With the advancement in technology, various economies have adopted the use of modern airlines as a means of transport. Airlines have been adopted because of the efficiency and the comfort ability they offer to their passengers. Data from various countries reveals that the investment in air travel is an expensive investment. Therefore, investment is air travel is a government venture that is funded and maintained by the government. Qatari government invested into the construction of Qatari airways to aide transportation of people within the country and to external destinations. However, there are concerns from the travelers that the airline is charging high prices to the travelers. The management of the organization believes they are justified the amount of prices to their customers. Because of the high prices, conflicts have risen between the government-funded organization and the travelers who have vowed to boycott Qatar Airways. Qatari Airways is also in the limelight for not keeping part of its bargain to the employees. The agreement between the employees and the Qatari airways stipulated that the employees would be given a 60% pay rise. However, the management of the airways did not honor this agreement to pay the employees. In this regard, the employees have also resolved to boycott Qatar airways because of their pricing policies and the rising mistrust between employees and the employer.
The governments of Qatar have realized that the growing call for boycotting Qatari airways will have an adverse influence on the economic performance. Therefore, the aim of this proposal is to identify the problems facing the airways and recommend solutions to aide in the eradication of these problems.
Causes of high air travel prices in Qatar Airways
Qatar airways is a monopolistic organization
Since the establishment of Qatari Airways by the government, the organization has enjoyed the full support of the government. Because of this, government has vested its interest in the operation of the organization. Qatar Airlines has been established to monopolize air travel in Qatar. With the monopolization in practice, the airline has struggled to discourage other competitors in the market by setting up prices that others cannot meet. Qatar airline control significant share of the air travel industry in Qatar. Therefore, they have the liberty of determining prices above the equilibrium prices.
In a free market, price determination is established by the forces of the market. The equilibrium price is set as the market price. However, monopolistic organization produces their goods when below marginal cost and sells at the price above market price. This move ensures that monopolistic firms use minimum capital to produce their goods, but they reap higher returns. Monopolistic firms gain abnormal profits. Qatar Airways is a monopolistic firm that controls significant market share and establishes the air travel prices higher above the equilibrium prices.
The rising cost of oil
With the rising cost of oil, the cost of production has increased significantly. Data collected from the airline website reveals that the organization has a fleet of 70 airlines and has ordered some other airbuses that are due for arrival. Because the airlines use oil fuel to propel their engines, the increase in oil prices has posed adverse effects on the airlines operations. With the rise in airlines cost, the management of the organization has resolved to transfer the extra cost to the customers. The extra cost is reflected to customers as increase in the price of their tickets. Various customers have reacted furiously to the increase in air prices and have resorted to boycott travel using Qatar airlines. Global reduction has led to the increase commodity prices because the organizations and the stakeholder have resorted to increased prices to derive profits from their investments.
The immense economic depression
The sudden increase in air travel price has also been cited to be the result of the great economic depression. The great economic depression was characterized by the decrease in global economic performance. The adverse effects were felt on the global scene, and it was manifested with a significant increase in the prices of commodities. This period was characterized by reduction in the supply of vital commodities. Because of the reduction in supply, the demand for these items increased. Therefore, the few sellers with these commodities raised prices to ensure that only the willing and able buyers got the commodities. In this regard, supply for Qatar airways factors of production was adversely affected and the airline spent a huge amount on the acquisition of, operational material, cost. In return, the airline management resorted to hike their prices to recapture the losses incurred during the period of the great depression.
Competition from competing rivals
The rise in Qatari prices can also be attributed to the presence of competition in the air travel industry. Economists have largely agreed that competition is healthy for the conduction of business because it leads to the eradication of monopoly and increase in quality of services offered. Various organizations have developed strategies of dealing with competition in the industry. Economic theories state that consumers associate high prices of a commodity with high quality. The management of the Qatari airlines has adopted higher pricing in a bid to portray to their customers that they are offering high quality services. On the contrary, other airlines companies have resorted to offer low air price to attract more customers. Qatar airlines charge high price to their consumers as a guarantee of the quality service offered to them while on-board.
Effects of high charging high prices
The decision by the Qatari Air ways management to charge higher prices to their customers has not been welcomed by the stakeholders because of the adverse effects. Because of the higher prices, the Qatari nationals have joined in alerting the government that they are pleased with the pricing policies. The effects of high air pricing strategy can be summarized as follows.
Reduction in economic growth
The development of the economy is attributed to the contributions of the nationals. The national income of the country is reduced when few nationals participate in economic activities. In this regard, Qatari airways have reduced the rate of economic growth by charging high air prices. Despite high revenue collected from the travelers, the airline company has reduced the disposable income of the travelers. Because of the reduction in disposable income, the consumers have a low propensity to spend and save. High pricing strategy has affected the saving pattern of Qatari nationals because they cannot save and invest. The reduction in disposable income adversely influences the growth of the economy because the people’s marginal propensity to spend and save is significantly reduced. The people’s participation towards economic growth is hindered because they have low disposable income. Therefore, high pricing of commodities reduces the amount of disposable income.
