Strategic Management At Emirates Airlines Marketing Essay

Strategic Management At Emirates Airlines Marketing Essay Abstract This conducted report discusses a strategic study about the global airline industry, particularly Emirates Airlines. The first part of the report provides a brief overview about Emirates Airlines Company followed by a situation analysis that includes the internal and external analysis. The last section will be concluded with the current situation along with suggesting major issues that Emirates Airlines should address. Table of Content 1 Abstract 2 Table of Content 3 2 Introduction 4 3 External Environment 5 3.1 Industry Analysis 5 3.1.1 Airline industry General Profile 5 3.1.2 Life Cycle 6 3.1.3 Porters 5 Forces 7 3.1.4 Key Competitors 9 3.1.5 Key Success Factors 10 3.1.6 PEST Analysis 11 3.1.7 Summary of External Environment 13 4 Internal Environment 14 4.1 SWOT analysis 14 4.2 Summary of Internal Environment 17 5 Conclusion and Recommendation 17 6 References 21 Introduction Emirates Airlines goals for the immediate future and long term are, to be the best in every venture it undertakes; to meet its customers expectations profitably, to contribute to the success of Dubai Inc., and to make the city the new global aviation hub for the 21st century. Emirates Chairman, Sheikh Ahmed Al Maktoom In 1985 Emirates Airlines was established by Dubai Government with just two aircrafts. Today Emirates has 83 aircrafts files to 78 destinations in 55 countries worldwide. It has a large number of cabin crews from 95 nationalities. It recently made an aircraft orders worth more than $ 26 billion for 45 Airbus A380, which makes the company the worlds largest purchaser of Airbuss super-jumbo. (About Emirates) Emirates Airlines recently becomes one of the fastest growing airlines and the fifth-most-profitable airline in the world. It has been growing by more than 20% a year since the last 17 years making a profit of $637 million in 2004-05. (BBC News) Emirates Airlines is committed to achieve its mission, namely offering consistently high-quality value-for-money service and to be the best airline on all of its routes. Accordingly, it is known as an innovative and customer-oriented provider of advanced services, such as offering personal entertainment system in all classes, 18 TV channels, 22 audio channels and online booking service which enables customers to book, search for flights and choose seats. (About Emirates) Because of that excellence, it gained over 280 international awards, such as the prestigious CAPA airline of the year award 2005 by the Centre for Asia Pacific Aviation. (Internet travel news) External Environment Industry Analysis The aim of the industry analysis is to identify the external environment that affects the airline industry. The first part gives an idea about the airline industry profile. Airline industry General Profile Airline industry is one of the most competitive and growing industries in the world as it leads to economic growth, world trade, international investment and tourism. In the last decade, it has grown strongly by 7% per year for both business and leisure purposes. (Airline Industry) Airline industry is considered as one of the fastest expanding sectors of the world with growth rates 2.4 times above the GDP rates on average. It is also predicted to grow by an average of 5 % a year from 2000 to 2010 (IATA). Airline industry is affected by the economical growth, trade and political factors. As an example of the political factors, the 11th September attacks dropped the number of passengers, because people were afraid and tend to avoid studying and visiting countries that have been attacked by terrorism. As an economical factor, the increase in oil prices destroyed the profitability of the global airline industry, accordingly it losses around $6 billion in 2005 (IATA). Due to the unstable political and economical situation, many airlines companies started to modify their strategies and services to survive and succeed in the airline industry. For example, many companies invested heavily 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 was introduced to attract, return customers and gain a competitive advantage. As being in such a competitive market, many companies started setting agreements among each other to reduce costs and share resource which is called as alliance. Overall, the airline industry will recover as the number of passengers seems to be doubled by 2010 to exceed 2.3 billion due to the tourism, trade and economic development (IATA).Thus, Successful airlines will be those that continue reducing their costs and improving their services by differentiating from competitors to secure a strong position in the aviation market. Life Cycle The airline industry is in the maturity stage, therefore there is a strong competition in the market and the sales rate grows fast and then begins to stabilize gradually. As the competition is more aggressive in this stage, the advertising and sales promotion can be obvious. Moreover many competitors increased their research and development (RD) budgets to find best services to gain customers attention. (Product Life Cycle, 2005) Accordingly, many companies started to focus in differentiating their services and products from their competitors by increasing their customers brand loyalty. For instance many companies starts to concentrate on cutting the operating cost, thus in this stage the profit margin decreases and the least efficient companies leaves the market and only well-established companies are the ones that remain. Accordingly, many companies use offensive strategies rather than defensive strategies through modifying their market, product and marketing mix to survive and compete during this stage. (New product development) For example, Kuwait airways implements the strategy of modifying the marketing mix by launching a low cost carriers in order to increase its customer base and loyalty and increase sales, which is considered as a competitive advantage amongst its competitors (Kuwait Airways). Following section explains the