Aviation Strategy - Emirates Airlines - Case Study Example

Aviation Strategy The Emirate airline is the leading airline in the Middle East. Its main destinations are based in South and South East Asia. The Airline focuses on premium airline services offering first class services. Over past decades, the airline has expanded its operations in Europe and America. This has not been welcomed so well with the competitors. The airline has an advantage over other airline because it is strategically placed, has government backing, has access to latest and advanced technological knowhow in terms of equipment and operations in airports. The developing and growing tourism industry in UAE has also played a key role in boosting the airline which serves majority of the tourists. According to Oxford Business Group (2008) tourism is very significant economic activity in UAE with over 30% of GDP coming from the industry. As a way of Emirates airline expanding its operations and market share, the airline has made orders to Airbus for the A380s aircrafts in order to increase them to 140 aircrafts. This might be seen as a risky, move. This report makes an analysis of the current market state and develops a new plan that can be used to incorporate the new fleet. Table of Contents Title Page.............................................................................................................................. 1 Table of contents.................................................................................................................. 2 Introduction.......................................................................................................................... 5 Influencing factors on airline business................................................................................. 5 Political factors......................................................................................................... 5 Economic factors....................................................................................................... 5 Technological factors............................................................................................... 5 SWOT analysis of Emirates airlines.......................................................................... 6 Porter Five forces Analysis for Emirates airlines..................................................... 7 Conclusions and recommendations.......................................................................... 8 Emirates airline Competitive analysis and business strategy................................... 8 Brand equity.............................................................................................................. 8 Marketing channels and Competitors....................................................................... 9 Unique Selling Points............................................................................................... 9 Success of long-term and short-term marketing strategies in Emirates airlines....... 10 Emirates Market Segmentation, targeting and positioning (STP)........................... 10 Product Strategy........................................................................................................ 10 Pricing Strategy...................................................................................................... 11 Distribution strategy.............................................................................................. 12 Promotion strategy................................................................................................. 12 Network and markets growth plans Assessment.................................................... 12 Emirates A380........................................................................................................ 13 Interpretation of the past 5 year’s financial results................................................. 14 Number of Passengers.......................................................................................... 14 Cargo carriage...................................................................................................... 14 Profits and Loss...................................................................................................... 14 Future operations and network for A380............................................................... 15 Markets Uncertainty & Future plans acceleration of European carriers................. 16 Possible threats and pressure of emirates airline....................................... 16 Conclusion............................................................................................................... 17 Recommendations................................................................................................... 18 Bibliography............................................................................................................ 19 1. Introduction Emirate is one f the carriers from the United Arab Emirates (UAE) and is based in Dubai. The airline is solely owned by the UAE government through its investment program the Investment Corporation of Dubai. It is the largest airline in the competitive Middle East and the 7th largest airline in the world in terms of revenue. The airline operates over 3,600 flights in a week from its hub at the Dubai International Airport. The airline makes trips to more than 142 cities in 78 countries globally. 