Environmental Analysis
The Dubai based airline Emirates, founded in 1985, is a subsidiary of The Emirates Group. This is the largest airline in the Middle East, operating about 36,000 per week from its Hub at Dubai International Airport to about 140 cities all around the world. Emirates is a real success story as the business has grown with 25 years to become the third largest airline in terms of capacity and number of passengers. However, since its growth Emirates has encountered issues related brand name, competition, congestion, technological developments and price points (Grimme 2011). The present report would analyse the current strategic management issues to provide suitable recommendations.
The report included a macro and micro environment analysis to assess the current strategic issues. The organizational analysis helped in assessing the competence and capability of Emirates. Operation and marketing issues are analysed for comparing the capabilities with competitors and based on this suitable recommendations are provided for future growth and development.
Recognition of the different competitive condition resulting from the external influence on the business is essential for developing effective strategies for the organization (Hill, Jones & Schilling 2014). The external environment of Emirates would be analysed to evaluate its current issues.
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Political |
Emirates is a government owned company for which the political stability of the betterment is essential for the better performance of the organization. The government of Dubai has focused on establishing Dubai as a travel and logistic hub. The financial relationship of the Dubai Government Investment Cooperation of Dubai, which the sole shareholders of the Emirates Group have helped in fostering cooperation between city, airport and the airlines (Alcacer & Clayton 2014). An unstable political condition in Iraq, Iran and Yemen has led to the suspension of flights. Lack of negotiation with the government of Canada led to the cancellation of flight in Canada. |
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Economical |
Emirates has been successful in making their flights between places with double digits economic growth and thereby avoiding the crisis in the developed world thereby hurting the number of passengers. Development of the tourism base of the country by the government of Dubai has improved the business of Emirates. Investment in hospitality and other infrastructure of the country has increased the arrival of business and leisure tourist through Emirates (Cui et al. 2016). |
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Social |
Emirates offers Tempus, defibrillator and different medical kits to assist sick passengers. There are different types of offers provided to attract different customer needs. There is provision for calm and relaxing first class with shower spa or lounge area. The conservative culture and religion of the country often prevent the company to get female workers (air hostess, ground host) within the country and need to hire from other countries (Mantur 2016). |
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Technological |
Emirates has integrated new technologies with their growth. The development of ultra-long range wide body aircraft made it possible to make long troubles. The Jet revolution is the most significant innovation and Emirates has A380 but it has increased the expenses of the company. The innovation of New Emirates Apple Watch App and Emirates App has helped customers to book online, remind the times of boarding and others (Brueckner & Pai 2007). |
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Environmental |
Contestation on Dubai Airport is common as the Emirates connects to different parts of the world. This creates noise pollution affectingthe surrounding people. Pollution by the large fleets is common. However, Emirates has implemented environmental protection strategies to adhere to the worldwide needs (Brueckner & Pai 2007). |
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Legal |
The development of fair competition policies for Airlines has reduced its access to Canada and Germany. This implies that there are legal hitches while running operation in regions. Emirates also needs to follow the employment, health and safety legislation and trading policies for running the business (Pineda et al. 2017). |
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Demographic |
UAE has a population of 3.5 billion and Emirates. The country is becoming a multicultural region with people from diverse background. This can help Emirate to have a diverse workforce (Chen & Chao 2015). |
External factors have affected the business of Emirates. The major issues, which are evident, in this case, are:
- Increased Competition
- Increased congestion
- Legal and Political Pressure
- Environmental Concern
The above-mentioned issue affects the business strategy corporate image, sales and profitability of the organization. Development of strategic plan would help to maintain the competitive position in the market and overcome the above issues through the development of strategic objectives (Vespermann, Wald & Gleich 2008).
