Flag Carrier of Dubai: Emirates Airline - Research Paper Example

Analysis of Emirates Airline Emirates airline is the flag carrier of Dubai. Dubai is one of the seven Emirates that constitute the United Arab Emirates. Emirates airline is the largest airline in the Middle East. Emirates airline operates more than 1000 flights per week. 1. Marketing Strategy: The marketing strategy of Emirates is woven around the 7Ps of service marketing [13]. These are: Product, Pricing, Place, Promotions, Processes, People and Physical Infrastructure. Product: Emirates, since it began its operations in 1985, has been consistently ranked as one of the top ten airlines in the world in terms of revenues and passenger kilometers travelled. Emirates’ non-stop commercial flights linking Dubai- San Francisco, Dubai- Los Angeles and Dubai-Houston respectively are among the world’s top ten longest non-stop commercial flights[1]. The fleet of Emirates consists of both Airbus and Boeing aircrafts. The fleet of Emirates also consists of Boeing wide body aircrafts including the Boeing 777. Emirates has over the years acquired the image of an airline that employs the most sophisticated and state-of-the-art aircrafts in its fleet [2]. Emirates flights serve to more than 100 destinations in more than 60 countries of the world. The hub of Emirates is the Dubai International airport which has the capacity of handling more than 70 million passengers per year. Emirates began its operations in 1985 with two leased aircrafts from a rudimentary airport [1]. Today the airline has a fleet of more than 150 state-of-the-art aircrafts. The Terminal 3 of the Dubai International Airport has been exclusively reserved for the operations of Emirates. The fleet employed by Emirates is one of the youngest in the world. The average age of an aircraft employed in Emirates fleet is around 5.5 years. Emirates has also placed an order ,which is due for delivery, of another 190 aircrafts worth $ 66 billion. There are 10 Airbus A380 super-jumbo aircrafts in the fleet of Emirates. Another 70 are due to be delivered. In the financial year 2010-2011 Emirates carried 31.4 million passengers. In the year before ( 2009-10) it carried 27.4 million passengers. This represented a year-on-year ( y-o-y) increase of 14.5985%. Emirates employs cabin crew of over 12500 employees. This cabin crew is constituted of employees from 125 different nationalities and can speak over 50 different languages[1]. In 2010-11, the cargo division of Emirates airline carried 1.8 million tones of cargo. This was a year-on-year increase of 11.8%. The net profit of Emirates in 2010-11 was $ 1.5 billion. The cargo division accounted for 17.4% of this. Emirates is wholly owned by the state of Dubai. However, the state does not provide any kind of support, protection or financial treatment to the airline. Dubai has an open skies policy which has intensified competition. Emirates is a full service airline. It strives for a product and service leadership among its competitors. Emirates was the first airline in the world to have introduced personal entertainment system in the seats and private first class suites[1]. Emirates was also the first airline in the world to have offered the facility of in-flight usage of mobile phones to its customers. Emirates continuously aims for achieving a sustainable competitive advantage through this product and service leadership. Pricing: The pricing strategy of Emirates is consistent with its positioning as a premium full service airline targeting business and up scale customers. The airline charges premium prices for its state-of-the-aircrafts, full scale in-flight service and amenities provided to the passengers [2]. Like other airlines, Emirates also relies on price discrimination. Price discrimination is the practice of charging different prices for the same services from the different customers[12]. Emirates charges lower prices from passengers who book much before and charges a higher price from customers who book their tickets at the last moment. Emirates uses extremely sophisticated computer programs to manage its seat availability as a way of ensuring that low price elasticity of demand passengers (like last minute business travelers ) are charged the maximum price. The price discrimination strategy which charges discounted or lower fares from customers who have high price elasticity of demand ( like leisure travelers and business travelers ) and charges a higher price from customers who have a low price elasticity of demand (like business travelers ) has played an important role in the financial success of Emirates Airline over the years. Place: The distribution strategy of Emirates has played a key role in its success. Emirates serves over 100 destinations in more than 60 countries of the world. Emirates flights currently operate on all the important routes of the world. This strategic route network has greatly helped Emirates in driving up its revenues over the years. The distribution strategy of Emirates has been complemented by the geographically strategic location of its main hub, Dubai. 