Case Study Doom and Gloom of Rayani Air
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Manuscript Reference Number: AJM – 0004 CASE STUDY DOOM AND GLOOM OF RAYANI AIR: FIRST SHARIAH-COMPLIANT AIRLINE IN THIS REGION ABSTRACT Malaysia developed halal tourism as a promising niche to attract more Muslim tourists to the country. Due to the variety of Islamic offerings, it seems a good country for the tourists who care about Islamic values not only in their daily life, but also while travelling. It has a rich Islamic heritage as well as halal food, Muslim friendly people and wide Islamic environment which provide Muslim tourists with a good Islamic experience. Rayani Air of Malaysia described as the first Islamic-compliant airline in this region, has begun offering cabin service compliant with Shariah law. The company requires Muslim flight crew-members to wear the hijab whilst non-Muslim crews are forbidden from wearing revealing clothing. In-flight meals are completely halal and alcohol consumption is strictly banned. Less than four months after launching operations, the airline that pitches itself as fully Shariah-compliant, has been grounded. Malaysia’s Department of Civil Aviation (DCA) confirmed that the company’s Air Operator’s Certificate has been temporarily revoked while it is subjected to “a full administration and safety audit.” Security risks, pilots’ strike, salary outstanding, cash-flow problem, criticism from passengers and the government are among the reasons the airline was grounded. Although the founders are vowing to restore operations as soon as possible, few start-up carriers are given a second chance once their brand has been tainted by suspensions. Jitters about further flight cancellations will typically derail any prospect of a re-launch. The Rayani Air’s non-compliance of DCA requirement fits very well in the above scenario. Key words: Halal Tourism, Rayani Air, Shariah Compliant, Halal Food, Security Risks, Administrative Issues, Pilot Strike, Cash flow, Department of Civil Aviation, Air Operator’s Certificate. INTRODUCTION Rayani Air of Malaysia, described as the country’s first Islamic-compliant airline, has begun offering cabin service compliant with Shariah law in 20th Dec 2015. It was the first Shariah Compliant airline in Malaysia and the fourth such airline in the world, after Royal Brunei Airlines, Saudi Arabian Airlines and Iran Air. No alcoholic beverages or pork were served on board in accordance with Islamic dietary laws and prayers were recited before every flight. Rayani Air was founded by Mr. Ravi Alagendran and his wife Ms. Karthiyani Govindan, both of whom are Malaysians of ethnic Indian descent. Rayani Airlines was originally intended to be based at Malacca International Airport in 2014. However the airline changed its base to Langkawi International Airport to attract tourists to the resort island. It was previously rumored that Rayani Air would be launched as a Low Cost Page 1 of 8 Carrier; however the airline officially positioned itself as a Full Service Carrier in December 2015. On 20 December 2015, the airline's inaugural flight to Langkawi (RN600) took off smoothly. The airline was planning to co-operate with Royal Brunei Airlines to strengthen the Shariah-compliant airline concept within the aviation industry. POTENTIAL OF RAYANI AIR There are about 240 million Muslims in the South East Asia (SEA) region. That is approximately, 40% of the entire population mix of South East Asia. Most of the Muslims are found in Malaysia, Indonesia, Brunei, Thailand ad from Philippines. Along with the entire Asia, SEA has one of the busiest air routes in the world. The South East Region Potential 15% 22% AirAsia/Air Asia X Lion SIA Garuda 15% 4% Thai MAS 5% Cebu Pacific Vietnam Airlines 5% 9% PAL 7% Others 9% 9% Graph 1: South East Asia Capacity Share / Source: CAPA – Centre for Aviation and OAG Over the last few years, SEA has been impacted by over-crowding airports. The passenger volumes and the number of flights flying into the major airports have been rising steadily over the years. As the demand continues to grow, the recent wave of consolidation and capacity adjustments should lead to more favorable conditions of air travel operators and passengers. SEA has already established itself as one of the world’s fastest growing aviation market. Nearly, all of the 10 ASEAN countries have robust economies and expanding middle classes. In all, the market demand is already there and continues to grow. Rayani Air is entering the market at the right time. Population Country Seats ASK GDP (Billions) (Millions) Singapore 1,355,735 4,513,321,060 304.1 5.5 Thailand 1,258,241 3,997,304,619 373.6 68.6 Page 2 of 8 Malaysia 1,083,506 2,965,177,154 343 30.1 Indonesia 758,932 2,080,280,701 859.3 251.5 Philippines 476,244 1,623,472,877 