Fly Emirates Business Model - Case Study Example

Contents Introduction 2 Executive summary 3 Overview of the organization 4 SWOT analysis 5 Porters 5 forces 8 Financial information 10 BCG Matrix 11 Recommendations 12 References 13 International Financial Reporting Standards July 2010 http://www.estandardsforum.org/united-arab-emirates/standards/international-financial-reporting-standards 13 Introduction This report gives a brief of the fly emirates business model and the report has also focused on the evaluation of the organization from a wide perspective. There is an analysis carried out on airline business Emirates evaluating its fit between company’s internal resources and the capabilities i.e. strength and the weakness, and the company’s external possibilities which are the threats and opportunities. The analysis is done using SWOT analysis. The understanding of the airline industry and its participated is generated by the Porters five analysis. airline business Emirates’ risk to profitability, the competitive advantage of the company, its profit potentials that the company which it has by defending against the forces that will have negative effect on profits and how airline business Emirates uses its competitive advantage to protect these forces is are analyzed. The BCG analysis in the report is concerned about airline business Emirates product range with consideration of the market share of these products, providing suitable ways in which the company can use to maximize profitability by handling each particular product in the company portfolio. Executive summary It is in records to be operating the largest A380 and B77 fleets and it has become Boing’s and Airbus’ single important customer. It is believed that by the end of the next decade Emirates Airline will be the largest carrier of both passengers and cargo (Dubai Government, 2006). But with the growing completion from local airliners and international one, regulatory scrutiny and changing Dubai and international laws it could expect the Emirates’ revenue growth rate generally decline. Unstable economic conditions worldwide may have great impact on the revenue rate. With emirates diversifying its activities, the company may face operation challenges and loss site of their core activities. The company recognizes the need for innovation in the sustainability of its services and products due to changing technology each day. Overview of the organization Emirate Airline is a Dubai-based carriers, it was established in 1985 at the time it had two leased aircraft, Emirates Airline is one of the fastest growing carriers in the aviation industry with its profits remain constant despite open skies. It is government owned although it does not receive any subsides from the government. The chairman of the Emirates airline is the highness sheikh Ahmed bin Saeed Al-Maktoum. Emirate has received many awards for quality service airliner hence boost for its high quality services offered (Dubai Government, 2006). The company’s major competitors include Cathay Pacific, Delta, Lufthansa, Gulf Air, British Airways, Malaysia Airways, Singapore, Korean Air, Air France, Northwest Airlines, Kuwait Airways among other airline companies. Current services portfolio strategies include; Quality control with is the most import part of its success, comprehensive aviation training, airline IT development in addition to resort, hotel and tourism strategy(Saurabh, Strategy Paper Development of a New Service Portfolio for Emirates). Facts & Figures (2009 – 10) 1. Aircraft Fleet : 142 2. Million Passengers Carried : 27.5 3. Percentage seat factor : 78.1% 4. Networked destinations : 102 SWOT analysis The SWOT analysis given here for airline business Emirates illustrates its strength and weaknesses, the opportunities and threats faces using an appropriate structure (businessballs, 2011). The importance of the analysis is: To identify strength of Emirates’ might want to capitalize on. To point out the weakness, which airline business Emirates may want to minimize. To make use of the opportunities that may come their way. To find out the potential treats and give a planned and well detail report on them. From the analysis it is clear that Emirates airliner has developed rapidly in the air services within a short period of time. There are financial savings ensure that the company survive even under bad conditions, the company has also diversified its business in to road transport and other services which do not involve air travelling. The airline as an advantage where it is not in any partnership which threatens to split the company apart ( Horth/Alwyn 2005). The largest threat is the political instability in the Middle East, although the company was the only one operation during the Iraq-Kuwait invasion war it remains to be the greatest threat. Competitors lobby to have legislation that will restrict the emirates expansion in its home turf is also a major threat to its expansion plans. There are also other local airliners that are a major threat to the company where there is price-quality service war. Porters 5 forces The porter’s 5 Forces analysis on airline business Emirates it is basically looking at the external factors that influence the competition nature within the organization, and the forces inside airline business Emirates that influence the way firms compete and it also make an analysis of the potential profitability (Michael,1998). There are intern factors like high demand for services by the company, Emirates airline seems to be aware of the demand and has positively responded by purchase of large fleet to carry large number of passengers and cargo. This gives them a competitive edge and is what sets out competition. Airline industry has a major threat of high rivalry which creates strive completion. Emirates airliner is also being faced threats from its competitors which are lobbying government legislation that will hinder the expansion in its ‘home turf’. The entrance of new service providers like local airliner curriers who are also putting up a smart business competition by offering quality services at the same price as Emirates airliners. The organization need to be aware of these forces and come up with suitable strategies that will not only sustain them in the market but also maintain profits. Porters 5 forces Force Impact on fly emirates Threat on