Reduction in tourism
Qatar government derives significant amount of revenue from tourism. The income from the tourism sector is helpful to the government during budgeting. Tourism in Qatar contributes a great percentage of the national income. Tourists use Qatar airlines to travel into Qatar and out of Qatar. Tourism is highly beneficial for the enhancement of the economy because of the benefits they bring forth. These benefits include provision of employment opportunities in hotels and tour guide services. Tourisms is also beneficial because of the enhancement of foreign exchange and foreign earnings. Collectively, tourism is beneficial for the development of the economy.
The rise in prices of the major air travel provider in Qatar has led to the reduction in the number of tourists visiting the country. In this regard, the government action in controlling prices is highly recommended. Because of the increase in air travel prices, majority of tourists have resorted to visit other countries. This leads to diversion of economic resources that would have, otherwise, developed the region of Qatar.
Loss of employment opportunities
Since the venturing of the organization by the government in the previous periods, the company has continued to offer employment opportunities to the Qatari population. This has led to the development of the economy through taxation and investments. The national income of the country has also increased with the increase in the number of employed citizens. However, citizens and other travelers have initiated plans to boycott the usage of Qatari airways. Because of this boycott, the company revenue has greatly declined. Decline in Qatari airways earnings is shown by the fact that it cannot afford to pay salary increment to its employees. The boycott strategy by travelers has reduced the organization’s annual earnings by a significant margin and the company cannot afford to pay employees additional salaries. This action has resulted in conflicts between the company and its employees. In this regard, the boycott plan has resulted in the decrease in company earning. Since the company makes insufficient income give as salary increment, the management has resolved to lay off some of its workers.
Unemployment has also risen in Qatar because the nationals depending on tourism activities have been rendered jobless. The low number of tourists visiting the country has adversely affected the tourist reliance sectors of the economy.
Corrective measures to reduce boycotting of Qatari airways
Following the international campaign of boycotting Qatari airways because of its high prices, the government has realized that loses accrued to the government is significant. Because of this, the government adopted strategies to help it reclaim the lost glory and income.
Launching low cost carrier
Following the adoption of low cost carriers in Qatar by competitors, the travelers boycotted the services of Qatar airways because of it charged high prices. The competitor of the firm adopted the use of reduced prices to capture a significant share of the market. However, the management of Qatar airline has collaborated with the government to adopt low cost carriers that will charge lower prices to the travelers. The marketers of the Qatar airways conducted a market research and established that the travelers needed low cost carriers that could travel to international routes. The manager of the airlines noted that, “we have to adopt the use of low cost carriers. This is because the high number of the low cost carriers from our competitors is affecting our market share.”
Standardization of pricing policies
Analysis of the Qatari airways pricing policies shows that the policies are imbalanced based on the destinations. For example, information from the organization’s website shows that the travel fare from Qatar to Nairobi is $1002. The fare from Qatar to London is $818. This difference in the pricing policy is alarming because it is estimated that distance between Nairobi and Qatar is equivalent with the distance between Qatar and London. This pricing policy shows that it is much more expensive to travel to African countries than it is to travel to the European countries.
In order to restore unity, the pricing policies must be revised to reflect the distance covered. Qatar airways should adopt new pricing policy that will enable equality for the travelers regardless of their destination. The pricing of air travel should be based on the distance to be covered rather than on the destination of the plane. Adoption of policy revision will ensure accurate pricing and establishment of customer satisfaction.
Ethical behavior at the airport
The strategy to restore normalcy for the operations of Qatari airways is also because the management attest to the practice of unethical conducts at the airport. The management has drafted policies stating that fresh graduate employees should be given minimum salary after a five-year contract. This unethical behavior leads to brain drain. The boycott action regarding the use of the airline is aimed at enabling the management to review their employment rules and regulations. In addition, the management should redraft their employment contracts.
Qatari airways are also on the limelight for giving preferential treatment to foreign travelers. Because of the rise in the cases of discrimination and preferential treatment, the boycott activity is aimed at advising the organization to observe equality in the work place. The management of Qatari airways should organize staff training to teach the staffs about the ethical conducts that must be upheld by the officers on duty.
The company management has resorted to the strategy of hedging fuel in order to attain competitive advantage. This move adopted because of the fluctuations in the global oil prices that result in increases in price per barrels of crude oil. This corrective measure will help Qatar airways to save a significant amount of money. Hedging of fuels is also beneficial because it will help in controlling air travel prices.
The operation of Qatar airways resulted in unbalanced distribution of resources. With the emergence of monopoly in Qatar air travel, Qatar airways resolved to charge higher prices to its customers. This destabilized the economic growth by reducing government earnings. Competition in Qatar air travel and dissatisfaction of the customers led to the boycott of Qatar airways. This activity led to the action of losing of significant market share. Hence, the management responded by employing changes to the operations of the company. The company ensured changes are enhanced in their pricing policies and ethical codes of conducts are upheld. The management has also resolved to hedge fuel to avoid price hike because of fuel scarcity. The employment of these changes will ensure that Qatari airways regain profitability in trading and acquisition of significant market share.
Qatar Airways Website (2012). Retrieved on 28th Feb from http://www.qatarairways.com/ke/en/homepage