Macro and Micro Environmental Analysis of Etihad Airways - Example

Student’s Name Instructor’s Name Course Date Macro and Micro Environmental Analysis of Etihad Airways Introduction Etihad Airways was established in 2003 by the Royal decree. It is based in Abu Dhabi, in the United Arab Emirates and operates over 1300 flights each week to cargo and passenger destinations in America, Europe, Australia, Asia, Africa and the Middle East. This report will analyze the macro and micro environmental analysis of Etihad Airways through the use of marketing analysis tools such as PESTEL analysis, Porter’s Five Forces and SWOT analysis in establishing internal and external environments, as well as the industry competitiveness. External Environmental Analysis According to Teece, (35), the external environment usually has an influence on the business either positively or negatively. It is therefore, important to analyze environmental factors in the market in order to determine the firm’s competitiveness. A PESTEL analysis and the Five Forces will be used in analyzing Etihad Airways’ external environment whereas a SWOT analysis will be used in determining Etihad Airways’ internal environment. PESTEL Analysis In using PESTEL, political, economic, socio- cultural, technological, environmental and legal factors will audit Etihad Airways’ environmental influences. An evaluation of potential changes in the market will be evaluated to guide strategic decision making. This will enable the business to develop a competitive advantage over its rivals in the market. In turn, this will increase sales, market share, attract customers, meet the needs of customers, create a brand image that is successful and increase shareholder’s value. Political Factors The political environment of a place includes political stability as well as legislations put in place affecting how products are taxed. Currency, exchange rate and the stock market are affected by these factors. How businesses are conducted both locally and internationally, are also affected by these factors. United Arab Emirates is politically stable, and regulations put in place regarding the airline encourage investors to venture into the market. Etihad Airways has been successful because these factors have favored it. Economic Factors The success of airlines can be attributed to the improvement of the inflation rates which have allowed customers to afford air travels. The market has also become favorable in terms of the high currency value, better currency exchange rate as well as improved stock market. Etihad Airways has been keen on keeping track of market demographic changes to ensure increased air travels, flexible travel hours, price adjustment and provision of comfort needed by customers. Socio- cultural Factors Air travels are known to be frequent during certain months of the year such as from June to September. Most passengers travelling during this time of the year are known to be going on vacation while those travelling between September and June are mostly on school or business related trips. The two categories vary as the number of travelers in the former is higher than the number of passengers in the latter. Therefore, increasing the number of staff and services offered to customers as well as using affordable flight rates will ensure more travels and with the company being capable of accommodating the high number. Technological Factors Etihad Airways targets increasing market share and flights as well as the value of stakeholders. It is for this reason that it has been at par with technological advancement in improving services offered to customers. Advanced technologies such as the company website and social media have been used in advertising the product and for customers to find all the relevant information for the product. Television and other forms of media such as printing of posters have also been made possible because of technology. Environmental Factors Protection of the environment has to be considered by Etihad Airways in its air operations. Different flight routes have regulations in place regarding air emissions, soil and water which need to be preserved from degradation. Therefore, the company has to follow these regulations to avoid strict penalties of the law. Legal Factors In conducting its air operations, the interests of the company, consumers, employees as well as other businesses have to be protected. Employment law, consumer protection law and competition law have been put in place to this effect. Etihad Airways has complied with these regulations, and this is the reason why it is still in the market. Porter’s Five Forces This model has been used in assessing the balance of power with a series of business situations. It has also been used in understanding the strengths of Etihad Airways’ current position and the strengths of the position it is considering moving into as well as competition in the market (De Wit and Meyer, 20). Hanson, et.al. (34), in their studies, stated that today’s organizations operate in a complex environment which is characterized by intense competition. The five main forces that influence the industry environment include: threat of new entrants, power of buyers, power of suppliers, threat of product substitutes and intensity of rivalry among competitors (Hanson et, al, 1-29). Figure 1: Porters five forces model of competition Threat of New Entrants Several entrepreneurs are joining the airline