HOW BUDGET AIRLINES TOOK OFF IN THE MIDDLE EAST

An article by Warwick Business School alumnus, Richard Stolz

Despite being a fixture in the UK, the Middle East is just beginnning to experiment with the idea of low-cost air travel. With half-term underway and many of us planning a short break, WBS alumnus, Richard Stolz, summarises his masters research into Middle Eastern budget airlines, looking at how sales are generated and asking whether this strategy could be just as successful overseas.

For my Masters in Marketing and Strategy I investigated the low-cost airline industry of the Middle East, which is a new phenomenon and business model for this particular region.

I focused my research on growth strategies of budget airlines in the region and identified the most suitable growth strategies for the region’s carriers. By accessing one of the first Middle Eastern low-cost airlines and conducting interviews with the top management of this organisation I gathered profound data and insights that eventually helped me to generate my key findings.

I conducted semi-structured interviews with the top management of the budget airline. It became evident that the low-cost business model utilised by Middle Eastern budget airlines is fundamentally different from the typical low-cost airline business models. In fact, the airlines adapted their organisational structure and business model according to the very specific wants and needs of local customers.

Cultural and religious factors are also very significant from this perspective. For instance, passengers in the region enjoy a very generous baggage policy so that budget airlines employ a free check-in baggage policy, which is very untypical for low-cost carriers. Moreover, almost 50 per cent of the sales of my cooperating airline are generated through traditional sales channels as travel agencies, whereas in Europe or the US, the vast majority is handled via online sales.

It turned out that organic growth is the most suitable growth strategy for low-cost airlines in the Middle East.

In order to ultimately identify the most suitable growth strategy I differentiated between organic growth from internal resources and inorganic growth; in particular strategic alliances, joint ventures and mergers and acquisitions. It turned out that organic growth is the most suitable growth strategy for low-cost airlines in the Middle East.

Two key drivers favour the choice for organic growth. Organic growth entails a high level of control over an airline, leading to quick decision-making, which is crucial in the early stages of young start-up airlines. Also, when expanding an airline organically, it is able to align the organisational structure and the low-cost business model with the very specific requirements of the region’s customers.

Only when growing organically and independently without being constrained by any partner airline (as part of inorganic growth), a Middle Eastern low-cost airline is quickly able to form and adapt the business model to local market demands and requirements.

My research definitely helped me in my career. After graduating from Warwick in January 2011 I went to Casablanca in Morocco for an internship with Air Arabia, the biggest low-cost airline in the Middle East. Now, working as a Management Consultant for Accenture in London, I am trying to use my obtained aviation expertise and experiences.

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