Air Arabia – 20 Years Alignment of Strategy & Value Proposition
January 13, 2025
Business capabilities is a collection of cabilities that make the organization’s strategy execution posssible. Such capabilities create the products and services packaged in the company’s promise to its customers and clients – the value proposition. In this news letter we present Air Arabia – a case-in-point of sticking to your strategy and value proposition. This does not mean rigidity and lack of flexibility. Its a case where you believe in a strategic choice but keep aligning, upgrading and changing your capabilities to deliver on such strategy.
Air Arabia – The Beginnings
Air Arabia created its position in the market as the first low-cost carrier in the Middle East and North Africa (MENA) in 2003. The airline, headquartered in Sharjah, United Arab Emirates, has been established with a particular goal of lowering the cost of air travel and facilitating access for the growing population of the region. Its plan to win was clear. Air Arabia’s initial strategy was to provide inexpensive flights without affecting quality or reliability. Its quick expansion was made possible by this strategy, which reached unexplored markets at later stages.
The airline’s primary strategy was simple yet effective:
– Low-cost business model: To offer competitive pricing, Air Arabia adopted the Low-Cost Carrier (LCC) model, which optimizes operational efficiencies. This involved running a SINGLE aircraft type (the Airbus A320), which lowered training and maintenance expenses. As of this article, Air Arabia operates 68 A320 aircrafts.
– Location strategy: By selecting Sharjah as its primary location, Air Arabia was able to take advantage of cheaper airport fees than other emirates while being close to a significant international global travel market.
– Prioritizing regional connectivity: To guarantee high aircraft utilization rates, Air Arabia firstly focused on regional destinations that took only a few hours to reach its destination. The company has added 9 A321 Neo aircrafts to sustain its LCC model while supporting its expansion strategy. The new model is 23ft longer than A320 and seats 50 more passengers.
By presenting a strong substitute for established airlines, this strategy established Air Arabia as a pioneer in the regional aviation field.
Development and Growth (2003-2019)
Air Arabia rapidly grew in its easier years, adding new routes and growing its fleet. By the middle of the first decade, the airline had branched into Europe, North Africa and Asia by developing more operational centers in Morocco and Egypt. It set itself apart from rivals by concentrating on overlooked locations and secondary airports. That was a strategic direction that significantly contributed to the company’s success.
Significant turning points were seen during this time, including the establishment of additional revenue streams as they offered services, including baggage fees, flight meals, and seat choices. Additionally, to guarantee passenger convenience and fuel efficiency, the airline kept a modern lineup of Airbus A320s. Air Arabia stand out out for its strong commitment to profitability, and its consistent publication of outstanding financial results.
COVID-19 Pandemic (2020-2021)
As many others in the aviation sector, Air Arabia also faced the challenges presented by the global pandemic. Significant revenue losses were caused by travel restrictions and the decline in passenger demand. Nevertheless, the airline was able to withstand such conditions more successfully than others owing to its low cost structure and flexible operations.
Air Arabia put forth strict cost-control measures, such as delayed aircraft deliveries, and route optimization. Additionally, to compensate for income losses from passenger flights, the airline made use of its airplanes for cargo services. Moreover, they prioritize routes with strong recovery potential as it is focused on continuing operations in high demand, regions as travel restrictions loosened. Air Arabia demonstrated effective recovery by focusing on few actions to help get back to its original strategy.
Recovery from the pandemic (2021-2024)
Following the obstacles caused by COVID-19, Air Arabia exhibited incredible resilience. The airline made a crucial decision to reclaim its momentum when the world started to reopen in late 2021. Air Arabia launched new destinations and reopened operations in suspended areas, leveraging demand for travel. After recognizing an upsurge in leisure travel, the airline modified its schedule to meet the demand, focusing on popular vacation spots.
Financial Performance
In 2023, Air Arabia reported a net profit of AED 1.5 billion, a 27% growth compared to 2022. For the same period, revenue increased by 14%. For the first half of 2024, Air Arabia turnover increased by 13% to compared to the first half of 2023. Between 2023 and 2024, the airline had increased its seat load factor (seats utilization) from 79% to 82%.
Air Arabia’s financial turnaround was quick, as seen by its record breaking 2022 and 2023 profits. Growth of passenger volumes, rigorous cost control, and expansion through supplementary revenue streams, all contributed to these achievements. Due to a combination of economic circumstances and strategic choices, Air Arabia has not only rebuilt itself, but also experienced exceptional success in the recent years.
Strategy Success
Important factors that influenced Air Arabia’s success:
– Value proposition: Cost-conscious individuals are attracted to Air Arabia‘s dedication to affordability, reliability and convenience. Its transparent pricing policy encourages customer retention by building trust.
Expansion into overlooked markets: A strategic strength that the airline has implemented is their concentration on locations that major airlines often disregard, such as smaller cities in Africa, Eastern Europe, and Central Asia. One of air Arabia‘s distinguishing business strategy is their focus on less popular destinations, mainly cities with high demand, but under represented by big airlines such as Tashkent and Bishkek which have migrant labor and visitors on limited budgets, and smaller European cities like Prague and Sarajevo which are less expensive alternatives to major cities. Air Arabia expanded its operations in Newmarket by establishing joint ventures in Pakistan (Fly Jinnah) and Armenia (Fly Arna) between 2022 and 2024. Through these alliances, the airline was able to retain its profitable low-cost business model.
– Renovation of the fleet: New investments in fuel-efficient aircraft, such as the Airbus A321neo, have promoted sustainability and decreased operating costs. During this time Air Arabia’s commitment to sustainability also gained attention. To attract environmentally aware passengers, the airline introduced fuel efficient procedures, and partnered with environmental groups to help reduce its carbon footprint.
– Partnerships: The airline has grown its passenger volume and developed its market presence through strategic alliances with regional airlines and tourism organizations.
Air Arabia’s Value Proposition – Alignment with Strategy
There are three elements at the core of Air Arabia’s value proposition:
– Affordability: presenting individuals with affordable tickets without jeopardizing, security and reliability.
– Convenience: making travel easier with seamless operations, simple, reservation, platforms, and broad route networks.
– A customer-first mentality: adapting services, such as flexible ticketing choices and extra amenities, to the needs of low-budget travelers.
Conclusion
Air Arabia transformed from a regional disruptor to a worldwide success; it’s a successful application of customer-centricity and strategic focus. The airline established a distinct market segment in the aviation industry by implementing a low-cost strategy, focusing on overlooked markets and giving operational efficiency top priority. Companies navigating rapidly changing and highly competitive fields may incorporate strategies from Air Arabia’s success – the question is can such model be replicated easily?
