Case study- Low Cost Dubai

2013 was a big year for Dubai, after the recent economic downturn the emirate is finally showing significant signs of growth and development. In October 2013, Dubais second airport, Al Maktoum International, was opened. This has significantly increased the international traffic in terms of passengers and freight that can be accommodated through Dubai. In addition throughout 2013 Dubais candidacy for the Expo 2020 was assessed, with the announcement awarding Dubai the Expo made in December. The Expo is expected to increase visitor numbers to the emirate significantly. The level of growth and development is incredible for a relatively small area, that only 42 years ago was a small fishing town. Arguably Dubais growth and success is attributable to its location, an attribute which has established it as an important regional port, international trading hub and visitor destination. Dubai over the years has become synonymous with luxury and expense, since 2012, Dubai has been the 22nd most expensive city in the world, and the most expensive city in the Middle East. The growth of the low cost carriers could be considered at odds with this image.

Dubai has grown steadily to become a global city and a business & cultural hub of the Middle East. It is also a major transport hub for passengers and cargo. Although Dubai's economy was historically built on the oil industry, the emirate's Western-style model of business drives its economy. Tourism, aviation, real estate, and financial services now contribute a significant amount to the Dubai economy with oil only accounting for 2% of the Dubai GDP.

Dubai has also been rated as one of the best places to live in the Middle East. With a population of 2,174,000 (August 2013) Dubai is home to expatriates and local Emiratis at a ratio of 11 to 1 respectively, with expatriates from all over the world.

Dubai is ruled as a constitutional monarchy, by the Al Maktoum family and has a much more liberal outlook on how it is run than many of its neighbours. The Dubai government has a very hands on role in the running of the Emirate, with many local citizens taking up public sector jobs. Indeed local businesses in industries such as telecommunications (Etisalat) and air travel (Emirates) are still largely owned and influenced by the UAE government. For example, in an attempt to protect the UAE telecommunications industry the use of VOIPs (voice over internet protocol) have been restricted within the UAE, so Skype will not work on the Etisalat telecommunications network within the UAE, effectively forcing residents to utilize the local telecommunication providers.

Despite the diversification and growth of the economy, Dubai's property market experienced a major economic downturn following the financial crisis of 2007-2008. This lead to a significant reduction in real estate and other construction projects, negatively impacted on housing prices and the levels of expatriate employment. The Dubai economy is expected to return to pre-crisis levels in 2013-14, and has been given a significant boost by the award of the Expo 2020.

Expo 2020: Dubai was one of four candidate cities in line to host Expo 2020, following in the footsteps of previous hosts such as London and Paris. Dubai is the first city in the Middle East to host the event. The Expo is held every five years for a period of six months and attracts millions of visitors from around the world. The 2020 event will bring huge economic benefits to Dubai by generating activities worth billions of dirhams, raising GDP by 2% and may create over 270,000 jobs. A delegation from the Bureau International des Expositions visited Dubai in February 2013 and again in October to examine the emirates readiness for the largest exposition. They were impressed by the continued development of the infrastructure, the governments efforts to launch a number of initiatives and the level of national support.

Initiatives supporting the Bid for Expo 2020 include the recent announcement by Sheik Mohammed bin Rashed, Vice President and Ruler of Dubai, to transform Dubai into a smart city through the provision of Wi-Fi internet connectivity across the city. The project aims to provide all Dubai residents with high-speed internet in public places, live public services and information. The smart city project complements other m-government initiatives through which utility bills, road tolls and traffic fines can be paid by smartphone.

Dubai was awarded the Expo in December 2013 voted by the members of the Bureau International des Expositions.

National Carriers: Government-owned Etihad, Emirates and Qatar Airways, operate out of their hubs in Abu Dhabi, Dubai and Doha respectively, they are all ranked in the top ten airlines in the world and are seen as flag carriers for the region. Their emphasis is on quality, comfort and service.

