Management Perspectives of Emirates Airline - Report Example

Management Perspectives Executive Summary The report intends to describe the general challenges and provide valuable insights to deal with the challenges that have emerged relating to aviation sector due to the recent economic recession with a focus on Emirates Airline. Correspondingly, it provides a brief overview of the airline industry and Emirates Group which offers distinct products and services. Furthermore, there is a description of challenges pertaining to the airline industry along with responses and strategies framed to tackle those challenges. Moreover, the report also delineates the measurement of progress in managing and meeting the challenges for Emirates Airline. The report further determines the ethical issues that may arise while responding to the challenges by Emirates Airline. Table of Contents Executive Summary 2 The report intends to describe the general challenges and provide valuable insights to deal with the challenges that have emerged relating to aviation sector due to the recent economic recession with a focus on Emirates Airline. Correspondingly, it provides a brief overview of the airline industry and Emirates Group which offers distinct products and services. Furthermore, there is a description of challenges pertaining to the airline industry along with responses and strategies framed to tackle those challenges. Moreover, the report also delineates the measurement of progress in managing and meeting the challenges for Emirates Airline. The report further determines the ethical issues that may arise while responding to the challenges by Emirates Airline. 2 Table of Contents 3 Introduction 4 Overview and Description of the Organisation 5 Description of the Challenge 6 Responding To Challenge and the Strategies That Will Be Used 8 Measuring Progress in Managing and Meeting the Challenge Identified 11 Ethical Issues 13 Conclusion and Recommendations 15 References 16 Introduction The current business environment has been subjected to continuous fluctuations, which has led to a rise in various opportunities and challenges related to different business sectors including the aviation sector. The demand for the aviation is considered to be sensitive due to fluctuating trends, seasonality and political instability which make the airline sector quite vulnerable pertaining to the challenges. The aviation sector is dependent on cash flow, as a reason there has been a small marginal profit even in the years where the profit was declining (International Labour Organisation, 2013). In the year 2009-2010, the aviation sector had suffered a catastrophe which included airline bankruptcy, reduction in the services along with airline networks that led to an overall huge loss of US$9.4 billion in the year 2009. The industry had to witness a shrinkage which involved fierce cutting of price and disaffection between the staff members in the competitor airlines. There was a fall in demand due to a hike in oil prices which shattered the confidence of the customers and led to the failing in generation of the yield that was actually required in the airline sector. It is worth mentioning a15% shrinkage in the world trade that changed the pattern of the business led to a decline of travel budgets globally. Correspondingly, one of the leading global airlines i.e. Emirates Airline has had to face different complications emerging from the issue of economic recession in the recent past. Emirates Airline had to endure the same challenges as the other airline companies was facing, although it was fortunate enough to be functioning in the Middle East as there was still a positive growth to be seen in the air travel. In addition, various business units that operated with the Emirates worked very hard to meet the requirements and identify the solutions for the challenges faced during the recession period (Emirates, 2013). With this concern, the study intends to prepare a report on the way in which a manager of Emirates Airline can deal with the prevailing challenge emanating from economic recession and recovery. Overview and Description of the Organisation Emirates Airline is one of the foremost global airlines headquartered in Dubai, United Arab Emirates. It has a primary function of providing viable air transportation services in the UAE and globally. Emirates Airline functions along with Emirates Group which offers passenger services, cargo services along with postal carriage services. Furthermore, the company involves in providing retail and wholesale customer goods in flight, hotel operations and instructional catering. There are seven segments that Emirates Airline and its group cover in its operations which include Destination and Leisure Management, Skywards, SkyCargo, Hotels and Resorts, EmQuest, Emirates Official Store and Emirates Engineering. In addition, the airline company functions with a group of in excess of 130 Boeing and Airbus jets along with 10 cargo freighters (Research and Markets, 2011). Emirates Airline flew outside of Dubai for the first time with two leased aircraft named Airbus 300 B4 along with Boeing 737 on October 25, 1985. The company’s had set its goal with an aim of providing quality instead of quantity which led to its evolution for offering travel and tourism facility globally. Although Emirates Airline is wholly owned by the Dubai government, Emirates’ has been growing in standing and scale through competition which has been ever increasing with the augmented number of global carriers that took advantage of the open-skies policy in Dubai. During the initial start-up investment, the government of Dubai treated the Emirates as an independent business unit. Emirates functions with a fleet of over 200 aircrafts and flies in 130 destinations with above 70 countries globally. It has been viewed that in excess of 1200 Emirates flights set out per week from Dubai to their destinations in six different