2. Influencing factors on airline business a. Political factors A number of factors play very crucial role in the success of any airline. Political stability is essential not only to the county of the airline origin but also to the destinations. Political stability guarantees security to the passengers as well as the flight crew. During the September 11 terror attack in the US, Emirates airlines was greatly affected as majority of their clients cancelled their trip for fear of another attack. According to Barnhart and Smith (2012) the political stability in the UAE has boosted the operations of the airline with more people travelling through Dubai since there is guaranteed security. The airline has more opportunities especially with the blooming of the tourism sector in the country. b. Economic factors Economic factors such as high operation levies and taxes by the governments of different countries equally affect the airline business. Also related to that, is the fact that most airlines tend to focus more on nations that have a more superior economy as international and regional flights are frequently in operations. UAE is among the top ten richest nations in the world per capita. The tallest restaurant in the world as well as the tallest hotel is both based in the UAE. The country has developed to be a leading world economic hub. This has had direct positive impact on the airline. The trends in the global economy equally affect the operations of the airline. During the global recession of 2009, the company was greatly affected as the operations to Europe and the US were reduced. c. Technological factors The use of latest technology in aircraft as well as infrastructure promotes airline business. The Emirates airline has invested allot in the latest and most advanced technology to ensure that they offer relatively best services in the industry. According to Sahay (2012) Emirates airlines has taken advantage of technology to improve its services to the customers. 3. SWOT analysis of Emirates airline 4. Porter Five forces Analysis for Emirates airlines 5. Conclusions Emirates airline offers world class services targeting middle class travelers. UAE government has played a key role in the success of the airline. The global competitor of the airline has been complaining to their state governments regarding the rapid expansion and entry into their markets terming it as being unfair. The airline on the other had is taking advantage of its unique selling points to outdo the rest of airlines. The access to funding, the strategic geographic location and use of advance technology are the driving forces behind the success. The airline is equally favored by the political stability in UAE. Nonetheless, the airline faces threat from international political crisis. The economy of UAE is rising and growing at a stable rate. Tourism has become one of the major economic activities and this in return has open new market for the airline. Nonetheless, the airline should consider expanding its operations to other parts of the world. The flights by the Airbus A380 go to a single destination in Africa. Other destinations should be explored like Johannesburg, Nairobi and Lagos. These are cities that have global economic impacts. According to Ndikuman (2014) The African continent has experienced the high economic growth rate in the period 1999 and 2010. New foreign investors have contributed largely but one major contributor has been the tourism sector. 6. Emirates airline Competitive analysis and business strategy a. Brand equity Since the established in 1985, the airline has grown tremendously over the past two decades posing a threat to major world airlines especially in Europe and America. Emirates air has established brand equity because of its first class and premium services. The comfort in their aircrafts and other accompanying services has made them an international brand accepted globally. In the last decade, strong opposition has been raised from European and American airlines in regard to the expansion of the airlines operations. Nonetheless, this has not limited the airline from venturing into new markets and improving its services. Other than passenger flights, the airline also have other divisions like the cargo flights through Emirates Sky Cargo and also chartered flights through Emirates Executive. b. Marketing channels and Competitors The airline has been very good at marketing of its services since its inception. Advertisements from the airline are recognizable globally and this has helped improve its brand. The use of TV advertisement, internet marketing, billboards and also sponsorship of sports events, teams and other related events have helped in marketing of the airline. The airline has competitors both domestically and internationally. Perhaps the main competitor is Etihad also an airline from UAE. Other competitors include Qatar Air. In the global platform, the airline has competitors mainly from Europe and America; they include Deutsche Lufthansa AG, Air France - KLM, United, Delta and American Airlines. c. Unique Selling Points With the above competition, Emirates Airline has tried its best to be at the top of its game. A number of unique selling