The Prime Airline Segment - Assignment Example

of Submitted: What to do with 90 A-380? QUESTION Is the prime airline segment anattractive place to compete? The prime airline segment is an attractive place for Emirates to compete for many reasons, inclusive of its present position, future growth potentials, and its ability to use diverse strategies that will enhance its competitive advantages. According to Porter (2008), in the market for commercial aircrafts, fierce rivalries between the dominant producers Airbus and Boeing, the bargaining power of the airlines that place huge orders for aircrafts are strong, while the threats of new entries and the use substitutes, as well as the power of suppliers are more than benign. Bargaining Power of Buyers: The Emirates 2020 schedule for aircraft production calls for 09 A-380 to be deployed intensively to North America, Latin America, Western Europe, and several major East Asian points, according to RBS (2011), and Airbus has won the contractual rights to deliver these products as ordered. Emirates traditionally are expected to retire its in-service fleets after twelve years, but in light of its new competitive thrust market analyst are not certain that this will be the case this time, because they could use their leverage status with the suppliers to reduce the delivery time for the A-380 and retain as much of its present fleet on the market to be able to successfully dump capacity on the market, and capture as much passengers as possible. The fact that the A-380 are wide bodied, has the largest passenger capacity, attracts low or economical price passengers, and are used on long routes, gives the Emirates substantial advantage to succeed on the prime market, if it decides to use its bargaining power as a buyers to pressure Airbus to deliver. Rivalry among Competitors: According to Porter (2008), the strongest competitive force or forces, determines the profitability of an industry and become the most important strategy formulation. The Emirates faces intense competition from Lufthansa, BA, American Airline, Continental Airways, Air France, Elitad, Quatar, Virgin Blue and Asiana among others, but it can develop strategic alliances with those competitors, base on industry analysis, that are operating sub-optimally, and achieve win/win solutions which enable it to capture higher market shares in the prime markets. However, it will have to overcome strong and persistent lobbying strategies engineered by its European competitors, to restrict its traffic rights, the ease of availability of EXIM financing from Europe, national aviation taxation, and the forthcoming emission trading schemes Emirates is advantageously placed in comparison to its European competitors in particular, due to the fact that information on its modus operandi are not available to the public, and analyst will always find it difficult to accurately predict the model they are going to employ, until it reaches the market. This gives the competitors very little time to modify or even replicate these strategies, and by the time they are able to achieve it, Emirates would have been able make other significant changes that all marketing leading companies would normally to achieve and maintain their competitive advantages. The approach is in line with Porter’s (2008) recommendations, that organizations in competitive environments should reshape the forces in their favor, as well as exploit changes. Emirates therefore can use these strategies from the vantage point of the rivalry among competitive forces aspect of the model, and succeed in the prime segment of the market, because of the assets it brings to it, and its ability to maximize any competitive advantage gained. Threats of New Entrants: Threats of entry puts a cap on profits and when it is high incumbents must hold down prices or boost investments to deter competitors, according to Porter (2008). Emirates entrance into the prime airline segments of the market in Europe, North America and Asia may force other airlines to resist its access by lowering prices is possible, offer new incentive to ensure customer loyalty, increase investments, increase route frequencies, or use moral suasion to force their governments to increase aviation taxation. This strategy may benefit customers for an interim period, but may force Emirates out of the market if it is not able to compete. However, the company could have been prepared, and immediately lower its prices and increase capacity at the same time, as well as improve the quality of services beyond what prevails. Emirates would do well to pursue this strategy, because hypothetical projections based on limited information, see it entering 21 new markets over a five year period extending into 2015. They include 5 in North Asia, 3 in East Europe, 4 in Europe proper, 2 in South East Asia and North America, and single destinations to South Asia, Australasia, and Latin America By 2010 Emirates by virtue of its development plan will have flight schedules that include 70 A-360, 67 B777, and 90 A380 of which 19 will be assigned the most high density configuration service zones, competing in these prime markets to maximize revenues. The airline company is therefore a major threat as a new entrant into the prime segment of markets, and be able to hold its place and allow passengers to enjoy the benefits of a, low cost fliers, even on long and extended routes, despite attempts by European and other competitors that may advocate political instability in the Emirates operating base, the airline threat to European security, industry and jobs, and other unethical strategies, to deter passengers from using the airline. Bargaining Power of Suppliers: In the case of the airline industry a manufacturing duopoly seems to exist between Airbus and Boeing but Airbus seems to have out muscle its competitor to win the manufacturing contractual rights to Emirates huge order by perhaps using supply side