continents (Emirates, 2014). In the year 2001, in keeping with the demands of the market and in order to ascertain sustainable competitive advantage, Emirates declared the largest order to be considered in the aviation sector history which was priced at US$15 billion, with 58 new aircraft that rapidly joined the expanding fleet of both Airbus and Boeing. In 2005, the airline company declared the biggest ever order for the Boeing 777 aircraft of family which was worth US$ 9.4 billion. In 2011, Emirates placed the order of single largest aircraft in Boeing’s history in addition with 50 777-300 ER’s and 20 777-300 ER’s which were at US$26 billion. Since then, the airline company has had immense growth and is presently considered as the world’s leading operator of both Boeing and Airbus (Emirates, 2014). Description of the Challenge The aviation industry had been facing strong challenge globally due to the economic recession; faced by various economies of different countries, that directly affected Emirates. Owing to which Emirates also had to go through the consequences pertaining to the challenge originating from economic uncertainties. Nonetheless, the airline company took a strong approach to face the challenge related to economic recession by expanding their network, taking the delivery of new-fangled aircraft and also investing in their brand which surprised their competitors as they used a different approach that involved contracting its business to reduce future loss. It has been observed that in the Middle East Market there has been a wide increase in competition that poses a huge threat for the airline industry as it has to continuously monitor its existing competitors in the market and generate ideas to tackle the competition that would arise in its business. Moreover, economic slowdown and increase in the prices of fuel had led to a reduction in demand of the customers availing the airline service to avoid the high cost of transportation. In this context, it can be apparently recognised that Air France which is a major competitor of Emirates Airline had decided to set up two airlines in the Middle East region which include the Middle East Airlines in Lebanon and Saudi Airline in Saudi Arabia to stand against the dominance of the Emirates Airlines in the Middle East region. The competitors of the Emirates Airline have subsequently been establishing strategic plans to stop the growth of the dominating aviation industry. In addition, Air France hoped that the government limit the Emirates from expanding its functions on French and German airports. Moreover, Emirates Airline was alleged of getting state subsidisations that were hidden and upheld relationships with state-owned bodies such as Dubai’s airport authority along with aviation authority. Besides, they were also accused of taking advantage of government shareholder’s status who was one of the key stakeholders in favour of its company illegally. The major competitor for Emirates Airline in the gulf region is considered to be the Gulf Air which is owned partly by the government with a wide network and solid support. This poses a huge threat for Emirates in its functioning and operation (Namaki, n.d.). Correspondingly, there are certain vital facets to be considered that emerge from the challenge of economic recession to the airline industry which involve constant fluctuations in the price of the fuel cost, exposure of foreign currency, replacement of a fleet and purchase of a new aircraft, unpredictable profitability and various industrial losses, reduction in yield of surplus funds, change in the cost of productivity and labour cost, over capacity and various ownership issues. Other general challenges relating to global aviation include new atmosphere for operating which makes it very difficult for an airline company to sustain in the new market, bankruptcy, shutdowns due to excessive loss, sudden hike in the cost of fuel, security, maintenance and labour and availing alternative methods of transportation. Moreover, the sector has been having problems relating to meeting the customers’ expectations and maintaining its brand loyalty. Furthermore, if the government of the country is politically unstable or the policy framed by the government of the nation does not support the functioning of the business, it becomes quite difficult for the industry to sustain in the competitive market (Wensveen, 2010). Responding To Challenge and the Strategies That Will Be Used It has been observed that prior to the recent economic recession, Emirates Airline had been able to attain phenomenal growth. It had witnessed all round growth in its business operations. However, in the recent times, the organisation has experienced radical challenges firmly rooted to the aspects of economic recession. In this regard, the most serious problem has been the sharp decline in the demand of its services. It is worth mentioning that the economic recession and its subsequent affects have influenced almost all the nations of the world and the varied organisations including airline sector operating in the diverse regions of the world. Another major challenge faced by Emirates Airline today can be identified in the form of constant fluctuation in the oil prices. Correspondingly, such fluctuation has contributed towards financial instability within the organisation. Moreover, the increasing competition from local competitors has led to the emergence of price war situation within the UAE airline industry (Milmo, 2009). Furthermore, airline industry has strong affiliation with the international business environment hence the slowdown of the world’s major economics such as the United States, European Union and Japan have a strong influence on its overall business performance. In order to effectively deal with these challenges and recover from economic recession, it is essential for the organisation to undertake proactive strategies that would facilitate it to