Emirates Airlines Are Successful Airlines - Research Paper Example

Emirates – fly solo, fly high Executive Summary The success of Emirates Airlines is the outcome of efficient management of the natural and other resources, of effective control and planning, of an ambitious vision and a stable and dynamic leadership. The market and business environment is turbulent and decisions may have to be made at short-notice. Maintaining a narrow organizational structure has enabled quick decision-making. In addition, strong brand management with a customer-centric approach has contributed to their growth and development. The low-cost model is also an outcome of the visionary leadership which prepared them much ahead to meet the challenges. The case of Emirates demonstrates that the four basic management functions of planning, organizing, leading and control have to be implemented at each stage within the organization. Table of Contents 1.0 Introduction 1 2.0 Management functions 2 3.0 Emirates Airlines 2 3.1 Business Model 3 3.2 Managing resources 3.2.1 Location 3 3.2.2 Managing Finances 4 3.2.3 Managing people 4 3.2.4 Technological resources 5 3.3 Business Strategy 3.3.1 Strategic Alliance 6 3.3.2 Low-cost model 6 3.3.3 Organization structure 7 3.3.4 Advertising strategy 8 3.3.5 Customer-focused approach 8 4.0 Discussion 9 5.0 Conclusion 11 References 12 1.0 Introduction A strategy of merging two ailing airlines (Air France-KLM) is yet to prove a success while Emirates Airlines (Emirates) ordered 32 Airbus and 380 Super Jumbo Jets (Mnisri, 2010). They have been able to sign off the single most expensive order of airplanes in history at a cost of $19 billion (Strategic Direction, 2006). Emirates has continued to increase traffic and revenues by 20% annually even as its rivals face pressure due to rising fuel and personnel costs and mounting losses (Knowledge@Wharton, 2007). This is particularly interesting given that Emirates had begun its operations with a fleet of two borrowed aircrafts in 1985 (Business Strategy Review, 2005). Emirates too faced the same challenges as other airlines such as falling demands, price-war and shattering consumer confidence (Nataraja & Al-Aali, 2011). Despite this, Emirates held out remarkably well against prevailing industry norms. The rise and fall of firms in a competitive environment has become the norm as organizations undergo the phases of setting-up, growing, then the struggle to survive, prosper or endure or decline and perish (Wren 2001). While causes and solution to handle failures or prevent the firm from declining are many, developing a business strategy to cope with turbulent and competitive environment requires efficient management. Organizational performance can be enhanced if the management is able to efficiently utilize organizational resources such as capital, people, organisation and technology. This basically comprises of four basic functions such as planning, organising, leading and controlling (Fayol). 2.0 Management functions Management is the “mental and physical effort to coordinate diverse activities to achieve desired results” and the process includes planning, organization, staffing, directing, and controlling (Carl Welte cited in Handbook for Excellence, n.d.). To manage is to forecast and plan, to organize, to command, & to control (Fayol cited by Management Study Guide, 2012). However, the most widely accepted functions of management given by KOONTZ and O’DONNEL including Planning, Organizing, Staffing, Directing and Controlling. To achieve the desired organizational performance organizations attempt to coordinate all the different management functions. Emirates Airline is one such organization that has consistently been achieving success. Based on the four management functions this report presents an analysis of the business model of Emirates Airlines (Emirates), one of the fast-growing international airline with one of the youngest fleets and with more than 400 rewards for excellence worldwide (Emirates.com). 3.0 Emirates Airlines Wholly owned by the Government of Dubai, Emirates has grown not through protectionism but through competition. The business environment has been turbulent as many international carriers have taken advantage of the open-sky policies of Dubai (emirates.com). Business ethics is the foundation of their success; besides they care for their stakeholders including their employees, the community and the environment (Emirates, 2012). It has been able to develop a global strategy that has taken it beyond the limits of the regional market (Namaki, 2007). The purpose of planning is to improve the organization’s performance, to bring about a change. The strategy selection itself is a systematic process that defines the organization’s purpose and goals (Dorris, Kelley & Trainer, 2002). Emirates determined their vision and values, which is the first step in strategic planning, and then these principles propelled them forward. The concrete goals thus determined with the outcomes represent the achievement of their vision. 