porters 5 forces that impact airlines industry. Porters 5 Forces Threat of New Entrants The new entrants cause a threat to the existing company in any industry, because they might offer better services, products or costs. In the airline industry the threat is low as the level of entry barriers is high. There are many challenges that should be considered by the new entrants as follows: Capital Requirements. Huge budget is required for starting a new airline company to buy aircrafts and provide services to customers. Ex. Boeing costs around $ 2 billion. (Ashraf, Emirates Airline) Brand name Customer loyalty: Airlines companies have built an excellent position in the market which helps them to compete against the threats of new entrants. The experience curve of the existing companies is high according to their long experiences in the market, Ex. American Airlines. Generally, alliances between key airlines companies make the entry on the industry hard for any new airline company. Bargaining Power of Suppliers Suppliers can affect the industry through their abilities to raise prices or reduce the quality of purchased goods and services. The airline industry has few suppliers globally, namely Boeing and Airbus. Thus the power of the suppliers is high, because those limited suppliers have a control on the market due to the huge demand of their manufactured products. Bargaining Power of Buyers Buyers affect the industry through their abilities to reduce prices, bargain for higher quality or more services. The power of the buyers in this industry is strong as there are lots of passengers (1.8 billion yearly), the switching costs are low and passengers have many choices in the market (ITAT). The new technology of e-ticketing gives people the chance and flexibility to search for many airlines companies offering better or cheaper costs and services. Furthermore, it eases the operation of switching between different airlines companies. Therefore, many companies provide the air miles system to gain customers attention and to keep them as well. Threat of a Substitute Products or Services The threat of substitutes differs from the regional and international airlines. In the regional airlines it can be higher 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. In the Europe they are using trains to travel from country to another for example, its easy to travel by train from the UK to France by Eurostar train in just 1 hour 40 minutes (London to France). However, in many countries trains are not available ex UAE, accordingly such carries have a weak threaten in the airlines industry since they are not used for long distance journeys by many countries. Rivalry among existing firms In airlines industry, the rivalry is very high between the companies, as there is variety of airline companies that provides best aircrafts and services to passengers. For instance, many companies try to expand their market shares by offering best prices, best customer services and exclusive promotions as well as by being creative in their advertising campaigns. (Ex: Air Arabia is low cost airline). (Thompson Strickland, 1995) Key Competitors British Airways British Airways is ranked # 2 in Europe and one of the biggest in the world. They have 300 planes and 216 destinations in 94 countries. The key success factors of British Airways are: its a member of the largest alliance and it is known of its technology projects in offering unique services, such as touch screens service and being the first in implementing full flat beds. Qatar Airways Qatar Airways was established in 1994. It has 44 fleets linking 69 international destinations. Its services and events, gives the company special position amongst its competitors. The success of Qatar Airways comes from its aggressive growth plan that includes the construction and development of the new Doha international airport, which will include the worlds largest aircrafts hangers to be used for maintenance of Qatar Airways. Additionally, by 2009 Qatar Airways plans to get 36 aircrafts from Airbus, including two A380, for Qatar Airways. (Airline website, AmeInfo) Singapore Airlines Singapore Airlines is one of the most respected travel brands founded in 1947. It has a fleet of 90 aircrafts and it flies to more than 60 cities in 30 countries. Many factors cause Singapore Airlines success, such as young and efficient fleets, educated staff, top ranked travel gateway and its low cost airlines known as Tiger Airways, plus its a member of star alliance airline networks. (Singapore Airlines Company Information) American Airlines American Airlines was founded in 1930 and is positioned as the largest airline in the world in terms of the total passengers transported of 80 million yearly. It has the highest number of aircrafts that reach up to 991 and serve 172 cities with five main hubs. Also it is first to launch the loyalty program frequent flyers. All of theses are considered as the key success of this airline. (American Airlines) Key Success Factors To maintain airlines companies success, various key factors should be implemented for this purpose: Differentiation Airline companies tend to differentiate by providing advanced services. For example, providing the aircraft with the latest technology, such as wide seats, e-ticketing (as mentioned in 5 porters section) will attract customers and distinguish the company among other companies. (ex: British Airways). Strong brand name Obtaining a strong brand name plus building a base of loyal customers are the carriers companies most concern. It guarantees that customers will stick with the strong brand name company and ignore any attractive offers form other competitors. Some airline companies utilize some techniques to have a retain customers, such as offering a flyer mile to win a free ticket if the points were completed. (ex: American Airline) Alliances Airline industry is moving toward establishing alliances between companies. This will let companies to share resources via linking their networks to build a wide base of customers, develop services and increase number of