points have made this possible. One is the access to latest aircraft technology which enables them to efficiently carry out their operations. The airline is wholly owned by the UAE government and this means that the airline has access to finances. The UAE government has also invested into planes and airports. This is considering the fact that the government has realized the importance of airlines and tourism. The airline also has an advantage based on the strategic geographical location of UAE. The location ensures that the airline can make trips to Asia, America Europe as well as Africa and this has been boosted even more with the presence of the large planes. According to Betz (2010) Emirates Airline has the highest number Airbus A380 which is the most technological advanced passenger aircraft. d. Success of long-term and short-term marketing strategies in Emirates airlines The marketing environment in aviation is affected by political, economic, environmental and technological factors. These factors relatively favor Emirates airlines in the aviation industry. Long-term and short term plans have been put in place to make sure that the airline gets a better market share. According to Ferrell et al. (2014) Emirates airline has set up marketing plans that help it adapt to global economic and political changes. The strategies are based on daily operations of the airline. e. Emirates Market Segmentation, targeting and positioning (STP) The airlines segment is primarily based on passengers that prefer comfort and reliability in their air travel. The aircrafts have been built to ensure that this has been achieved. It targets passengers from upper middle class, the middle class, and corporate. These are individuals who can afford to pay for premium services. The airline has established itself as a premium airline. f. Product Strategy Fleets and schedules With over 3,500 trips made weekly, the airline has invested in its fleet. This include; Airbus A380 • Boeing 777-300ER, Boeing 777-200LR , Boeing 777-300 , Boeing 777-200, Airbus A340-500, Airbus A340-300, Airbus A330-200. In-Flight Services, Leisure and Entertainment Facilities The first class comes with services that attract passengers. They include; Food and general dining experiences of regionally inspired dishes, in-flight lounge, private suites, showers, spas and a bar. They also offer seven course meals with accompaniment of other refreshments and drinks. Business class comes with convertible seats that can be stretched into a bad by a press of a button, laptops power supply, tables that can be turned into workstations too. The airline offers a unique entertainment experience to all its passengers. Interactive media and entertainment services have been configured into a facility known as ICE. They allow passengers to watch movies, listen to music and also play video games. While in the flight, passengers can access information and get in touch with the rest of the world with latest news from the BBC News. The airline has also installed external cameras which allow the passengers take an Ariel view. The airline also offers communication services like phone calls, SMS and emails enabling the passengers to get in touch and communicate with their family members and friends anywhere in the world. g. Pricing Strategy Emirates uses pick and mix approach in pricing but the most dominant is the value-added strategy. Through value-added tactic, the airline justifies the premium pricing to the unlimited high class services it offers to the passengers. The peak and off-peak seasons is also a tactic used for pricing. The airlines take not of global festivals to hike the prices. Nonetheless, it should be noted that the pricing in Emirates is relatively higher than most of other premium airlines like British Airways and almost equal to Qatar Airline. The pricing strategy of the airline frequently affects other airlines who are forced to change their prices in order to ensure they do not loss market share. According to Holloway (2008) the pricing changes in Emirates is a threat to other premium airlines. Anytime the airline lowers its prices, other airlines have to do the same to keep up with the competition. h. Distribution strategy Emirates airlines have a sister company that helps in booking of tickets. This allows the passengers to save money that would otherwise be lost if they were to book flights using travel agencies. This results to high revenue and customer satisfaction. With introduction of online shopping, the airline has online services which allows passengers to book flights, book seats, customize services and check of flight time table. i. Promotion strategy The airline uses multi-media advertisements to market and promote its services. With the help of in-flight TV advertisements, the airline is able to reach millions of people in their comfort. Through sponsorship, the airline has expanded its brand not only in UAE but globally. The airline sponsors sports teams, events, competitions and so on. The airline focuses its sponsorship on Arts and Culture and Sports and Races. They sponsor sports such as soccer, golf, rugby, tennis, horseracing among others. The airline is the official brand sponsor of English football giants Arsenal Football Club where rival airline Etihad sponsors Manchester City Football Club. j. Network and markets growth plans Assessment Emirates airline currently is flying to over 78 nations globally with 142 destinations. Its main hub is based in Dubai UAE. The airline has its operations strongly seen in the South and South East Asia. The airline serves too many international airports and the majorities are; Pakistan 5 Airports Australia 5 Airports England 6 Airports India 10 Airports USA 10 Airports The airline is the world’s leading operator of Boeing 777 and A380 aircraft. It has 218 passenger aircrafts, 1 executive chartered jet and 14 cargo planes. Most of the aircrafts are relatively new as the airline policy has been to keep and maintain new and younger planes. 