attain sustainable competitive advantage. It is essential for Emirates to identify its core strengths and weaknesses before framing strategies to deal with the challenges effectively. It is extremely important for the organisation to consider the aspect of cost reduction as an urgent need for ensuring the long-term sustainability during the current situation of uncertain demand for its services. Correspondingly, the organisation should undertake strategic planning regarding cost cutting and cost management as a vital mode of approach to secure adequate profitability and to compete effectively with low-cost airlines. In this regard, the organisation should execute cost cutting and cost management associated with its value chain activities. The effective management of its value chain would be proactively useful for Emirates to deliver considerable value to its customers along with simultaneously achieving the overall goals and objectives of its business. Correspondingly, Emirates can outsource certain operations associated with its value chain such as catering, engineering and maintenance. This will allow the organisation to reduce bureaucratic cost and at the same time avail the benefits arising from high expertise and efficiency of contracting services (Milmo, 2009). It is also crucial for Emirates to consider whether the route related with restructuring of the organisation is to be carried out in order to create greater competitive advantage over its rival competitors including both domestic and international airlines. Concerning the current challenges faced by the organisation, it would be vital for it to redirect its broad strategy to primarily focus on price differentiation as customers in the recent times have become more price-sensitive. At the same time, the number of low cost airlines is steadily increasing, thus it would be vital for the organisation to frame strategies for competing with low cost airlines. It has been ascertained that labourers within the organisation account for considerable amount of its total cost. In this regard, it would be a smart move, if the corporation re-structures its organisational resources in the best possible way. Correspondingly, reducing staff members and reallocating resources are ascertained to be appropriate strategies for the organisation particularly during the situation of internal revenue cut-back. The implementation of strategies such as cost cutting through reducing staff members may correlate with certain resistance as well. Thus, downsizing as an approach to cut labour cost may negatively influence the employees’ motivation which may affect the efficiency of the organisation to effectively deal with the customer needs and wants. Besides, downsizing may also require the organisation to alter its business process which may at time create an adverse impact on its overall performance. The restructuring process may accompany significant influence on the organisational culture which may be associated with poor performance of employees, reduction in the employees’ level of commitment towards work and other psychological consequences. In order to eliminate the adverse implications of organisational change upon the organisational culture, it would be vital for Emirates to derive considerable understanding regarding the consequences of change both on the organization as well as on the employees and prudently take appropriate actions (Nguyen & et. al., 2009). In order to attain positive outcome from the suggested change process, executives and senior managers within the organisation are required to assess the prevailing environment based on which appropriate strategies related with allocation of resources will be drawn. Middle managers and supervisors will monitor the implemented change process and will ensure that the change process is duly implemented across the organisation. Project team will be responsible for integrating change management and the project support functions will be responsible for supporting the change management team and project team. Concerning the functions of management, effective planning related with downsizing will be executed. Similarly, staffing function will be primarily focused on providing adequate training to employees in the organisation for increasing their competency along with skills. Additionally, more stringent controlling of business activities will be executed within the organisation. Correspondingly, performance standard will be established in order to identify the areas that need further improvement. Measuring Progress in Managing and Meeting the Challenge Identified Gathering necessary information is essential for measuring progress in managing and meeting challenges. In this regard, varied types of information are required to be collected. It would be vital to collect feedback from stakeholders within the organisation regarding the implemented change process. Moreover, carrying compliance audits relative to new processes and job roles will assist in identifying the suitability of the change process implemented across the entire organisation. Furthermore, reviewing the areas of resistance will also facilitate in ascertaining reliable information regarding the change process. In addition, value chain information pertaining to cost will also serve as a valuable input for measuring the progress in managing and meeting the challenge. The documentation analysis will also facilitate in ascertaining reliable information (Beamon, 1999). The above information will facilitate in measuring the effectiveness of certain important elements such as strategy, process and competence. It is important to measure these elements in order to identify intervention necessary for determining the future directions of the action (Leva & et. al., n.d.). Measuring these elements is also important in order to identify risks associated with them. Furthermore, the measurement will facilitate in assessing risks and controlling and