economies of scales. According to Porter (2008), these economies can arise when firms that produces very large volume of enjoys low cost per unit, or employ more efficient technology, or command better terms from their material suppliers. Airbus may have used its bargaining power as a supplier, to offered Emeritus excellent rates in terms of the unit price for the 90 A-380 as well as its delivery times, to defeat Boeing. Additionally, it can also use its demands for high volume of raw materials close to 2020, to gain favorable deals on raw materials suppliers for the aircrafts, thereby working the vertical and horizontal integration aspect of the market to secure the prices offered to Emeritus. Threats of Substitutes: A substitute according to Porter (2008) performs the same or similar functions as an industry product by different means. Emeritus like other airlines in the industry faces threats from substitutes like video conferencing, teleconferencing, and the use of websites to book passengers instead of travel agents, but has to distance itself from the competitor by improving its product and consistently promoting its superior quality, to maintain market dominance. According Porter (2008), aspiring entrants that arm themselves with new capacity and hunger for market share, can ratchet up investments required to become competitive. Expert research done by RBS (2011), has shown the Emirates has become a real threat to European network carriers in terms of traffic flows from Europe to the Middle East, India, South East Asia, and Australia/New Zealand, despite the use of alliance strategy, network planning, export credit resistance, and heavy investment on these routes by European carriers, they have not been able to lure customers away from Emirates with their substituted service offerings. Porter (2008) defines Emirates strategy in maintaining its competitive advantages, as positioning itself where the forces are weakest. This will enable Emeritus, who similarly to how Paccar succeeded in the trucking industry by targeting individual truckers with packages that they found difficult to reject (because they specifically meet their needs), to excel in the prime segments of the airline market. Paccar found a weakness in the trucking industry (among the individual truckers) and positioned its forces there to fully maximize revenues. The five forces of a competitive marketing model can certainly propelled Emirates in to the prime segments of the market, so that it can dump capacity on the competitors with its 90 A-380 as well as other units in the fleet at low cost to consumers, but high quality service that will ensure their loyalties on the different routes. QUESTION 2 Emirates can continue to survive and deliver value and prime services in the middle of threats and lobbying pressures by European carriers, by constantly performing excellent industrial analysis, and using the information to develop strategies that will advance its status which include strong competitive advantages in key areas. The airline by distinguishing temporary or cyclical changes from structural changes among its competitors in terms of results, strategies and behaviors, and the underpinnings of the competition, according to Porter (2008), will be able to determine the root causes of their profitability, as well as its own, and make adjustments to more effectively deliver value. The Dubai Hub for example is optimally located for the airline, when it decides to dump capacity on the India-US, China-Middle East, and China-Africa routes, where it has the maximum competitive advantages, can deliver significant economies of scale, and can add value to its products, despite the tactics of the European carriers. The gains from these routes in terms of profits and the capacity achieved can then interpreted by Emirates as significant structural change that can be replicated with some level of modifications on other routes, to boost overall performance and growth trends. Additionally, as Emirates grow these markets and improve its products offering to customers by providing services unique to its culture, and differentiates it from the competitors. The viability of the strategy is without question, as RBS has confirmed in its research and hypothesis that many European competitors using the Dubai Hub are financially weak, relatively small, and offer lower standards of service. The airline can also use the profits earn from its operations through the Dubai gateway to subsidize other routes, and increase the frequency of flights in an effort to undercut the capacity and ticket prices of its competitors, until it has significantly grown its market share in the prime segment Finally, Emirates can also use the option, should it fail to negotiate desirable changes in traffic rights rulings, of leveraging its capacity advantage in other non prime markets not yet entered and increase the competition among those carriers that are active in those regions. This move according to RBS would see greater capacity displayed in Europe, even into the fifth freedom segment of the market. European Carriers Strategy: European carriers suffering from the Gulf carriers lower unit cost and highly competitive prices, as well as faster growth rates, has to constantly work within the constraints of international laws to reduce the carrier cost advantage and access rights, and fight to slow down the liberalization process that is imminent in the industry in their environment. They are cognizant that little can be done to deprive the Emirates airline and other Gulf Stream entities from using all the freedoms when requested, but using lobbyists to pressure their respective governments to provide protective barriers as long as possible, until they can develop workable market strategies that can compete more effectively with the Emirates, should considered and implemented as soon as possible, if they are to remain competitive in the industry. They should