3.1 Business Model A strong, stable and visionary leadership team, calculated decision-making, customer-focused approach and ground-breaking ideas have played a dominant role in the growth and development of Emirates (Nataraja & Al-Aali, 2011). The formula for success is based on the ambitious strategy to transform Dubai into a regional hub of trade and tourism in the Middle East. The business model of Emirates in unique. Emirates writes its own script rather than copy what others do. It is based on the optimum utilization of the resources at hand and in efficient, planning and controlling of people and resources. Its location, organizational culture and internal strategic decision-making have contributed to its success. Its strength lies in its creativity in seizing opportunities and solving problems as they arise (Sull, Ghoshal & Monteiro, 2005). They defy conventional wisdom and they need to be unique considering they deal with both internal and external customers with different environment, cultures and nationalities. 3.2 Managing resources 3.2.1 Location Emirates Airline enjoys advantage because of its geographical location and has used this to create a mega-hub at Dubai which enables the domiciled carrier to collect traffic from the six continents and then redistribute it over its hub (O’Connell, 2011). This has enabled the airline to expand its route network because half the world’s population is within an eight-hour flight from Dubai (Knowledge@Wharton, 2007) which has also helped it to serve secondary destinations (Namaki, 2007). Besides, their airport is open round the clock. Thus Emirates has very successfully exploited the natural resource – the location – to its advantage. 3.2.2 Managing Finances Emirates Airlines competes directly with 23 airlines but has been able to manage its finances efficiently (Namaki, 2007). Good management and cost reduction becomes essential where major cost items such as taxation, fuel, insurance and security are concerned. The airline was given just $18 million which includes $10 million as start-up money and it has never sought any subsidy or aid from the government. The airline now returns a dividend to the government of more than $100 million a year (Knowledge@Wharton, 2007). It has never received any debt relief or bailout package like British Airways or Air France. Ordering for new jumbo jetliners at a cost of approximately $250 million each with a capacity to handle 644 passengers may look like a gamble (Knowledge@Wharton, 2007). The airline considered the super-sized Airbus Jets as the best way to deal with shortage of available runway slots, particularly in the key markets of Europe. The argument put forth is that an aircraft with just 50 seats takes just as much of runway slots as an aircraft with 600 seats. This argument demonstrates efficient management of financial resources as well as efficiency in dealing with the external environment such as availability of runway slots. 3.2.3 Managing people Out of 28,000 employees, it has 13,000 cabin crew members from 120 different nations speaking 60 different languages (Strategic Direction, 2012). Managing cultural diversity is challenging but at the same time the difference in culture keeps the company’s wheels oiled (Sull, Ghoshal & Monteiro, 2005). The challenges grew as diversity increased but having a culture of finding solutions as the problems arise, Emirates could efficiently deal with this challenge. They drew upon the different attitudes and view points through a transparent and open style management (Strategic Direction, 2006). To ensure reliability of service and improve efficiency, the airline put better measurement systems in place (Sull, Ghoshal & Monteiro, 2005). The staff is provided training in finance to understand the financial implications of their actions. Training has to be just-in-time and not one-way communication (Woodward, 2007). At Emirates, people are made to understand why they need to understand something (O’Connell, 2011).They consider their employees as part of the family and even when the airline was a private company and it was not mandatory, they shared the financial reports with their staff. This instills a sense of confidence and ownership in them, which can be a great motivator. During the turbulent times following the September 11 terrorist attacks, while most carriers announced redundancies, Emirates did not lose its nerve. This is again due to its unique people management strategy when the employees were given the reassurance and confidence. The right way of dealing with people is critical and is more than the combined effect of strategy, product, service quality, or even the manufacturing technology or the expenditure on R&D (Gollan, 2006). Thus, no redundancies were announced, their increments were paid and their worked together as a multinational team. 3.2.4 Technological resources Latest technology dominates its day-to-day operations. Emirates has control over a single global system which is deployed in 14 different languages and supports payments in 14 different currencies (Nataraja & Al-Aali, 2011). It also uses technology to segment its geographically dispersed customers by region and traveler type. This strategy enables the airline to customize the products and services to suit the individual markets. Emirates Airlines uses technologically advanced, all wide-bodied fleet, which results in lower unit cost compared to competitors that have a mix of narrow and wide-bodied fleet (Namaki, 2007). This strategy enables Emirates to use the aircrafts’ cargo capacity to boost its overall revenues. This is particularly helpful during economic recession or during lean season. Emirates Airlines uses the latest in technology to enhance customer experience on board. As early as in the 1990s the airline was offering personal video screen to passengers even in the economy class (Knowledge@Wharton, 2007). The information and entertainment system in all its aircrafts includes more than 130 on-demand movies and 60 TV channels in addition to 350 audio channels. Seats also have a telephone handset and a controller for video games. The new jetliners are equipped with separate with sliding doors for the first-class customers. 