Etihad Airline Business Model - Case Study Example

Name: Tutor: Course: Date: Etihad Business Model Airline business is really expanding and thriving in the United Arab Emirates and one of the largest airlines in the area is the Etihad Airlines. It is the largest after the Emirates Airlines, operating well over a thousand flights in a week with destinations all over the world; America, Europe, Africa, Australia, Middle East and Far Asia. Since it commencement in business in 2003, the Airlines has been a story of success till where it is at the moment. It has collected a number of acarades and awards since its establishment; having won the World Travel Award designation for having the best business Class in the world back in 2009, in 2013 in the World Travel Awards won the World Leading Airline- First Class 2013 and among its most recent awards is in 2015 it was placed sixth in the world’s top ten airlines (Image, 2010). Its success could be attributed its business strategies, good management, innovation in the company and most importantly good business model. A business model simply shows and states how a business gets it revenues; its pricing and strategies and how it makes its profits (Science, 2015). The two fundamental key things in a business model is the pricing and the company’s cost. On pricing it should be very careful not to set them to high so as not to put away customers and also not to low that there are low profit. But in order to strategies on profit a company should either consider to maximize on profits or on sale. After having the right pricing strategy, the company should strive to make maximum profit and minimize on the cost of operation. This way the company can be assured of high profits. In the recent past we have witnessed a dramatic change in the airline business. The three most in use passenger airline business model, Full Service carrier, low cost carrier and the charter airlines. Etihad Airlines uses the full service carrier passenger airline business model (Alessandro Cento, 2009). There has being lots of research of which of the two is the better business model; the Full service carrier or the low-cost carrier. The success of Etihad airlines could be attributed to the well-defined and elaborate full service carrier business model (Brueckner, 2005). One of the characteristic of a Full service is the hub-and-spoke network configuration, where all the airlines’ destinations are connected to a main airport which is called a hub. As defined by Button and Stough a hub is an airport where a large percentage of flights operated by the airline as part of a radio network. In this network configuration there is some sort of centralization and these helps a great deal in control of activities and management of services offered (Image, 2010). Also it very advantageous due to the fact that there is an interconnection in all the routes that the flight does; therefore low number of routes helps them achieve an economies of density and economies of scale. The Etihad’s airline hub airport is the Abu Dhabi International Airport. Recently it has being said to be the fastest growing airport hub in the world. On the other hand the low cost carrier business model uses the point-point network configuration. Different from the HS network configuration airports are connected via routes and not centrally by a hub airport. But it is worth noting that a pure point- to- point network configuration does not exist as despite mentioning that airports are connected by routes are big number of these routes are set out from airports form major cities. Both of these two network configurations have their own strengths and weaknesses. The HS configuration has a major weakness; due to centralization there could be to traffic in the in the hub airport due to very many flights per unit time. Therefore this could cost delays and increased turnover time of planes and in the long run lead to an increase in the unit cost and decreased quality of service. As mentioned earlier to increase the profit the company should strive to keep expenses and cost at the least minimum. Therefore whenever this model experiences this challenge it reduces profits. One the other hand PP network configuration tends to capitalize on the Hub-Spoke’s weakness as it has a lower probability of delay as its routes are not centralized. The drawback of this configuration is that it needs to bring about more routes to link destination as compared to the HS configuration (Doganis, 2002). The result of this is that airlines implementing this model are forced to operate mostly on routes with very high demand to capitalize on the high load factor of aircrafts. Therefore we get to see that the HS becomes somewhat capitalizes on the drawback of this configuration. To increase the profits (gross profit) the two main strategies is to maximize on sales or maximizes on profit margin. In the airline business the former works better; making prices relatively lower to increase number of passengers. Therefore using this we see that the PP configuration has drawback on maximizing the sales as it mostly operates on routes