Business Market Analysis of the Airline Industry

What Is the Business Market of an Airline Industry?

A business market is characterized by fewer customers and larger transactions. Customization is the key driver, and the usage of a product or service determines its value. Brand name means little to customers, there is no retailing, and selling is a complex process — the target of a sales pitch may not always be the end user of the product (NarayanDas, 2005).

This kind of market differs from consumer markets, and service is the cornerstone of business markets. Products are customized to meet the needs of different customers across different geographical or operational regions. Every company operating in a business market strives to attain customer loyalty, though the means by which they create and sustain it varies between industries.

With regard to the airline industry, business markets determine many aspects of operations, including pricing, routes, frequency of service, and the type and size of aircraft used in a particular market. Identifying and operating within each business market is a complex strategy that involves numerous factors such as aircraft selection, personnel, governments, suppliers, financing, customer support, and marketing.

Customer Characteristics in the Gulf Region

The Gulf region is one of the fastest-growing areas in the world, and rising oil prices have been boosting its economies. The region has a GDP of $1.1 trillion, and its population is growing steadily, currently standing at approximately 1.96 million. The region grew by 11% in 2009, even as other regions were beset by economic difficulties. This segment is served by 38 airline companies operating across 112 airports (embraercommercialjets.com, 2011).

SWOT Analysis: Gulf Region

An examination of the SWOT framework for airlines in this region yields interesting results. Companies operating in the Gulf benefit from many inherent strengths. The region is rich in oil, which makes fueling aircraft easier and less expensive. The Gulf is also geographically positioned between the East and West, making it a favorable transit route for passengers traveling in either direction.

The weaknesses are also numerous. Air cargo traffic is limited compared to other regions because of easy access to seaports and the fact that most goods transported are non-perishable. Trade between Middle Eastern countries represents only a fraction of the trade volumes seen in Asia and Europe. The airline industry is also heavily regulated by governments, which prevents management from making agile strategic decisions when opportunities arise. Additionally, a significant portion of the region is designated as a no-fly zone, restricting that airspace to military aircraft and severely constraining room for expanding civil air traffic (Clarke, 2011).

The opportunities lie in a booming, youthful population eager to participate in globalization. A large expatriate population living in the region also travels frequently to their home countries, generating substantial passenger traffic for airlines. The threats, however, continue to be overcapacity and tight government regulations. As one industry analyst noted, "Overcapacity, poor management and regulatory restrictions are threatening the financial viability of many low-cost carriers in the Middle East, as is reflected in the demise of Sama Airlines in Saudi Arabia" (Flottau, 2010, p. 24).

Porter's Five Forces in the Gulf

Porter's Five Forces — threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and intensity of rivalry — provide a useful lens for this market. Of these forces, the intensity of rivalry is most likely to affect this segment. Although Emirates is the current market leader, carriers such as Etihad and Qatar Airways are closing the gap with lower fares and better amenities. Innovation is a key factor in gaining and sustaining competitive advantage.