Case study: Marketing strategy of Air Arabia

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Contents
I. II. III. IV. V. VI. VII. VIII. IX. Introduction Competitor analysis The success of the launch of Air Arabia Target passengers Five forces analysis Market analysis Demand by region Marketing strategy Environmental analysis A. Improving environmental performance B. Relieving congestion and addressing resource requirements Situations in the Middle East Situations in the United Arab Emirates Internal analysis SWOT analysis PEST analysis References

X. XI. XII. XIII. XIV. XV.

The Air Arabia

Executive Summary
Budget airlines revolutionized the air industry with low fares by adopting a completely different way of working to the traditional airlines. By ditching expensive overheads like free food and drink, only using the same type of airplanes to minimize maintenance, training and repair costs, and flying to airports with cheaper landing fees, the budget airlines have passed on huge savings to their customers. This business philosophy has been adopted by pretty much every budget airline around the world. By selling tickets electronically online or via telephone, the budget airlines' marketing costs are much lower too no travel agent commissions to pay or paper tickets to print and post. Virtually all budget airlines use a system of dynamic pricing on their tickets, which means their prices change continually based on demand. Usually the further ahead you book a budget ticket, the cheaper it will be. Sometimes you can get last minute bargains on empty flights, but usually the closer you book to your departure day, the less of a bargain it will be.

Air Arabia's mission is to revolutionise air travel in the region through an innovative business approach offering superb value for money and a safe, reliable operation. To achieve this they will be known for their low fares, grow their business profitably, build motivated multi-functional teams, demonstrate the highest operational standards and manage their costs ruthlessly. Air Arabia is the first and only low-fares airline in the Middle East and North Africa region, with a vision to be one of the world's leading budget airlines in terms of profit margin, innovation, reputation and operational excellence. Based in Sharjah International Airport, Air Arabia customers enjoy the benefits of quick access to Dubai, fast check-in processes, low congestion, friendly airport staff, as well as access to many other commercial carriers served at the airport. Air Arabia is modelled after leading American and European low-cost airlines and is customised to local preferences. Its main focus is to make air travel more convenient and frequent through internet booking and offering the lowest fares in the market without sacrificing on service and safety standards.

Competitor Analysis
When Air Arabia was launched a few years back, the main competitors in the airline industry in the region were Emirates Airlines, Etihad Airways and Gulf Air. Emirates Airlines had the biggest share in the market since it had already been established and was known for its high quality service. Gulf Air was the other competitor but since it wasn't an official airline of the United Arab Emirates it did not pose as many threats and Etihad Airways had just started operations. There were two particular segments in the market which had been overlooked, one being the low budget airline and the other being the airlines targeted at the niche market. Air Arabia decided to target the former and came up with the strategy of Pay less. Fly more. Air Arabia enabled customers to make the smart travel choice; those who have been unable to afford air travel in the past to start travelling throughout the region and those who do travel to do so more frequently, benefiting both business and leisure travellers. The success of the launch of Air Arabia also meant that there would be competing budget airlines starting up in the future, hence the competition was not only with the existing airlines but also with the potential low budget carriers which would be starting up operations. These airlines could also not be operated from United Arab Emirates, but also other budget airlines starting up in other countries in the GCC. In addition, there were other International airlines operating in the region including Air France, British Airways, KLM, Lufthansa, Cathay Pacific, Saudi Airlines, Air India among others. Air Arabia could also target passengers who used to drive to nearby countries including Oman, Saudi Arabia and Bahrain. With low-costs of tickets, the passengers could spend even lesser flying to these countries than a road trip. The airlines could also target customers who did not fly that often since travelling by an airline was considered to be an expensive option. The other target market would be passengers looking for a weekend break and short trips which would not cost a lot. The United Arab Emirates is one of the world's fastest growing tourist destinations, hence proving that there is a huge market for the airline industry to grow. Emirates Airlines also showed a keen interest in growing its fleet, and its buying of more high-end aircrafts also proved that they were not keen on targeting the low-budget traveller, but more towards the Economy, Business and First Class passengers. This does show a void in the industry for operating a budget airline in the region.

