A Strategic Report on Emirates Airlines Essay

It is important to study of any business, particularly in a global environment of rapidly changing contexts. In this regard, there are several core strategies that management need to consider and monitor in reviewing the ongoing performance of their business. In order to respond to change effectively, management must regularly assess its efficiency in several different areas of the performance of within company life. Management strategists need to identify their competitive advantages, properly position themselves and clearly identify their competitiveness in the marketplace. Therefore, management must constantly analyse and respecify their business objectives as well as setting new strategic goals to keep up their operations in a dynamic environment. Airlines Industry We live in a global world that is more interconnected than at any time in history. In combination with enormous changes to the communications industry and the rapid spread of information via the Internet, the world constantly experiences 24 hour a day movement of data, goods, services, and people traveling every corner of the world in less than one day. As quoted by Oxford Economics, â€Å"every day in the skies above us; our globalized world has long been woven together by a web of flights, creating ever-expanding social and economic networks across the planet†. (Aviation: The Real World Wide Web 2008, p. 7). In 2011, for example, airlines transported 2. 8 billion passengers and 47. 6 million metric tons of air cargo and actively connected the world’s cities with 36,000 routes. (The Travel & Tourism Competitiveness Report 2013, p. 7). In addition to the transport of goods, business travel has also grown as companies become increasingly internationally focused. As a result, airline industry is a strategic sector having a crucial role in other industries globalization. According to The airline industry, the outlook for the air travel industry is one of strong growth, but it will not be without challenge. Those airlines that would be able to deal with their cost and enhance their product would be successful. An example of the market threats for airlines was seen in 2009, when airline businesses faced global economic downfall and overall industry-wide losses of $9. 4 billion caused by high oil prices, long global recessions, falling demands, fierce price-cutting, collapsing yields revenue per mile and low consumer confidence. A result, the demand for air travel decreased, and the market contracted resulting in global bankruptcies and necessary shrinkage in networks and service levels. Although Emirate Airlines faced the same challenges as other airlines, it performed remarkably well against prevailing industry norms despite the worldwide increasing contraction (Nataraja & Al-Aali 2011, p471). This case study will further explore the strategies competitive advantages used by Emirates management team to perform in such a competitive market. Emirates Airlines Samthomasuae ‘s weblog post (2011) covers that Emirates Airlines, known as Emirates, is part of the Emirates Group which has become a reputation for aviation, travel and tourism. The group is owned by the Dubai Government. Emirates is connected to all continents in the world with one hundred and twenty destinations over six continents. Therefore, with more than 50 business units and associated firms, Emirates is one of the largest employers in the Middle East. Emirates is the seventh largest in the world based on the number of carried international passengers, and fourth largest in the world in terms of scheduled international passenger kilometre flown. Within the first 11 years of operation, it has doubled its size every 3. years (Nataraja & Al-Aali 2011, p485). History Emirates started its business in 1985 with two aircrafts, a Boeing 737 and an Airbus 300 B4, with start-up capital of $10 million. Emirates made history by generating of profit within nine months of operations, and It went on the further develop its international routes by adding new destinations such as Bombay, Colombo, Dhaka and Cairo. The result of this bold expansion strategy was that within two years, Emirates had added European destinations including the key city of London, as well as several other new key European destinations. The success of the global strategy of Emirates is not due to the fact that the airline is wholly owned by the Government of Dubai, or because they have received inadvertent government protection but is clearly a case study in the implementation of a successful global competition strategy, in particular taking advantage of Dubai’s open-skies policy which enables Emirates to benefit from the liberalization of international aviation rules and regulations. Emirates, therefore, received initial start-up investment from the Government of Dubai, but it now successfully operates as a wholly independent business entity. Emirates successfully carried 35 million passengers by 2012, representing 50% of total airport capacity (emirates. n. d. ). Emirates market share among regional competitors According to Articlebase weblog post (2010) Emirates Airlines has developed to become highly reputable in the Asian Pacific Continent. The company has pulled itself up very well in the region and as seen from the figure 1, it is the most successful company in the region. Figure 1-Emirate region market share Emirates financial highlights According to Emirates annual report (2013), Emirates revenue (including operating costs) in 2012-13, reached US$19. billion, representing a 17. 