that are on high demand unlike the HS configuration (Radnoti, 2001). The Etihad Airlines that uses full service carrier model tends to eliminate its major drawback by making sure that there is less or no traffic in their hub airport. The Abu Dhabi International Airport is the second largest airport in the UAE having a record of serving over twenty five million passengers yearly. Therefore, the airline understanding how important the hub airport is at maximizing its profits has built a large airport capable of serving a very number of customers per unit time. As this model as long as the number of passengers served per unit time increases and delays are avoided the profit (gross profit) will always increase. Etihad’s Airline Full Service Carrier (FSC) Revenue sources (Radnoti, 2001) Revenue Account Medium Passenger Passenger traffic Freight Freight traffic Mail Government contracts Excess Baggage Passenger traffic Charter Available Aircraft time Duty-free On-board sales Services Maintenance handling for other airlines Lease-income Lease of equipment to other airlines The main business actors of the airline’s business model are the management, the partners, the potential customers (the market place), the government and suppliers. In the Etihad’s business strategy all these actors play a role in their own capacity. They all work as a unit to ensure the success of the business as each is dependent on the other, more like a horizontal marketing system. The management or the Board of Directors (BoD) has seven members; two of them being two sub-committee members; the Audit committee and the Executive committee. These are the member that makes sure that the airline operates in the terms stated in its Article of Association. They make the most important decisions that affect the company. In addition, the Etihad airline has a number of partners namely Air Serbia, the Alitalia, the Air Berlin, Jet Airlines, Air Seychelles, the Darwin Airline and the Virgin Australia. These partners also play a key role in the success of the airline. They are the financiers of the business and the pillar of the airline. The passenger and potential customer could be said to be the most important to the airline. In any business, it is all about the customer. All strategies, decisions and business implementations are aimed improving customer satisfaction. The airline has really strategized at maximizing and improving customer experience and maximizing their satisfaction, this is why over the years it has collected a number of awards; in 2013 it was awarded the Best First Class Seat and the Best Fist Class Catering by Skytrax and last year in the A380 event was awarded the Air Transport World’s 2016 Airline of the Year in the city of New York. The airline just like any business has a to bid to the law and make sure it upholds all its legal obligations, therefore the government and local authorities also play a part in the airlines operation and success. The governments and authorities in the countries that the Etihad airline operates give it a conducive environment for its operations (Image, 2010). The airline’s online booking system is another plus side of the airline. It is simple and elaborate and very easy to navigate. Online flight booking has never been easier. it is even possible to check current flight status and the passenger’s reservation status with ease (Airlines). The Etihad Airline Unification Model Strategy Differentiation Scale Large Model Hub and spoke Operations Mix of short, medium and long-haul flights Different aircraft types and engines Moderate aircraft capacity utilization Market Different class of service and qualities (economic class, business class, and first class) including: Frequent scheduling and flight flexibility, Extensive inflight services, Ground services, Main airports Inventory Management Travel agents, feeder routes, in-flight service and pre arranged tickets and seats Differentiation has played a very key role in Etihad Airline’s success. The airline to begin with is strategically located; in the middle of Asia, Africa and Europe. It also based on a very oil-rich economy, an area that has a huge workforce and cheap labor, and a very conducive area for business growth. In the airline business size is a key factor. The size of the number of passengers served per unit time, the size of the hub airport and the size of airbuses and planes. Etihad has achieved all these but is only second due to the limitation of how much it can extend its airport. But currently the Etihad has embarked on very big project set out to expand the Abu Dhabi International Airport. It aims to be the biggest airline in the UAE and possibly in the world. The airlines has well over fifteen A320 Airbuses family aircraft, narrow-bodied jet airliner which has helped them tap into markets that are too small for some of their competitors. The A320 family of Airbuses is popular in the low-cost carrier business model (Doganis, 2002). Therefore, we see that despite the major business model for Etihad Airline being the full service carrier it also integrates a bit of low-cost business model. This has