Emirates Airlines - Case Study Example

Analysis of Emirates Airlines Introduction Emirates; a subsidiary of Emirates group, is a national airline of Dubai, United Arab Emirates. From its hub at Dubai international airport it travels to 91 destinations in 55 countries and operates over 1995 passenger flights per week (Redorbit, 2008). Its Boeing 777-200LR operates as world’s longest non-stop commercial flight on the routes from Dubai to Los Angeles, Sao Paulo, Houston and San Francisco. The airline is owned by the government of Dubai directly under the investment corporation of Dubai, cargo activities are undertaken by Emirates sky cargo division. It has a workforce of about 40000 employees (Gulf news). It has mixed fleets of Airbus and Boeing and is one of the six airlines to operate a wide body aircraft fleet. It has 77 aircrafts of Boeing 777 and has 58 Airbus A380s (Haines, 2008). The company has won numerous awards and has made a record of purchasing 130 aircrafts in 2007 (Derhally & Rothman, 2007). Emirates Airline is the largest airline in the Middle East in terms of revenue, fleet size and passengers carried and have won the rank amongst the top 10 airlines worldwide in terms of revenue, passengers and kilometers. In 2009 the airline was 7th largest airline in terms of international passengers carried and 4th largest in terms of scheduled international passenger kilometers flown (WATs 53rd edition). The airline has built a strong brand name as a trendsetter in the aviation industry in terms of service excellence and profitability. In 2009 the airline was voted the 5th best airline in the world by research consultancy firm Skytrax. The Dubai International Airport has built terminal 3 exclusively for the use of Emirates Airline; it was inaugurated on 14th October 2008. Terminal 3 was the largest building in the world by floor space and had an annual capacity of 27 million passengers with an expansion plan of occupying 43 million passengers by 2011. The new concourse 3 will be exclusively for A380-800 (Travel daily news, 2009). Emirates Airline has diversified itself into related industries and sectors including airport services, engineering, hospitability services, catering and tour operator operations. It has 4 subsidiaries and its parent company has more than 50 subsidiaries. Its employees are divided as follows; (Emirates annual report, 2008) Emirates has its code sharing partnership with 14 airlines including Air India, Air Mauritius, Air Malta, Continental, Japanese, Delta, Jet, Oman, Korean, Philippines Airline, Royal Air Maroc, South African Airways, Thai Airways international and Virgin Blue. It is in code share with V-Australia on Trans Tasman Route and in March 2008 had code sharing with Sri Lankan Airways. The aircrafts utilization is one of the highest in the industry at 13.7 hours per day (2008). Economical environment The economic environment of Emirates airline contains the following characteristics; Service Industry The airline performs a service to its customers transporting them and their goods from one place to another in an agreed price thus it comes under the category of service industry. There is no physical product given in return of the money paid by the customer, nor an inventory is created and sold for sale in some later date. Capital intensive and high cash flow Unlike the other service businesses Emirates Airline also needed an enormous range of equipments and facilities from airplanes to flight simulators to maintenance hangers. Thus it is working in the industry of capital intensive business which requires large sum of money to operate effectively. The capital needs require consistent profitability. The large fleets of expensive aircrafts depreciate in value overtime the airline generates a positive cash flow (profit + depreciation). They use their cash flow to repay debt or acquire new aircraft. If in any case their profits and cash flow decline their ability to repay debt or acquire new aircrafts is jeopardized. Labor intensive Emirates airline employees pilots, flight attendants, reservation agents, gate agents, cooks, lawyers etc. thus it is a labor intensive business. More of the one-third revenue generated by the company goes to its work force. Labor cost/employee is amongst the highest of any industry. Seasonal demand and thin profit margins The airline business is a seasonal business, it is often observed that summer months or vacations are extremely busy months for the industry and so the revenues rise. The opposite happens in times when the demand falls and the revenue are reduced to attract more passengers. The airline industry has thin profit margins and earns one or two percent net profit. Revenues and cost of Emirates airline On the average 75% of the airline revenue comes from the passengers, 15% from cargo shippers, and remaining 10% from other transport related services. Travel agencies play an important role in selling tickets; around 80% of the tickets are sold by them on which the airline pays them commission. The airline cost include cost of flying operations, maintenance, aircraft and traffic services, passenger services, promotions, transport cost, depreciation, labor, administration etc. Breakeven load factors Breakeven load factor is the percentage of seats the airline has in service that it must sell at a given price level to cover its cost. This factor varies from one airline to