4% increase over the financial year of 2011-12. Net profit was US$622 million, reflecting the enormous impact that fuel prices continue to exert on the airline industry. Emirate airlines reported that their profit margin was 3. 1% and the companies’ cash in hand at the end of financial year 2012-13 was US$6. 7 Billion. The company also reports that more people continue to choose Emirates with the number of passengers flown in 2012-13 totalling 39 million, a 16% increase over the previous financial year. Figure 2, Emirate financial highlight/Source: Emirates Annual report 2013 Key Success Factors in the airline industry In order to be successful in the airline industry, various factors such as differentiation, alliances, strong brand name and relation with suppliers are needed to be considered. Differentiation Airlines tend to be differentiated by offering advanced services. For instance, latest technology, e-ticketing and wide seats which may distinguish the company among other competitors. Strong brand name Airlines build a strong brand name by means of different techniques like ffering prizes, frequent flyer programs. Alliances The airlines tends to establish alliances which enable them to share their resources through linking their network. it also helps them to share experiences which result in lower operating cost. â€Å"The Emirates has never joined to any cargo or passenger alliances as they see some anti-competitive elements in them and would be a brake on Emirates business plan. † (The public affair journal of emirates, 2009). the only recent partner of emirate is Quantas from Australia. Relations with supplier Airlines need to have long term contract with the suppliers to keep them safe in case of increasing prices. Environmental analysis of Emirates Macro Environmental Analysis PESTEL analysis of Emirates PESTLE analyse focuses on external factors and gives a strategic overview of the various macro-environmental factors that the company needs to take into account, the PESTEL analyse has been conducted on Emirates. The PESLE analyse is also a useful strategic tool to interpret market growth or decline, business position, potential, and direction for future operations. Political  Emirates and most of the countries in the Asian continent have signed inclusive business agreements as well as with several countries in the Asia-Pacific, Europe, and the USA. Such relationships facilitate better political cooperation and trade opportunities between countries, including the growth of the aviation sector. These agreements have opened up several world markets and provided opportunities for Emirates to grow its network. Emirates is strengthened by the support of the Government of Dubai by providing infrastructure developments to boost the growth of Dubai and Emirates. Low fees and charges at Dubai Airport; same opportunities for all the air carriers provided by the open skies policy; the low taxation policy encouraging the companies and businesses which boost the economy in Dubai; and the easy immigration legislation of Dubai Government enabling companies to secure entry visas and work permits for foreign workers to fulfil their labour requirements are other beneficial policy for Emirates. In contrast, a potential problem for Emirates is the ongoing political instability in the  Middle East region which has the potential to hinder for the further growth of Emirates. (Nataraja & Al-Aali 2011, p482). Economic The sustainable rate of a growing economy in the region, in particular the United Arab Emirates (UAE), has increased the overall level of household income and affordability of people to use air transportation. About 3. 5 billion people are living within the radius of eight hour flight from Dubai and , therefore, such a huge financially stable population generates an ever- increasing demand for air travel in the region. There is an exceptional shift in the aviation market demand, customer choices, and travel behaviour that is changing rapidly which has been evidenced by Nataraja et al (2011, p483). The reason Emirates has experienced phenomenal rise over the past few years is that the regional governments are streamlining their economic policies to suit the growth of the airline industry. This has reflected in growth rates, overall income and potential investments in Dubai among other companies in the tourism industry and the world business.   social  Nataraja et al (2011, p483) state that well-designed strategic management system is sound in the Emirates Company, but this could be compromised if attention is not given to personnel development in the organization. Personnel issues are adversely affecting airline businesses globally and employees are becoming increasingly aware of their high market value and potential. An abundance of multicultural workforce having lower expectation in the region in which Emirates operates is a social advantage in comparison to the expectations of employees from countries namely the USA and UK, Emirates experiences a significant difference in labour costs. Most of the organizations in the UAE are using only 10 precent of their operating expenses to pay their employees and this trend includes Emirates, in comparison to more Westernized businesses which use up to 40 precent of their operating expenses for the same purpose. Consequently, the Airline has benefited extensively and made good profits on these grounds. Technology In response to the advances in technology over the past two decades, Emirates has