routes. Additionally, it results in sharing experience and decreasing the operation costs. Ex. British Airways is a member of largest airline alliance known as Oneworld. Relations with supplier Airline companies must build a strong relation with suppliers by setting long-term contracts with them. Such relations will benefit the airlines companies, because this will keep them in the safe side even if there was any change in the pricing strategy (ex. increasing costs) in the future as there is a contract between them. The PEST analysis is the best way that leads companies to change their strategies. PEST Analysis Political factors The airline industry is affected by political situations, namely wars and terrorism. For instance, terrorists activities in different areas globally, namely USA (11th Sep), UK, Lebanon and Qatar made the regions unattractive for tourists and business travelers and reduce the passengers traffic. The political instability affected businesses between airlines in Middle East and the 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 One of the factors behind any success airlines is having modern airports supported with latest technology to meet customers requirements. UAE for example plans to invest in developing its main airports in Abu Dhabi and Dubai. The UAEs total investments on airport development over coming 20 years will exceed Dh 71 billion. The benefits of developing airports are: enhancing economy, reducing depends on oil revenues by moving into new sector (tourism), increasing tourists number and thereby driving profits to airline firms. Globally, alliance is considered as the main factor of many airlines companies success as it reduces the operation costs. Social factors Some of those factors are: increasing worlds population, tourists and number of educated people. For instance, the population is growing globally, in UAE the population in 2002 was 3,754,000 people and reached to 4,320,000 in 2004, this is because UAE is a multicultural country.As the number of expatriates is increasing, airlines firms profits will increase, because those expatriates need to travel to their homeland sometime. Additionally, many diseases influence the population in many courtiers, like Bird Flu, those killer diseases affect airline industry since they reduce populations level. (Economic Development) Technological factors The new technology affected airline industry negatively and positively. For example, the technology of teleconferencing reduced the need for face to face business meetings which affects on the number of business travelers and on the sales of business tickets. However, e-booking system makes the reservation easier and save many expenses such as reducing the printed tickets. (Current State) There is a growth in internet usage world wide. In the UAE, internet accounts are likely to grow from 251,000 in 2001 to exceed 600,000 accounts by 2006. Thus, local airlines industry should provide online services to get competitive advantage ex. Emirates Airline. (UAE to remain on top in Arab Internet market) Summary of External Environment The external environment shows airline industry is in its maturity stage with a slow rate of increase, which resulted in increasing the competitions level. Only three forces have a direct effect in this industry, namely bargaining power of suppliers and buyers and intensity of rivalry. The barriers for new entries are high which reduce the threats of any new entrants. Some factors, such as political, economy, social and technological affect the industry by either increasing or decreasing passengers traffics. Companies use several key factors to expand their successes to keep a good position and increase loyal customer base, like differentiating their services, making a strong band name and implementing latest technology and join alliances. Internal Environment SWOT analysis Strengths Member of the Arab alliance, known as Arab Air Carriers Organization promoting cooperation, safety standards among Arab airlines (Arab Air). First airline in Arab World that offers online booking service. Offering long-haul flights, like from US to Dubai. Offering self check-in service for customers at Dubai airport (Emirates expands). At Dubai Air Show 2005, Emirates made an aircraft order of 45 Airbus by 2012 making it the worlds largest purchaser of Airbuss super-jumbo. Providing employees with training, rewards and performance programs, thus reducing labor costs and increasing employees loyalty (People). An official sponsor of 2006 Fifa World Cup, which will increase its brand awareness. It has its own Frequent Flyer Program known as Skywards Miles that shared with Srilankan Airways. It has recently chosen Dexterra Mobile Platform to enable front-office mobile solutions that will enhance customer service interaction (Unisys). It offers training service to other airlines in Middle East which increase its profit. Weaknesses High Operation costs due to huge investment on buying aircrafts and implementing new technologies. Known of its high prices of tickets comparing to other airlines. Not a member of any global alliances (UAE). It doesnt have a hub in Abu Dhabi airport (capital of the UAE). Young airline that was established in 1985 3. Opportunities The income per capita is growing in UAE. Lots of investments will be made by the government of UAE for developing main airports in Dubai and Abu Dhabi. There is an overall growth in the population of the world and in UAE. World Travel Tourism Council forecasts that there will be an annual growth in the number of UAE tourists. There is an expected growth in internet users worldwide and in UAE. Aviation events such as Dubai Air Show promotes for Middle East airlines among other participates world wide airlines and show the growing of aviation industry in Middle East ( Walid). 