helped them reap more from both business models. As mentioned earlier the airline uses a hub and spoke network configuration. As for its operations it uses a combination of mix of short, medium and long-haul flights but more on the latter. Using the long-haul the airline is able to maximize the customer experience by offering a wide range of services among them is the Diamond first class that has a bed, an own private suite which has a minibar and wardrobe and an in-built massage and also the passengers in this class have their own chef. Theses are just an example of services that are fully enjoyed by passengers in long-haul flights and a bit of medium-haul flights. Also the airline has different aircrafts that operate on different engine types. We have the A320 Airbus family, the A380-800 Airbus family, the Boing family among others. This helps the airlines diversify its operation. The airline also offers a number of different classes of service and qualities (economic class, business class, and first class), but mainly maximizes on the latter making sure passenger that use this class have the most luxurious flight experience in the world (Image, 2010). Placement of Etihad Airline Digital capabilities are an analysis of how those capabilities to assist the leaders of that organization to give priority and sequence the development of those capabilities needed to enable a successful digital transformation (www.mckinsey.com).The Etihad airline definitely falls in the digital master quadrant. Etihad Airline has integrated technology in its business to modernize and improve its operation and customer experience. Late last year in December, we saw Etihad sign a contract with Cognizant, one of the best and leading provider of Information Technology, consulting and business process outsourcing services to help it redefine its digital strategies (Flemings). Earlier that year in October they signed a new strategic partnership with the Adobe, a global technology leader. All this is part of the airlines vision to be the best in the market and to offer the best in airline experience. Among services that are offered by the airline include full-service capabilities using digital devices. Its partnership has seen the Etihad employees receive training in order to increase number of digital skillset of staff across various areas. Other partnerships include partnership with Cheil Network to handle the airline’s digital and social marketing activities. Most of these partnerships are recent but the airline has a long digital history, another reason I place it in the Digital Master quadrant. The airline even has its own ‘Etihad Innovation Day’ to celebrate innovation in the airline. A playbook to maintain its position Etihad airlines are digital masters in the business. Here are the contents of the Etihad airline ‘Playbook’ to help it maintain its position as digital masters. First the company should always make sure to have the best technology the market has to offer. Always make sure to be on the forefront to offer the best and only the best. In addition to that the company should ensure that it is innovative (Flemings). It should be able to always come up with creative ideas to keep up with competition. New ideas and innovation always keeps the customers curious and captivated and this encourages loyalty and increase in market share and control. To maintain as digital leaders it should ensure that it focuses on three main components; operational processes, customer experience and business models. Etihad Airline should focus it technology and innovation on improving these three components. Technology is always changing and the company should also dynamic to keep up with the changes (Doganis, 2002). The Etihad Airline is a world class leading airline but can be the best in the world. By improving on the weaknesses of its business models, improving on its weaknesses, maximize on its strengths and capitalize on its opportunities the sky will its limits. References Alessandro Cento, P. V. (2009). The Airline industry:Challenges in the 21ST century. Brueckner, J. a. (2005). European airline megers, alliance consolidation,and consumer welfare, in: Journal of Air Transportation Management. In J. a. Brueckner, European airline megers, alliance consolidation (pp. 27-41). Doganis, R. (2002). Flying off course. The economics of international airlines,. New York, United States: Routledge. Flemings, S. (n.d.). www.insightfulsolutionsinc.com/Articles/Whats_Your_Operating_Model.htm. Retrieved December 22, 2016, from www.insightfulsolutionsinc.com: www.insightfulsolutionsinc.com/Articles/Whats_Your_Operating_Model.htm Image, O. (2010). Etihad Airline. Radnoti, G. (2001). Profit Strategies for Air Transportation,Aviation Week Books. Printed by McGraw Hill, United States. Science, N. (2015). Business Stratregies. Nova Science Publishers, Inc. www.mckinsey.com/business-functions/digital-mckinsey/how-we-help-clients/digital-capabilities. (n.d.). Retrieved December 12, 2016, from Digital capabilities: www.mckinsey.com/business-functions/digital-mckinsey/how-we-help-clients/digital-capabilities Read More