291.8 99.4 Vietnam 406,627 981,657,270 187.8 90.6 Cambodia 136,937 117,583,272 16.9 15.6 Myanmar 88,954 128,887,144 60.3 66.2 Brunei Darussalam 42,101 101,162,715 16.8 0.4 Laos Republic 35,866 27,813,666 10.8 6.9 Table 1: South East Asia Weekly Capacity by Country Source: CAPA – Centre for Aviation and OAG With 40% of SEA population being Muslims, Rayani Air could expect them to try its’ services at least once when they travel. Probably, they are curious to explore the services provided by Shariah compliant airline. This curiosity can act as added advantage when comes to future marketing focus. PROBLEM STATEMENT On 9th February 2016, Rayani Air flight RN180 scheduled for Kuala Lumpur International Airport 2 (KLIA2) was cancelled due to a broken cockpit windshield. The next day, the airline issued a press statement apologising for the flight cancellation and attributed the shattered windshield to a night flight previously. Rayani Air said they were investigating to see if the broken windshield was an act of sabotage and would liaise with relevant authorities to deal with this. In March 2016, Rayani Air was plagued with numerous issues and complaints. Passengers complained that the airline frequently rescheduled flights, often up to 13 hours later. The airline also frequently cancelled flights without advance notice and without compensation or assistance to affected passengers. The consumer complaints were highlighted in several media outlets and DCA. It was reported that pilots refused to fly due to aircraft's poor condition. On 9th April 2016, Rayani Air temporarily suspended all operations until further notice, citing 'restructuring exercises' on the announcement made by its co-founder. Malaysian Aviation Commission (Mavcom) in a statement on 13th June 2016 announced that Rayani Air license has been revoked, citing “it had breached the conditions of its license and it also lacks the financial and management capacity to continue operating as a commercial airline”. The Star reported that on April 11, Rayani Air's air operations certificate (AOC) was suspended for three months after the airline temporarily halted operations following a strike by pilots. It was reported that Rayani Air's operations were suspended for allegedly breaching the Civil Aviation Regulations 1966. PORTER’S FIVE FORCES OF RAYANI AIR The five forces model was invented by M. Porter it’s a commonly used framework to analyze the competitive environment of an industry. Porter has said that there are 5 driving forces Page 3 of 8 which are relevant to influence a firm’s position within the industry. It assesses the attractiveness of the industry and also figures out the position of the firm within the industry. Moreover he also points out the whether the industry is attractive or not and helps the firm to take a decision of whether they are going to compete in the market (Dess, 2007). Figure 1: Five Forces Analysis of Rayani Air Threat of new Entrants The industry in which Rayani Air operates, an airline industry, the threat of new entrants is low. This is mainly due to the fact that barriers to entry are high. New airline trying to enter the airline industry are faced with a great deal of challenges, the biggest being the capital requirement as to start an airline will require number of aircrafts. The Rayani Air management does not believe that their airline will face any real threats from new entrants as Malaysia DCA stop giving new license to new entrants. They stated that the airline industry is already saturated and it is one of the most expensive industries to operate in. On top of that, the airline has to fulfill very stringent safety requirements that make it more expensive to operate. Bargaining Power of Suppliers Power rests with the suppliers in the form of price and quality of supplies. Suppliers can increase the price or lower the quality of their goods and services. In the airline industry, there are mainly two suppliers of airplanes, namely Boeing and Airbus. The demand for their planes is very high due to the fact that there are lots of airlines and the manufacturers can only produce so much. Therefore, the power of suppliers is quite high and they have a firm grip on the market. Moreover, the price of oil is one of the major factors of cost for all the airlines and Rayani Air following a cost focus strategy is more vulnerable to changes in oil prices. Page 4 of 8 Bargaining Power of Buyers In the airline industry, the bargaining power of buyers is high and is increasing as there are number of airlines to choose from, such as Air Asia, FireFly and MAS. Moreover, there are lots of travel agents and customers can now buy ticket online from even intermediaries. Therefore, they do not really have to stick to one airline and this increases the buying power of customers.