4. Threats It is located in politically instable region and the terrorism activities have been increased in Middle East recently. Increase of aviation security costs and insurance which increase the operational costs of airlines. The increase of the fuel prices which rise the operational costs. The airline industry might face losses of around $ 3 billion if the oil prices did not reduce. (IATA) New entrants and the raise of low cost airlines. The e-ticking system can be abuse by the hackers or it might be crashed by viruses, this will damage the company database and will cost a lot of money. Passengers can be a threat to the company, as they have a strong power in the airline industry. The natural crises such as the earthquake and hurricane. As mentioned by Al-Arabia channel, Dubai is threatened by an earthquake (2005). This will affect the tourism in this region, which will reflected in the Emirates airline There is a possibility of rapid spread of new acute diseases such as SARS and Bird Flue that affect tourism and airlines. Summary of Internal Environment As external environments, companies should identify its internal factors, namely strengths, weaknesses, opportunities and threats. Recognizing that enables companies to improve, overcome weaknesses, handle opportunities as advantages and avoid threats. Emirates Airlines has many strengths, like differentiating from other airlines, as it responses to new technology, such as e-ticketing and self check-in services. An obvious weakness is the high prices of Emirates due to its huge investments in ordering aircrafts. Although it has opportunities (near investments in AD airport and increase of UAE income per capita in UAE.), many threats are concerning it, such as increase of oil prices, low cost airlines and the spread of killer diseases. Following section provides Emirates with the best solution in order to be competitive. Conclusion and Recommendation Is the airline industry an attractive industry? The airline industry is a huge market as there are 900 airlines companies internationally with total of nearly 22,000 aircrafts, nevertheless it has a low growth rates as it is in its mature stage of life cycle. (The economic social benefits of air transport). For any new entry the airline industry is considered to be unattractive, because the demand is low, the competition is strong and the operation costs are increasing. However, for Emirates Airlines it is attractive as its strategy and market position creates a good defense against its competitor. For example, it created a strong brand name and customer loyalty in the market by implementing the latest technologies in its services to be positioned as a pioneer in the airline field. It also achieves high profits yearly as it focuses proficiently to enhance its market position by differentiating in its strategies that would be used to attract customers such as flyer frequent program. Also, it has many chances to overcome with all the obstacles that might occur and affect the airline industry such as political or economical problems, etc. as it is a member in Emirates Group which enables sharing resources and reducing the companys expenses, thus leading the company to protect its position in the market. Overall, Emirates has a great market position plus its a profitable airline which is measured as a competitive advantage, since it has the opportunity to compete and expand its business to gain higher profits. What is Emirates competitive advantage? Emirates Airlines adopts differentiation generic strategy to gain a competitive advantage amongst its competitors by offering the highest quality services in order to be the best company in the market and differentiates from its competitors. For example, Emirates airlines was the first airline that offered TV screen for all aircrafts classes. Also it was the first company in the Middle East to serve the e-ticketing. In addition, it gained a competitive advantage by focusing in new segments in the market. For instance, it provides another airline companies such as Qatar Airways with training courses by using the most modern machines, called plane simulator to be the only company in the Middle East that offers such service. The aim of such changes is to be the leader in industry by increasing the brand name awareness regionally and internationally which will increase the demand and the profit as well. What major issues should Emirates Address? As the Airline industry is in the maturity stage, there is a strong competition between airline firms. 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 is increasing due to huge investments of Emirates on aircrafts and services and increase in fuel prices. Emirates should reduce the costs by making operational improvements, namely improving maintenance processes, maintaining high aircraft utilization and making effective flight scheduling. It could also be reduced by investing technology in distribution channels to reduce labor costs. For instance , it is recommended to install more self service kiosks in airports of the destinations of Emirates airline since it has already install ones in Dubai airport. In response to the threat of low cost airlines, Emirates shouldnt lower its fares after years of offering advanced services, instead it has to offer new low cost brand as a subsidiary of Emirates group serving economic travelers who are now customers of new low cost airlines, thus expanding the market share. Extending routes is recommended especially there is a growth in tourism UAE. There are main regions in the world that Emirates do not have routes in, namely Canada, It has to extend destinations worldwide (especially attractive areas). Joining a global alliance enables increasing its destinations, offering more fare options for customers helping to solve problems of new low cost airline. Investigating technology is recommended for improving customer service and Emirates has to sign contract with an e-business company that offers airlines technology solutions. E-CRM strategy is a new technology that Emirates should implement since internet users number is increasing. It allows managing long term relationships with customers (Jiang, 2003). Generally, Emirates should do analysis for internal and external factors and its competitors and develop new strategies to stay competitive in the maturity stage.