new entrants There are minimum government legislations which hinder the business their entrance may allow easer passage of competitors in the market. Rapid growth of middle east countries may led to other airlines to come in because airline services by emirates have not reached perfect stage hence any airline may do better. For instance Qatar airways and Etihad Airways are coming in as local competitors both gulf based carriers. Bargaining power of suppliers Emirates dominance is just in the Dubai which local but not global. Competition, elimination and substitution- other airlines are offering same services at same price or lower. Forward integration more local based airlines combing to offer services that will make it hard for Emirates to compete favorably. Bargaining power of buyers Buyers are able to compare prices online hence chooses the cheapest airline. Loss of award winning of quality service provider. Switching cost related to aircrafts speed of service provision and dealing with challenges. Threat of substitute products or services Qatar airways with 57 aircraft with another 113 on firm order and Etihad fleet with 25 wide-bodies and 21 aircraft on order. They offer same services as Emirates. Loss of company secretes when high qualified staff move from one airliner to another. Degree of rivalry among existing competitors The is high rivalry from competitors of core market like Germany, France and Australia which are largely monitoring the expansion of Emirate at home turf for instance campaign to have protection on the emirate expansion plans. Lufthansa campaign against Emirate’s service to Berlin and Stuttgart. Financial information Emirates a which is a Dubai based airline, released the profit for the half-year which was Dhs 284 million (around £49m) these was for the first six months of the 2008 financial year. It was observed that this was down 88% compared with the same period last year due to record fuel prices despite the company’s growth of 31% in operation revenue and 11% on passengers. There was 27.4 million passengers in the 2009-2010 financial year which 20.1% increase from 2008-09 financial year. The profit for Emirates airline in 2009-10 fiscal years was AED 3538 Million ($964 million). Emirates airline does not accounting law nor legal mandate for accounting standards this was according to IMF report on 2007on financial stability ( estandardsforum, 2010) BCG Matrix Question Marks This are products that grow rapidly hence consume large amount of cash given that they have low market shares, they do not generate much cash. If the market slows question marks can grow into star and finally become cash cows. Dogs Dogs neither consume nor generate a large amount of cash. Emirates has begun drop-off and pick- up of first class and business class passengers. Stars Stars generate large amount of cash because of their strong relative market share. However they consume large amount of cash due to the high growth rate. Cash Cows They generate more cash than they consume. The cash generated is used to convert question marks into market leaders. High Rate of market growth Low Low RELATIVE MARKET SHARE High Recommendations Emairates airliner should focus on the factors that influence success such as, it location in the tourist hub, low tax regime, quality service delivery by its staff to maintain its profits and have a competitive edge in the market. They should consider both cargo and passenger services because they are the main source of income where customer satisfaction and return will be important. Emirates need to invest more in setting up qualifies employee and infrastructure systems in managing their growth. This is important to meet the new and challenging customer needs in their product and services. There should be an increase in the passenger capacity in addition to its A380 and B77 fleets hence meeting the growing number of customers. There should be advertisement of the company’s services this may be more effective by making use of social network like facebook and twitter among others, increase their presence in the international market by expanding their routes in different cities. The company should also have plans to acquire businesses and other properties frequently because this is the best way to get the company stable in aviation field and other services and products it offers. Emirates is being considered international airliner (Wilson, G., 2005) hence it should put more focus on the international business and revenue which has a higher percentage of the company’s overall business. Being on the international market the company can makes good use of the foreign currency from the fluctuating US dollar exchange rate. There should be a comprehensive risk management plan to help the company to manage fluctuation in the foreign currencies and other risks which may come as a result of international business. References Dubai Government (2006), Dubai Strategic Plan 2015. Highlights, Dubai.(http://egov.dubai.ae/opt/CMSContent/Active/CORP/en/Documents/DSPE.pdf) Horth, D., and T. Alwyn (2005), The nextlow-cost threat. What does Emirates mean for Europe?, UBS Investment Research QSeries, January 13th, 2005, Zurich. (http://www.airneth.nl/serve_file.php?dType=dDocument&id=157) Wilson, G. (2005), Emirates. The Airline of the Future, London and Dubai. Porter, Michael E.(1998), Competitive Strategy: Techniques for Analyzing Industries and Competitors SWOT analysis method and examples, with free SWOT template http://www.businessballs.com/swotanalysisfreetemplate.htm free management and training templates, resources and tools http://www.businessballs.com/freeonlineresources.htm http://www.hoovers.com/company/Emirates/rrkcxsi-1-1njea3.html Andreas Knorr and Alexander Eisenkopf, Business Analysis: How Sustainable is Emirates’ Business Model? Aerlines Magazine e-zine edition, Issue 38 Emirates Airline Passenger Reviews and Emirates Customer Trip Reports http://www.airlinequality.com/Forum/emrts.htm EMIRATES official 4-Star Ranking of Product and Service Quality http://www.airlinequality.com/Airlines/EK.htm Saurabh Gupta “Strategy Paper Development of New Service Portfolio For Emirates” eEPSM- 02-043 Vashi centre International Financial Reporting Standards July 2010 http://www.estandardsforum.org/united-arab-emirates/standards/international-financial-reporting-standards Read More