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With an approximate loss of $510 million for 2009, the company has been in reformation with lying-offs and shutting down of routes since 2002. Through the broadcast of the three-year growth plan in 2009, which is intended at bringing the airline back to profitability by 2012 would it make the airline glimpse profit again?
This case study will analyse and examine the issues with which the company is confronted to survive the chronic loses since 1997.Background History
Gulf Air traces its origin to Gulf Aviation Company, which was established in Bahrain by a young British aviator, Freddy Bosworth. In 1950 Bosworth had captured the local community's concern in flying, via sightseeing trips and serving the oil fields to the few neighbouring countries. Bosworth later extended this service, and on the 24 March 1950, he registered Gulf Aviation as a private share-holding company.
Seven Avro Anson's and 3 de Havilland DH.86B 4-engine biplanes fashioned the fleet, but more new aircraft were essential. Bosworth chose the de Havilland Dove but while preparing to launch the type into service he was killed on a demonstration flight at Croydon.
From 1951 to 1971, British Overseas Airways Corporation (BOAC) became a major shareholder in Gulf Aviation, holding a 22% stake. Gulf Aviation began services to London in April 1970 with a Vickers VC10.
In 1973, (BOAC) the controlling shareholding was bought by four Arab governments: Bahrain, Oman, Qatar, and Abu Dhabi (on behalf of United Arab Emirates). Gulf Air was named the flag carrier of each of the four countries in the Foundation Treaty of January 1, 1974 creating a national carrier of the four States.
The integrity of this partnership diminished throughout the years, as every state started to focus on its local Airline. Now fully owned by the Kingdom of Bahrain through (Mumtalakat Holding Company),the Airline which started as a small scale commuter service, is deem to be a major international Airline serving over 40 destinations worldwide.
Yet, whether it is 10 or 100 destinations, charter planes or the latest state of the art jets, their objective has remained even - a commitment to the latest aviation technology and an devotion to traditional Arabian hospitality.Introduction
Gulf Air, the national carrier of the Kingdom of Bahrain, was founded in 1950 and is one of the oldest airlines in the Middle East. It is owned by Bahrain Mumtalakat Holdings Company.
Backed by more than half a century of experience, expertise and customer care, Gulf Air has recognized as a powerful brand and today, it is the carrier of choice for most people in the region. However, its goal has remained unchanged - the commitment to providing state-of-the-art flying experience, complemented by its traditional Arabian hospitality.
One of the prime objectives of the carrier is to connect Bahrain to the Middle East countries and the rest of the world. The airline offers customers the unique advantage of operating the largest network in the Middle East with non-stop flights while providing seamless onward connections to other destinations. Gulf Air's current network stretches from Europe to Asia, connecting 39 cities in 27 countries, with a fleet of 30 aircraft. The airline has code-share agreement with 15 airlines across the world offering a wider choice of flights that can be booked directly with Gulf Air.
Gulf Air is the Official Airline and Sponsor of the Gulf Air Bahrain Grand Prix 2009 and London-based football club Queens Park Rangers. The airline completed its IPO raising BD257 million (in addition to BD70 million raised pre-IPO) and listed 55% of the company. Gulf Air intends to use its IPO earnings to invest in its existing hub in Bahrain by investing on aircraft purchases, expand complementary services which includes the cost of constructing a budget hotel, develop a second hub as well as opportunistically look for suitable acquisitionsA successful Business model
There are certain components that are unique to Gulf Air in general. These are in a way different to conventional carriers which have high costs associated with the provision of full in-flight and other value added services. Other bullet differences comprise triple aircraft types, different classes of travel with matching fare levels, frequent flyer program.
- Point to point operation
- Serves long and short haul routes
- Even fly from primary to secondary airports
- Focus on price sensitive consumers
- High aircraft utilisation rate
- Fleet of 2 to 3 types aircraft
- Simple management structure
- Identify the customers they want to serve
- Be the low cost provider
- Importance of Bahrain Hub:
- Efficient operating environment:
- Distribution system:
Gulf Air has increased the passenger flows at Bahrain airport, which has in turn encouraged other airlines to operate, and enlarged cargo services. The Bahrain Airport Authority has supported Gulf Air in ensuring that the airline has the right landing slots, a sufficient amount of ground staff, ample facilities, etc. Last but not least, the proximity to close by airports like Saudi and Qatar Airports (both as a catchment area and as a destination) and the congestion at Dubai airport means that Bahrain is uniquely positioned in the GCC. The advantage attained at this hub is likely to be complicated to duplicate in a second spot.