7. Emirates A380 This is the most famous aircraft with the airline. Since its introduction to airline services in 2007, the aircraft has been rated as one of the top ten world class carriers. It flies at 8,500 nautical miles approximately 15,700 KM non-stop. It has spacious and quiet cabin ensuring smooth ride to the passengers. Emirates airline currently has 60 A380 aircrafts which travel to the following destinations. Dubai-North America Toronto, New York and Los Angels Dubai-Europe London, Munich, Moscow, Frankfurt, Paris, Manchester, Rome, Amsterdam, Zurich and Barcelona Dubai - Asia They include Bangkok, Kuala Lumpur, Seoul, Jeddah, Hong Kong, Singapore, Beijing and Shanghai. Dubai - Africa Mauritius Dubai-Oceania Brisbane, Sydney, Melbourne and Auckland 8. Interpretation of the past 5 year’s financial results a. Number of Passengers Between the years 2009 and 2014, the airline has double the number of passengers flown thought its operations. The growth has been steady with an increase of 12% in the period between 2013 and 2014. This increase has can be associated to the increase in number of aircrafts as well as the number of destinations. b. Cargo carriage Since 2009 to 2014, the number of cargo carried has increased by 37 percent with the highest increase experienced between the years 2013 and 2014. The least increase was in year 2011 and 2012. This can be associated to the oil crisis that saw the oil prices rising dramatically high. c. Profits and Loss The airline has not made any losses in the past five years. The highest turnover was experienced in 2014, and this can be related to The highest number of cargo and passengers carried in the year. Nonetheless, the profit was average due to high expenditure in the same year. 9. Future operations and network for A380 With an increase to 140 A380 aircrafts, there will be a need to expand the market share of the airline. An increase in number of destinations and number of flights to some cities is unavoidable. Below is a plan for increase in number of destinations and description on factors that will support the increase. The table below is a representation of the new changes in terms of flights to different destinations. Dubai-North America Dubai - Europe Dubai – Asia Dubai - Africa Dubai - Oceania Number of Flights 20 18 30 6 6 Destination Airports San Francisco Denver Hartsfield-Jackson Atlanta Hamilton OHare Dallas Charlotte Douglas McCarran Miami Phoenix Sky Harbor Stansted Orly Hahn Ataturk Linate Girona-Costa Brava Memmingen Kansai Itami Indira Gandhi Nayuan Don Mueang Soekarno-Hatta Chek Lap Kok Changi Manila Clark Kobe Shuangilu O.R Tambo Jomo Kenyatta Nnamdi Azikiwe Melbourne Perth Percentage Share of A380 25% 22.50% 37.50% 7.50% 7.50% Dubai-North America- Add 10 more destinations. Currently, the A380 only go to three cities in this region. Majority of the flights to this area are through the Boeing 777. The region has had tough regulations that bar the operation of the airline. Opposition from competing airlines has also been a shortcoming. The region can take 20 more A380 flights if the number of Boeing 777 flights is reduced and a few more destinations reduced. Dubai-Europe - Add 7 more destinations Currently, the region is served to 10 destinations by the A380s. The region has one of the major allies England. With two airports in London being served by the aircrafts, the number of fights could be increased in this airports and new destinations created. This will take 18 aircrafts. Dubai - Asia This is the airlines strongest market. 12 new destinations should be added and the number of flights increased in the already existing destinations. Dubai - Africa The A380s only go to one destination in Africa. A total of 3 new destinations with multiple flights can be introduced here. The presence and operations of the airline in the region through the rest of the flights should be a marketing factor. According to Kressel and Lento (2010) marketing increases demand of services especially when there exists a previous relationship between the business and the customer. This will take 6 more aircrafts. Dubai-Oceania With only four destinations, the A380 has a potential to go cover more areas in this region. An increase of 2 new destinations will ensure that the airline has a better market share in the region. An increase in number of flights the new destinations and the already existing will be vital. This will take 6 new aircrafts. 