another in the aviation industry. The 4V model includes; Volume The volume dimension has different implications whether it is in a high level or low. In case of emirates airlines the company’s operations have specific characteristics such as individuals are assigned their own independent task, each staff member performs one assigned job in other words they are systemized and lower unit costs. In these high levels of volume, the companys operations have its own specific characteristics such having high repeatability in the everyday procedures, there will be specialization, systemization, and more capital intensive and low unit costs. The volume is high for Emirates airline as it offers many services to its passengers; including first, business and economy class cabins and in flight entertainments systems which includes information, communication and entertainment (ICE) to passengers. Along with this the ground services and lounge facilities. Variety The variety dimension has its own implication as well whether it is high or low. In the emirates case there is lower side of the scale where there is less flexibility in the procedure, less complexity; the unit cost will be low. Thus, when the company is in the low side of the scale the procedures will be well defined; there will be routine and standardization. The airline offers variety to its customers as they can choose amongst which cabin they want to travel, or which route they want to decide to travel to their destination. However the variety of prices is low as the airline has fixed prices for particular routes. However the ICE choice is on the customer. Variation in demand The variation in demand has many implications that can be seen from the companys characteristics. If the company is in the high levels of demand variation then it has changing capacity, anticipation for what the customer might demand, flexibility, in touch with demand and high unit cost. While in the other side of the scale, the company would have a stable and predictable demand, routine, high utilization of resources and low unit cost. The variation in demand is seasonal and changes in vacations and summers in case of the airline. These are peek seasons and the demand for tickets is on the peak while other seasons are relatively slow in terms of passengers flow. Another factor observed is that there is a variation in number of passengers which are increasing yearly. As the table shows Years ended Passengers flown Cargo carried (000) Turnover AED m Expenditure AED m Net profit/loss AED m 31 Mar ‘06 14,497.5 1,018.5 23,050.9 20,489.6 2,474.97 31 Mar ‘07 17,544.1 1,155.9 29,839.6 26,675.9 3,096.4 31 Mar ‘08 21,229.2 1,282.1 40,196.6 35,121.7 5,020.4 31 Mar ‘09 22,730.9 1,408.3 44,188.9 43,143.4 981.7 (Emirates Annual report, 2008-09) Visibility The visibility dimension which is the customer ability to track his or her order through its different stages has its implications whether it is high or low. When it is high the customers have short waiting tolerance, satisfaction governed by customer perception, customer contact skills are needed and very important and the receive variety is definitely high. And when it is low, the time lag between production and consumption, there will be standardization, the customer contact skills will not be very important or needed, the company must have a high staff utilization and centralization. The visibility is medium between the management and the passengers while contact between cabin crew and passengers is high. The cabin crew is trained as to satisfy customer needs and entertain them on board. Conclusion Volume: high, they deal with thousands of passengers a day Variety: high-medium since the airline could choose few different kinds of people with predefined class as everyone can not afford to travel on emirates airline. Variation in demand: medium variation in demand as based on seasonal demands. Visibility: medium visibility and high contact skills as passengers are directly in contact with the cabin members, in other words the work force. High Volume Low Variety Variation in demand Visibility Work cited 1. Red orbit: Emirates to Launch Second Phase Operations at Dubai Airport Terminal-3, (2008). Available at http://www.redorbit.com/news/business/1590276/emirates_to_launch_second_phase_operations_at_dubai_airport_terminal3/index.html. (Accessed 20th October 2008). 2. Babu Das Augustine (2008). Gulf news: Emirates longest flight makes inaugural touchdown in LA. 27th October 2008. 3. Massoud A. Derhally and Andrea Rothman (2007). Airbus Wins $31 Billion Aircraft Order From Emirates. Bloomberg press. 11th November 2007. 4. Lester Haines, (2008). The register: Emirates takes delivery of its first A380 super jumbo. Available at http://www.theregister.co.uk/2008/07/28/emirates_a380/. (Retrieved 28th July 2008). 5. Vicky Karantzavelou (2009). Travel daily news, Concourse 3 will be dedicated to emirates airline: Dubai Internationals concourse 3 deals bagged by Al Jaber Engineering. 4th May 2009. 6. The emirates group: Annual report (2008-09). Available at http://www.theemiratesgroup.com/english/facts-figures/annual-reports.aspx?TYPE=ANNUALREPORT. Retrieved 15th July 2009. 7. Emirates (2009). Emirates announces 2009 extension plan: Airline to extend capacity by 14%. Available at http://www.emirates.com/english/about/news/news_detail.aspx?article=411638&offset=0. (18th February 2009). Read More