The Low Cost Carrier Model - Air Arabia

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Multimedia University
BRM8014 Advanced Marketing
Case Writing
The Low Cost Carrier Model - Air Arabia

Student Name: Abdelbaset Queiri
Student ID: 1111800065

1. Introduction

Amidst the global crisis in the airline industry, figures from the International Air Transport Association (IATA) report that actual passenger traffic worldwide has increased 5.9% from the previous year for the period Jan-Sep 2006. Alarmingly, the Middle East has shown the strongest growth with a remarkable 15.4% for the first nine months of 2006 (Fig. 1). Within the Middle East, the GCC (Gulf Cooperation Council) region in particular has seen major developments. New entrants are threatening the existence of long established airlines, while others are going global. This competition has resulted in developing both industry and consumer behaviors. Today, the airline industry within the region has become globally competitive, which in turn brings about a more mature consumer.

|Jan-Sept 2006 over Jan-Sept 2005 |Passenger Traffic | |Africa |8.7% | |Asia/Pacific |5.4% | |Europe |5.3% | |Latin America |-1.4% | |Middle East |15.4% | |North America |5.7% | |Total Airline Industry |5.9% |

Fig. 1 (IATA, 2006)

This report aims to present an overview of the current situation in the GCC airline industry. Moreover, propose a marketing recommendation aimed at maintaining or increasing the market share of Air Arabia, a low cost carrier (LCC), and the same of Gulf Air, an established hub and spoke (H&S) airline.

2. Industry Overview

Market Size

The travel and tourism industry has shown significant growth in the GCC region, reflecting the region’s economic growth. According to statistics provided by Zawya.com, the total passenger traffic for the top GCC airlines increased by 13% compared to the previous year; from 43 million passengers in 2004 to over 49 million in 2005. This growth was mainly accredited to 3 key players with Etihad Airways supporting the highest growth in traffic followed by Air Arabia, and Qatar Airways. Gulf Air suffered a major decline of around 1.34 million passengers. See Appendix, Table I for a list of the top key players in the region and their passenger traffic. Around 8.6 million passengers flew through the top 10 international airports in the GCC region in 2005, up 12% from the previous year as indicated by zawya.com. Dubai International Airport received over 24 million passengers, the highest number in the region followed by King Abdulaziz International Airport in Saudi Arabia with over 15 million passengers. See Appendix, Table II. Looking at recent data provided by Bahrain International Airport, total passenger traffic for the first half of 2006 climbed 19% from previous year totaling 629,300. Gulf Air ranked highest in passenger traffic with over 439,000 passengers in the first half of 2006, a 25% growth from the previous year. Followed by Qatar Airways and Emirates Airline with 31,600 and 21,000 passengers respectively. The majority of passenger traffic into Bahrain International Airport was from the neighboring GCC States with the highest from U.A.E. followed by Qatar and Oman. As of 2005, the Top 5 GCC airlines combined carried a total fleet of 291 aircrafts....
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