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Threat of New Entrants-Medium |
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Barriers to entry are medium as capital and brand name matters a lot. The distribution channel for the service can affect the entry of the new firms. Moreover, the airline industry is quite saturated. The industry is expensive due to the high cost of buying and leasing aircraft, security measures, customer service and work force. |
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Supplier Power-High |
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Boeing and Airbus dominate the airline industry, as they are major suppliers. They can increase the pressure on the airline companies by increasing the price. The other suppliers include the Jet A1 fuel suppliers, caterers and spare parts suppliers. Lack of highly skilled employees within this industry and strong labour union can bargain significant fraction of profit. However, for Emirates, the power of employees are limited, as UAE does not allow any labour union. |
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Buyer Power-High |
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The customers in the airline industry have the power to reduce the price and demand for better quality product and services. The characteristic of the buyers based on the market situation and the relative importance of purchases. Business class passengers from the choice of the buyer’s group that they sell to an as crucial strategic decision. Hence, the pressure of customers can affect the price, volume and profit capability. |
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Substitute-High |
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Substitute in airline industry include other modes of travel as well the budget friendly airline services. The degree of the threat of substitute is based on money, convenience, time and preferences. The price difference between the luxury airlines and other transport mode is quite high. However, Emirates leads the market in terms of luxury segment and has good differentiation strategy. |
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Industry Rivalry |
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Rivalry among the competitors is quite high in the airline industry. The airline services of Europe, Singapore and Thailand have expanded to offer services to Asia, Europe and America. Etihad Airways (2.2%) and Air Arabia are major competitors of Emirates in UAE.The other worldwide big competitors of Emirates (7.7%) are Quanta (17.7%), Jetstar Airways (8.4%), Singapore Airlines (8.2%), and Virgin Australia (7.1%) (Logothetis & Miyoshi 2016). |
Table 2: Porter’s Five Forces
(Nhuta 2012)
In the above analysis, it is evident that the competition is quite in airline industry followed by the high power of suppliers and buyers. The airline companies are engaged in a continuous struggle for market share for which the industry growth is average. Considering profitability of the industry, fixed cost and price wars have reduced the profitability rate (Hinterhuber & Liozu 2014). Moreover, increased cost of fuel and lower price expectation create a threat for Emirates creating a negative impact on profitability. The opportunity, which is available to Emirates, is to focus on branding to differentiate themselves. Emirates is known for its luxury service airlines targeting the business tourism and high-end customers (Min & Joo 2016.).
The critical success factors for Emirates are:
Route system: It is essential to get access to all the terminals, which are visited by the customers most. Airlines Alliance and commercial cooperation agreements help in increasing the network service. However, Emirates has refrained from such alliance and focused on bilateral codeshare for assessing the geographical frontier market. For future development, Emirates needs to expand in the new market for whim alliance is essential (Singh & Sushil 2013).
Cost Control: The airline companies should maintain effective pricing strategies to attract the customers. Emirates primary attracts the high-class customers with their luxury product and high price. Moreover, airlines need to better fuel procurement process and price hedging (Carlborg, Kindström & Kowalkowski 2014).
Macro Environment
Available Capacity: The success of the airlines also depends on a number of aircraft and seating capacity. Considering the increased customer base, 150 new planes are added and the capacity of the airline increased by 18.4% in 2013. $117 billion has been spent on fleet expansion.
Business strategy refers to the selection of the business model that helps the firm to compete in the marketplace (Casadesus-Masanell & Ricart 2010). In Emirates, Tim Clark, the CEO, focused on the strategically placed hub by operating in single mega-hub in Dubai Airport. Moreover, strategic route planning was their prime business strategy to gain competitive advantage. Emirates continued with this funnel flights through its hub in Dubai (O’Connell 2006). This increased the aggregate demand on the higher traffic routes. This strategy enabled Emirates to capitalize the new global flows of passenger demand.
Corporate strategy, on the other hand, deals with the overall plan of the business for managing the different business units (Casadesus-Masanell & Ricart 2009). Although this information was not provided at that time presently, Emirate’s corporate strategy is focused on sustainable network and capacity growth to continue with its growth and manage different units. The generic strategy of Emirates is focused on value creation and value capture. Investment in new flight design as well as on safety and cost control system helped the business to provide value to the customers. The premium service and products of Emirates helped it to target the business and high-end leisure customers thereby developing customer loyalty (Fan & Lingblad 2016).
Emirates Airlines has internal and external stakeholders who possess different values and are committed towards the organization as illustrated below:
Figure 1: Stakeholder’s Overview of Emirates
(Source: Learner)
Proper communication with different stakeholders and focusing on value has helped Emirates to create value for its stakeholders through the business and the corporate strategy (Stephens Balakrishnan 2008).
- Financial Performance
Emirates has gained profit since 1985 but its growth was hampered due to intense competition in the market. Intense global competition has resulted in failing demands and collapsing yields. Implementation of diversification, intensive and generic strategic has helped the business to grow and maintain its profitability (Ayish 2005). The Return on Capital exceeded 10% with the record of 24% in the year 2015/2016. Although it was not given at that time Emirates was able to generate a cash flow with cash assets of 20bn Dirhams in 2015-16.
Figure 2: Financial Performance of Emirates
(Source: (The Emirates Group 2017)
In the above figure, it is evident that the profit margin, operating profit and shareholder’s return has increased. The consistent profit has left a string balance sheet with increased total assets.