10. Markets Uncertainty & Future plans acceleration of European carriers Possible threats and pressure of emirates airline Emirates airline currently holds about 35% of the routes from India to England, 40% of market share to France, 70% to South Africa and 31% share to New York. Majority of the airlines in America and Europe have not been happy with this dominance. In mid April 2015, Emirates airlines announce that it was going to place a $9.32 Billion order with the British supplier other than the American supplier, the news was received coldly. The rivalry between Emirates and the rest of America and Europe has been in existence for a long time. According to Rimmer (2014) Emirates airlines has established itself as a prominent competitor in Europe and one factor that has been an advantage is the proximity to Europe and the rest of the world. According to Lonely Planet (2012) the rate at which the Emirates airline is growing has intimidated other airlines terming it as being unfair. A380s has had a total of 317 orders since its first entry into service in 2007. Emirates airline is the biggest customer with a total orders of 140 aircrafts. The delivery of the airlines takes place in Hamburg for customers from Europe and Middle East, and Toulouse for the rest of the world. When Emirates made an order of 50 A380 aircrafts, Airbus offered a discount of $2.75 billion which made emirates save $55 million for each aircraft. This discount offer was only made to airlines that ordered more aircrafts. Majority of the airlines have been making orders of the aircraft but have had difficulty in deciding on whether to pick them or not. An airline like Virgin Atlantic has made orders of six aircrafts but still undecided on them. According to Simmons (2014) the production of the Airbus A380 is largely dependent on the order put by either VIPS or premium airlines. The aircrafts are relatively expensive and most airlines are not so sure about their purchasing. The American and European airlines have a point in regard to unfair competition in the open air. With government backing, the airline has an advantage to take major risks in its strategic implementation compared to the other airlines that are privately owned and have to consider their moves. Emirates airline has been known to offer low travelling charges in occasions where the rest of the airlines are experiencing difficulties. This forces the rest of the airlines to lower their charges not to make profits but to maintain their market share. 11. Conclusion Emirates airline faces political, economic, environmental and technological issues. The airline has improved its services and operations around these issues. It possesses the latest technological advances and enjoys stable and economic growth in the UAE. As a market leader, the airline is faced with threat from other competitors as well as potential entries into the market. Domestically, the airline has minimum threats due to the protection by the government considering it is owned by the government. The airline also faces challenges from the suppliers of fuel but has no challenge in terms of customer or buyer power. The marketing strategies for the company have been based and aimed at improving the services to the passengers. The airline segments clients who want comfortable travelling environment, and targets upper middle class and upper class individuals. Services offered by the airline have been improved. The in-flight services are relatively better and unique in that the passenger is able to comfortable and relaxed. The airline has set out a series of destinations globally giving itself a majority market share. With over 132 destinations, the airline is on a global competition level with other premium airlines. The airline is the biggest customer for Airbus A380 with current order of about 140 A380s. 12. Recommendations The airline should consider the establishment of low-budget flight in its operations. Concentration on premium airlines services the majority out. The airline should expand the destinations for the A380 aircrafts. With an increase underway, there is need to utilize the massive fleet. The airline should look for alternative to international traffic. Creating stronger domestic operations might be a better solution. Reference list: Betz, F. (2010) Creating and managing a technology economy New Jersey, World Scientific Top of Form Sahay, A. (2012). Leveraging information technology for optimal aircraft maintenance, repair and overhaul (MRO). Cambridge, England, Woodhead Publishing. Bottom of Form Top of Form Ndikumana, L. (2014). Capital flight from Africa Causes, effects, and policy issues Corby, Oxford University Press. Bottom of Form Holloway, S. (2008). Straight and level practical airline economics Aldershot, England, Ashgate Pub Top of Form Kressel, H., & Lento, T. V. (2010). Investing in dynamic markets: venture capital in the digital age Cambridge, Cambridge University Press Bottom of Form Top of Form (2012). Mediterranean Europe Footscray, Vic, Lonely Planet Bottom of Form Rimmer, P. J. (2014) Asian-Pacific rim logistics global patterns and local policies. Cheltenham Edward Elgar Simons, G. (2014). The Airbus A380: A History. Casemate Publishers and Book Distributors Top of Form Oxford Business Group. (2008). the Report: Ajman 2008. London, Oxford Business Group. Bottom of Form Barnhart, C., & Smith, B. (2012) Quantitative problem solving methods in the airline industry a modeling methodology handbook New York, Springer Read More