Effects of Fuel Prices

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Table of Contents

Introduction
Background
Problem Statement

Introduction

Fuel is pivotal in the successful running of any business and especially in the transport industry like the airline industry, which is involved in massive transporting activities. There is no reasonable doubt therefore that high fuel costs have an adverse impact on the running of any organisation.

Fuel prices have become a challenge in the recent past because they are usually increasing at a speedy and sudden rate. Most often, much focus is placed on the effect of fuel prices on the lives of people. In such a case, people are advised on unnecessary spending by cutting down on fuel costs.

Less attention however is placed on the effect of the high fuel prices on organisations, which cannot run without fuel since it facilitates almost all of the operations in any organisation. The airline industry precisely is overly reliant on fuel and as a result is deemed to be most affected by the high fuel prices.

One such airline is the Dnata Company, whose survival is hanging on a thin thread given its current financial crisis.

It is very ironical that the United Arab Emirates is the fourth region across Arab high in oil production yet is ranked the third country with high oil prices.

The effects of high fuel prices have crippled the prognoses of the Dnata Company as at now attributed to high operational costs in comparison to revenues obtained. Revenues obtained are almost equivalent to the fuel costs.

Notwithstanding the high fuel prices, Dnata has managed to survive in business until this far even though many similar companies have collapsed along the way. It is therefore believed that it will still survive this financial ordeal that it is currently experiencing.

Most of the times when fuel prices are high, the prices imposed on customers escalate as well. However, it is interesting to note that Dnata is still experiencing financial crisis.

Apparently, it seems that increasing service prices would not be an ideal remedy due to the triple whammy effect of the high fuel prices. Not only do high fuel prices slow a country’s economic growth and place financial strain on companies, they rob consumers their purchasing power.

As a result, business is slow because clients cannot spend much. The situation becomes much worse if the prices are increased. It is intriguing to know that in all these years Dnata has survived in the industry despite the unstable oil prices in UAE.

This study will therefore seek to investigate the past performance of Dnata in spite of rapidly increasing fuel prices and compare this past trend with the current situation.

Background

Dnata is ranked the fourth largest airline company globally that provides a range of services as shown below. The company handles an estimate of 250 airlines and is operational in 39 countries. It is the number one largest company in as far as travel-management services are concerned.

Dnata fulfils the following obligations: catering, provision of cargo, ground handling, sale of air tickets as an agent of other airlines, and information technology services.

Dnata was founded in 1959 and merely begun as a small ground handling shop with only two staff members compared with the current 20,000 employees in five continents. It has gradually grown through the years.

It has been overcoming the hurdles that emerge along the way until the very recent financial crisis, which has been linked to escalating fuel prices. It later expanded in 1970 when it started selling airline tickets.

The cargo division was formed in 1973 and experienced a boom in 1979. Starting this time, the cargo enjoyed an annual growth of more than 50%. The ticketing division was equally booming such that a new airline centre was opened in 1981 and during this time, it became the largest ticketing operation.

A decade later, the 150,000 meter squared Dubai Cargo operation was opened and another decade later (2002), agreements with different carriers were designed and effected. After five years, a joint venture between Toll Holdings and Toll Dnata Airport Services based in Australia was established.

This gave Dnata Company an upper lead because this joint venture became the sole ground handling company in Australia. As a company that embraces technology for efficiency, a community-based B2B & B2C portal was launched in 2008 to facilitate transactions and thereby serve a wider clientele.

Later on in the same year, Dnata opened the DXB terminal 3 to allow the airline to handle baggage for 17,000 passengers at a given point in time.

Other than the historic transformation into the largest airline company, Dnata Company was able to acquire other small companies. In the year 2009, Dnata acquired Plane Handling Limited, a company that offered ground and cargo handling services at London Heathrow Airport and Manchester Airport respectively.

In 2010, the Alpha Flight Group Limited was acquired. The company operated in 11 countries and was a leading in-flight catering company across the globe. It is therefore obvious that Dnata has steadily grown in the past without difficultly.

This makes this study even more enthralling as one tries to figure out what could have gone wrong because it seems that the issue of fuel prices in UAE has been prevalent for a long time due to importation of gasoline.

It is evident that Dnata Company has had a solid and professional administrative unit that has steered the success of Dnata.

This is attributed to the fact that it has been able to soar up in the past regardless of the many challenges that forced other similar companies to face out. In addition, as an organisation that is entirely driven by quality, it seeks to ensure that each area is continually evolving to meet the changing demands and preferences of clients.

As a company that has various transport and carrier responsibilities, it is likely to consume a lot of fuel in a day. Hence, the unstable oil prices are a great injustice to the company, which is very fundamental to the economy of UAE and in the airline industry in general.

During the period 2011 and 2012, Dnata was documented as enjoying its peak in profits despite increasing operation costs. Worth noting is that the profit derived during this time was obtained from in-flight catering, airport operations and Dnata cargo handling in that order.

The fact that ground handling is not documented could mean that fuel prices compared to revenue could have resulted in a negative balance. However, all this can be confirmed by carrying out this study that will examine the different departments and each department’s performance all along.

It is only then that an association between fuel prices and the financial crisis being experienced by Dnata will be scientifically proven.

Problem Statement

The sole purpose of any organisation is to make profit. Dnata is a private airline company and therefore its objectives could not be far-fetched from this. The company has done what is within its jurisdiction in as far as provision of quality services to its clients is concerned.

This is supported by the fact that Dnata adopts latest technology that is efficient and effective. Maintaining a stable clientele base is very important for any business to thrive hence the reason why Dnata offers quality services to meet the needs of its customers.

In the recent past however, the looming fuel prices have not favoured the company at all. Dnata company is currently in a financial crisis with its revenue barely enough to meet its operational costs. It is very enthralling to investigate the effects of the high fuel prices on this company that has continued to survive in the past.

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Effects of Fuel Prices

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