A Strategic Study on Emirates Airlines

Abstract

This report conducted on Emirates Airlines which discusses a strategic study about global airline industry, particularly Emirates Airlines.1st part of the report focus and concise overview about Emirates Airlines Company followed by a situation analysis that includes internal and external analysis. The last section of this report will be concluded with the current situation of the Emirates airlines along with signifying major issues that Emirates Airlines should address with recommendation.

Profile:

Emirates Airlines was established in 25th October, 1985 by Dubai Government with only two aircrafts. Presently Emirates has 142 aircrafts fleets and destinations in more than 102 countries worldwide. Recently it made an order for aircrafts worth more than $ 27 billion for 45 Airbus A380, in this way cit become the world’s largest purchaser of Airbus’s super-jumbo. (Regarding Emirates)

Emirates Airlines currently becomes one of the fastest growing airlines and the fifth biggest profitable airline in the world. It has been growing by more than 20% a year since the last 17 years making a profit of $ 3,538 million in Marc 31,2010 (BBC News)

External Environment

Airline Industry Analysis

The aim of analysis is to identify how external environment affects the airline industry. The first part tells us about the airline industry profile.

Airline industry Profile

Airline industry is one of the most aggressive and well growing industries in the current world as it leads to economic growth, world trade, international investment and tourism. In the last ten years, it has grown strongly by 7% per year for both business and leisure purposes. (Airline Industry). Airline industry fastest expanding sectors of the world with growth rates 2.4 times above the GDP rates on average. (IATA).

Economical growth, trade and political factors affected on Airline industry. The Big example of the political factors, at 11th September attacks decreased the number of passengers, because people were afraid and tend to avoid studying and visiting all those countries which have been attacked by terrorism. Another economical factor, rapidly increasing in oil prices going to destroy the profitability of the global airline industry, accordingly the losses have been reached around $6 billion in 2009 (IATA)

Many companies started to change their strategies and services for competing and facing any uncertain situation due to instability of world political situations. A large of companies invested a huge of amount in the quality of services they provide by offering, e-booking system, new interactive entertainment systems, more comfortable seats, low cost carriers and many technological techniques. All of that were only attraction and making new customers and gaining competitive advantage.

Eventually, the airline industry has been restored number of passengers seems to be doubled by 2010 to exceed 2.3 billion due to the tourism, international trade and global economic development (IATA).Thus, for Successful and strong image in aviation market its compulsory for airlines that cut of their prices and improve their services.

Life Cycle of Airline Industry.

According to product life cycle the airline industry is in the maturity stage, due to strong competition in the market and the sales’ rate grows fast and then begins to stabilize gradually. At this stage competition is more aggressive in order to increasing advertisement and promotion activities. Further more many competitors increased their budgets in Research and development (R&D) (Product Life Cycle)

Through increasing customers’ brand loyalty many companies want to differentiate them from their competitors in their services and products. In this stage companies starts cutting their operating cost mean profit margin decreases result least efficient companies are not more in market. Accordingly, many companies’ use offensive strategies instead of defensive strategies by using methods of changing their market, product and marketing mix to stay alive and compete during this aggressive stage. “(Development of new product)”

For example, Kuwait airways follows the strategy of changing the marketing mix by introducing a low cost carriers in respect to increase its numbers of customer ,base and loyalty and increase sales, which is considered as a competitive advantage amongst its competitors. (Kuwait Airways).

Porter’s 5 Forces

Threats of New Entrants

The new entrants in industry cause a threat to the existing company because they might offer better services, products or costs. In this industry the threat is low as the level of entry barriers is high. Following challenges cause new entrants.

Capital Requirements. There is need huge budget for starting a new airline company to buy aircrafts and provide services to customers.

Brand name & Customer loyalty: Airlines companies need excellent goodwill and strong position in the market which helps them to compete against the threats of new entrants.

Bargaining Power of Suppliers

Suppliers can easily change market trend through their high demand and control on prices and quality of their products & services. Boeing and Airbus are globally suppliers of the airline industry.

Bargaining Power of Buyers

Buyers also affect the industry through their skills to reduce prices, bargain for higher quality or more services. Buyers are more powerful due to huge amount of passengers in market (1.8 billion yearly), the switching cost is low and availability of many choices for passengers in the market (ITAT).