mitigating challenges associated with this change. More specifically, measuring strategy will facilitate in generating awareness regarding the relationship of the organisation with its environment as well as goals established by it. Measuring the process will enable to integrate it with the operations of the business. Besides, measuring the aspect of competence becomes inevitable, when the change process involves human factor as one of the components. The gap analysis tool will be used to measure these elements. This tool will be used as it will facilitate in providing information related with the gaps that tend to persist between the current and the anticipated business environment. The information thus obtained from the gap analysis can be used for various purposes that would assist the organisation to overcome the challenges faced by it within the short span of time. Additionally, the information obtained will facilitate the organisation to achieve the goals of cost efficiency and cost discipline. It would be possible for the organisation to devise broad strategies based on the information obtained that would facilitate it to accomplish its business objectives smoothly and effectively. The information will also facilitate in addressing the issue of both cost and revenue within the organisation. In other words, information obtained will enable the organisation to practice cost control measures as well as implement solutions to attain an increase in its revenue. Furthermore, the gap analysis will enable the organisation to ascertain understanding regarding the performance of its human resource and design programs that would assist the organisation to enhance the competency and skills of its workforce. At the same time, the information can be used to determine the activities that need to be outsourced. Moreover, the information obtained from the gap analysis can also be used to determine the service quality aspects and frame policies that would facilitate Emirates to bring further improvement in its business process oriented to its service quality. Moreover, the information can also be used to identify the gaps in the cost associated with its diverse global operations and determine strategies associated with reducing the operational cost of the organisation (Stanley, 2012).Precisely, it can be stated that this information obtained from measuring the elements through the gaps analysis tools will widely enable to address the challenge of economic recession and design strategies to effectively deal with its subsequent affects. Ethical Issues There are various ethical issues that an aviation sector based corporation may face while responding to the challenges which involve downsizing the employees in the organisation due to the increase in cost of various factors such as labour, maintenance and productivity. There also might be a dispute that can arise due to a change in interest of various top level managers. The company might also use extortion and bribery in order to get advantage from the government and make them supportive to its business policy. Pollution also might act as a major factor as there are certain rules for limitation of Carbon Dioxide emission in the atmosphere. The other issues involve corporate governance concerns and insider trading which might ethically harm the business. For example, increased operational expenses might lead to a decline in the quality of the services provided to the customers that may relate to an unethical behaviour of the aviation based organisation as it damages the brand name and customer loyalty. Moreover, if the company engages in illegal practices to remove its competitors from the market, the ultimate result would be hampering the business as a whole. Conclusion and Recommendations Emirates Airline which is one of world leading operators of Boeing and Airbus in the Middle East region has been facing strong challenges due to the economic recession that led to economic decline of various countries. The Emirates’ took a strong approach in facing the associated challenges by using a strong fundamental background. In accordance with the current situation of fuel price hike in the airline sector, there has been a reduction in demand of customers availing these services, wherein the customers use alternative methods of transportation to avoid excessive expenditure. Moreover, there are airlines companies that focus on establishing their business in the Middle East region as Emirates Airline has been dominating the region. Thus, it can be concluded that there are various external and internal factors that pose a threat for the airline industry which are either uncontrollable or can be controlled to a certain extent. It can be affirmed that if the company takes these challenges into consideration and develops strategies to tackle them, it may result in self-sustenance and competitive advantage for the company in the long run. Correspondingly, in order to effectively deal with the challenge of economic recession, it is suggested to Emirates to outsource some of its value chain activities in order to reduce its operational costs. It is also recommended to reduce the employees within the organisation and control excessive salary hike of its employees. References Beamon, B. M., 1999. Measuring Supply Chain Performance. International Journal of Operations & Production Management, Vol. 19, No. 3, pp. 275-292. Emirates, 2013. Emirates Airline Overview. English. [Online] Available at: http://www.theemiratesgroup.com/english/images/04_EK_Overview_tcm409-560539.pdf [Accessed January 27, 2014]. Emirates, 2014. Emirates Airline- Building A Global Network. The Emirates Story. [Online] Available at: http://www.emirates.com/english/about/the_emirates_story.aspx [Accessed January 27, 2014]. International Labour Organisation, 2013.Civil Aviation and Its Changing World of Work. A Short Glance At Civil Aviation. 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