market because of changing trends, increase in population, low rates of inflation and how lucrative the business is. These factors have contributed to an increase in the number of airline companies in the market. The favorable factors have also encouraged new entrants in the market. This is stiffening competition for Etihad Airways. Therefore, the company has to brace itself as far as differential advantage is concerned to be able to stand out in the competitive environment. Threat of Substitutes There are several airline companies in the market as well as other forms of travel such as water, rail and road. These offer both direct and indirect competition. Customers always look for companies that are affordable and capable to meet their needs. If Etihad Airways fail to meet these needs, customers will opt for other substitute airlines in the market. It is for this reason that Etihad Airways has to invest in advertisement to keep its current customers as well as attract new ones. It also has to be fair in the rates it charges for flights in addition to offering quality services that meet the needs of customers. Bargaining Power of Suppliers Suppliers have an effect on the price of services offered by airlines in the market. If supply is high and the number of airlines buying the products is low, suppliers are forced to reduce their prices as a way of appealing the airlines in the market. Therefore, Etihad Airways has to look out for these market trends and adjust their prices accordingly. Bargaining Power of Buyers This refers to situations where customers combine forces and pressurize suppliers to reduce the price of products in the market. The quality of services and pricing determine the number of customers frequenting the airline. If these factors are not attractive to customers, they opt for services from elsewhere. Therefore, meeting the needs of customers is a way of avoiding such situations. Intensity of Competitive Rivalry Etihad Airways is facing a number of competitive forces in the market. These include direct competition from other companies such as Qatar Airways and Fly Emirates and indirect competition from other forms of transport. In the market, competition occurs as a result of the quality of services, innovation, advertising, promotion and pricing. Despite these forces, Etihad Airways aims at increasing the number of planes, flight routes, employees and upgrading the standard of their services. Therefore, in budgetary allocation, Etihad Airways has to consider these factors and allocate sufficient resources to ensure efficiency and a better result for differential advantage in the market. SWOT Analysis Strengths Strength entails the aspects that enable a firm to perform exceedingly well and hence achieve a competitive edge over its rivals. The following are the major strengths that can enhance Etihad Airways’ profitability; adoption of the latest technology, motivated workforce, high travel coverage and excellent customer service leading to strong brand loyalty. Weaknesses Weaknesses entail aspects that create a shortcoming to the establishment. With regards to Etihad Airways, the following are the shortcomings that hamper it from realizing its goals; high air charges, proneness to negative publicity and high employee turnover. Opportunities Opportunities are the chances that enable an establishment to perform extremely well and accomplish its set objectives. The following are the main opportunities of Etihad Airways; increase new air routes, expansion of fleet, increased entrepreneurial activities and increased market share. Threats Threats, on the other hand, refer to the external factors that hinder a firm from achieving its objectives. The threat has the effect of hampering the firm’s growth as well as success. The following are the main threats that prevent Etihad Airways from achieving its set goals; High fuel costs, increased low fare airlines, price sensitive customers and security threats. Conclusion Today’s organizations operate in a complex environment which is characterized by high uncertainty and dynamism. The senior leadership team at Etihad Airways should therefore, make strategic decisions, which achieve the advantages for the organization through configuration of resources within a changing environment to fulfill stakeholder’s expectations. Thus, the role of SWOT analysis, PESTEL Analysis and Porters five forces cannot be downplayed, given the need to align the organization with the changing environment with a view to realizing the long term objectives of the organization. Etihad Airways has continued to perform uniquely over its competitors. The company has achieved its marketing objectives namely; profit maximization, market share leadership and quality leadership in the face of heavy competition. To keep its plan going in this case, the company has differentiated itself in the market. The company has also invested heavily in research and development in search of new competitive advantages. Works Cited De Wit, Bob and Meyer, Ron. Strategy Process, Content, and Context International Perspective. 4th Ed. Thomson Learning, 2010. Print. Hanson, Dallas., Hitt, Michael., Ireland, Duane., and Hoskisson, Robert. Strategic management: Competitiveness and globalisation (Asia-Pacific 4th Edition). South Melbourne: Cengage Learning Australia, 2011. Teece, David. Dynamic Capabilities and Strategic Management. Oxford: Oxford University Press, 2009. Print Read More