The airline's lean management structure allows for an easy stream of information and facilitates timely decision making. Another key operational strength is the airline's dynamic pricing structure. The company has a group in place that monitors flight patterns, passenger concern and competitive fares which has allowed Gulf Air to produce a real-time reactive fare structure. As a first step, this revenue management team allocates the first lot of seats at a particular price based on historical trends and judgement. Then on a daily basis, by monitoring the interest for that individual flight by co-ordinating with the sales teams and checking on competitor actions, the airline is able to react swiftly and alter the ticket structure on a particular route as necessary. In this way, the pricing dynamics of any given route are framed by historical trends to a confident extent, but are ultimately driven by demand and supply to ensure that the greatest value is being obtained from any specific route.
Air Arabia has a distribution system that comprises of internet booking, call centres and sales shops. Its customised in-house booking system significantly reduces staff costs and also eliminates associated distribution costs. In turn, this system allows the airline to have a much lower distribution cost of less than USD1 per round trip compared to USD8 per trip that conventional carriers incur.
With the move towards increased internet booking, this competitive strength could become of greater importance in the longer term.The Business Vision and Company Mission
While a business must repeatedly adapt to its competitive environment, there are certain core ideals that remain relatively steady and provide guidance in the process of strategic business decision-making. These unchanging ideals form the business vision and expressed in the company mission.
It's very important to art your mission as it encompasses the business goals and philosophies by which the company business's run. When a vision is attained by a company, it has to be replaced if not, it is doubtful that the company will prolong success.Where are they now?
In the 1980's, the company had neither a vision statement to achieve nor a mission to follow. That was due to the fact that, "in the company's view" (with no worthy competitor to be concerned about in the region, we will always be number One). This has led Gulf Air to endure their first lose since it formation.
This is when, the company has realised with the set of unique challenging circumstances including the increase competition in the regional market, together with the political instability (Gulf war), the need of a strategy to maintain its profitability and brand was apparent to be able to deliver Gulf Air's future aspiration. Again, not much effort was induced to support their plan, which in turn had cost the company a significant loses up until now.Where does Gulf Air want to go?
"To focus on the best interests of the shareholders together with ensuring consistent growth and to develop the long-term future prosperity of Gulf Air." Gulf Air CEOHow will they get there?
Currently, in alignment with the dynamic growth plans of the Kingdom of Bahrain as laid out in 'Vision 2030', Gulf Air has embarked on a business strategy to re-fleet itself over the next five years to further strengthen its presence as a leading player.
The new strategy consist of a team of consultants working with the senior management of the airline to identify all areas in which structure changes most needed in the long term, and were short term changes could be made in order to reduce cost and/or increase revenues. The changes involved the restructuring of the network to take the advantage of a large catchments area of the Gulf and interlining traffic flows between Europe, the Gulf, the Indian sub-continent and the Far East.
The transition will be undertaken in two stages: the rearrangement of the network over 12 months, followed by augmentation into new market and product development in the second and third year. The resulting plan will indicate what alteration should be looked at the fleet composition to optimise the revenue prospective. At the same time, the product offered by the airline and the method of pricing and selling tickets, has to be well thought-out with recommendation for change to advantage of the better schedule to increase yield.
The project involved thirteen consultants being in site in Bahrain for a period ranging from three to five months and incorporating the preparation for the implementation of the changes in network, product and organization needed for future profitability.
The management has an obvious consent to build an efficient, commercially sustainable and dynamic airline that effectively serves the people and the economy of Bahrain and symbolize it on the world stage.
Organisational behaviourOrganisational structure:
One of the definitions regarding Organisational structure, is the way that an organisation manages individuals and tasks so that the work can be acomplished and its targets can be achived. As organisations expand, decisions require to be acknowledged with regards to the allocation of various tasks. Consequently, procedures are established that assign tasks for various functions. It is these decisions that conclude the organisational structure.
The structure of every organisation is distinctive in some respects, but all organisational structures develop or are purposely designed to enable the organisation to achieve its work. The traditional model of organisational structure can easily be represented in the form of an organisational chart which illustrates a hierarchical or pyramidal structure with a president or other executive at the top, a small number of vice presidents or senior managers under the president, and several layers of management below this, with the majority of employees at the bottom of the pyramid.