been able to take the advantage of technology in its operation. Since Emirates has spread its wing globally to serve diverse customers who require global technology, it has invested more resources to place each individual market. Emirates is benefiting from a single global system that is distributed in 14 languages which supports payments in 42 currencies. (Nataraja et al,2011, p483). As it is demonstrated in figure 1, Emirates is interestingly positioned as the youngest and most modern fleets in worldwide commercial aviation industry. The company aims to be a pioneer in technological advances such as in-flight mobile phone coverage to develop and expand the use of mobile phones on-board. Figure 3 , comparison of Airlines’ average fleet age Emirates airlines has also invested in a trip planning system which allows the planning of trips that aim to achieve of time savings and fuel led which lead to obvious costs savings but also reduced emissions. Implementation of this new technology, called Flextracks, saves approximately 10 million liters of fuel as well as 772 hours in travel time in five years of operation. atwonline, 2011) Emirates airline has also recently used the latest airbus 380 aircraft which is known to be environmentally friendly because it consumes less fuel. Technology utilized by provides many time consuming benefits such as the development of online ticket purchase which increases customer convenience and satisfaction and the likelihood of repeat business. Environment Organizations have various obligations to formulate and implement strategies from an environmental perspective. Increasing numbers of firms are implementing tougher environmental regulations as they make economic sense because of conservation of natural resources and air pollution control in the region. They preserve and conserve natural resources and control pollution in the region making good sense from a cost saving perspective as well as a public relations perspectives(Nataraja & Al-Aali 2011, p484). Emirates reports a vision to make their company an environmental leader in the aviation and travel industries with a goals to make sustainable and eco-efficient operation in the air and on the ground. Interestingly, as part of a global trend towards environmental consciousness, Emirates considers their customers, staff and regulators to be increasingly aware of the environment and emission of greenhouse gases and the company has , therefore, committed to environmentally-responsible operations through the Group’s Environmental Policy. This policy is implemented through the ‘Environment’ programme (Emirates environment policy,2013) , which is communicated to customers, staff and stakeholders. The company also reports different environmental considerations to be advantageous from a business perspective because becoming an ecologically-efficient organisation enables them to become economically sustainable, when it comes to consumption of fewer resources and whilst using fewer resources and causing less pollution. These strategies in turn, reduce labour and overall company expenses. Legal In the past, most governments within the Asian continent and in the Asia-Pacific region operated under a paternal government policy and felt that they had to protect airlines against external factors. The recent changes in the economic policies of these governments have allowed airlines to compete more openly having their own economic model without worrying about government hindrances in order to preserve their competitive advantage. In addition, less government control allows the company to operate more freely in the region with less legal impediments in the region resulting in a positive growth and an exceptional performance (Nataraja & Al-Aali 2011, p484). Emirates-porter’s five forces Porter’s 5 forces model is used by businesses to evaluate the environment that a company is competing in. Strategies implemented by Emirates also are a function of environment in which it operates. (Elnamaki, MSS 2007). By using Five Forces Analysis we are able to identify who are the Emirates competitors and where are potential threats; which aspect in Emirates should be improved and focused on; and to analyse whether Emirates and its industry is attractive or destructive. Threat of new entrant There are many barriers that dissuade new entrants in the airline industry. Enter to the market depends on how many barriers exist. Airlines high capital cost positively affect Emirates Airline. Strong brand value is critical to compete. Emirates is a high brand value that cannot be copied because it is a long time it has been operating, and markets heavily depend on its services. Advanced technologies are kind of barrier for a new entrant as they need to develop and implement them before effectively competing Based on Emirates loyalty programs, customers are loyal to Emirates. Building a value brand needs money and time and it uses resources which not to be allocated to compete in the marketplace. Based on the above factors the threat of new entrant is weak. The bargaining power of customers Due to buyer price sensitivity, it is difficult to compete with competitive prices of budget carriers but Emirates compensates by offering world class food, services, comfort and in-flight entertainment, world class service, A380 aircrafts, choices of menu for the elite class, its own private terminal, and non-stop direct flights to various routes including some of the world’s longest non-stop direct flights. I suggest that this power is moderate.