Introduction
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.
Hedging fuel
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.
Conclusion
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.
References
Qatar Airways Website
(2012). Retrieved on 28th Feb from http://www.qatarairways.com/ke/en/homepage
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