"Structure is an entity (such as an organisation) made up of elements or parts (such as people, resources, aspirations, market trends, levels of competence, reward systems, departmental mandates, and so on) that impact each other by the relationship they form. A structural relationship is one in which the various parts act upon each other, and consequently generate particular types of behaviour." (Fritz, 1996:4)
In his book Corporate Tides, Fritz points out that, in practice, the design or the making of organisational structure are not in an intentional way. As Small structures nurture into bigger ones and individual units turn into the focus of managerial power. Fritz says that (1996:5): "Departments and divisions become entrenched as power systems." Resistance are the most likely consequences generated by any structure alteration from these power systems.
Fritz suggests, advance or oscillate are most organisations faces. Advancement is a constructive shift from one status to another that acts as a base for further advances. The importance of structural advancement is the idea of resolution whenever a particular difficulty is resolved. According to Fritz (1996:6), "individual acts into an organisational tapestry of effective strategy" management in an organisation that is planned to advance will allow all the individuals in this utopian organisation to act together; the result is synergy, allowing the achievement of 'enormous feats.'
Fritz (1996:6) explains this: "oscillating behaviour is that which moves from one place to another, but then moves back towards its original position." Plenty of companies plan for major alteration scheme and programs, backed up by enthusiasm and willingness. Nevertheless, after some time, their enthusiasm has disappeared and everything goes back to the original way.
Based on this, Gulf Air has adopted massive changes to their organisational polices, including company structure, HR, restructure of a solid encouraging mentality and employees motivation. Up until now the enthusiasms has not evaporated yet as the 'need of change' was insisted by the government, union and even the people of Bahrain.Functional Structure:
This refers to grouping activities by functions performed. Activities can be grouped according to function (the work being done) to pursue economies of scale by placing employees with shared skills and knowledge into departments for example human resources, IT, accounting, manufacturing, logistics, marketing and engineering. This can be used in all types of organisations. Using such functions as the basis for structuring the organisation may, in some instances, have the advantage of efficiency. Grouping jobs that require the same knowledge, skills, and resources allows them to be done efficiently and promotes the development of greater expertise. A disadvantage of functional groupings is that people with the same skills and knowledge may develop a narrow departmental focus and have difficulty appreciating any other view of what is important to the organisation; in this case, organisational goals may be sacrificed in favor of departmental goals. In addition, coordination of work across functional boundaries can become a difficult management challenge, especially as the organization grows in size and spreads to multiple geographic locations.
From the above structure, and within the company's new plan, the number of managers has incredibly reduced by half. In addition, people managers (line managers) duties are clearly indicated.
Functional organisations advantage;
- Being straightforward to value with apparent lines of command,
- Particular tasks and responsibilities.
- Staff can concentrate in a particular business field such as production or marketing and follow well-defined career paths.
- This is uniformly true of human resource specialists who can develop expertise in specific areas such as employee dealings or reward management.
- The numbers of subordinate reporting directly to a specific manager is good (Span of control).
There are also main disadvantages;
- Line managers have to tread carefully since this form of organization is susceptible to interdepartmental divergence, often degenerating into 'them and us' tribal warfare.
- Coherence and good communication are predominantly hard to attain between virtually independent functions.
Organizational Culture is significant to understand since it gives us insight to how a business functions because of the culture within. The culture that exists inside in organisations is bound to be different from organisation to another. However, to be a strong organisation, it must meet the criteria of a culture.
HR literature puts substantial importance on the role of corporate culture in achieving high performance levels. In particular, people functioning within a culture of commitment are willing to work longer, apply greater inventiveness to resolve a dilemma and strive that much harder to win an order.
(Hofstede 1991:24) helpfully calls culture "the software of the mind". Corporate culture is something more fundamental than what we call a strategy.
(Richard 2002: 16), "The Chinese proverbs Ru Xiang, Enter village, follow costume. No. I disagree with that. My advice is not to mimic or copy local behaviour. Instead just be yourself. But of course, being you self includes being aware of local sensitivities and honouring local customs, habits and traditions".
