Organizational Strategy of Emirates Airline - Case Study Example

Introduction Emirates Airline is one of the most reputable Airline companies in the Asian continent and also in the world over. The Company has been in the business for the past twenty three years. Emirates Airline is owned by Dubai's government; where Dubai is one of the seven cities found within the United Arab Emirates. Thus company flies to ninety destinations found throughout the world and manages to reach about sixty different countries in the world. Dubai is the capital city of the United Arab Emirates (UAE) and is one of the fastest growing cities in the Middle Eastern region. (Butler & Keller, 2000) External changes that have affected Emirates Airline between 1997 & 2007 The external changes will be examined through PESTLE analysis. Political Emirates Airline has been very fortunate during the 2000s and beyond. The political scene in the region has been quite favourable because most of the countries in the Asian Pacific have been making agreements that facilitate better trade between countries especially in relation to the aviation sector. These countries have signed agreements between themselves and also with other countries in the United States and also in the European continent. These agreements have opened up Emirates to the world and have provided ready made markets for the Airline Company. Any aviation company must be ready to tackle high fuel costs and Emirates is no exception,. In the year 2005, the country reported an increase in fuel expenditure of seven percent from the previous year. Fuel costs represent the highest form of expenditure in the company as this has really eaten into their profits. Economic The Asian Pacific region and in particular the United Arab Emirates, has been nurturing its economy at a rapid pace. Most of the countries located there are becoming more mature. These economies are growing at a substantial rate consequently affecting their overall income. This means that most of them are earning more revenue per capita and they can therefore afford to use air transport. This is probably the reason why Emirates Airline has been steadily growing over the past few years. Markets are changing rapidly and more governments in the region are streamlining their economic policies so as to suite the Airline industry. (Tayeh, 2006) Airline traffic in the rest of the world has reduced drastically. However, the Middle Eastern region has improved especially for Emirates. Emirates success is directly linked to the City's success-Dubai. Dubai is one of the most rapidly growing cities in the world. It represents a lot of potential for investment both in the tourism industry and also in the business world. First of all, there are so many projects that re coming up with time. First of all, the City is building a theme park that resembles Disney world; it has embarked on a project that will house over four hundred thousand residents through a waterfront project. As if this is not enough, there are plenty of businesses that are always coming up all the time. Real estate is one particularly interesting sector because it attracts lots of capital investment. All these business ventures are encouraging more visitors to the City and the country in general; this has been reflected in the overwhelming market for Emirates. As if this is not enough Emirates Airline is located at a very suitable region in Asia, it is in the middle of the Eastern and Western regions. Consequently, the Airline is capable of tapping resources from both sides. The Asian continent has a booming economy and Emirates Airline has really benefited from this. Social Emirates Airlines operates in a region where there are numerous employees and workers. Most of these workers rarely demand for high compensation. When the United Arab Emirates is compared to other countries such as the United States, it can be found that there is a significant difference in labour costs as the latter country uses up thirty eight percent of its operating expenses while the UAE only uses up eight percent of its operating costs to pay its workers. Consequently, the Airline has made a lot of profits due to those differences. (Morrison and Winston, 1997) Labour issues are adversely affecting employers in the region and also in the rest of the world. Workers are becoming increasingly ware of their potential and most of them are demanding more. Many Airline Companies are increasingly recruiting different types of labourers. This is especially with regard to the fact that there are numerous types of Aircrafts in any one type of Airline. For instance, an Airline Company may have regional jets, four engine planes, wide body and narrow body aircrafts. Such kinds of aircrafts are operated by different types of pilots and engineers. These workers all belong to different worker's unions and all of them may require special attention by the human resource department. Payment schedules may also be difficult to maintain if some of these workers operate in stable economies. Emirates Airlines has also been affected by this problem but not to a large extent. Emirates Airlines has not bought too many varieties of Aircrafts. Consequently, there is room for the Company to grow and without having to spend too much in the labour section. Technological The world had a technology boom in the nineties. However, there was a technology but in the decade 2000. Companies that were using technology to gain competitive advantage over their players in the industry may now have to look for other sources of competitive advantage. Additionally, Airline companies have to deal with the advent of better informed clients. Most people are now more knowledgeable about the reputable companies. They can get all the strengths and weaknesses about a given firm using the internet. For instance, clients tend to shy away from airlines with numerous stopovers in comparison to those ones that have direct routes. These are al issues that can be checked out at the 'touch of a button'. Emirates Airlines has been affected by this issue because it needs to ascertain that it offers better services to its clients and that it can meet future demand. (Tayeh, 2006) Legal It should be noted that in the past, most governments within the Asian Pacific used to operate under a paternal government policy. Governments felt that thy had to protect airlines against external factors, but after the recent policy changes, Airline industries have now been opened up to competition and this is the reason why air carriers like Emirates have grown. They can now follow the rules of economics to sustain competitive advantage instead of worrying about government hindrances. This means that there are less legal hitches when running operation in the region. Environmental It is a known fact that Airline Companies need to adopt strategies that provide them