Business Models and Adaptation Characteristics
First of all, for a more detailed and objective analysis, it is necessary to consider two organizations representing different types of airlines. Emirates Airlines is a full-service, high-quality organization operating primarily on international flights.
The business model is built in such a way that the company has two main sources of income, namely ticket sales and investors (Sallan and Lordan, 2019). At the same time, investments and financing account for about 57% of the total capital, which prevails over sales revenue (Matsushima and Anderson, 2018, p. 34). Therefore, it makes sense to analyze the main criteria of a corporation that increase the loyalty of customers and investors, as well as the company’s credibility in the market (International Transport Forum, 2019).
First of all, the target audience of the company is a client with a high level of income which, in addition to flying from one point to another, requires an extensive range of services (Muthuseshan et al., 2020). That is why the organization has large expenditure items for highly qualified personnel, as well as for the maintenance of high-tech aircraft and vehicles.
In turn, Air Arabia is a low-cost airline operating flights within the country. It should be noted that international flights are also present, but many times less than that of the previous corporation. This is because the company’s revenues and funding are lower, with about 75% of total capital being sales revenue (Air Arabia, 2020). This explains why the organization in question lacks a wide range of services (Matsushima and Anderson, 2018).
The corporation’s business is geared towards a client on a budget who needs a vital service, namely transportation (Yahoo Finance, 2022). Thus, the company significantly saves on aircraft and their maintenance, as well as on personnel.
Industry Trends
The changes will affect the world markets for the long-haul, short-haul and regional transportation. A new class of supersonic aircraft is expected to enter the transportation market to meet current noise and emission requirements (Kanki, Anca, and Chidester, 2018).
Analyst firm Fortune Business Insights estimates that the supersonic aircraft market will grow from $23.16 billion in 2020 to $35.62 billion in 2030 at a growth rate of 4.26% per annum (Monaco, 2021, p. 56). Current international demand for business class tickets: about 20 million tickets in 2014 (Kanki, Anca, and Chidester, 2018). Consequently, corporations like Emirates Airlines need to fund technology development to keep pace with rapidly changing international standards and remain competitive.
Meanwhile, companies like Air Arabia should pay attention to current trends. In the niche of regional and short-haul aviation, the main driver of market changes is the emergence of electric aircraft. The energy consumption of electric aviation is 4-5 times less than that of comparable fuel-powered aircraft; aircraft are cheaper to maintain and have zero emissions, which is receiving additional support from politicians and civil society organizations (Henser and Stanley, 2019).
Today, about two billion tickets are purchased annually for air routes less than 500 miles (Air Arabia, 2020). Research firm MarketsandMarkets predicts that the global electric aircraft market will be valued at $7.9 billion in 2021 and is projected to reach $27.7 billion by 2030, up 14.8% from the forecast period (Lee, 2020, p. 56). Accordingly, in order to remain competitive and increase revenue, Air Arabia needs to invest in technology development and new aircraft models.
Challenges and Obstacles
Meanwhile, global aviation and related organizations are facing some challenges in their industry. First, the long-term need to ensure a radical increase in cruising and en-route flight speeds is becoming increasingly urgent. To achieve speeds 2-10 times higher than the current speeds of civil aviation, it is necessary to make a transition to supersonic and hypersonic flight speeds while maintaining the current levels of transport safety and the impact of aviation on the environment (Muthuseshan et al. al., 2020). Currently, technology does not allow for environmentally friendly and safe passenger air travel at high speeds.
Secondly, the threats of significant changes in climate and atmospheric composition are relevant. As natural and artificial disasters become more frequent, aviation equipment that is resistant to adverse natural and climatic factors, including volcanic eruptions, may be required (Henser, Stanley, 2019). It remains relevant to achieve the actual all-weather use of aircraft, expanding the conditions for basing and safe operation of aviation equipment for various purposes and classes (Fichert, Niemeier, and Forsyth, 2020). It is important to note that the analyzed problems are relevant primarily for Emirates Airlines as an international corporation.
Meanwhile, Air Arabia has problems in this area, but of a different nature. First of all, it is necessary to radically increase the availability of air transport services for the population. Increasing the availability of air transport services from the current level of 20-30% of the people to the story of the developed world requires some innovation (Monaco, 2021, p. 41). Thus, the company should revise its pricing policy in such a way as to maintain the relevance and demand for its services in the market.
Supply and Demand, Economic Situation
First of all, it should be emphasized that the demand for both companies is growing due to the high image in the niches they occupy. Despite the pandemic and other challenges, the number of international flights is increasing, so Emirates Airlines is gaining popularity in other countries (Samunderu, 2019). The fact is that most people who can afford to pay for more expensive flights have a high income, which means they are interested in a high quality of service (Fichert, Niemeier, and Forsyth, 2020). Accordingly, the authority of the company extends to a broader range of customers and, as a result, brings the company to a leading position.
At the same time, despite the different status from the Air Emirates and the restrictions associated with the pandemic, Air Arabia provides services on international flights despite less emphasis on this direction compared to the Air Emirates. That is why the demand for Air Arabia services is also not falling, as transportation from one point to another remains vital for customers (Voorde and Macario, 2019).
