Emirtes Airline & Qatar Airline Make New Strategy - Case Study Example

mirаtеs Airline & Qatar Airline Make New Strategy Student’s Name: Institution: TABLE OF CONTENTS Introduction 3 Emirates Airline 3 Qatar Airways 4 SWOT Analysis 7 Strengths of Qatar Airways vs. Emirates Airways 7 Emirates Airways 7 Qatar Airways 7 Weaknesses of Qatar Airways vs. Emirates Airlines 7 Qatar Airways 7 Emirates Airways 8 Recommendations for Emirates and Qatar Airways 8 Opportunities 9 Threats 10 Product Analysis 12 Introduction Emirates Airline Emirates Airline is the largest airline in the Middle East based in Dubai, UAE. It is a subsidiary of The Emirates group, which is owned by the United Arab Emirates government and is involved in the transport of both passengers and cargo. The company’s cargo activities are carried out by Emirates SkyCargo. Emirates Airways is a rather big organization, bearing in mind that it ranks amongst the 10 topmost carriers in the world in regards to passenger kilometers. In the Middle East, its locality, Emirates is the largest airline in terms of fleet size, revenue volumes and passengers carried. The year 2012 saw the airline bag the title for the fourth largest carrier in the world in regards to international passenger volumes, as well as scheduled passenger-kilometers flown. In confirmation of the company’s success, Emirates operates four of the world’s longest non-stop flights from Dubai to San Francisco, Los Angeles, Dallas and Houston / Fort Worth (Theemiratesgroup.com). Emirates Airlines was established in March 1985 after Gulf Air started cutting its services in Dubai. The conception was backed by Dubai’s royal family and Pakistan International Airlines who provided two of the company’s initial aircraft on lease. The government provided $10 million as startup capital and since then Emirates was required to operate independent of any subsidies from the government. Since inception, Emirates has grown in leaps and bounds to its current status where it owns a fleet of Boeing wide body aircraft and Airbus. It is also one of the airlines operating an all wide body fleet. At the center of this is the Boeing 777. As of August 2013, the airline boasted of 195 passenger aircraft, 1 executive jet and 10 cargo freighters (Emirates.com). Emirates Airways has created a niche for itself in the aviation industry by offering excellent service, rapid growth and its consistent profitability. Over the years, the company has received numerous awards the latest being Airline of the Year in 2013. In 2012, Air Transport World ranked Emirates Airlines in 8th position for the Airline of the Year based on customer service, commitment to operational and safety excellence and its financial situation which has seen the company make profits for 25 consecutive years. Skytrax has rated Emirates Airlines as a four star airline (Emirates.com). Emirates Airlines operates more than 3, 000 flights on a weekly basis across its network coverage of 159 destinations in more than 70 countries. Owing to its size and continued growth, Emirates’ presence is felt across all the six continents of the world, despite the management’s reluctance to get into any alliances with other players in the aviation industry. However, it has had codeshare agreements with other airlines such as Thai Airways International, Japan Airlines, Air Mauritius, Air Malta, Korean Air, Jet Airways and TAP Portugal among others. In pursuit of excellence in customer service, the organization has investments in various supporting divisions being Emirates SkyCargo, which handles air freight services and Emirates Executive for private and corporate charters. Other segments include, Destination and Leisure Management; Emirates Hotels and Resorts; Skywards; EmQuest; Emirates Official Store; and Emirates Engineering (Emirates.com). Qatar Airways Qatar Airways is the national carrier of Qatar, with headquarters based in Doha, the capital city of Qatar. The services offered by Qatar Airlines are felt the world over since the company has operations across Africa, Far East, Europe, Central Asia, South Asia, North America, Oceania and South America. The award winning airline has seen its services appreciated by all, a fact that has seen Skytrax, the global independent aviation monitoring agency rank Qatar Airways as a Five Star airline, while its service was named the best airline staff service in the Middle East for the year 2013. The Business Traveler Middle East Magazine also named its cabin crew as the best cabin crew in 2013. These are just some of the awards that Qatar Airways has received since its inception. Qatar Airways began operations on 20th January 1994, with its maiden flight using a Boeing 767-200ER leased from Kuwait Airways. At the time, the company was privately owned by the Qatar royal family, though it was re-launched in 1997 with the government assuming 50 percent ownership, and 50 percent being under private investors. Since, then, Qatar Airways has grown in leaps and bounds to its current position where it owns a fleet 127 aircrafts, both passenger and cargo, which are used to reach over 130 destinations. Currently, Qatar