75% of the world’s population is within a distance of eight hour from Dubai [1]. This has enabled Emirates Airlines to emerge as the largest airline in the world in terms of the scheduled international passengers kilometer travelled[3]. Promotions: Emirates has relied on extensive promotions for branding itself. This has resulted in it becoming an airline that enjoys a very high brand recall in the minds of the customers. The earlier brand tagline of Emirates was: Fly Emirates. Keep Discovering. This slogan has now been changed to: Fly Emirates. To over six continents. The company promotes its brand image at every level of its operations. From the dress of the cabin crew and the ground staff to the color of the aircrafts, everything serves to strengthen the brand image of Emirate Airlines [5]. Emirates promotes itself through the sponsoring of major sporting events. It was one of the official sponsors of the FIFA world cup. The airline heavily promotes cricketing events. It is the official partner of international cricket council till 2015. The home of English football club Arsenal, Ashburton Grove stadium, has now been named as Emirates Stadium. This was because of a naming rights deal that Emirates struck with Arsenal FC in 2004[1]. Physical infrastructure: The physical infrastructure of Emirates, with its state-of-the-art aircrafts, the Terminal 3 at the Dubai international airport exclusively reserved for its usage etc. serves to reinforce the brand image of Emirates in the minds of the customers. Processes: The processes – from in-flight service to cargo handling, etc- have played the most important role in the success of Emirates over the years. They have underpinned the efficient and effective operations management at the airline[7]. The processes aim at maximizing efficiency through minimizing the costs and maximizing effectiveness by creating maximum value for the passengers and customers of the airline. People: The employees of Emirates are its most important component because of it being in the service and travel industry. Emirates has one of the most ethnically diverse workforce with employees from more than 125 countries of the world [2]. More than anything else, the employees represent the organizational culture of the airline. In creating satisfied customers through high quality service, the employees of the airline play the most important role. 2. PESTLE ANALYSIS: Since Emirates operates globally, a global PESTLE Analysis is relevant for the airline serving over 100 destinations in more than 60 countries of the globe. Political factors: The political factors will continue to play an important role in the future. The political support for liberalization and globalization has driven the boom in the global aviation sector in the past two decades or so. After the recent financial crisis, some of the protectionist sentiments of the past have once again gained ground in the political class of many countries, especially the developed ones. The strengthening of these protectionist sentiments will be detrimental for the global aviation sector. The political factors are largely out of control of the airlines. However, they can lobby against these sentiments. Another negative development from the point of view of the aviation sector is the political turmoil in Middle East caused by the Arab spring against the dictatorial regimes. This has caused the price of Aviation Turbine Fuel (ATF) to rise greatly. Emirates buys its ATF from the international markets. Volatility in prices will have an adverse impact on its margins as there is little chance of passing the price rise to the passengers. Economic factors: Nothing has benefitted the aviation industry more than the wave of globalization. Globalization has greatly increased the global passenger traffic and international travel. Globalization has raised the per capita income in emerging countries greatly. More people can now afford to travel internationally. However, the economic conditions (after many boom years) were reversed by the global economic slowdown caused by the 2008 financial crisis. This economic slowdown has caused corporations to cut down on their costs. Companies have cut down the international travel of their executives and are relying more on alternative ways like video conferencing. This has mainly hurt airlines like Emirates who target mainly the high margin business travelers. The increase in unemployment and the freezing of credit has also meant that leisure travelers too have cut down on their international travel. This has exacerbated the situation for full service international airlines like Emirates. The aviation sector in general is very vulnerable to business cycles. Actually it is one of the most vulnerable sectors to economic and other external factors. Economy recovery has started in the aftermath of the financial crisis. However unemployment rate in major economies like the United States is still hovering at a very high 9.6%. If the economic recovery does not derail then it will be a very favorable sign for the airline companies in the near future. One threat to this process of economic recovery is the fear of default looming over Greece and some other major economies of Euro zone like Portugal and Spain. Social Factors: The rise on emerging economies like Brazil, India, Russia and China (the BRIC effect) is one of the major social changes. The percentage of citizens of these countries in airline passengers has increased significantly. The BRIC countries will be the major engines of growth in international airline travel in the coming years. Airlines therefore now have to be conscious of the needs of the passengers from these countries. Another social change, that has been caused