Threat of a Substitute Products or Services

There are different threats of substitutes for regional and international airlines. In the regional airlines it can be higher than international as people can drive their cars or use

trains as a way to travel within the same region, but on the international level people use airplanes to move faster and more comfortable.

Rivalry amongst existing firms

In airlines industry, the rivalry is very high and important between the companies, as there are different kinds of airline companies that provide best aircrafts and services to passengers. For example, many companies want to expand their market shares by offering best customer services, best prices and exclusive promotions as well as by being creative in their promotional activates. (Ex: Air Arabia is low cost airline).

(Thompson & Strickland, 1995)

Key Competitors (Strategic Group analysis)

1st British Airways is one of the biggest in the world. 2nd Qatar Airways getting success from its aggressive growth plan. Third is Singapore Airlines is one of the most respected travel brands established in 1947 and last American Airlines was established in 1930 and is positioned as the largest airline in the world due to 80 million passengers transported yearly basis.

Strategic Capabilities of Emirate’s

Strategic capabilities means the skills are abilities to accomplish the stage for the surveillance in the market. It may be in two forms; (1). Resources and (2). Competences

Emirate has its threshold resources which include its flights, office equipment, head quarter, finance resources and employees. Emirate also has core resources in the form of management team, Ahmed Bin Saeed Makhtoum (CEO/Chairman).Same as resources Emirate has threshold competences which includes online booking, operations of on time delivery and point to point routing. While in its core competences includes IT development, no frill strategy and route policy strategy.

Key Success Factors

Differentiation

Airline companies tend to differentiate by providing advanced services includes providing the aircraft with the latest technology, such as wide seats, e-ticketing (as mentioned in 5 porters section) these things not only distinguish the customers but also attract new customers.(e.g. British Airways).

Strong brand name

Obtaining a strong brand name along with building a base of loyal customers are the carriers’ companies most concern. It guarantees that strong brand name companies more attract customers even some time customers ignore other attractive offers form other competitors.

Alliances

Airline industry is going to establishing alliances between companies in this way companies will share resources via linking their networks to build a wide base of customers, develop services and increase number of routes. Furthermore, it results in sharing experience and decreasing the operation costs.

Relations with supplier

Strong relations with suppliers are compulsory for Airline companies through long term agreements companies remain safe in order to any future change in pricing strategy.

PESTEL Analysis.

Political factors

The airline industry is affected by political changing’s including wars and terrorism. UK, Qatar and Lebanon created unattractive regions for tourists and business travelers and cut of the passenger’s traffic. The political instability disturbed businesses between the Middle East airlines and rest of world by facing a difficulty to join any international alliances with any of the airlines leaders such as American Airlines. (Growth phenomena, Nora & Byman)

Economical factors

Modern airports along with latest technology are important factor for success of airlines business. UAE plans to invest in developing its main airports in Dubai and Abu Dubai. This investment on airport development will exceed up to Dh 71 billion over coming 20 years.

Developed airports can give us following benefits: enhancing economy, increasing tourists’ reducing depends on oil revenues by moving into new sector (tourism), number and thereby driving profits to airline firms. Globally, alliance plays major role for airlines companies’ success as it reduces the operation costs.

Social factors

Some other factors are increasing world’s population, tourists and number of educated people. For example, globally growing population especially in UAE according to The National Human Resources Development and Employment Authority Tanmia, UAE population in 2010 has been reached up to 7. 557million from 5.63million, increased by 1.9million people as per the official population statistical report issued 2006.

A number of emigrants are increasing in UAE, airlines firms’ profits will increase due to travelling of those emigrants to their home countries. Furthermore, many diseases disturb the population in many courtiers, like Bird Flu, those killer diseases affect airline industry since they reduce population’s level. (Economic Development)

Technological factors

The new technology affected both positively and negatively. Negative impact is that teleconferencing decreased the need of physical business meetings which directly affects on the number of business travelers and sale of the tickets. However, e-booking system

makes the reservation easier and save many expenses such as reducing the printed tickets is positive impact on business. (Current State)

Due to increasing in strength of internet users of the world wide so local airlines industry of UAE should provide online services to get competitive advantage e.g. Emirates Airline. (UAE to remain on top in Arab Internet market)

Competitive advantage of Emirate’s

Emirates Airlines adopts differentiation generic strategy for gaining competitive advantage amongst its competitors by offering the highest quality services in order to be the leading airline company and also differentiates from its competitors. In this way, Emirates airlines was the first airline which offered TV screen in all classes of aircraft’s. 1st time e-ticketing system introduce by Emirates in UAE.