Airways employ more than 20 000 persons in both in direct and indirect employment (Qatarairways.com). The organization has codeshare agreements with other major airlines including American Airlines, Bangkok Airways, US Airways, Middle East Airlines and Malaysia Airlines, among others (PR Newshire [New York], 2007). Alongside its airline operations, Qatar Airways also operate a number of subsidiary organizations. They are Qatar Aviation Catering Company, Qatar Aviation Services, United Media International, Doha International Airport, Qatar Airways Holidays, Qatar Executive, Qatar Distribution Company and Qatar Duty Free. In August 2013, the airline instigated a mobile application available for iPhone, Android, and Blackberry. This service offers convenience for the passengers as they travel because they are able to communicate with family and business partners. Being the successful company that it is thanks to the community it serves, Qatar Airways take corporate social responsibility very seriously and has gone the extra mile of being active participants of reducing the impact of aviation on global climate change, local air quality, noise, waste and non-renewable resources. To achieve this, the organization has gone into new-generation fuel research to ensure that the management and usage of fuel does not harm the environment (Qatarairways.com). The mission statement of the airline is “Excellence in everything that we do.” To attain the goals that have been set by the mission statement, the airline endeavors to put safety as its foremost priority by ensuring highest standards of security and safety in all its operations. The organization also ensures that, in pursuit of customer focus goal, the services should be genuine and hospitable; while at the same time should be tailored to fit the needs of individual passengers. The airline also displays its commitment to the people by recruiting dedicated staff, who go ahead to receive support and training from the organization. Being a global airline, it is only natural that cultural awareness is observed by providing service in line with the values of Qatar, but at the same time, understanding and caring for passengers and other clients from all cultural backgrounds of the globe. It is also essential that the organization remains financially strong and provide excellent services (Qatarairways.com). SWOT Analysis Strengths of Qatar Airways vs. Emirates Airways Emirates Airways Strength 1 2 3 4 5 6 7 Strong economic and government backing * Customer loyalty * Number of dedicated staff * Price of ticket * Operating in rich oil state * Qatar Airways Strength 1 2 3 4 5 6 7 Strong economic and government backing * Customer loyalty * Number of dedicated staff * Price of ticket * Operating in rich oil state * Weaknesses of Qatar Airways vs. Emirates Airlines Qatar Airways Weakness 1 2 3 4 5 6 7 Relies heavily on international onward moving * Lack of brand awareness * Prejudices on Arabian Airlines due to terrorism and political instability * Reduced domestic traffic * Huge debt amount * Emirates Airways Weakness 1 2 3 4 5 6 7 Relies heavily on international onward moving * Lack of brand awareness * Prejudices on Arabian Airlines due to terrorism and political instability * Reduced domestic traffic * Huge debt amount * Pricing * Recommendations for Emirates and Qatar Airways 1. Emirates Airways and Qatar Airways should look into increasing domestic traffic by reducing their fares to encourage people taking domestic flights to use their services. This is due to the fact, that for internal transport, citizens prefer to make use of other modes of transport such as roads and rail transport, which are much cheaper and affordable in comparison to the rates charged by Emirates. 2. Emirates airline could look into a structure that will reduce its national debt by selling off part of government equity to the private. In this way, the company will raise funds to expand the business, and at the same time will pay off debt without having to take more loans to pay off existing debts 3. In order to create more brand awareness and reduce prejudicism, the organizations need to take part in aggressive brand awareness campaigns and promotions. It would also be advisable to assure potential customers of guaranteed safety and security if they travel with their airlines 4. Prejudicism could also be eliminated by making alliances with partner airlines from the West. Such partnerships would create help to build additional trust to the organizations Opportunities Possible deals and alliances with other strong players in the industry present the best opportunity for Emirates Airlines. Qantas Airways is one such player as it is due to break its long partnership with British Airways, and Emirates could become the next best strategic partner to the airline. The airline could also improve customer confidence and also attract more customers by injecting more aircraft into its fleet. This would also go hand in hand with adding more international destinations previously not covered, or adding the frequency of flights to popular destinations (Safi, 2013). Qatar’s