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Air Arabia Company’s Strategic Audit Report


Introduction

Air Arabia is a public joint-stock company (PJSC) based in the United Arab Emirates. The company was founded in 2003 and incorporated in 2007 (“Air Arabia PJSC”, 2018). Air Arabia is the largest low-cost carrier in the Middle Eastern region, operating flights to and from North Africa, Asia, Europe, and the Middle East. The present paper will present a strategic audit report on Air Arabia PJSC, focusing on the key environmental factors influencing the company’s development and proposing strategies for future growth.

Current Situation

Current Performance

Air Arabia had a stable performance in the 2017 fiscal year. The company’s return on investment was about 5%, which is a fairly safe figure for the airline industry. The market share increased in 2017 due to the company lowering flight prices to prevent market share from declining. The company also achieved excellent results in terms of profitability, as the profits grew from 508,768,000 AED in 2016 to 662,322,000 AED in 2017 (KMPG, 2018). Overall, the company’s current performance is good, which allows it to consider critical developing opportunities and strategies for future growth.

Strategic Posture

The company’s mission, objectives, strategies, and policies are clearly stated in its annual reports and investor presentations, as well as other official publications. The organization operates in the travel business, as it is relevant to the company’s mission. Air Arabia’s mission is to “To revolutionize air travel in the region through an innovative business approach offering superb value for money and safe, reliable operation” (Air Arabia, 2018, p. 3). Corporate objectives are to build motivated and multi-functional teams, whereas functional objectives are to demonstrate high standards of operations and effectively manage costs (Air Arabia, 2018). Lastly, the business objectives of the company are to increase profitability and maintain low fares (Air Arabia, 2018). The objectives are consistent with one another and serve to achieve the company’s mission. They are also relevant to the company’s environment and the industry in which it operates.

The two principal strategies of the organization are to remain competitive and cost-effective and to expand its operations to new destinations and regions. These strategies are relevant to the company’s mission, objectives, and environment. Moreover, they target the two main aspects of airline development. On the one hand, they help the company to maintain its position in the current market. On the other hand, they assist Air Arabia in expanding into new markets.

Policies followed by the company include a strict code of ethics and conduct, a whistleblowing policy, as well as a policy for corporate social and environmental responsibility (Air Arabia, 2018). These policies target employee conduct, as well as the organization’s commitment to the community and the environment. Thus, these policies complement one another and are consistent with the other aspects of the organization’s strategic posture. Overall, the company’s current mission, objectives strategies, and postures reflect its international operations while also promoting a global outlook.

Corporate Governance

Board of Directors

Air Arabia’s Board of Directors consists of seven members, including a Chairman of the Board, an executive member, four independent members, and one non-executive member. None of the board members own significant shares of stock, as the company’s stock is publicly traded. All of the board members have extensive experience in the airline industry, and some of them also have connections with governmental structures. For instance, Sheikh Abdullah Bin Mohammad Al Thani “served as a member of the Executive Council of Sharjah and as Chairman of the Sharjah Civil Aviation Department” (Air Arabia, 2018). Most of the Board members also have experience or education in international business. Three of the Board members have served in their positions since 2003, and the other four members joined the Board in the past ten years. The Board of Directors supervises and evaluates decisions made by the executive management of the company (Air Arabia, 2018). The Board does not assess the management’s decisions in terms of environmental sustainability.

Top Management

Adel Abdullah Al Ali is the Chief Executive Officer of Air Arabia. He founded the company in 2003 and had since been contributing his vision, knowledge, and skills to the company’s strategic efforts. The CEO oversees the majority of strategic management functions, thus having high involvement in the strategic management process. According to the company’s annual report for the 2017 fiscal year, the CEO has contributed to the success of the organization over the past few years. Overall, the top management appears to be sufficiently skilled to cope with future strategic challenges. However, it would be beneficial for the CEO and the Board of Directors to also consider sustainability issues.

External Environment: Opportunities and Threats

Natural Physical Environment: Sustainability Issues

The airline industry is affected by climate change, as it contributes to air pollution and greenhouse gas emissions. Weir (2013) states that there is a need for developing and introducing green technologies in the airline industry. Climate change can be classified as an opportunity, as the company could take action for increasing sustainability, thus improving its reputation and market position. The sector is also affected by weather changes, which might cause delays or cancellations of flights and lead to financial losses. The effect of weather changes differs in different parts of the world, as some areas experience weather-related events more frequently than others. Weather conditions cannot be controlled, and thus are a threat to the company.

Societal Environment

As the airline operates primarily in Europe and the Middle East, political factors are a major threat to its success. For instance, if the political tension between the Middle East and Europe increases, fewer people will travel to and from these regions, thus reducing the company’s profits. Sociocultural factors influenced by the global political climate could also contribute to the issue and become a threat. However, economic and technological forces, including the global economic crisis and technology development, have presented essential opportunities for the airline. As a low-cost carrier, Air Arabia might become more popular at times of economic difficulties. Also, technological advancement allows making air travel safer and more sustainable, thus increasing its popularity. All of the forces described above affect the company on a global level.

Task Environment

Industry competition is by three main factors: medium rivalry among competing firms, high bargaining power of buyers, and a high threat of substitute services. The success of Air Arabia depends mostly on its customers and competitors, as they are major threats to the organization. However, customers can also present opportunities for success if the company manages to maintain low costs and improve the quality of service.

Summary of External Factors (EFAS)

Air Arabia is affected by various external factors, including environmental, political, social, and business forces. Sustainability and industry competition are the essential forces influencing the company’s current and future growth. Thus, the company should seek to address these forces to improve its position in the market and gain more profits.