Luckily, most of company's employees are from the same country 'Bahrain'. In the opinion of the author this would give the company one less thing to worry about with regard to employee's interaction and creation of the right atmosphere. Therefore, increase the individual product.Management and Leadership:
Generally leaders, however, are unaware of the culture that exists enclosed by an organisation, even without consideration to the diverse recognized theories that set out along with running a company. Every organisation, even without a formal, set-in-stone organisational culture, contains some variety of culture inside. A manager tends to run an organisation or group with the manner that he or she is most relaxing leading in, and though different individuals lead groups in different behaviour, these methods may not at all times work as well as one would expect, so it is crucial to be not only an informed leader, but also a flexible leader.
Leaders are not made, but born. All leaders must have traits and skills to be called leaders; Stogdill (1974:56) identified the following traits and skills as critical to leaders:
In July 2009, Gulf Air has appointed a new CEO, as part of the reconstruction plan. With over 30 years of experience in Aviation including, Royal Jordanian CEO for more than 10 years, ICAO member and PhD in Aviation Management.
In the opinion of the author, His impressive track record, his leadership skills and cultural awareness are well-suited to the needs of Gulf Air. The board management are certain that with his experience and worldwide network in the airline industry will be able to steer the airline forward.
The Gulf Air management team extends its full support and cooperation in what is a challenging task, to take the airline to greater heights.Management Style:
Depending on their management style, managers have to handle different situations in an organisation. In general, a management style is a method of leadership. The two contrasting styles:
- Autocratic: Leader makes all decisions unilaterally.
- Democratic: Subordinates are permitted by the leader to take part in decision making and also give them a substantial degree of autonomy in effecting routine work activities.
- In the flight operation aspect, an Autocratic style is most likely, this occurs when issues of safety are concerned. For instance, adhering and following the airline Standard Operation Procedure (SOP) which applies across all Airlines. So decisions are to be followed by employees.
- Certain matters can be resolute and made through discussion and consultation. For instance, a Democratic style is utilised when a complex decision to be made regarding a change in the employees benefits or the opening of a new destination, or even changing a procedure if that change could increase revenue.
To be an effective manager, one must know what style to adopt. Either to be people oriented, or money and product focused. Yet, a good leader will adjust and cope with situation as dictates.
In the airline industry, a variety of management style could be utilised in different framework:
Gulf Air has its own internally developed IT and reservation system, which makes it unique to other airlines that uses pre-packaged software. Gulf Air IT system enables its revenue management team to observe trends and respond promptly and resourcefully while at the same time offering teams and certainly management access to significant reports that assist decision making. Furthermore, since the fare structure changes instantaneously on the system, both internal users and customers have access to updated information on a real time basis, which again smoothes the stream of information.
In addition, Gulf Air has implemented the AIMS crew-management system to run its flight crew coursework. The system enables the airline to rapidly decide the minimum legal flight deck and cabin requirements for any given time, while increasing its capability to track and control crew replacements over its routine and unusual flight operations.
The automated system can also contain a range of user-definable crew preferences, consequently improving equality, crew morale and efficiency. Employees may also confirm the status of their schedules in real time 24/7 via the system's interactive voice response service.
Gulf Air is the first Middle East airline to commence self-service electronic check-in kiosks and SMS announcement technology a downloadable version of the flight schedule timetable.
Other staff benefits are:
- Official letters
- Online HR Services
- Training and grading
Boxall and Purcell's (2003:1) define HRM as: "all those activities associated with the management of the employment relationship in the firm. The term 'employee relations' will be used as an equivalent term as will the term 'labour management'."
The function of (HRM) inside an organisation is to focus on recruitment, management and providing direction for the people who work in the organisation. HRM can also be presented by line managers. HRM also deals with issues associated to individuals such as compensation, hiring, performance management, organisation development, safety, wellness, benefits, employee motivation, communication, administration, and training.
- Fritz, R. (1996) Corporate Tides: The Inescapable Laws of Organizational Structure, Berrett-Koehler.
- Richard, R. (2002) 4thedition Cross-Cultural Business Behaviour : Negotiating, Selling, Sourcing and Managing Across Cultures
- Hofstede, G. (2002). Culture and Organisation. McGraw-Hill
- Stogdill, R.M. (1974). Handbook of leadership: A survey of the literature, New York: Free Press.
- McCall, M.W. Jr. and Lombardo, M.M. (1983). Off the track: Why and how successful executives get derailed. Greenboro, NC: Centre for Creative Leadership