Five Forces Analysis The threat of entry

Need of bulk purchase of aircrafts High cost of entry The facilities in use in the airport might have already been booked by airlines which have been operating for longer

The power of buyers

There are a lot of large players in the market. Buyer power within the airline industry - and especially the low-cost market - is relatively strong, as customers will often shop around for the better price,

Need for customer loyalty because of low switching costs

The power of suppliers

Customers are fragmented, so the power of the suppliers is high The price of aviation fuel is directly related to the cost of oil, as an individual company does not have the power to alter this. Airplane manufacturers are concentrated in the industry, with Boeing and Airbus providing the majority of commercial planes.

The threat of substitution

If successful, there might be a rush of budget airlines coming in The main airlines can start up sub-brands of budget airlines Inexpensive or more efficient railways or roadways

Competitive Rivalry

The prices of tickets might have to go down if there is more competition, which means more demand of tickets which adversely brings in more competition and this might lead to losses in terms of individual airlines

Better deals in terms of capture of airports or new routes for airlines operating for a longer period

Market Analysis Air travel has evolved.

More people from all walks of life have access to affordable, direct, and efficient air services. And the largest share of the 6.8 billion airline passengers worldwide now travels to, from, or within the Asia-Pacific region. The airline fleet has been revitalized.

80 percent of the airplanes in service have been delivered new since 2006.

They have brought improved environmental performance, more comfort, more dependability, and lower costs.

Demand By Region
Asia-Pacific 8,350 airplanes $1,020 billion The emphasis of the world airline fleet will move substantially toward Asia-Pacific, with well over a third of the deliveries by value going to airlines in the region. North America 9,140 airplanes $730 billion Constrained domestic growth in the near term with capacity transfer to stronger international routes. Orders will be needed soon to replace large numbers of airplanes. Europe 6,670 airplanes $660 billion Current high air travel growth within Europe will slow as the European Union consolidates. Strong potential for new long-haul routes as many international markets liberalize. Middle East 1,160 airplanes $190 billion Continued expansion of long-haul twin aisle routes worldwide will lead to the highest average value for each airplane delivered. Latin America 1,730 airplanes $120 billion High traffic growth and increased afford ability of air travel to a growing middle-class population is allowing indigenous airlines to expand and enjoy better economies of scale. CIS 1,060 airplanes $70 billion Growth in oil-related activities, the service sector, and tourism, combined with consolidation and innovation among airlines, drives a requirement for more than 1,000 new airplanes. Africa 490 airplanes $50 billion Europe will continue to account for around two-thirds of African air travel, and there will be a particularly strong need for small and medium twin-aisle airplanes.

Marketing Strategy
Price

Low price is a key element of the brand. Uses differential pricing; off-peak travelling and booking in advance makes a ticket less expensive. Discounts for tickets booked online.

Product

Point-to-point air services

Place/distribution

Internet booking system Telephone reservation system.