with a good corporate image. For instance, some Airlines may decide to take part in environmental sustainability projects such as tree planting. Additionally, some companies may also exercise extra caution in terms of the quantity of waste that they send to the landfill. This is something that seems to be taking a lot of attention from Airline companies. Lastly, the issue of recycling is also taking up a lot of precedence in the Airline industry. Some Companies are offering recyclable cutlery to their clients in order to further this campaign. All in all, it should be noted that most environmental campaigns in the Airline industry are part of the corporate responsibility strategy within a specific Airline Company. (Directory, 2007) Critical evaluation of the strategies used by the Airline between 2002 & 2007 Strength The company has adopted a very unique business model. It thrives upon flexibility and espousal to existing external environments. The company's management is quite creative and is always looking for ways of coping with their current situation. This is the reason why the Airline has been able to tackle some of the global economic problems that have attacked the aviation industry. The Company has won a number of awards between the years 2003 and 2007 from the World Airline Entertainment Association. The Company was given the World Airline Entertainment Association Award for the third year running. Emirates Company has been quite effective at including technology in its customer care. The Company had an in-flight entertainment system during the world up in 2005. it was able to give al its passengers access to the matches. Those who may not have been interested in watching the entire match were give updates through their top-of the-range-screen systems. In addition to this, the company has gained a wide esteem for the inclusion of email services for all its passengers. It also allows live text news for customers in their aircrafts. The Company was also the first to introduce a Digital Widescreen System in 2005. This was something that ha not been included in other Airline Companies of the world. (Morrison and Winston, 1997) Weakness Emirates Airlines is quite reputable in the Asian Pacific Continent. The company has marketed itself very well in the region and as it can be seen form the able below, it is one of the most successful companies in the region. Airline Market Share Emirates 39% Air India 2% Gulf Air 8% Qatar Airways 13% Sri Lankan Airlines 4% Singapore Airlines 26% Thai Airways 8% However, when the company's market share is analysed in other regions of the world, such positive and encouraging results may not be seen. Some regions such Australia have not embraced the services and benefits that come with using an Emirates Airline Aircraft. Emirates Company therefore needs to improve its performance in the global market. Most successful companies are those ones that adopt a global dimension and decide to spread their success to other regions of the world. Over - reliance on one region can bring about economic down fall in case the region is faced with a natural or man made disaster and the Airline may not have other areas to turn to. (Directory, 2007) Additionally, Emirates is rather conservative about the issue of Labour Unions. This could be the reason why the company has shied away from diversifying its Airline operations. The Company seems to fear high labour costs and this is coming in the way of its improvements. The Company needs to disregard some of the labour cost that come with expansion because these costs will simply be offset by the higher rate of returns that will be achieved by the company after the passage of time. Opportunities Carriers within the Middle Eastern region are growing rapidly. The Asian Pacific region has an association for its airline companies. During the year 2006, the association registered an overall increase in passenger traffic of about twenty three percent. It was also found that in the year 2004, the overall traffic in the region grew by a whooping twenty four percent. The figures were deduced by the differences between passenger kilometres and seat kilometres that were available. China (which is one of the most thriving economies in the region) provides the highest potential for growth and profits. The Asian Pacific Region found that traffic to and from this country had reached a whooping fifty one percent. Such positive figures indicate that there is a huge airline market in China and that the Emirates Airline needs to expand some of its operations to this country. It is also crucial from this company to understand that it can boost its performance in that country by making their services even better or by marketing themselves aggressively within China. (Tayeh, 2006) Threats Overall air transport within the Asian Pacific region has improved. While this can be seen as an opportunity for attracting more clients to the region, it can also be seen as a threat. The positive growth means that more and more Airlines are improving their positions within the industry. It is very likely that Emirates will be facing stiff competition within the market. It is a known fact that beyond the 2000s, Emirates has been dominating market shares in the Middle and Far East. However, this position may soon be toppled if the company relaxes. Additionally, Emirates Airline has to deal with an increase number of competitors in Dubai and its environs. This is because they have realised how profitable the route. Such competition could potentially lead to diminished business. However, this has not been the case for the company. Emirates have adopted a competitive strategy. The company believes that it is quite possible to still soar above the rest even when there are other players in the market. Emirates encourage more competition because this means that overall standards in the industry will increase and there will be greater acknowledgment of good performers within the industry. Impact of stakeholder pressure on strategies Most airline companies are particularly fond of mergers and acquisitions. It is indeed a global trend, for companies to form alliances. However, Emirates shareholders and management believe that alliances are not an appropriate strategy to adopt for the company. They have asserted that Emirates needs to establish some sort of trend in this area. The Company needs to remain independent and mergers will com in the way of such a strategy. More so, Emirates' main business principle is flexibility. They believe that they should always have the ability to change their approaches depending on the external and internal circumstances. Consequently, making an alliance would come in the way of such a strategy. One can therefore conclude that shareholders have greatly affected the way the business conducts itself in the global arena. (Doganis, 2001) Emirates