also contemplate portraying the Emirates entry into the prime markets and their growth development plans for their 90 A-380 in the media as excessive, illusory, and doomed for failure, because there are no available markets for them to operate in This may serve to force the Emirates to face pressure from the stakeholders, and possibly revisit their growth plans and reduce the magnitude of the order for the 90 A-380 placed with Airbus for phased in deliveries going into 2020. Should this strategy bears fruit, the European carriers may gain some respite and thus be able to develop their capacities and reduce prices to match the Emirates over the same period. Failure in the above mentioned strategy, may lead the European carriers to adopt another approach that may earn them some temporary respite, and this for them to strongly advocate that the entry of the Emirates into this prime segment of the market is a threat to European business, jobs, and security, and the use of their competitive advantages are unfair to the European Airline Industry. This approach may be considered by many as unethical and poor socially responsible behavior, and could lead to losses in human resource capital and customers, especially in the Emirates can successfully withstand the attack with strategies more effective than what was thrown at them. Finally, in order for European carriers to be effective in their market strategies going into the future, they have to position themselves to access vital information about the modus operandi of the Emirates and other gulf airlines, and this can be done through more effective use of marketing intelligence strategies, one of which is to recruit present and past employees of this organization and promote them to position of influence and authority, where they can implement strategies learnt from their previous employers. This will overtime, enable these European carriers to better understand the cultures of their major competitors, and be able to develop strategies that will enhance their competitiveness and keep them alive in the industry globally. QUESTION 3 The Emirates project itself to grow its aircraft fleet by 4.9% CAGR between 2010 and 2010, with emphasis largely on the purchase and use of these aircrafts to carry passengers. Provision had also been made to gradually increase the cargo capacity with the passenger increases by maintaining an appropriate ratio. Reliable forecast by RBS (2011) for 90 A-380, 70 A-350, and 48 B-777 to be produced and delivered on a phased basis going into 2020 is quite troubling to industry analysts, as they are not certain if the airline will retire the aging B-777 and A-350 at the end of their 12 year operational life span. The Emirates are expected to have a total of 226 and 23 passenger and cargo aircrafts respectively by 2020, but if it chose not to timely retire its aged units, it will be able to dominate the markets even more, due to the fact that it has more airlines at its disposal to dump capacity on greater numbers of markets at the same time. Strategically, the Gulf carrier can analyze the seat departures by region from the table provided by RBS (2011) - courtesy of OAG Max on September 2010, noting that it excluded flights leaving the Dubai hub, and launch comprehensive strategies to outperform its competitors, using theA-380’s with their large capacity, long routes orientations and low pricing. The table revealed that Western Europe, South Asia, the Middle East, South East and South West Pacific, and North East Asia commanded 23.1, 21.0, 9.4, 8.7 and 6.3 % respectively or 82.3% of the daily seat passengers departing to these destinations. Emirates can therefore use this information to dump its capacity on these locations, as well as maximize its service quality, and keep prices at a minimum, to attract major shares of the market going into 2020. It can also maximize its selling of fifth freedoms in these specific zones, to ensure it maintains its competitive advantage and major market share. Use should also be made of the importance of India in the strategy, due to the constantly large flows of immigrant workers from that country to Dubai, and The Middle East. The VFR inflows to Europe and the growing importance of UK tourist fascinated with the Dubai tourism products should also be factored in the company’s drive to add value and maintain competitive advantage. The Emirates can further reshape the forces operating as a result of these movements, in its favor to cement its market status. The organization should also contemplate exploiting the statistics regarding the volume of passengers departing from specific airports within its operating environment, as according to the RBS (2010) case study, 14 of the major departing airports shares between 1.8% and 3.7 % or 51% of all seats departing passengers. This makes it feasible for the airline to concentrate its fifth freedom selling strategies (which is a function of immature routes) within these 14 locations, in order to optimize the capacity of its A-380’s. Under dynamic leadership the Emirates could add more values, and achieve planned profits by seeking alliances with airlines operating in regions like Africa (all regions), North America, East and Central Europe, and Latin and South America, which falls into the lower 0.5 to 3.9% range for seat departing passengers. These airlines may have been suffering from capacity limitations, due to poor capitalization, and could benefit from win/win alliances with a major market leader in the industry. CONCLUSION In the final analysis Emirates, by embracing these different sound strategies, may be able to continue to add value, achieve planned profits, and maintain competitive advantage going into 2020 and even beyond, with its 90 A-380 being globally visible and a fearsome sight to its competitors. Work Cited 1. Porter, Michael, E. “The Five Competitive Forces that shapes strategy” Harvard Business Review 2008. Read More