Internal Environment: Strengths and Weaknesses

Corporate Structure

Air Arabia has an efficient corporate structure, which is explained to employees in its corporate policy. The decision-making authority is centralized, which makes it easier for the management to coordinate various efforts and strategies within the organization. This could also help in implementing a new strategy and promote organizational transformation. Thus, the company’s corporate structure is consistent with its goals and strategies and is one of Air Arabia’s main strengths.

Corporate Culture

The company has a strong corporate culture, which emphasizes customer service, equality, and the proper conduct of all employees. The company’s policies are consistent with other components of its strategic posture. Excellent corporate culture also helps the company to maintain a stable positive reputation for quality and corporate social responsibility, which is why it is also a major strength of the airline.

Corporate Resources

The company’s use of marketing is rather effective, as the company uses strategies such as segmentation and positioning to obtain a higher market share. Air Arabia also has a solid financial performance compared to other low-cost carriers and succeeds in managing its operations and human resources. However, research and development, as well as IT technologies, are not among the company’s priorities, which is a weakness as it could impair efforts for corporate change.

Summary of Internal Factors

Corporate culture is the main strength of the organization and its core competency. Healthy corporate culture has a positive relationship on organizational performance, as it contributes to workforce characteristics and enhances customer service, which is critical for success in the airline industry (Guiso, Sapienza, & Zingales, 2013). Air Arabia also has an efficient company structure, which expedites decision-making. Nevertheless, the company should seek to improve its use of IT and focus on research and development, which would help it to be more efficient.

Analysis of Strategic Factors

Situational Analysis

Two main positive factors that have a beneficial impact on Air Arabia’s current and future position are corporate culture, economic environment, and the use of marketing resources. The key negative factors impairing the company’s performance are the lack of comprehensive sustainability efforts, a high rate of competition, and the limited use of IT. The company must address these gaps to secure future growth and maintain a competitive position.

Review of Mission and Objectives

In general, the company’s mission and objectives support the positive factors impacting its performance. The company strives to maintain low fares and improve its corporate culture, which contributes to its success. However, the current mission and objectives do not address sustainability, competition, and the use of IT. Thus, the mission and objectives of Air Arabia should be expanded to include a strategy for overcoming these threats and weaknesses. As a result, the company will be able to make targeted efforts for eliminating these factors and achieve higher performance.

Strategic Alternatives and Recommended Strategy

Strategic Alternatives

There are three main strategic alternatives available to the organization. First of all, the company could fine-tune its current strategies to achieve the revised business and corporate objectives. Secondly, it could focus on developing environmental sustainability while also improving its use of IT, research, and development. This strategy would help to fulfill the gaps in Air Arabia’s external and internal environment. However, it would be costly to implement the changes and the effect of this strategy on financial performance would be minimal. Finally, the company could focus on defeating the competition and promoting sustainability by using total quality management tools. Total quality management is a practical strategy for improving airline performance and competitive profile (Singh & Sushil, 2013). However, this strategy would require major changes in the organization’s operations and a full commitment to the management.

Recommended Strategy

The implementation of total quality management is the recommended strategy, as it would help the company to address threats and weaknesses. Also, total quality management could help Air Arabia to become more cost-effective and improve sustainability, thus contributing to its core competencies (Elhuni & Ahmad, 2014). To guide the effective implementation of total quality management, it would be critical for the organization to revise its operations and business processes, although no policy changes would be necessary.

Implementation

Total quality management involves various tools and tactics that can be used by companies with different goals and objectives. Given that Air Arabia’s strategy is to become more competitive, the company could use benchmarking and Six Sigma to achieve its goals. Programs and frameworks for implementing these tools are described in research, but leaders of some departments might need to adjust them slightly. The senior management should be in charge of the implementation process. The implementation of TQM tools is financially feasible, and the management will be able to develop a pro forma budget for the program. Also, the management should ensure that priorities and timetables are appropriate for individual implementation programs. For some TQM tools, the company would also be required to develop new standard operating procedures.

Evaluation and Control

Implementing TQM would also require the company to improve its use of IT, as the current information system might not be capable of monitoring and providing timely feedback on the implementation process. Developing the use of IT would assist the company’s efforts by providing a mechanism for evaluating the implementation of TQM, thus contributing to Air Arabia’s success.

Moreover, the company would need to develop and establish adequate control measures. For instance, it would be useful to introduce appropriate reward systems for recognizing employees’ contributions to the implementation process and the overall performance. Finally, new standards and measures of success might be required depending on the TQM tools chosen.

Conclusion

Overall, Air Arabia is a successful company that has achieved great financial results in the past year. The airline has a strong corporate culture and an excellent approach to human resources management, which contributes to customer service and performance. However, there are some gaps in the company’s internal and external environments that need to be addressed, including competition, sustainability, and the use of IT. The implementation of total quality management tools and practices would help the company to succeed by filling these gaps and improving performance outcomes.

References

Air Arabia. (2018). Web.

(2018). Web.

Elhuni, M. R., & Ahmad, M. M. (2014). Achieve sustainability through the TQM framework. International Journal of Applied Science and Technology, 4(2), 133-142.

Guiso, L., Sapienza, P., & Zingales, L. (2015). The value of corporate culture. Journal of Financial Economics, 117(1), 60-76.

Singh, A. K., & Sushil. (2013). Modeling enablers of TQM to improve airline performance. International Journal of Productivity and Performance Management, 62(3), 250-275.

Weir, B. (2013). Soaring to green heights: The current sustainable initiatives in the commercial airline industry. Earth Common Journal, 3(1), 1-3.

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