriage allowance, selected meal options, travel insurance and seat selection. It is worth noting that as at March 2017, the airline has not had any fatality in relation to accidents and incidents and thus preserves an excellent safety record (Air Arabia, 2017). However, there have been several incidents that touch on safety of passengers and crew. For instance, in November 2, 2013 an aircraft from Chittagong to Sharjah with 161 people on board was faced to return to Chittagong after ingesting a bird. On the same note, An Air Arabia Airbus Kozhikode bound was forced to divert to Mumbai for safe landing because of a suspected smoke in one of cargo holds.

As pointed earlier, Air Arabia has its major hub in UAE, Morocco and Egypt and operates to over 65 destinations across the world consisting of Middle East, Africa and Europe. The company has maintained a good business name and in the process provides air transport services to clients who wish to visit different countries. Moreover, the airline company has been on the forefront in providing cargo handling and transportation services to major destinations across the world.

The Competition

Competition in the industry comes from other major airlines like Emirates Airlines, Etihad Airways, India Express and Jazeera airways. The competition has negatively affected profit margin of the company, in 2016 the company registered a 13 percent drop in net profit because of competition pressure. However, geopolitical environment has also led to reduced profits though competition carries a major weight in determining profit margins of the company. Air Arabia board chairman asserted that competition was on the rise and in the process subjected the industry to economic turmoil (Air Arabia, 2017).  Recent developments announcement by Emirates Airline on intention of setting up a low cost subsidiary in Dubai did not go well with Air Arabia because the target market was so identical.  It has been established that competition comes with several problems including risk of cannibalizing traffic from Emirates, employee friction between the two airlines, and differentiation of products (Air Arabia, 2017). Moreover, domestic carriers also pose threats to the stability of Air Arabia, specifically Nas Air and Sama have presented growth ambitions and the moment they will start operating international schedules key market growth of Air Arabia will be in jeopardy. Jazeera Airways had successful growth that was similar to Air Arabia, however now that it started encroaching into Air Arabia territory by establishing another airbase in Dubai, business has not been well for Air Arabia. Though it is targeting about 15 percent of Air Arabia customers they are unable to match their cost structure that makes most customers prefer Air Arabia. Other small startup companies like GoAir and IndiGo are also desperate to expand their international market and in the process posing threat to Air Arabia though liberalization would open more routes for the company. Expanding and  adding new bases has been one of the priorities of the company, this has need more routes open for the company and thus has ensured that it keeps up with the pace of competition in the industry.

Financials of the Company

Last year, the company reported that it had realized a 14 percent consistent profit and this has been attributed to excess capacity in the market (Air Arabia, 2017). Significantly, net profit at the airline was Dh131 million though it was a drop compared to the previous financial quarter; this was hugely blamed on the regional shifts in travel during Ramadan celebrations that saw few people travel. According to a statement from the company, Air Arabia continues to provide solid financial performance and a momentous growth despite continuous pressure from competition and regional economic uncertainties (Air Arabia, 2017). On the same note, revenue generated reached more than Dh 894 million and this was attributed to the ability of the company to fly over 2 million passengers to various destination during the same period. Notably, during the first half financial period of 2016, the airline flew over 4.1 million passengers and thus registering a 14 percent increase considering the average seat load factor that stagnated at 79 percent. “The company had first-half net profit was Dh245m, an increase of 3.5 percent compared to Dh237m last year” (Air Arabia, 2017). Moreover, the statement continued to reveal that the revenues for the period shot to Dh1.84bn from Dh1.75bn this was described as a tremendous surge in revenues compared to same period in 2015. “Share prices for the company remained at DH1.46 compared to Dh1.49 in 2015” (Air Arabia, 2017) reads the company statement. According to the company spokesperson several routes and destinations were fundamentally added to boost operations of the company and thus yield more revenues, these routes include Sarajevo and direct flights to Riyadh from Amman (Air Arabia, 2017). Success of the company has been attributed to the assertion that Air Arabia is a low cost carrier and therefore targets people with low income; this has widened its market share and thus generated more revenues resulting to improvement in net profits (Air Arabia, 2017).

SWOT Analysis of Air Arabia

Major strengths of the company are anchored on the assertion that it was the first low cost carrier in the region and therefore gave low income earners the opportunity to fly to different destinations. This means that the company has always had the opportunity to grow by marshaling huge investment and resource; this makes competition a lesser threat in operations. Investment is supported by the fact that Sharjah airport has often waived landing and parking fees for Air Arabia aircrafts. The company boasts of improved revenues and net profits that have consistently been doubling every year, it can be revealed that the company made its first net profit in 2005 after only two years in operations. Company growth has been tremendous and this is attributed to strong brand name that the company has conserved, this means that despite the company being low cost carrier they can considerably charge higher compared to other because customers always place additional value on brand and reputation. The company has been on the forefront in providing unique products and services through collaboration with other like-minded organizations in different countries. This has developed considerable degree of loyalty from customers and this gives room for the company to target other potential customers.