Promotion

Highlights its advertising through its cheap fares

Environmental Analysis
Improving environmental performance To continue improving the environmental performance of air transport, airlines are focusing on more efficient operations with newer airplanes. At the same time, the industry is actively determining which of the possible future sources of fuel provide the lowest life-cycle CO2 emissions. Biomass-to-liquid processes are particularly attractive as low-carbon life-cycle fuels-a distinct advantage over more carbon-intensive coal-to liquid and gas-to-liquid processes. Plants, with algae showing particular promise, could supply biofuel to satisfy the world's aviation needs. Community noise levels are also being addressed. New airplane types currently on offer deliver a 30 to 60 percent reduction in noise footprint over their predecessors, confining most noise disturbance to within the airport boundary. Relieving congestion and addressing resource requirements Congestion in air traffic control and ground operations could be an inhibitor to growth in some areas. In addition to airlines providing flights from less congested airports, technological improvements such as continuous descent approach are already effective in alleviating local congestion. The pace of implementation of large-scale structural change in facilities such as air traffic control is largely driven by political considerations. While the assumption is made that all necessary additional airports and skilled personnel will be available over the course of the forecast period, short-term growth rates underlying the forecast fully consider the rate at which these resources will become available. In the Middle East The Middle East will need 869 aircraft, valued at $115.1 billion for the next 20 years, of which 85 per cent will be between 100 and 400 seats, according to Boeing's estimates. The Middle East's aviation industry is recording a above-average 5.5 per cent growth between 2005 and 2005, over the global average growth rate of 4.8 per cent, said Randy Baseler, Boeing's vice-president for marketing. In the United Arab Emirates Dubai International Airport Phase II Expansion Project is to provide additional facilities to accommodate the growing airport traffic, which is expected to cater for over 70 million passengers and 3.5 million tonnes of cargo per year. Dubai International Airport Phase II Expansion project includes new facilities to accommodate this rapid growth of both passengers and cargo. The expansion project is providing additional buildings, airfield and ancillary facilities. This also involves the relocation and expansion of certain existing facilities and the construction of new support facilities. In addition, the infrastructure system at the airport is upgraded and expanded to cope with the additional demand, while maintaining safety, security, operational and functional requirements. New Airport Dubai World Central International Airport is a colossal new airport under construction near Jebel Ali, South of Dubai, in the United Arab Emirates. Previous working names have included Jebel Ali International Airport and Jebel Ali Airport City. It will be officially known as Al Maktoum International Airport. It has been named after the late Sheikh Maktoum bin Rashid Al Maktoum, the former ruler of

Dubai. It will be the main part of Dubai World Central, a planned residential, commercial and logistics complex scheme. World Central is the world's first truly integrated logistics platform, with all transport modes, logistics and value added services, including manufacturing and assembly, in a single bonded and Free Zone environment. Air Arabia The Middle East aviation sector is poised for significant, sustained growth, says the Chief Executive Officer of Air Arabia, the first and largest low-cost carrier (LCC) in the Middle East and North Africa. Currently accounting for eight per cent of the global air transport industry, Middle East-based airlines are collectively growing at 10 per cent annually, double the global average of five per cent, according to the Arab Air Carriers Organization (AACO) latest report. Pointing out that, worldwide, one in every eight commercial flights is now flown by an LCC, Adel Ali adds that the Middle East will experience especially strong growth in the low-cost sector in the coming years. The Middle East is home to the youngest fleet in the world, with a total of more than 600 aircraft, and has the greatest number of aircraft on order anywhere in the world, said Ali. From the Gulf to the Levant, the sector is also experiencing unprecedented demand, with load factors averaging nearly 80 per cent. The region is currently experiencing enormous economic growth, he added, and there is a strong correlation between such growth and increased passenger traffic. Consider the demographics of the region, where 100 million people are under the age of 24 and millions more are expatriates, and it becomes clear that air travel will increasingly be seen as a necessity rather than a luxury. Indeed, between now and 2020, the Middle East is forecast to lead world passenger traffic growth, with current travel demand up 18 per cent. While demand is increasing across the sector, Ali said that the outlook for LCCs is bright and that of Air Arabia. By adapting the globally proven LCC model to the unique needs of this region and focusing on providing the highest level of service at the most affordable fares, Air Arabia continues to be the regional low-cost leader. Air Arabia is experiencing record growth - in passenger numbers, aircraft utilisation and profits - and setting the market benchmark, Ali said, we recently placed an order for up to 49 additional aircraft, and Together with our peers in the industry, we will continue to focus on meeting the needs of this vibrant, diverse region as we enter an exciting new phase in its history.