Budget airlines: The low-cost carrier sector of the airline industry has seen a rapid rise since its inception by Southwest Airlines. The low cost model aims to provide a basic short haul service in return for cheap fares and has been adopted throughout various regions of the world, including: Europe (Ryanair, Whizz & Easy Jet); Asia (AirAsia); USA (JetBlue & Southwest Airlines); South America (Azul & Gol). Whilst it cannot be claimed that the industry grew as a result of the economic downturn of the early 21st Century, it can be argued that the low cost carrier flourished as a result as the airline industry was severely impacted. Premium airlines in particular were deeply affected, especially as fuel prices rocketed, meaning that many premium airlines were forced to make harsh cuts, this has included removing on-board perks and taking away traditionally inclusive extras. These were items that the low cost carrier had already removed or reduced as a part of their no frills approach. The impact of the weak economy meant that low-cost products and services were increasingly viewed by travelers as the sensible option. Business travellers were forced to sacrifice comfort in favour of budget, and holidaymakers looked for destinations closer to home that were more affordable.

The Middle East has several low-cost players such as UAE-based FlyDubai and Air Arabia, Kuwaiti budget airline Jazeera Airways, Saudi-based Nasair, Indias SpiceJet. In addition, Indigo also flies into the region and (Hungarian-based) Wizz Air have entered the UAE market when it began flights from Dubais newest airport, Al Maktoum International. The Middle-Easts budget airlines have proven to be among the successes of the aviation industry. In 2012 the low cost carriers in the Middle East grew to 13.5 per cent of all air travel in the region, the second-highest growth globally after the Asian market. The relative infancy of the low-cost model in the Middle East may account for this boom. It has yet to reach the heights and/or saturation of the European, North American and Oceania markets, where low-cost carriers take more than 30 per cent of the market share. However, the significance of the low cost carrier cannot be overlooked in the region. Their success has been attributed a growing sector within a stagnant industry, that has seen its global counterparts fall sharply into decline. Despite the increase in low cost competition there is still room for the low-cost carriers to grow, and only government regulation and protectionism is holding back progress in some countries. For example, it is unlikely that any low cost carrier will be allowed to take on Emirates, Etihad or Qatar Airways in their home markets. The relative authorities might permit low cost carriers to offer cheaper fares, using smaller planes, to smaller markets where the flag carriers have no interest. This is because the low-cost carriers have been highly disruptive to full service airlines, and why would any government permit their national flag carrier to be undermined in the market. It could be argued that this regulation in the industry is threatening fair competition, but there have been no significant steps towards an open-skies policy among Gulf Cooperation Council countries. In Europe and North America, where there are open-sky policies, low-cost carriers have more than 30 per cent of the market.

It is thought that as low-cost carriers achieve critical mass they may try to find new ways to add more revenue, possibly by migrating to a hybrid carrier, as evidenced by US budget carrier JetBlues recent announcement that it will offer business class on selected trans-continental routes next year, Ryannairs CEO hinting at the possibility of longer haul flight options and FlyDubai commencing their own business class service

FlyDubai: was set up in March 2008 (spawned from Emirates Airline) by the Government of Dubai, based on a low-cost model, and is currently operating out of terminal 2 at Dubai International Airport. The plan was to create a company which always looks for smarter and simpler ways to operate in order to keep fares as low as possible for travellers in the region. FlyDubai made an immediate impact on the market, placing a US$ 4 billion order for 50 of the very latest Boeing 737-800 NG aircraft. Five years later, FlyDubai is now making 800 flights a week with 300 pilots and 540 cabin crew taking thousands of passengers to over 60 destinations throughout the region. The FlyDubai vision is: to become the UAEs number 1 low cost airline, with a mission: "to increase the number of people travelling to and from the UAE. To make travel a little less stressful and a little less expensive.

It was originally planned for FlyDubai to operate from the new Al Maktoum International airport at Jebel Ali, the lengthy delay in the opening of Jebel Ali, due to the 2009 financial crisis prompted the switch to Dubai International airport.

Although it is linked to Emirates Airline through their shared state-ownership status, that is where the connections end. The airline did have some help from its big sister to get off the ground but now it is standing on its own. It has its own operating license and its own offices on the north side of DXB near its Terminal 2 operational base.