Thorough segmentation of market it also gained another competitive advantage. It was only company in UAE which providing training by using latest technology called plane simulator. The purpose of all changes only become the leader in airlines industry by increasing the brand name awareness regionally and internationally which will increase both demand and the profit.

Internal Environment

SWOT analysis

Strengths

Member of the Arab alliance, known as Arab Air Carriers Organization. (Arab Air).

First airline in Arab world that introduce online booking system.

Offering self check-in service for passengers at airport (Emirates expands).

Emirates made an aircraft order of 45 Airbus by 2012 in this way Emirates become world’s largest purchaser of Airbus’s super-jumbo.

Providing qualitative training, reward and benefits, impressive salary packages to his employees and also reducing labor costs and increasing employees’ loyalty (People).

Latest March, 2010 held Festival of Literature and in 2006 sponsored Fifa World Cup in both way he gained its brand awareness and also makes its goodwill in market.

Frequent Flyer Program known as Skywards Miles that shared with Srilankan Airways has its own.

Emirates Airline has recently selected Dexterra Mobile Platform to enable front-office mobile solutions that will increase customer service interaction (Unisys).

Balance sheet looking sound and showing Profits for 2009-2010 grew four-fold to $964m inspite high oil prices and tough trading environment.

Latest progress of Emirates Airlines rolls out flights to San Francisco. It is ready to rule the roost to take world leader in Airline business with the latest technology in hand.

Weaknesses

Emirates bearing high operation costs due to huge investment on buying aircrafts and implementing latest modern technologies.

Prices are high comparatively to other airlines.

Not yet member of any global alliances (UAE).

Don’t have any hub in Abu Dhabi airport (capital of the UAE).

Emirates airline was established in 1985 so it’s young airline.

Opportunities

Per capita income is growing in UAE.

Huge investments will be made by the government of UAE for developing main airports in Abu Dhabi an Dubai.

Overall growth in the population of the world and in UAE also.

World Travel & Tourism Council forecasts that there will be an annual growth in the number of UAE tourists due to its luxury hotels and impressive newly constructed public entertainment places.

There is an expected worldwide internet users and in UAE lalso.

Aviation events like Dubai Air Show promotes for Middle East airlines among other participates over the whole world. ( Walid)

A lot of international companies want to shift their headquarters in Dubai due to safety and sound political situation so in this way bright chances for increasing in number of passengers.

Threats

Unfortunately it is located in politically instable region and recently some terrorism activities have been increased in Middle East.

Rapidly enhancement in aviation security costs and insurance which increase the operational costs of airlines.

Recently increase of the fuel prices which cause of high operational costs.

The airline industry might be hit by $ 3 billion losses if the oil prices did not control. (IATA)

New entrants of airlines with low cost.

Modern e-ticking system can be abuse by the international hackers or it might be crashed by viruses, this will damage the company database will result of lost of huge money in order to restoration.

The natural crises and deserters in the region like earthquake, flodding and hurricane. Latest worst flooding situation in Pakistan as before he faced crises by earthquake as well which was worst impact on the sale of airlines companies.

The rapidly spread of new sensitive diseases such as SARS and Bird Flue that affect tourism and airlines.

Summary of Internal Environment

In the light of external environments, companies able to identify its internal factors, like strengths, weaknesses, opportunities and threats. Recognizing that enables companies to better utilize of strength’s, overcome weaknesses, handle opportunities as advantages and avoid threats.

Conclusion and Recommendation

Airline industry is an attractive industry.

For any new entry the airline industry is considered to be unattractive due to low demand, high prices and strong competition. But attractive for Emirates Airlines due to its good strategy and strong market position. Also, it has many opportunities to handle any uncertain situation because it is member of very strong Emirates Group which enables sharing resources and reducing the company’s expenses.