Customer Analysis
Growth in economic activity is fundamental to the high proportion of the world's population in need of better living conditions as well as to the continued development of more prosperous nations. Expanding the movement of both people and cargo is most easily and flexibly achieved by adding air services, and the benefits are immediate. Emerging economies rely on being able to access large markets, whether local or international. Road, rail, or marine transportation are fundamental components of the infrastructure of growing economies, but they demand high investment, primarily from government funds, and are not practical for rapidly traversing long distances or extreme terrain. These alternatives cannot compete with the flexibility of air transport in rapidly delivering access to a wide variety of markets for either people or goods. The growth of air transport is consistently most rapid in fast-growing economies, as can be seen in the chart below, which shows the relationship between air transport growth and economic growth for a sample of well developed and emergent

markets. This reflects the dynamic relationship between the two, where air transport both contributes to and benefits from economic growth.

Internal Analysis SWOT Analysis

Strengths

Cheap Airfare Online Ticketing System Less Expensive Staff Channels of distribution are accessible to the customers Less Human Resources Needed

Weakness

No in-flight entertainment Less knowledgeable staff The airports used may be far away from the city Flight delays No customer retention policy Lack of service and flexibility Non-existence of Business / First Class

Opportunities

New destinations Domination over other forms of travel As prices drop, the demand will increase thereby attracting more people More flexible Reduced Aircraft prices

Threats

More airlines joining in competition Decrease in ticket costs by non-budget airlines Difficulties in expanding to viable new routes

PEST Analysis
Political

No support from the Government since they are not an official airline of the United Arab Emirates No strong regulations in the aviation industry to protect rights of the airlines No nationality given to the expatriates, and hence no stability in the population

Economic

Inflation of the fuel prices The per capita income of the people are increasing, and their purchase power as well Long term prospects of the economy is looking good.

Sociocultural

People are working around the clock, which makes it difficult for them to get leave to travel People want to see more of the world Most of the expatriates have family living in other countries, hence the need to travel

Technological

New technology in terms of internet and channels of distribution are helpful New technology also saves costs on human labour, hence decreases the costs of operation New technology in terms of Internet banking and new generation mobile phones eases operations.

Conclusion
easyJet has to consider whether it should respond to new entrants by ceding niche-segments or by competing aggressively on price, routes and service in an attempt to drive the entrant out of the market. To make the strategic decision market research on the size of different combinations of pricing and service is needed. easyJet also needs to know how much it costs the competitor to serve, and how much capacity the competitor has for, every route in question. Finally, the new entrant's competitive objectives are of relevance to anticipate how it would respond to any strategic moves easyJet might make. By obtaining these information residual uncertainty would be limited, and the incumbent airline would be able to build a confident business case around its strategy. It is advisable that easyJet targets mainly leisure travellers as business often demand frequent flights to a wide range of destinations, seek quality service and frequent flyer programmes, and are willing to pay a premium for these benefits. Also, trying to appeal to widely different customer needs runs counter to the overall trend in service industries, in which distinctive approaches, tailored to different customers, have generally come to dominate. No real opportunity offers the long-haul business as it is very different, both technically and in customer needs, to short-haul travel. easyJet should continue to focus on price and attempt to connect the dots in its network, which cost less than opening new cities. Thereby, it needs to make sure that a growth in its network and fleet does not lead to higher operating costs. It should also consider putting more emphasis on direct marketing by e.g. introducing a customer retention scheme. To differentiate its brand further on promotional lines, easyJet could introduce a CRM (cause related marketing) scheme, developing a reputation for being a 'caring airline', e.g. by selling shares in forest help programmes over its website, collecting foreign currency on flights for charity etc., thereby giving its passengers 'a sense of psychological comfort and well-being' when they choose to fly with easyJet. Overall, easyJet has to develop a realistic and accurate assessment of the

market-niche to be served. A relentless commitment to quality service and cost control is as important as the discipline to establish a growth plan.

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