fleet size is at more than 125 aircrafts currently. In addition to these, Qatar Airways have gotten more aircrafts in the process of being delivered by its suppliers. Therefore, the fleet size is bound to expand in the near future, and this means that business will increase. The new aircrafts will also attract more travelers to Qatar Airways due to the sophistication and current models. An increased fleet size will translate to increased passengers and cargo, as well as an increase in the daily flight frequency. Increased travel choices in regards to time and destinations will also translate to more passengers and a subsequent increase in the market segment (Belobaba et.al. 2009). As the world economy continues to grow and the wage rate rises, the people’s living standards also continue to improve because they make more money. Making more money means that the purchasing power improves, and they are able to afford more things that they could not afford earlier. The aviation industry offers expensive products and services that could only be afforded by some few wealthy individuals. However, with improved living standards and increased purchasing power, individuals begin to desire the finer things in life, such as taking vacations and traveling abroad to shop and do business among other things. This creates a new market for the industry, and with Qatar being tourism and business hub, the increased demand creates a business opportunity for the company (Safi, 2013). Threats As stated earlier, one of the major threats in the aviation industry is the escalating costs of operations, with the highest contributions to this being fluctuating prices of oil globally and the increase in labor costs. Increased operational costs reduce the profitability levels of the organization and limit the chances for growth. Emirates Airways also faces the threat of increased competition in the Middle East market. The competition comes from other premium fare airlines such as Etihad and Qatar Airways, while low budget airlines are Abu Dhabi, Air India Express and Jet Airways among others (The Journal of Commerce Online, 2003). The biggest threat that Qatar Airways faces is that of competition in the Middle East market. As it is now, there are many airline industries in the Middle East, all of them offering similar services. An individual wishing to travel by air using the best airline irrespective of the costs may not necessarily opt to travel with Qatar Airways because there is Emirates Airways or Etihad Airways that may offer better services than Qatar. Another individual wishing to use air transport though wary of the costs will not choose Qatar Airways, but will instead choose more affordable airlines like Abu Dhabi. In this airline business, competition also comes from other modes of transport, being road, railway and water whereby passengers choose to use them to travel or transport their cargo from one place to the other. Technology is a great threat too because unlike the past when business persons and students would travel across the world to attend business meetings or classes, technology today allows for meetings to be held simultaneously by people who are miles away. This is done by use of technology which allows for virtual meetings and lectures to be held. Skype, online chats, emails, and instant messaging are also other forms of technology that allow people to communicate without necessarily having to travel to meet face to face (PR Newshire [New York], 2013). Increasing costs of operations as a result of government tax regulations, wage rate, fuel costs and costs of acquiring new aircrafts as well as other necessities also causes a major threat to the airline. Escalated expenses affect the profit and loss account of the organization and eventually the earnings per share rate reduce. In addition to these is the act of terrorism, which has become rampant in the world today. Terrorism is erroneously associated with the Muslim religion, and bearing in mind that the hub of Qatar Airways is in a Muslim-dominated region, this could cause a rejection of its services from potential clients. This would ultimately give rise to a reduced market segment and reduced revenues, which could even cause the company to close doors (Belobaba et.al. 2009). All in all, the strategic managers of Qatar Airways and Emirates Airways should work hand in hand to use their strengths and opportunities in countering the weaknesses and threats. Product Analysis Both Qatar Airways and Emirates Airlines are in the aviation industry whose main products are offering transit services for passengers and cargo. They are both global and cover the six continents of the world, serving the upper and middle class segment of the market. In addition to the freight and passenger services provided, the two airlines have also got a number of divisions that provide services as detailed earlier in the report. Qatar operates Qatar Aviation Catering Company, Qatar Aviation Services, United Media International, Doha International Airport, Qatar Airways Holidays, Qatar Executive, Qatar Distribution Company and Qatar Duty Free. Emirates Airways