Overall, Emirates enjoying with great market position along with high profitability rate which is measured as a competitive advantage, since it has the opportunity to gain higher profits through expansion and competing.

At the time of strong competition and maturity stage of Airline industry so each firm should use offensive strategies besides doing analysis for internal and external factors that may affect its position. The research and analysis for Emirates airlines address following recommendations:

The operational cost of Emirates is increasing due to huge investments on aircrafts and services and fuel prices are also increasing. Emirates should reduce this cost through improvements in operational activities like improving maintenance processes, proper utilization of aircrafts and effective flight schedules. Another way for reduction of cost is investing technology in distribution channels to reduce labor costs. For instance, it is recommended to install more self service kiosks at airports of the destinations of Emirates airline.

In response to the threat of low cost airlines, As Emirates offering advance services so it shouldn’t reduce its fares, instead, it has to introduce new low cost brand as a subsidiary

of Emirates group purely serving economic travelers who are now customers of another new low cost airlines, thus expanding the market share.

Extension in routes is strongly recommended and there is speedily growth in tourism UAE in this order to it should extend its route worldwide most attractive areas and Canada one of them. Joining with global alliance will help to increasing its destinations, offering more and impressive fare options for customers helping to solve problems of new low cost airline.

Exploring technology is recommended for improving customer service and Emirates should make contract with an e-business company that offers different airlines technology solutions. E-CRM strategy is a latest technology that Emirates should implement since increasing its internet users that will help to maintain long term relation with its customers (Jiang, 2003).

Eventually, Emirates Airlines should do comprehensive analysis for internal and external factors and its competitors as well and develop new strategies to stay competitive in the maturity stage of airline industry.

Appendices

Emirates Strategies:

Emirates Airlines has a nice and most effective business model, which is great assistance to becoming leader of the market and fast growing. The company is well renowned within the industry for excellent service around the globe and this only due to following Emirates fundamental strategic plans.

Quality Control strategy.

Quality control is basic tool of Emirates Airline’s fundamental success. Creating and maintaining a method and standard for how they treat their customers in each aspect of their business, everything is done with the very highest standards being applied.

Extensive Aviation Training strategy.

The aviation education and training arm of the airline’s industry is a key fundamental strategy to the company’s progress. Not only does it continue to add and keep key aviation talent within their employment, but it also opened doors for other people to enter in organization. This image and brand acknowledgment alone that is generated from this particular business segment renders it a valuable strategy.

International Airline Information Technology Development strategy.

Emirates Airlines has leveraged their international airline domain knowledge into another key profit centre, involving the growth of software for the airline industry. The strategy of using trained programmers to relate an IT development company and knowledge for the international airline industry is best addition to Emirates’ portfolio of business strategies.

Resort, Hotel and Tourism Strategy

Another one of the unique fundamental level strategies is how the company has successfully moved into the resort and tourism space: They have done so through the acquisition and creation lots of sports and spas, as well as by emphasis on quality control, all of which has drawn great praise and, at the same time, lots of business. In this regard, the company has built a tourism service around this particular area of the business, fueling more growth from this particular fundamental level strategy.

Emirate’s cost reduction Strategy

Cost per pax ex Fuel down 42% since 2000.

Unit cost ex-fuel down 5% in F/Y 2010.

Key Drivers

Airport & Handling Costs

New routes and base deals.

Renegotiation existing deals.

Web check-in & less bags reduce costs.

Depreciation/Amortisation

Cheaper aircraft replace disposals.

Weaker dollar reduces costs.

Staff Costs

Wage freeze plus productivity.

Increased use of contractors.

Aggressive supplier cost reduction programme

Ancillary revenues

Busiest travel website

Massive selling shop window

Execution risk with partner

Growth through better conversion and new products

Growth rate slowing

Car rental (dynamic packaging).

Hotel (new partner).

Insurance (ASA assumes conversion risk).

Online ads (steady growth).

Inflight phone (rollout under way).

Growth strategy

New Bases.

Expansion of existing bases.

More opportunities available as airlines close/ consol.

Cost, cost, cost (long term minimization).

Efficient facilities.

Demographics.

Geographic.

Strategic.

Auctioned winter capacity.

Increasing communication of benefits.