In addition, the demand for freight transport is increasing, which brings additional income to the company (Henser and Stanley, 2019). However, another advantage of both firms is that they can fully meet supply and demand, so there are no pessimistic forecasts for this criterion. Thus, both organizations continue to increase profits, and demand does not fall so much that the organizations have severe problems with financing.
The Impact of COVID-19 and the Consequences of the Pandemic
COVID-19 is having a proportionately more significant impact on the aviation industry for both companies, as they are both dependent on the international market. Prior to the COVID-19 pandemic, domestic flights accounted for 59% of global passenger traffic compared to 41% international (Baporikar, 2021, p. 72). However, at Emirates Airlines, domestic flights accounted for only 27% of passenger traffic compared to 73% for international flights (Baporikar, 2021, p. 74). The volume of traffic between countries, with the exception of the People’s Republic of China, was only about 3% of the company’s total traffic (Wang, 2020, p. 71).
Thus, at 27% of total domestic traffic, only 30% of Emirates Airlines traffic was domestic, compared to 70% outside the region (Dalgic, Ergen, and Demir, 2021, p. 17). This is a much lower level of domestic traffic than other regional groups such as the Association of Southeast Asian Nations. A full recovery to 2019 levels is not expected until at least 2022 but is more likely by 2023 or 2024 (International Transport Forum, 2019). Domestic traffic volumes will recover faster but gradually and with significant fluctuations depending on the market.
In 2020, Air Arabia’s domestic traffic fell, as evidenced by the following data. Domestic markets in countries where containment measures have been successful tend to recover faster than those in countries where containment remains a challenge (Dalgic, Ergen, and Demir, 2021). Domestic flights, which rely heavily on foreign tourists, have also experienced a more significant decline, given the sharp decline in international traffic (Baporikar, 2021). Domestic flights, which depend primarily on locals and have a population that wants to resume travel but are generally unable to travel abroad due to all the international restrictions, could recover faster.
Based on an analysis of the impact of the pandemic on the two types of air carriers, the implications will be severe for both Air Arabia and Emirates Airlines. However, it is much easier for a low-cost carrier to recover due to the fact that the predominant number of flights are operated within the state (Baporikar, 2021, p. 72). In turn, Emirates Airlines needs to revise its strategy and financing lines in such a way as to return to pre-pandemic revenue levels by 2024.
Costs and Potential Funding Sources
The COVID-19 pandemic and rising ticket prices for some flights are causing aircraft to make short flights. Thus, Emirates Airlines spends much money on the maintenance of aircraft, which bring in less revenue. Non-flying aircraft need care without generating income, which is an additional expense for management. At the same time, the corporation is developing new routes, as well as implementing contracts with hotels to help resettle passengers in case of unforeseen circumstances (Graham, Halpern, 2018). Finally, Emirates Airlines complies with environmental regulations and appropriately finances technological developments in this area.
To compensate for such expenses, the company needs new sources of financing. As noted above, one of the most significant cash flows comes from investors. Accordingly, organizations need to enter into new contracts on more favorable terms (Graham, Halpern, 2018). This is possible due to the high prestige of Emirates Airlines, which ensures high loyalty through reputation. Investors assess the risks as low and the revision of the financing terms as the most realistic and practical.
As for Air Arabia, the primary source of income is the customers using the services. However, the increase in the cost of tickets does not bring additional income to the organization since the cost of service has also increased. Corporations need to sell junk aircraft from the fleet to increase overall revenue as they bear most of the expenses (Dileep and Kurien, 2021). The pandemic has negatively affected the fleets of other companies, so there are many potential buyers on the market.
Fuel Cost Reduction Strategies
First of all, the method of saving on fuel is to reduce the total weight or add unique details to the aircraft. Winglets are extensions made to the tips of wings that resemble a split end. Their purpose is to reduce drag, which, in turn, reduces the fuel used to move through the air. (Monaco, 2021). It means that design solutions help to reduce fuel consumption (Mason, 2020).
The company calculated that it saves up to 54,000 gallons of fuel per year after installing a fender liner or an inverted wingtip (Graham and Halpern, 2018, p. 45). This design reduces the drag of the aircraft. Air Arabia’s low-cost airline uses a special coating on the aircraft body to lessen the stress, eliminate the slightest bumps, and minimize fuel consumption.
Airlines strive to cut energy consumption throughout their activities but typically concentrate on making aircraft lightweight and faster because the majority of the fuel is spent during the trip. Even a few pounds saved over millions of kilometers and thousands of passengers can add up to huge benefits. (Cullinane and Gong, 2018).
Crews can fly the most efficient route, take full advantage of bypasses, and request fuel-saving emergency landings paths if they have the correct information. Pilots can demand course and elevation changes based on the most recent data to reduce the impact of headwinds, roughness, and other natural factors that cause them to spend more fuel.
Incomes and Their Increase
As noted above, the primary income of Emirates Airlines is both the provision of services and investments. In the post-COVID period, demand will begin to increase, and accordingly, the company expects an increase in revenue from the sale of services (Mason, 2020). As for Air Arabia, the organization needs to reduce the cost of air tickets.
Although payment per person will be lower, the total number of customers will increase, reducing the number of unfinished aircraft. In addition, the company must expand its influence in the freight industry by opening up new routes (Cullinane and Gong, 2018). This solution is highly effective, as this trend will not subside with the lifting of pandemic-related restrictions.
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