operate Emirates SkyCargo, which handles air freight services and Emirates Executive for private and corporate charters. For purposes of the report, we shall analyze the ground and lounge services offered by the airlines (PR Newshire [New York], 2013). Qatar Airways operate the Premium Terminal at Doha International Airport. This terminal has been reserved to the airline’s First and Business Class passengers and has been operational since the 2006 winter. The 10, 000 square meter terminal was put up within nine months at a cost of US$90million. The facilities provided include check-in, conference rooms, duty free shopping, nursery and play area, sauna, spa treatment rooms, restaurants and Jacuzzi. In the recent past, though, the lounge has seen vast renovations and the seating capacity has increased by more than 80%. Qatar Airways CEO, Akabar Al Bakar, is currently foreseeing the development of the New Doha International Airport, set to open its doors in phases starting June, 2014. Out of Doha International Airport, the airline also opened a lounge at the London Heathrow Airport in 2012. This takes the model of the Premium Terminal in Doha Airport (Emirates.com). Emirates Airways have also ventured in ground services where passengers have the freedom to check-in between two to 48 hours prior to departure. Checking in could be done within the lounge in the airport or at the counters. The Dubai International Airport also houses numerous self-service kiosks and the Dubai Metro has some stations which could be used for checking in (Academia.edu). As in the case of Qatar Airways, Emirates’ first and business class passengers have the privilege of accessing the 32 Emirates Lounges spread in 28 cities. This privilege also extends to the Skywards Gold and Silver members. However, for Skywards Silver members, they may only make use of the lounges at the Dubai airport, whereas in the airports in which Emirates do not operate a departure lounge, First, Business class passengers, Emirates Skywards Platinum and Gold members are provided with a third party departure lounge for their use. In addition to the above services, first and business class passengers are allowed access to complimentary chauffeur-driven airport transfers in selected cities (Emirates.com). Strategy In a bid to counter the weaknesses that have been described earlier in the report, both airlines have the responsibility of formulating new strategies. Emirates has a problem with its debt structure, and if not addressed in time, it could see the downfall of the business as a result of huge payments used to finance debt payment. To counter this, the management could come up with a plan to sell out a section of its equity to the private sector to raise funds for offsetting the debt. By selling out equity, Emirates could also end up rising more than the amount required to pay off its debt, and the surplus could be used for growing operations and making more investments (Delfman et.al. 2005). The issue of relying on international moving traffic is a problem for both companies, and so is the issue of relying on the global market as opposed to apportioning some interest to the domestic market. This too comes alongside sidelining the middle and budget class segment of the market by catering to the higher and upper middle classes that use the premium services. To counter this, the management of the two companies should evaluate their pricing strategy to include the lower class level of the market. This segment forms a large portion of customers, and they always run to the competition for more subsidized rates. If both Qatar and Emirates airlines could offer services to the lower budget clients, then they would increase their market share because they would still retain their premium market segment and tap the lower income market segment (Belobaba et.al. 2009). Conclusion The Airlines industry is characterized by many rival firms. Thus, passengers have many choices with regards to comfort and prices. Both Qatar and Emirates should formulate strategic alliances in order to survive against competition for a considerable period of time. Thus, they will deliver the same benefits as of rival firms, but at a reduced price hence achieving a cost advantage. In making these deals, the Airlines will develop synergy for efficiency and profitability. References About Emirates Airways. Retrieved on 21st February 2014 from http://www.emirates.com/ke/english/index.aspx About Qatar Airways. Retrieved on 21st February 2014 from http://www.qatarairways.com/global/en/homepage.page Belobaba, P. et.al. (2009). The global airline industry. John Wiley & Sons. Botten, N. & McManus (1999). Competitive strategies for service organizations. Business Monitor International (2012). Qatar Freight Transport Report 2014. Business Monitor International. Delfman, W., Baum, H.,Auerbach, S. & Albers, S. (2005). Strategic management in the aviation industry. Ashgate publishing Company. Johri, S.Emirates. Retrieved on 21st February 2014 from https://www.academia.edu/5427481/Emirates PR Newshire [New York]. (2007). 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