3.3 Business Strategy 3.3.1 Strategic Alliance Emirates has not entered into alliance with any other airline based on the belief that they do what is right for them and not what should be done. They prefer to “fly solo” (Strategic Direction, 2006) since it functionally does not fit their strategy (Nataraja & Al-Aali, 2011). The high cost of compliance with alliance membership does not justify the benefits such alliances can bring (Namaki, 2007). 3.3.2 Low-cost model Another essential element of this business model is its low-cost structure. This enables it to offer low fares which triggers traffic (O’Connell, 2011). Emirates can operate on low fares because of its policy to hire expatriate managers thereby keeping its costs controlled. In addition, lack of corporate taxes in Dubai gives it the advantage and enables it to offer low fares. Its workforce comprises of workers from low-wage economies, thereby allowing the organization to control costs. The airlines labour cost is only 10% of its operating expenses against 40% in the UK or the USA. One of the US carriers – United Airlines offered its employees 40% raises in a four-year contract in 2000 (Knowledge@Wharton, 2007). High salaries in the aviation industry also translate into larger pension costs and Emirates did not enter into such deals. This demonstrates the mission, goals and efficient planning right from the beginning. Emirates Airlines operates on a lean workforce policy which accounts for its low cost and provides it with a strong cost-based competitive profile (Namaki, 2007). This allows the airline to compete with the “no frills” low-cost carriers. Its overhead are further minimized because of a simple organizational structure. In addition, unionization is not permitted. Emirates can attract employees from low-wage economies to work in Dubai because of the absence of income tax apart from the reputation of the airline (Sull, Ghoshal & Monteiro, 2005). Low airport charges and an uncongested hub reduce its fuel costs, which helps it to maintain its costs (Adler & Gellman, 2012). Thus, Emirates has taken full advantage of the opportunity to control its cost below the industry norm. As a result Emirates has the lowest cost per passenger mile than any other major operator. 3.3.3 Organization structure Emirates Airlines maintains a simplified management hierarchy and a narrow ownership structure which enables quick decision-making by the management. They work more like a start-up than a traditional airline (Sull, Ghoshal & Monteiro, 2005). Its organizational culture enables fast-thinking and makes it a forward-looking company thereby helping the organization to take quick action on its strategic decisions (Strategic Direction, 2006). The organization is run more like a family and has an entrepreneurial spirit which gives it the structural flexibility (Sull, Ghoshal & Monteiro, 2005). They take advantage of the individual strengths. They do not have a board with non-executive directors; they have an open agenda instead. Emirates’ decision-making abilities are greatly helped by its lean management structure which enables bold moves to be decided and acted upon quickly (Knowledge@Wharton, 2007). The CEO Maurice Flanagan and the Sheikh Ahmed bin Saeed Al Maktoum, Chairman of the Emirates, along with a handful of other executives are at the helm of affairs which makes the decision-making process smooth and quick. 3.3.4 Advertising strategy Another important element in the business model is its investment in brand building and sports sponsorship which has become an integral element in its marketing mix (O’Connell, 2011). The airline spends about 4% of its revenues in marketing – equally divided in advertising and sports sponsorship. The management believes that sponsorship is the best way to connect to its passengers and the diversity of these sporting events reflects the different segments of its passenger profile. They associate their brand with excellence and are against the use of the word ‘marketing’ in the job title of their employees (Knowledge@Wharton, 2007). 3.3.5 Customer-focused approach It provides the best ground services through early check-in, waiting lounges and chauffeur-driven airport transfers in select cities (Nataraja & Al-Aali, 2011). While the airline focuses on controlling costs, they have not compromised on customer service. They, in fact, offer top-notch cabin service and the latest in technology which helps them enhance customer service on their long-haul flights (Knowledge@Wharton, 2007). This serves to enhance customer loyalty. The airline has proved its capability in controlling end-to-end passenger experience. Its product differentiation strategy also adds to its strategic planning. 