Air Arabia : Pricing strategy and programs

What

is Pricin

g ?

Pricing is the one element of the marketing mix that produces revenues.

Why pricing s

trategy ?

Using of price as a strategic tool will profit more than those that simply let costs or market determining their pricing.

how air arabia managed to offer such low cost air travelling ?

They managed it through their unique well organised pricing strategy composed of :

Pricing objective

Demand curve estimation

Cost management

Competitors analysis

Pricing method

Final price selection

Pricing objective

to gain maximum market share

Demand Estimation through

• Surveys

• Price experiments

• Statistical analysis

Cost Management

Fixed cost

Variable cost

Fixed cost management

Aircraft fixed costs are diluted by the industry leading aircraft utilization hours and fuel hedging for price stability

Variable cost management

Through target costing : examining each cost element - designing, engineering, manufacturing, sales and bring down final cost projection.

Competitor analysis

Air Arabia identified and analysed all its LCC competitor’s cost - quality evaluation to customer and developed its own strategy of providing high quality service in low cost which helped them capturing the hearts and wallets of customers and becoming a value-priced competitors for other LCC airlines.

Pricing Method

Air Arabia has opted value pricing method by re-engineering their operations to become a low cost producer without sacrificing quality to attract a large number of value-conscious customers.

Final price selection

how did they succeed in making such remarkable progress in little over decade ?

low price maintenance even during fuel price hike or inflation

Low cost per customer with more capacity and high average flying time.

Dedicated employees and better online services

Usage of secondary or alternate city airport

Stopping agency commission and building a code share relationship

challenges faced

• Dip in profit levels during 2009-10 due to huge loss faced by aviation industry.

• Dip in growth in European traffic due to bad weather.

• Price control with inflation.

• Fuel hedging during declining fuel market.

achievements

• Skytrax’s world airline awards for best LCC in Mena.

• Currently owns 39 Airbus A320 with 44 further orders.

• Serves 10 of destinations across three continent with three hubs

• Earned recognition of best LCC in middle east

• Became the first publicly owned company in Arab world after its listing on DSM in 2007

• With continuing upward growth, achieved a net profit of $135 million

Strengths

-high growth rate-skilled workforce-barriers of market entry-domestic market-monetary assistance provided-high profitability and revenue-reduced labour costs

Weaknesses

-brand portfolio-Unable to live up to expectation-Unavailability of major accessories like eyeshades, In-flight shocks etc.

Opportunities

-growth rates and profitability-venture capital-new products and services-growing demand-income level is at a constant increase-global markets

Threats

-technological problems-financial capacity-government regulations-price changes-external business risk

disclaimer

Created by Aditya Deva, IIT Ropar during the marketing internship under Professor Sameer Mathur, IIM Lucknow