- Customer Performance
The international market share of Emirates is quite high as shown below:
Figure 3: Emirates Market Share
(Source: (The Emirates Group 2017)
Emirates has focused on improving the experience of the customers by investing on premium strategy. It was not provided at that time but a survey was carried out on the customers of the seven major airlines operating in UAE namely Air France, British Airways, Emirates, Etihad Airways, Qatar Airways, Swiss Air, and Virgin Atlantic Airways for assessing the customer satisfaction in terms of service, products and experience. The result showed Emirates has outperformed its rivals and ranked top for being the best service provider. Emirates has 400 awards for providing excellent customer service through advanced technology (Nataraja & Al-Aali 2011).
- Internal Current Performance
Industry Environment
The performance of Emirates has improved in terms of operation, productivity, and technology and customer service. Within twenty years, the business had 197 fleets of $224 billion. The three new expanded aircraft of Emirates are Boeing 777’s, Airbus A330 and Airbus A380s. The capacity growth of Emirates increased by 18.4% in 2013. 55,000 incredible passionate employees within the organization are able to take up challenges. Brand awareness, reputation, values and customer imagery are vital assets for the company (Nataraja & Al-Aali 2011). Emirates has attained cost-efficiency in terms of fuel use in the year 2015.
- Internal-long term development
Emirates has focused on innovation to expand its flights. Improvement in customer experience was done by changing a larger portion of its seats to premium classes by adding luxury amenities (Demil & Lecocq 2010). The leadership team of Emirates focused on training of the employees to improve the customer experiences.
The aviation industry is susceptible to social, economic and political events. However, considering the changes, the business resilience and performance of Emirates has been successful.
Market share refers to the part of the market controlled by the business. Internationally, Emirates has a market share of 7.7% in 2009 but it increased to 12.1% in 2014. Market segmentation refers to the division of market-based on customer groups (Varella, Frazão & Oliveira 2017). The customer segmentation of Emirates included the business travellers and luxury flyers. The business has failed to cater the needs of low-end customers. The positioning strategy of Emirates has changed the outlook of the customers towards the product.Emirates also collaborated with tourism organization to attract the tourist to use their service. For branding Emirates, sponsored Sports teams that helped to reach out to the global customer base (O’Connell & Bueno 2016). The positioning and targeting strategy of Emirates focused on sophisticated and higher end audiences (Kotler & Armstrong 2013).
Considering the human resource, the executive leadership team of Emirates has a diverse mix of culture. The organizational structure of Emirates is shown below:
Figure 4: Organizational Structure of Emirates
(Source: (Nataraja & Al-Aali 2011)
Emirates focused on employing employees from diverse to cater the needs of different customers. The employees, particularly, the cabin crew, undergo a training of seven-weeks. The labor-cost for the employees is low. The employees are not provided with pensions. Moreover, there is no provision for monetary reward system but the successful employees are offered awards and recognition (De Neufville 2016.). The major issue in this is the change in Leadership as no successful leader has been identified after the leadership period of Tim Clark gets over.
Recommendation 1: Focusing on Economic Class
Appropriateness: This recommendation is for developing its business strategy for its product market segment. The positioning and the targeting strategy of Emirates have identified it as premium airline service. However, this has reduced the focus on economic class customers. It is important to note that middle-class people are an expansion with about 150 million people per year. Emirates need to target this segment. It needs to focus on differentiation strategy to create competitive advantage.
Feasibility: This option is feasible for the organization as Emirates has strong financial, operational and human resource base to invest in a new strategy for economic class. Considering the mission of ‘keep discovering’ this strategy would be effective.
Acceptability: Different stakeholders would agree to this strategy, as it would benefit them. The low-end customers would be satisfied with the new service, which would increase the profit benefitting the stakeholders. Employees would be satisfied as there would be increased job opportunities.
Recommendation 2: Making Airline Alliance and Commercial Cooperation
Appropriateness: Emirates has refrained from making an alliance with other companies and this has reduced its access in Canada and in some parts of Europe. Moreover, its further growth can be hampered and thus it is essential to make an alliance to acquire the highest rate of global aviation traffic.
Feasibility: This strategy is feasible for the organization as the financial health of the company is good. Moreover, the constant growth of the company for the last few years would help it to develop effectively.
Acceptability: Different stakeholders would accept this strategy as it would lead to the further growth of the business increase sales and profitability.
Conclusion
The current report exhibited the basic issues encountered by Emirates Airlines. Although the company has seen enormous growth increased competition and rivalry has affected its performance. The marketing tactics of Emirates has targeted only high-end customer completely disregarding low-end market. Thus, it is recommended to Emirates to create differentiation strategy for the economic class for gaining competitive advantage followed by focusing in alliance to increase its access to emerging markets.
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