4.0 Discussion Management function such as planning, organising, leading and controlling are linked and they influence an airline’s organisational performance in a turbulent and competitive world. The five different business functions at Emirates include finance, people, product and service, sales and marketing, and growth and development. Each of these functions contributes to quality both individually and collectively. This requires an appropriate integration of all the processes through effective management. The management of any business according to the Deming’s consideration has two sets of problems – problems of today and those of tomorrow (Kruger, 2001). The problems of today encompass the immediate needs where as those of tomorrow concern the long-term objectives. To overcome the problems requires prevoyance – planning. Planning is to forecast and plan (Fayol cited by Edgell, n.d.). Emirates had both the short-term and long-term objectives well defined. Emirates planned well in advance to operate wide-bodied aircrafts. The strategy for growth has to fit with the demand and supply in the business environment. Emirates adheres to its policy of wide-bodied aircrafts which has enabled it to cope with runway shortage, high airport charges and rising fuel costs. Bigger aircrafts bring in increased revenue through passengers as well as through enhanced cargo capacity. Planning is an ongoing process in developing the business’ mission and objectives. The objective was to transform Dubai as the hub for trade and tourism. All efforts were directed with this mission, which helped the airline to achieve the intended objectives. Organizing involves coordination and control of tasks and the flow of information. This requires a dynamic leadership which is available at Emirates. When all other airlines were entering into alliances, Emirates could refrain from doing so. They could control their decision because of effective evaluation of costs and benefits. Locational advantage was used effectively to serve secondary destinations because of proper coordination. Managers need to have a commitment to the organization and work towards its objectives on a long-term basis. Maurice Flanagan launched the airline in 1985 and continues to steer the organization towards higher goals. His personal involvement and commitment to the organization is unparallel. Managers have to lead by their own example. Leadership is an essential element that holds an organization together (Rapid Intellect Group, 2005). Flanagan’s leadership has demonstrated that it is possible to steer the organization towards growth and development by having a well informed and a coordinated team. The employees are informed why need to know something; financial reports are shared with them. The strength of a leader lies in his ability to inspire others to give their best (Lakomski, 2001) which the leadership at Emirates has been able to do. This leadership has also been able to bring people together from different cultural backgrounds and still develop synergy (Sorenson, 2000). Transformational leadership at Emirates has helped to boost the morale of the workers and sustain their interest. Control is evident at each stage of development and in each business process. Control is also to evaluate the planning and implementation of the business strategy. Emirates have been able to control its finances and hence could succeed in the low-cost model. To maintain low fares and to respond to the cost pressures, their strategy was to hire people from low-wage countries. They continue to do so as it has helped them have cost advantage over competitors. Thus, the phenomenal growth and development experienced by Emirates is not possible without proper alignment and synergy across business processes and across management functions. 5.0 Conclusion The success of Emirates Airlines is the outcome of efficient management of the natural and other resources, of effective control and planning, of an ambitious vision and a stable and dynamic leadership. Maintaining a narrow organizational structure has enabled quick decision-making. In addition, strong brand management with a customer-centric approach has contributed to their growth and development. The market and business environment is dynamic and decisions may have to be made at short-notice, which is possible at Emirates because of the lean management structure. The managers are equipped with all the four functions. Any situation needs planning ahead of implementation which is evident from the visionary leadership at Emirates. Organization implies chalking out details which takes into account the revenue model, the customer preferences, the operational dilemmas of today and also those of tomorrow. The low-cost model is also an outcome of the visionary leadership which prepared them much ahead to meet the challenges. Effective leadership has helped to control and supervise the different processes. Control helps the management to evaluate the entire process and alter the strategy as the situation demands. The case of Emirates demonstrates that the four basic management functions of planning, organizing, leading and control have to be implemented at each stage within the organization. References Adler, N., & Gellman, A. (2012). Strategies for managing risk in a changing aviation environment. Journal of Air Transport Management, 21, 24-35 Dooris, M. J., Kelley, J. M., & Trainer, J. F. (2002). Strategic Planning in Higher Education. NEW DIRECTIONS FOR HIGER EDUCATION, 116, 5-11 Edgell, R. (n.d.). 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