by the global financial crisis of 2007-08, is that citizens of the profligate developed economies like the United States have become more prudent financially. The consumers therefore have become more value conscious. They are ready to pay less and look for more. The financial profligacy of the boom years of 2000 to 2008 has ended. In such a scenario airline companies need to cut costs further and at the same time deliver more value to the customers [9]. Technological factors: The technology issues like the viability of larger and more sophisticated aircrafts on international routes remains relevant. The other technological issues relate to the cutting down of the carbon footprint of the aviation sector. There is pressure on airlines to use cleaner technologies and cleaner fuels so that their carbon footprint can be reduced. Legal factors: The Aviation laws relating to safety of passengers have become more stringent over the years. The onus of ensuring safe flights has now increased on airline companies. Poor maintenance and repair leading to accidents can cause severe financial liabilities for the airlines. Because of the nature of air travel many aviation laws come in the category of international laws. The International Civil Aviation Organization ( ICAO ) is a specialized agency of the United Nations that oversees the international aspects of aviation laws and provides guidelines. Environmental factors: Environmental issues have become very important as far as the aviation sector is considered. The carbon footprint of the sector is very large. There is pressure from all the stakeholders, including the governments and consumers, on the airlines to adopt more sustainable ways of operations. An airline like Emirates generates a mountain of waste. Every flight leaves behind newspapers, cardboard, plastic, aluminum, glass, food etc as waste. Add to this the greenhouse gasses emitted by the flying operations [1]. The Dubai catering facility of Emirates is the largest industrial kitchen in the world. It too generates huge amount of waste. To manage this huge amount of waste generated by its operations, Emirates has enterprise wide Corporate and Industrial Recycling Program[1]. This corporate and industrial recycling program has reduced to some extent the carbon footprint of Emirates. The fuel efficiency rates of Emirates are already 30% below the global fleet average. This facilitates its compliance with the strict, new EU emissions trading regulations [10]. By 2015 Emirates will retire 50 older aircrafts for ensuring higher fuel efficiency [1]. One of the reasons cited by the company for its ordering more A380s in its fleet is the higher fuel efficiency of the A380s [9]. 3. Financial Assessment: Emirates has continued with the same business model that it started with 1985. The airline offers high level of service and facilities to its passengers and charges proportionately. In spite of the increasing competition from low cost airlines, Emirates has till date not started a low cost subsidiary. The reason for this is that the business model of Emirates places more emphasis on profitability than on revenues. Emirates has also diversified into all related areas of its core activity – it is now into cargo and IT solutions for airlines, ground handling, travel services and in-flight catering. The reason that Emirates has not changed its business model over the years is that the business model has served it well financially and created value for its shareholders and other stakeholders. In 2010-11 the revenue from passenger airlines of Emirates is $ 11.182 billion. In 2009-10, the revenues were $ 8.90 billion. This represents a year-on-year increase in passenger revenues of a whopping 25.64%. The revenues from cargo operations n 2010-11 were $ 2.38 billion. In 2009-10 they were $ 1.862 billion. This is a year-on-year increase of 27.6%[1]. The revenues from excess baggage were $ 79.11 million in 2010-11. In 2009-10 the revenues from excess baggage were $ 75.06 million. This is a year-on-year increase of 5.4%. The revenue from sale of goods of Emirates in 2010-11 were $ 520.29 million. These were $ 466.29 million in 2009-10. This is a year-on-year increase of 11.6%. [1] The total revenue of Emirates Airline from its operations in 2010-11 was $ 14.336 billion. In 2009-10 the total revenue from operations was $ 11.468 billion. This was a year-on-year increase of 25% [1]. 2010-11 also happened to be the most profitable year of Emirates in its 25 year history. The net profit of Emirates in 2010-11 was $ 1.45 billion. The net profit in 2009-10 was $ .955 billion. This is a year-on-year increase of 51.8% in net profits [1]. The passenger load factor was at an all time high of 80% in 2010-11. This means that Emirates was able to utilize 80% of its available capacity. The passenger load factor in 2009-10 was 78.1%. The 1.9 % (y-o-y) jump in passenger load factor was due to increase in passengers of 4.1 million over the previous year [1]. The total number of passengers carried by Emirate airlines in 2010-11 was 31.422 million. The total number of passengers carried in 2009-10 was 27.45 million. This is a year-on-year increase of 14.46% in the total number of passengers carried. The yield in cents per revenue passenger kilometer (Total number of passengers * total number of kilometers flown) was 7.641 cents in 2010-11. This was 7.047 cents in 2009-10. This is an increase of 