decided to adopt a strategy of free competition because of mounting pressure from key persons within the company. These key persons asserted that following the trends used by other companies in the airline industry would make Emirates seem like a company that is simply trying to survive the increasing competition within the field. It would make them look like a company that has its own survival at heart and not the needs of the customers. The Company is built upon the premise that the customer comes first. This is the driving force behind the company strategy. Additionally, the reason behind the company's financial success is the fact that the company is not linked to other business interests. Consequently, stakeholder pressure has affected the company positively because it has yielded encouraging results. The government of the United Arab Emirates is a key stakeholder in the operations of the Company because they are part owners of the Company. They have created a lot of pressure in the manner in which the airline conducts its operations. It has created a liberal market in the Far East in order to enable the Airline operate in liberal markets. This is especially in contrast to some of the strategies that other stakeholders in the Middle Eastern region have adopted. Airline companies in such areas have no idea what it means to compete in the aviation sector. (George, 1982) Coping and encouraging competitiveness is a key element in the Company's strategy (this is called the Open Skies strategy) and this can be highlighted in the way the company conducts its businesses. For example, Emirates shares its Dubai airports with one hundred other Airlines. This would have been ordinary if the foreign companies were operating in regions outside the Asian Pacific region. However, it has been found that they actually target one hundred and fifty destinations in the region. Additionally, surveys conducted in Emirates' main hub found that fifty percent of their passengers belonged to other Airlines. This is in huge contrast to what goes on in other regions of the world. For instance, in the United Kingdom, it may be possible to find that one Airport is filled up with passengers who belong to one airport. This means that Emirates is acting as a leader in this arena if it has managed to achieve what some seemingly 'sophisticated markets' have not achieved in the market today. Evaluation of future strategies It is possible that Emirates Airline will expand its operations into other non - Asian countries/. This means that there will be greater need for the company to take up some of the global trends. For instance, they may increase their flights to the United States. Consequently, the company will have to adopt some of the approaches that air carriers in those regions use. While creativity has been an essential part of Emirates operations, it may be necessary to re-channel some of these creative efforts in the field of technology. (Doganis, 2002) Some of the Airline carriers in the US are constantly coming up with new ways to increase customer satisfaction through technology. For instance, online booking may have to take greater precedence that it does currently. It may also be necessary to improve customer care in the luggage section through employment of better technologies in keeping customer's luggage. The Company may also have to employ these same technologies in the security problems. Most US air passengers were quite shaken up after the September eleventh attacks. Consequently, security is a crucial part in the US aviation industry. Passengers are demanding greater levels of security through surveillance cameras and the like. These are all issues that Emirates will have to incorporate once it becomes more global. In the future, Emirates may not be able to access certain markets because of its 'open skies' strategy. This strategy requires that the Company remained independent of others and hence the reason why the company has stayed away form, alliances. Presently, the Company has met some stiff resistance from certain countries such as Australia. Consequently, Emirates has been prevented from accessing such markets. In the future, it is likely that Emirates may be forced to relax this policy of staying away from alliances. It may decide to maintain such a strategy in most markets but in the event that it meets too much resistance from certain countries, it may be necessary to bend some of its rules. (Smith, 2002) It is also likely that Emirates Airline will consider expansion strategies as one of the most viable options for the Company in the future. This means that the Company will need to come up with Company representatives in those regions. Emirates Airlines will have to accommodate greater varieties of employees and this means that the Company will need to leave out a substantial portions of its annual budget to meet this greater increase. However, this is not a totally bad idea for the Company because it stands to get a lot of returns on its investments. Al in all, the most suitable strategy for Emirates in the future will be a fit strategy. It has been operating on the stretch strategy but this is mostly appropriate in the region. Such a strategy may not work in the rest of the world. Conclusion Emirates Airlines was a started in the year 1985 and has undergone numerous changes over those two decades. It is now the best Airline in the Asian Pacific region with awards for innovation in its in-flight entertainment systems. The company has also gained a lot of mileage for its Open skies strategy. It believes that free market solutions are the best drivers for any Airline Company and this is why the company has stayed away from mergers and acquisitions. However, the company needs to embrace more global markets and this will force it top comply with some of the rules in operation within those markets. This means that the company will have to relax some of it open skies policy. It will also have to embrace online systems as a sound marketing tool in the global arena. Reference: Butler, G.F., Keller, M.R. (2000): Handbook of Airline Operations. Aviation Week; McGraw-Hill Companies Doganis, R. (2002): Flying off Course: The Economics of International Airlines, 3rd edition. Routledge, New York. Directory: (2007): World Airlines", Flight International, 2007-04-03, p. 77. Doganis, R. (2001): The Airline Business in the 21st Century. Routledge, New York, Smith, M. J. (2002): The airline encyclopaedia, 1909-2000. Scarecrow Press Morrison S. and Winston C. (1997): The fare skies: air transportation and Middle America, Brookings Fall Tayeh, T. (2006): The View From Dubai: a speech by Senior Vice President Planning, international and Industry Affairs Emirates Airline; Euro control report (May 20th) George S. Yip (1982): Gateways to Entry; Harvard Business Review 60 (September-October 1982): 85-93 Read More