Air Arabia, was the Middle East and North Africa's first and largest low-cost carrier. Air Arabia commenced operations in October 2003. Air Arabia operates from three main bases: Sharjah International Airport, United Arab Emirates; Mohamed V International Airport in Casablanca, Morocco and Alexandria airport in Egypt. And serves a network of destinations spreading across the Middle East, North Africa, Indian Subcontinent and Europe. The companys was able to break even in the first year of operation, a ground breaking feat for any business but especially for an airline. Air Arabia is the first airline in the Arab world to be publicly owned. Since its incorporation, Air Arabia has grown significantly, increased its fleet size, built a record of safety and a brand that is associated with reliable service. The Air Arabia Vision is: To be one of the worlds leading budget airlines In terms of: Profit Margin; Innovation; Reputation; Operational Excellence. The Air Arabia mission is: To revolutionize air travel in the region through an innovative business approach offering superb value for money and a safe, reliable operationTo achieve this we will:be known for our low fares; Grow our business profitably; Build motivated multi-functional teams; Demonstrate the highest operational standards; Manage our costs ruthlessly.

Air Arabia is not only committed to providing affordable air travel but is also dedicating to uplifting the lives of the less fortunate. Taking responsibility and lead on social needs of local and international communities has been part of their success. To this end, they have implemented a corporate social responsibility (CSR) program with an emphasis on providing better education and healthcare for underprivileged communities.

Wizz Airs business model consists of flying into non-primary and less congested airports. It will be competing with FlyDubai on flights to Bucharest and Kiev, but will also bring Europe closer and at considerably less expense than the national flag carriers. Under current visa rules, Bulgarian, Hungarian, Romanian and Ukrainian citizens need to obtain a visa before flying to the UAE. Emiratis also need a visa before travelling to these countries. The airline has launched an online visa application for citizens of these European countries travelling to the UAE. Wizz Air offers a real low cost product and not a hybrid model with business class or high fares. Passengers can find everyday low fares between Dubai and the capital cities of Hungary, Ukraine, Bulgaria and Romania.

Jazeera Airways & Nasair: Jazeera Airways, a Kuwaiti airline, will launch two weekly flights from Kuwait to DWC, complementing its existing flights from Dubai International Airport. However, it is not immediately clear when the Saudi airline Nasair will fly from DWC.

Dubai World Central (DWC) Al Maktoum International Airport: After a having a difficult journey from conception to completion the DWC Al Maktoum International Airport witnessed its first passenger flight in October 2013 (some 4 years later than expected after failing to secure an operating license from the General Civil Aviation Authority). Despite being conceived to relieve some of the pressure off its sister airport Dubai International Airport (which expects 66 million passengers to pass through in 2013), stave off competition from newer airports in the region and to increase Dubais presence in the world of aviation, currently only three passenger carriers are presently lined up for the new airport: Wizz Air, Jazeera Airways and one flight a day from December 8 2013 via Gulf Air. The expectation is for more passenger services to be announced in the later months of 2013 and early 2014. If the growth of passenger services grows as rapidly as the existing cargo services the airport should be a welcome respite for DXB. Cargo operations at DWC, started with one or two airlines (in June 2010) and now stands at 36. It is expected that FlyDubai will relocate to DWC from DXB, despite its ongoing development at Terminal 2, as originally planned.

Questions:

Q1. The impact of 3 internal and 3 external factor that how does it effect fly Dubai (Explain in detail):

Q2. What are the 3 fundamentals questions managers face in fly Dubai (Explain in detail):

Q3. Use the case study to discuss the strategy making and executing process (Explain in detail):

Q4. Evaluate 2 strategic options (Explain in detail):

Q5. Discuss the cooperate culture (what they do, like practices) (Explain in detail):

Q6. How they can improve in their culture (Explain in detail):

Q7. If you are the CEO of the organization what will make an organization a market leader (Explain in detail):

Q8. Identify and explain the strategic approach the organization is using

Q9. Recommend any other approach (Explain in detail):

Q10. Identify and explain the strongest competitive forces to determine the profitability of the industry. (Pick one of Potters 5 forces and explain):

Q11. Recommend any 2 offensive strategies: