Airlines Operation in Three Full-Service Carriers in the Persian Gulf - Case Study Example

Airlines Operations Name Institution Date Table of Contents Running Head: AIRLINES OPERATIONS 1 Airlines Operations 1 Name 1 Table of Contents 2 AIRLINES OPERATIONS 18 2 Airlines Operations 3 Introduction 3 Objectives 4 Analyses 4 Business strategy of each airline 4 Qatar Airlines 4 Present and future profitability 5 Strengths and weaknesses 6 Prospects for the future 7 Etihad Airways 7 Present and future profitability 10 Prospects for the future 11 Emirates Airways 12 Profile and strategy 12 Strengths and weaknesses 14 Present and future profitability 14 Future prospects 15 Conclusion 15 References 17 Business Age, (2013).Qatar Airways: World 5-star Airline. Retrieved on June 14, 2013 from: 17 Jones, M. (2009). Middle East supplement: Qatar Airways - not slowing down. Retrieved on June 14, 2013 from: 18 PRNewswire, (2011). Qatar Airways Named Airline of the Year at Skytrax World Airline Awards 2011. Retrieved on June 16, 2013 from: 18 Rahman, S. (2013). Emirates airline profits up 34% to Dh3.1 billion. Retrieved on June 16, 2013 from: 18 Thisdaylive (2013).Emirates, Etihad, Qatar: The Steady Rise of Persian Gulf Airlines.Retrieved on June 14, 2013 from: 19 http://www.thisdaylive.com/articles/emirates-etihad-qatar-the-steady-rise-of-persian-gulf- airlines/148517/. 19 Airlines Operations Introduction There are three full service carriers at the Persian Gulf. These include Emirates, Etihad and Qatar Airways. These carriers are emerging and may soon become the dominating forces in this airline industry. These airlines have slowly taken over airline operations from the traditional carriers from Europe such as Lufthansa, KLM, AirFrance and British Airways (Thisdaylive, 2013). In the past, London, Frankfurt and Paris have been the conventional change hubs. However, these have been taken over by Abu Dhabi, Doha and Dubai. In fact, the Persian Gulf carriers have had a very huge inroad and this has forced some of the traditional carriers into merging so as to compete favorably and not struggle alone in the aviation industry. There have been strategic investments made by cooperative governments and these investments have given the three airlines large fleets and big airports. These airlines therefore have the fleet to carry the business along with the connections and they are opening up new markets. These airlines are constructing global interchanges, unlike their European counterparts who are striving to expand their old airports. Therefore, investing in one of these airlines is a good investment. This paper shall investigate the three airlines in terms of their business strategy, their competitive edge over each other and their prospects for the future among other business analysis. This shall be done with a view to recommending the best airline. Objectives The objectives of this report are to: Present a business comparison of the three airlines, Emirates, Etihad and Qatar Airways. Investigate the present and future profitability of the airlines To show the ability of the airlines to compete To demonstrate the best airline to invest with Analyses Business strategy of each airline Qatar Airlines Qatar Airways began its operations in Nepal in 1994 with one flight per day. The airline operates in cargo and passenger carrying. This airline has come a long way and was even awarded a five star rating by a consultancy based in UK (Skytrax). In 2011, the airline was named the airline of the year by Skytrax during the Skytrax Airline Awards for that year. The airline was given the award for its excellent performance in various areas that included onboard service, inflight products, environmental leadership and the overall leadership of the company (PRNewswire, 2011). One of the important strategies of Qatar Airlines is its strategic retail planning. This is a plan that the airline has set so as to ensure that it is profitable in all of its operations. The strategic plan for this airline is set on its customers since they are a key part of the existence of the company. The airline has a strategy that is to reinforce efforts on its brand position and to establish a platform that can be used to deliver credibility for the brand. The airline therefore makes every effort to broaden the visibility of its brand and it links the brand values and attributes with the customers so as to establish a relationship that is loyal and long-lasting. The airline uses a marketing strategy that is meant to enhance its brand. In addition, its business strategy is to ensure that the customers are highly valued. The company also seeks to expand its operations and its market together with key expansions in its capacity. The company has a forward looking strategy of expansion which it has successfully used in Asia while expanding its operations. The aggressiveness of the airline towards expansion has seen it spread across the world to various countries in Asia, Africa, North America, Europe, South America and Oceania. This totals to operations in about 69 countries. While carrying out its operations, the objectives of the company are to improve service to customers, to reduce its costs and to have a differentiated strategy. Present and future profitability Qatar airlines has been profitable for the reasonable part of the last few years. For instance, the airlines had total earnings of 215 million USD in the year 2010 and these were from revenues of about 6.4 billion USD. The company has set an objective of increasing its sales by volume by 40 % in three years. The target is to increase its profits by 40%. This should make the company more and more profitable. In addition, the airline is set to be a member of the Oneworld Alliance in late 2013 or early 2014. This is an alliance that is among the top three world airline alliances and the airline will benefit from this membership by having an assurance of passengers. This alliance will enable the airline to generate more revenue. The alliance is a noble idea because it encompasses the world’s leading airlines and makes them operate as one. By being a member of the alliance, the airline will operate more efficiently and benefit from being known as one of the world’s leading airlines. This shall also promote the brand of the airline further. Strengths and weaknesses One of the strengths of Qatar Airlines is its practice of value based theory. Under this practice, the company offers tickets that are affordable to all of its customers. By doing this, the company becomes competitive in the aviation industry both in Qatar and around the world because it is able to attract and to sustain its customers. An imperative point to note is that most airlines that operate in Qatar, such as British Airways provide tickets that are expensive. In addition, Qatar airlines is a cost leader. This enables the company to establish an excellent strategic plan that enables the company to enjoy huge economies of scale. The company cuts down the production costs through a policy that encompasses only third class of travel, charging all its meals and beverages, reducing allowances for luggage and employing staff who are cheaper. Another important strength of Qatar Airlines is its good reputation in the market in Qatar and some Asian countries such as UAE and Singapore. Having a food reputation enables the company to build an appealing public image and hence the company does not incur a lot of expenses in advertising and promoting its products. Customers will freely stream into the company. With its good capital base, the company is well cushioned against financial difficulties that arise time and again in economies. Therefore, the company has laid down strategies that will enable it be competitive in the aviation industry (Jones, 2009). The weakness shown by the firm is its use of only one class of travel. This could be used as a threat to the company because the tastes and preferences of some customers may not be met. Therefore, this may prompt them to seek other alternatives since their considerations cannot be met by Qatar airlines. Prospects for the future With the operations of the country projected to link up nearly 100 destinations internationally; and with a targeted fleet of over 100 aircraft, the airline has its operations set for further profits since it is aggressive in its policy of expansion. In addition, the objectives set to reach an increase in sales by 40% will enable the company to be more profitable and it will increase its financial stability. For a company that already has a strong financial capital base, it can only get better in terms of its financial stability and this shall be an important attribute during the tough economic times and during torrid financial times. Etihad Airways This airline was established in 2003 and it is during the same year that it began its operations. This airline is the national airline of UAE. It operates nearly 1000 every week and serves 66 destinations in 44 countries. The major regions that are served by this company include Asia, North America, Middle East and Europe. The firm is purposed to reflect the Arabian culture and hospitality while promoting Abu Dhabi as a business center that is attractive in the Middle East. The main business of the company is international air transport; though there are other business ventures in cargo and hospitality through Etihad Cargo and Etihad holidays (Tehrantimes, 2009). The company works to constantly provide its guests with an air travel experience that is incredible. In addition, the company’s goal is to continue developing relationships that are enduring in an environment that is competitive. This is done with the goal of continually building a diversified and resilient access to financial markets. The company seeks to expand this relationship with institutions from a diversified market. The intention of the company is to ensure that the company has a lasting relationship with other institutions and eventually stabilize the operations of the company. For instance, the company entered into a relationship with V Australia and this will enable the company to control a big part of the domestic market (AbuShahoud et al, 2011). Over the last 8 years, the airline has already received a number of awards including the World’s Leading Airline in 2009 and in 2010 (Etihad Airways, 2011). One strategy that the company has deployed is the use of fewer destinations as compared to its competitors. By so doing, the company focuses on the few destinations it has so as to provide better services other than searching for new destinations. The company has therefore settled on providing quality and not quantity and this is a great concern in the aviation industry. This bonds well with the drive of the airline to become luxury brand and not just a low cost airline that is cheap. The company recognizes that potential customers can be gained when they realize they can get value for their money. Over the recent years, the perception of customers has changed and the focus shifted to quality without keen consideration on the cost. Having realized this, Etihad has set out to provide the quality that is desired by the customers and this has been a driving strategy for the company. The marketing strategy that the company deploys begins by segmentation of the market, selecting the most profitable segments and then setting the position of the service and products to the customers’ minds in the selected segment (Kotelr et al, 2009). Since Etihad Airways has a small number of destinations, it is easier for the company to set put its effective products and services to the segments it has provided. The company then provides the services and communicates them to the customers. In 2008, Etihad Airways received the marketing award and during the time, the CEO described the strategy to have been guided by four main principles. One of the principles was to prevent undifferentiated superiority. The second principle was to be inspirational to customers by acting like a small airline and providing personalized services to all the classes, including the economy class. The company also uses the principle of acting like a luxury brand though it does not lose sight of the whole spectrum. The last principle that is used by the airline is that of promoting Abu Dhabi as well as lining up its image with that of Etihad by using a slogan that states “From Abu Dhabi to the World” (Airline Strategy Awards, 2008). Etihad provides quality services and products to its customers under the guidance of quality and not quantity. This has enabled the company to provide services that are personalized and suited for every customer. This move attracts several customers and for those who have already used the airline, they keep coming back to the company for the services. Present and future profitability The first time that the Etihad Airways registered a full year net profit was in 2011 where the company registered a total of USD 14 million (CAPA, 2012). The profits increased in 2012 reaching a total of USD 17 million. Going by the trend, the company has already established its ability to work profitably all through the year and it can only get better in the coming years. this trend is projected to get better since in the year 2012, the company registered a 23% increase in the number of passengers carried, reaching a total of 10.3 million passengers (Ameinfo, 2012). Strengths and weaknesses The pace at which the Etihad fleet has grown between 2003 and 2011 was so fast. The airline had its fleet grow from 6 to 57 and the 57 aircraft were modern. These require less time to service and maintain ensuring that the aircraft spends more time in the year hence yielding more profits. The airline has also struck successful partnerships that have enabled it to establish new destinations. Such a partnership includes the partnership with Virgin Blue Australia. The company has also deployed the policy of diversity through provision of cargo as well as holiday services. This has effectively increased the net revenue of the company to over 2.3 billion dollars. The company also has creative and innovative services like the provision of limousines for ground service pick-up. The company increases its seating capacity every year. This increases the capacity of the company to operate profitably. In addition, the company’s drive to provide high quality services to its customers is a great push for the company to attract and retain its customers. This drive has been echoed by the awards that the company has received from World Travel Awards (Etihad Website, 2011). The company also has a unique design of its cabins, which includes a diamond zone for the first class, a pearl zone for the business class and a coral zone for the economy class. This uniqueness in its design is an attractive prospect for existing and potential customers. It is a reason for the customers to prefer Etihad Airways as compared to the other airline companies. One weakness that is shown by the company is the low number of destinations as compared to its competitors. This limits the number of customers that the company gets. In addition, the company experiences delays in processing of compensation for its customers. This demoralizes the customers. Customers have also complained of weak support from the customer service centers. This demoralizes customers at a time when they need important help from the service centers. Prospects for the future The company does not have a desire to expand its operations in terms of destinations. However, the focus of the company is to enhance the quality of services offered to its customers. This implies that the company will have to focus on enhancing the technology it uses and upgrading it time and again. It is through developing technology that the future of the company can be sustained since the technology can be used to enhance the quality of services offered to customers. The company can also continue using its creativity and innovativeness in enhancing the types of services it offers to its customers. Through this, the company can develop in its service provision. Emirates Airways Profile and strategy Emirates Airlines is based in the UAE. This company has its main business in air transport both in the UAE and internationally. It operates as part of the Emirates group. The company offers passenger services, postal carriage services and cargo services. The company also provides wholesale as well as retail consumer goods, hotel operations and institutional catering. In 2011, it was named the airline of the year by the Air Transport World (eTravel, 2011). To gain a competitive advantage over other companies, Emirates Airlines uses its leadership style to be a top class airline company. The company has focused on its leadership so as to ensure information is effectively communicated to employees and to its customers (Bamber et al, 2009). Emirates Airlines focuses on motivating its staff and ensuring that they are satisfied. This is done with the belief that happy employees provide quality services. The company therefore uses measures such as empowerment so as to make the employees effective in delivering the services to its customers. The company also uses diversity to enhance its operations. The company has a wide variety of staff and this makes the company have a variety of culture at its disposal. Through this, the company provides services to people efficiently since the various employees from various cultures understand how to naturally relate with the customers. This has given the company a positive edge in terms of the services offered. With this diversity, the company works to ensure that the whole team works together towards attainment of the same goal. The company has also established a culture where managers and their employees get involved in a joint venture