Executive summary
Embarking into this project was with a view to enhancing the establishment of new aviation routes across the Middle East for the next decade. Statistical evidence has it that the airline industry in the Middle East is projected to grow rapidly in the coming years, buoyed by a rise in the region as a tourist destination, in the face of tumbling oil prices, and which happen to be the main source of foreign income for the countries in the region (Rahman, 2005).
In order to achieve this, however, there is a need to increase the passengers’ traffic in the airlines serving the region, through the use of either differentiation or pricing strategies. Furthermore, the Middle East region is advancing very fast technology-wise, and so have the people’s lifestyle, so that a bigger number now prefer to travel by air, thanks to improved economic condition.
The proposed plan involves the incorporation of the concept of Revenues per Available Seat Kilometer (RASK), so as to ensure affordable airfares to the passengers. In addition, an increase in the number of existing hubs shall also enhance airline connection and market share, eventually translating into improved profits.
Besides, a rise in the number of flights per airline with a multitude of destinations shall facilitate a cultural blend in the region, while at the same time also aiding the airlines to benefit from economies of scale. In terms of staffing, qualified and competent staff shall be sought to facilitate the implementation of this project. Towards this end, a budget of 2.5 million dollars has been estimated.
Introduction
The main reason behind embarking on this project is facilitating the establishment of new aviation routes across the Middle East for the next decade. In the last couple of years, airline statistics have indicated that the demand for air travel in the Middle East region has enjoyed substantial growth.
The key drivers for this novel development are linked to strong growth of the economy in the region, reduced air travel fares, demographic trends that support air travel, increased tourist destination and the consequent growths of the tourism industry in the Middle East, liberalization and deregulation of the airline industry, as well as improvement of airline infrastructure (Greenwood, 2006).
Today, many individuals now have a choice of traveling literary, ‘almost at will’. As a result, the development in this value proposition has had a profound impact on the entire airline industry in the Middle East region and is in fact now being viewed as a core factor necessary for boosting the growth in the traffic of passengers in the years to come (Sinha, 2001).
Against this backdrop, the company behind the championing of this project proposal has identified a market that has not been fully utilized, and which has a potential for realizing the return on investment (ROI) of the stakeholders interested in this venture. Moreover, increasing the number of routes destinations for aircraft in the Saudi Arabia region ensures that investments are diversified adequately in the region.
Background
According to estimates by Boeing, close to 869 aircraft shall be required in the Middle East region, all of which are valued at 115 million dollars. Randy Baseler, the marketing vice president of Boeing has asserted that the aviation sector in the Middle East attained a 5.5 percent growth in the year 2005. This was way above the global aviation industry average, pegged at 4.8 percent in the same year. The vice president of Boeing has added that this growth is especially attributed to the fragmentation and liberalization of the airline sector in the region (Rahman, 2005).
The main goals of this project are to increase the passengers’ traffics in the region by opening up more hubs (a hub is an airport utilized as a point of transfer to enable passengers to get to their anticipated destinations) into the existing and newer destinations, enhance the number of fleets that anyone airline may operate, and also to increase the operations of individual airlines into the existing and novel routes (Janardhan, 2007).
Given the advancement in technology that the Middle East region has enjoyed in recent years, this has ensured individuals require being more flexible, with regard to mobility (Greenwood, 2006). For this reason, more and more passengers shall opt to fly, in comparison to other means of travel. As such, there is a need to ensure that they travel both in comfort, flexibility, and affordability. Increasing the number of fleets of airlines, as well as the number of hubs shall ensure that the market share of individual airlines also rises and consequently, their market share.
In the long run, the investors into such a venture shall enjoy a return on their investments. The Middle East region has lately witnessed a rise in the number of hubs that are being opened upon in key cities, and which are aimed at being an accompaniment to the current airports (Rahman, 2005). Whenever possible, such hubs need to be located within a limited flight radius of say, 5 hours from each other.
In addition, each of these hubs so opened, and once in operation, should ideally be linked to a number of other destinations. This way, the number of passengers traveling by air in the region is bound to increase dramatically. There is a further need to explore the equity that an airline may invest for each one of the hubs that they open up, as well as the number of aircraft that a single hub may operate with.
Before these hubs could be located, however, there are a number of factors that the airlines should consider. These include the best possible combination offer and low cost, competent airport operations, as well as a selection of a strategic location capable of helping in the opening up of not only the entire Middle East region, but also Europe as well.
Proposal plan
In order to attain the establishment of new aviation routes across the Middle East as advocated for by the proposal, a number of elements shall have to be taken into consideration:
Airline operations
On average, a majority of the airline Carriers in the Middle East region obtain most of their revenues from passenger-related operations (Greenwood, 2006). In this regard, passengers’ revenues are taken to mean the function of airfare and lo0ad factor. On the other hand, load factors refer to the number of seats that are occupied in an aircraft, in relation to the overall number of seats that such a flight makes available to its passengers on an annual basis.
If at all the airline companies in the Middle East wishes to augment their flight operations in the region, it becomes important then, that they ensure that these load factors rise dramatically. One way through which this could be achieved is through offering affordable airfares to entice more customers to fly by air, as practiced by the Low-Cost Carriers in the Middle East region, and indeed the world over.