8.42% in 2010-11[1]. This is one area where Emirates needs to focus on. Its yield per revenue passenger kilometer flown is coming down. Two reasons behind this may be the lowering of average fares charged and lower passenger load factors on new routes. The total operating costs of Emirates in 2010-11 were $ 13.214 billion. In 2009-10 they were $ 10.77 billion. This is a year-on-year increase of 22.69%. Jet fuel constituted the biggest part of the operating costs of Emirates Airline in 2010-11. It was 34.4% of the total operating costs. In 2009-10 jet fuel constituted 29.9% of the operating costs. Sales and marketing costs as a percent of the total operating costs of Emirates too have taken a jump of 27.9% in 2010-11 over the costs of 2009-10. The Return on Equity (ROE) measures the value created for the shareholders. The Return on Equity (ROE) of Emirates in 2010- 11 was 26.15%. The return on equity (ROE) in 2009-10 was 20.68%. This represents a year-on-year increase of 5.47% over 2009-10. 4. Future of Emirates: If present financial performance is any indication, then the future of Emirates airline looks good. The current management has done a good job. If the present management continues then probability is high that Emirates will keep doing well in future also. By 2015, the fleet of Emirates will have more A380s and younger aircrafts[9]. This will increase its efficiency further. This will be good for the margins of the airline. The revenue from related activities like cargo, ground handling etc. will provide an important source of diversification in future. The future performance of Emirates will also be majorly dependent on exogenous factors like the pace of economic recovery, political stability in Middle East and other parts of the world and the price of the aviation turbine fuel (ATF). If political turmoil of Libya and other parts of Middle East continues for a long period of time then price of aviation turbine fuel will rise further. The ATF constitutes the largest part of the operating costs of Emirates. If the price of ATF rises further then it will hit the operating margins of Emirates. The network of strategic routes on which it operates will provide Emirates an important source of competitive advantage in future. The ability of the airline to continue to be efficient ( operating at the minimum costs) and effective ( to create maximum customer satisfaction through delivering maximum value) will determine its future success as they did in the past and the present. 5. Recommendations: Emirates should focus on the following key parameters of its balanced scorecard: i) Customer perspective: It should continue to strive for creating maximum customer satisfaction. ii) Processes: Emirates should continue with its process-oriented approach. Process innovation will drive its quest for more efficiency and effectiveness. iii) Employee perspective: The employees of Emirates have played the most important role in its success till now. Emirates should continue to focus on the learning and growth of its employees. iv) Financial perspective: The Company should continue to focus on profitability and other key financial parameters. The wealth of the shareholders should be preserved and enhanced. Emirates has a very strong core competency in the aviation sector. This core competency in efficient and effective air travel operations is its biggest source of competitive advantage. The company should continue to hone and strengthen this core competency. It should expand its presence on routes of strategic performance. Service to more destinations in emerging markets of BRIC countries and those of Africa will drive its future growth. Emirates serves only four destinations in South America. A lot of future growth is air travel is due to be driven by South American countries. It is therefore important that Emirates serves more destinations in South America. Efficient operations, effective customer service, environmental friendly and sustainable operations and effective branding will be the key critical factors of success for Emirates in future.. 6. References: 1. Emirates, 2011, accessible at (http://www.theemiratesgroup.com/english/our-brands/air-transportation/emirates-airline.aspx). 2. Bamber, G.J., Gittell, J.H., Kochan, T.A. & von Nordenflytch, A. (2009). "Up in the Air: How Airlines Can Improve Performance by Engaging their Employees". Cornell University Press 3. Reece, Damian (2000). "Emirates poised to join Star Alliance" London: Telegrapg.co.uk. 4. Heasley, Andrew (2010). "Lone Emirates still flying high on luxury". The Age (Melbourne) 5. Walid, Tamara ( 2010). "UPDATE 3-Emirates sees 20 pct rise in 2010–11 group profit" Reuters. 6. KINGSLEY-JON, Max (1999). Emirates global vision ,Flight International. 7. McGinley, Shane (12 May 2010). "Top Emirates exec slams govt protection claims". Arabian Business. 8. "Airbus Wins $31 billion Aircraft Order From Emirates " , 2007,Bloomberg. 9. Zand, Bernhard. (2008) Aboard Emirates First A380 to New York. BusinessWeek 10. Bibby, Paul (4 March 2009). "Fuel-system faults raise fears of A380 design flaws". Sydney Morning Herald. 11. Walid, Tamara ( 2010). "Emirates eyes 120 A380s, works with Boeing on 777”, Reuters. 12. Creedy, Steve ( 2008). "Emirates push for Aussie A380 routes" 13.Philip Kotler, Kevin Kohler, 2000, Marketing Management, Pearson. 14. Paul Samuelson, William Nordhaus, 2000, Economist, Prentice-Hall Read More