The weaknesses of the company lies on the competition available in the industry where airlines try to out-do and out-weigh each other. Moreover, as part of growth strategies, the company must expand its operations and acquire new equipment and improve its infrastructure to keep pace with uncertain business environment. However, to do this, the company must acquire loans from financial institutions, high loan rates therefore make it difficult for the company. Consequently, the company has less number of aircrafts compared to other well established airlines like Emirates and this makes it extremely difficult to capitalize on increased customer numbers. Studies have confirmed that fuel cost accounts to about 38 percent of total operating costs of the company; future growth is bleak considering the implication of increased crude oil prices (Air Arabia, 2017).

Opportunities for the company lie on the ability of the firm to add more aircrafts and more destinations to its ever growing portfolio. Moreover, competition is still young and therefore the company has opportunities for further growth and then solidifies its position as a quality low cost carrier in the aviation industry. Considering the fact that United Arab Emirates region is fully focused on attracting tourists to the region, Air Arabia is in a better position to further expand in order to meeting its long term goals.

Threats are in the form of increased operating costs attributed to increase in energy price, just like other airlines, Air Arabia will continue to struggle based on increase in crude oil prices globally. Other smaller low cost carriers like Nas and Sama are considered threats to the airline company because they will compete on the few available customers and thereby diluting the industry. Delivery of sophisticated airlines to the company is a possible threat considering impacts of technology in the industry.

Marketing Strategy of Air Arabia

Segmentation of market for the company is supported by assertion that the airline’s market is spread across the world courtesy of the three hubs that consists Sharjah, Mohamed V and Egypt airports. The company is respected due to the notion that it is a Travel and Tourism leader in the industry and therefore provides travel facilities and services to passengers who tour other countries, moreover, the company also assist clients on hotel reservations.

It has been established that Air Arabia targets customers with low income and wish to travel to other countries that may not be possible through other forms of transport (Air Arabia, 2017). In fact, the motivation for the establishment of the company was informed by the urge to provide low cost services to passengers in the aviation industry. Today, even high income earners are consistently using Air Arabia because they are able to save for their future.

Air Arabia has positioned itself in the market as a low cost carrier with reputable service delivery to its clients thus keeping it ahead of its competitors. Despite the competition witnessed in the industry, many people still prefer the company because of its affordable air tickets.

Growth strategy of the firm is through careful planning on how to expand the company and its operations through investing more than 5 billion to acquire new aircrafts and thus increase its numbers to more than 120 in 2020. The expansion will necessitate flight frequency and thus double the number of daily flights to take advantage of the ever increasing customers in the industry.

The Marketing Mix

Products and services provided by the company to the customers are always according to segment that they belong to. For instance, the company implemented online booking, a service that they provide to their customers thus reducing the time that a customer can visit an agency to book a flight. Moreover, it has been established that Air Arabia provides hotel reservation service to their clients and is always based on needs and budgets of customers (Air Arabia, 2017).

Price offered by the company are always lower compared to other airlines, this has been described as low cost strategy that makes the company target more people especially middle and low income earners in the market.

Place occupied by the company include Sharjah, UAE with other hubs comprising of Morocco, Egypt and Jordan. Moreover, the company runs online website that allow customers to book their flights and also check latest offerings in terms of reservations.

Promotion of the company products and services is always through advertisement in local and international newspapers because the target audiences are people from different nationalities. The newspapers also comprise family, business and social magazines as it aims to reach people of different market segments. Consequently, the company is also running an online website that necessitates interactions, flight booking and information dissemination.

Evaluation of Air Arabia Strategies and Trends

Current market situation of Air Arabia is facilitated by its low cost service philosophy in Middle East and North Africa; this has placed them ahead of their fierce competitors. Most people are constantly demanding for products and service offered by the company because they are affordable, this has boosted revenues and ultimately net profits.

Evidence of company success lies on the profits achieved in 2016 which shows that future prospects of the company to grow is high in the coming years.

Prospects for future growth and success are anchored on the heavy investment that will see increase in aircrafts and destinations. With this, Air Arabia can capitalize on its image and reputation built from the past and will see the company take advantage of the ever increasing customers.

Conclusion

Air Arabia has effectively reinforced itself in Travel and Tourism industry with a vision to deliver the best services to its clients and also to be a market leader by improving a stronger network route. This means that the company has effectively targeted different customer segments especially those with middle and low income. The ambition of the company is to increase its fleet to more than 120 aircrafts in 2020 and also establish more hubs to connect Middle East, Africa and Europe.

References

De, N. R., Odoni, A. R., Belobaba, P., & Reynolds, T. (2013). Airport systems: Planning, design,

 and management, second edition. New York: McGraw-Hill Education.

Air Arabia. (2017). Air Arabia: Financial statements. Web. Retrieved March15, 2017 from

http://www.airarabia.com/en/financial-statements