In an attempt to estimate airfares, this project proposal recommends the utilization of Revenue per Available Seat Kilometer (RASK).RASK is a product of seat capacity in an aircraft, revenues generated, and the total kilometers that an aircraft covers (Petzinger, 1995). This is what may enable airline carriers to offer affordable fares to passengers. It is also a strategy that the airlines in the Middle East may utilize to maximize their profits, in the face of increased competition and a rise in fuel prices.
Fleets
The decision of whether or not to increase the number of flights for a given airline is usually a strategic one, and this almost entirely hinges on the existing demand for current routes, and also new prospective destinations (Petzinger, 1995). A large portion of airline fleets in the Middle East region in the coming years could be required to augment existing trips to those destinations that they currently serve.
In addition, statistics have shown that flying agreements to new destinations are projected to further increase aircraft demands in the Middle East region. If at all such a projected expansion of existing airline fleets is to be ever attained, airlines in the middle eat region may be required to not only on, but also lease extra aircraft in the years to come.
Nevertheless, the management plans that may be in existence today are bound to change in the near future, so as to embrace strategic decisions that have become a characteristic of many an airline company, bearing in mind that the industry has been hardest hit by the current global credit crunch, coupled with the ever-increasing rise in fuel prices. For these reasons, it becomes necessary that these airlines venture into new routes so that they can enhance their profit margins.
Current and future airline routes
For there to be observable growth in the Middle East airline industry in the coming decade, the current market share has to be guarded, while at the same time also venturing into newer routes. Having extra hubs in addition to those already in existence shall go a long way toward achieving this. In addition, there is a need to penetrate the European market, as well as the other developing countries in Africa and South America.
This proposal thus recommends that the airline industry in the Middle East establish a hub in Cairo, Egypt that shall open up the region to the rest of the world. His choice of Egypt is based on its proximity to Africa and Europe, as well as the cordial relations that the country enjoys with other nations. Furthermore, the nation is also tolerant of various cultural diversities.
Passenger traffic
The higher the passenger traffic for anyone given airline, the more such an airline needs to increase its fleets of aircraft and consequently, the frequency of traveling schedules. A rise in passenger traffic is also directly proportional to a rise in the number of flying destinations, operations of aircraft, average flights operated by the airline industry in any one given year and of prime importance, the load factor.
As a whole, these factors are bound to not only increase the brand awareness campaign of the airlines operating in the Middle East region but also their business models as well. In addition, these factors shall also facilitate in highlighting of potential markets for the Low-Cost Carriers in the Middle East region, and which are projected to enhance profitability in this industry.
Staffing
In order to attain its objectives, this project requires a team, of capable individuals to steer its operations in the Middle East region. To start with, a team leader for the project shall be needed. He/she shall be charged with the responsibility of ensuring that the proposals of this project are implemented within the time of schedules and in the confines of the funds availed, and the necessary time frame.
The team leader should be a team player, possess managerial skills, be flexible to embrace change and more importantly, be someone with prior experience in the airline industry, with regard to operations in the sector. There is also a need to have a technical manager who is well versed with the technical aspects of the airline industry so that he/she can liaise with the team leaders on the best possible strategies to ensures that the goals of the project are achieved in the most effective and efficient manner.
Furthermore, to have technical representatives shall be required at each of the identified hubs so that they facilitate the implementation of the project on the ground. Preferably, this technical team should have a background in aeronautical engineering.
Budget
In line with the requirements of the client (s), below is an estimated budget for the purposes of developing this project proposal:
Conclusion and recommendations
The airline industry in the middle eat is growing at a faster pace in recent years, thanks to a combination of factors such as an improvement of economic conditions in the region, a de-regularization of the airline sector, and the rise in the region as a tourist destination. Against this backdrop, this project proposal seeks to identify new routes across the Middle East for the next decade, so as to enable the airline industry in the Middle East to improve on its market share, as well as overall profitability.
In order to achieve this, the proposal recommends that the airline industries in the Middle East make use of extra hubs to increase flight routes, capitalize on differentiation, and increase passengers’ traffics. In this regard, the proposal recommends that competent staff are recruited to ensure that it is implemented to the fullest. Give that the region has recorded a higher growth rate in comparison to the global statistics it is not hard to see how potential investors would recoup their return on investment.
References
Greenwood, G. “Bright future predicted for the region’s airline industry”. Arabian travel 2006.
Janardhan, M. Economy-Middle East: diversification follows the ‘copycat’ route. 2009. Web.
Petzinger, T. (1995). Hard Landing: the epic contest for power and profits that plunged the airlines into chaos. New York: Random House.
Porter, M. E., Delgado M., Ketels, C. & Stern S. “The global competitiveness report: 2007-2008″. World economic forum. 1 (2): 43-45.
Rahman, S. Middle East aviation market outpaces global growth. Gulf news 2005. Web.
Sinha, D. (2001). Deregulation and Liberalization of the Airline Industry: Asia, Europe, North America and Oceania. Burlington, VT: Ashgate.