that is to enhance the quality of services delivered to customers. By so doing, the services offered to customers lead to customer satisfaction and propels the company further forward. The marketing strategy of the company takes the 4 C’s format where there exists a link between the consumer and the company through provision of convenient services at an effective cost and this information is effectively communicated to the customers. The Emirates has also set up partnerships with over 100 hotels and this creates an easy market for them through the many tourists that visit the hotels. Strengths and weaknesses The move by the Emirates Airlines to focus on diversity has enabled the company to have a diversified market. This promotes the market base of the company hence increasing its market share. In addition, the company has indulged in cargo shipping and this has made the company one of the top brands in aviation across the globe. The firm also has a great ability to adapt to the changing market conditions so as to maximize its profits. This makes the company an all-season company. In addition, the company listens to and identifies with its customers hence developing a strong corporate culture that is comparable to none in the aviation industry. The Emirates also has an ability to constantly renew and improve the services offered and at the same time manage the needs of the targeted customers and this has sustained the status of the company as a leader in the aviation industry (Emirates Airlines, 2013). However, the weakness faced by the company is that of diversification. This has been considered as a risk since the company focuses so much on high end acquisitions. Present and future profitability For the past 25 years, Emirates Airlines has been registering constant profits annually. For the year 2012- 2013, the company had an increase of 34% in net profit, reaching Dh 3.1bilion. The trend suggests that the company will continue making profits for the foreseeable future (Rahman, 2013). Future prospects Having established itself sine the 1980s, the company’s profits project a bright future. The company has continuously made profits and this suggest that the company is sustainable. The turnover noted by the company is encouraging, having been increasing every year since 1997. Therefore, the company’s future can be further enhanced by constantly developing its strategies and sewing up the weaknesses registered. Fleet and networks Airline Fleet Size Networks (destinations) Qatar Airways 68 (Airbus and Boeing) 84 Etihad Airways 57 66 Emirates Airways 140 (Boeing and Airbus) 105 Conclusion The aviation industry is an interesting industry in terms of the amount of profit that can be made; yet this has to be approached with absolute care. The industry can make huge profits in a short duration of time and can also make losses within a short period of time. It is therefore noble for the Fund to invest in the aviation industry. In addition, the industry faces the challenge of high fuel costs and this implies that whenever the costs of fuel change, the industry is affected. This requires that the company has a very strong capital base and the financial status has to be stable. It also requires the desire to continuously adapt to the changing marketing conditions. The analysis shows that Emirates stadium has a better ability to adapt to changing conditions in the market. In addition, history of the company demonstrates constant profits over the last five years. Therefore, it is a company that has a greater ability to compete and should be the best option for investing in. References AbuShahout et al, (2011). Etihad Airways Marketing Strategy. University of Wollolong, Sydney Business School. Ameinfo, (2012). Etihad Airways Profit for 2012 Jumps. Retrieved on June 16, 2013 from: http://www.ameinfo.com/etihad-airways-profit-2012-jumps-200-328309. Bamber et al, (2009). Up in the Air: How Airlines Can Improve Performance by Engaging their Employees. Cornell University Press, Ithaca. Business Age, (2013).Qatar Airways: World 5-star Airline. Retrieved on June 14, 2013 from: http://newbusinessage.com/Corporate%20Focus/518. http://www.egulfmanagers.com/news-3062-sound-strategy-boosts-etihad-airways- profit.html. CAPA, (2012). Etihad Airways' focus on break-even for 2011, profit in 2012. CAPA Centre for Aviation. Etihad Airways, (2011). Retrieved on June 16, 2013 from: http://www.etihad.com/en/?fromNewsListing=false. Emirates Airlines, (2013). Retrieved on June 16, 2013 from: www.emirates.com. eTravel, (2011). Emirates Named Airline of the Year for 2011 by Air Transport World – Airline News. Retrieved on June 16, 2013 from: http://www.etravelblackboard.com/article/114762/emirates-named-airline-of-the-year- for-2011-by-air-transport-world. Jones, M. (2009). Middle East supplement: Qatar Airways - not slowing down. Retrieved on June 14, 2013 from: http://www.flightglobal.com/news/articles/middle-east-supplement-qatar-airways-not- slowing-325177/. Kotler, P., Keller, K., and Burton, S. (2009). Marketing Management. 1st adaptation edition. Pearson Education. Australia. PRNewswire, (2011). Qatar Airways Named Airline of the Year at Skytrax World Airline Awards 2011. Retrieved on June 16, 2013 from: http://www.prnewswire.com/news-releases/qatar-airways-named-airline-of-the-year-at- skytrax-world-airline-awards-2011-124367533.html. Rahman, S. (2013). Emirates airline profits up 34% to Dh3.1 billion. Retrieved on June 16, 2013 from: http://gulfnews.com/business/aviation/emirates-airline-profits-up-34-to-dh3-1-billion- 1.1181324 Thisdaylive (2013).Emirates, Etihad, Qatar: The Steady Rise of Persian Gulf Airlines.Retrieved on June 14, 2013 from: http://www.thisdaylive.com/articles/emirates-etihad-qatar-the-steady-rise-of-persian-gulf- airlines/148517/. Tehrantimes, (2009). Etihad Airways plans to enter Hospitality Sector. Retrieved on June 16, 2013 from: http://www.tehrantimes.com/index_View.asp?code=201144. Read More