Marketing in Emirate Airlines: Potential of Airline Business - Research Proposal Example

? Emirate airlines (Milmo et al Background Emirates Airlines (EA) is one of the prominent airliners in the world at present. It is owned and administered by the royal family members of the Dubai administration. Headquartered in Dubai and started in 1985, Emirates Airlines is operating in more than 55 countries and to 77 destinations. During the last 27 years of history, it has won many known for lavish and luxury service it provides to the customers. Even though major revenue source of majority of the Middle Eastern countries is oil, the case of Dubai is entirely different. The major revenue source of Dubai is business rather than oil. In fact, Dubai is known as the business hub of Middle East. Even though Dubai witnessed rapid growths during the latter part of twentieth century, a national airliner was a dream until 1985, despite having an excellent airport. Dubai had been used as the stopover on routes between Europe and Far East during the 70’s and early part of 80’s. The business savvy Dubai royal family has realized potential of airline business during this period and they decided to exploit it. Thus the initial works for the formation of the company EA has started in 1985. ”Because of Dubai's unique political structure, Emirates could be described as both government-owned and privately held, though most considered it state-owned. It was required to operate independent of government subsidies, however, apart from $10 million in start-up capital” (The Emirates Group History). It is difficult to consider EA as a private or public company because of the unique political and administration system prevails in Dubai. The royal family is responsible for Dubai administration and at the same time, they are engaged in many other private businesses like EA. In 1974, three years after independence, the rulers of the UAE decided to establish a joint flag carrier: Gulf Air. However, a tense relationship between the airline and the Dubai government existed ever since its inception, as the latter re fused to give in to Gulf Air’s demands to abandon its open-skies policy. In reaction, Gulf Air reduced frequencies and capacities to and from Dubai by more than two thirds between 1984 and 1985 without advance notice. Since foreign carriers proved unable or unwilling to fill the gap, Dubai’s then ruler, Sheik Mohammed bin Rashid Al-Maktoum, convened a team of experts – headed by Maurice Flanagan and later joined by Tim Clark and the ruler’s then 26- year old son, Sheik Ahmed bin Saeed Al-Maktoum – to devise an emergency plan. The group’s recommendation to set up a home carrier for Dubai was quickly accepted by the ruler, but he imposed two conditions: The new airline should meet the highest quality standards and there would be no additional capital injections from the government other than the agreed USD 10 million start-up capital (Knorr and Eisenkopf, p.1). EA was formed in 1985 under the chairmanship of Sheikh Ahmed bin Saeed Al Maktoum, the nephew of the ruler of Dubai. Maurice Flanagan has taken charge as the managing director of the new airline. The first Emirates flight took off on October 25, 1985, from Dubai to Karachi. “Thereafter, Emirates Airlines reached Delhi and Mumbai. The airline launched services to Colombo, Chaka, Amman and Cairo in 1986. It kicked off non-stop services to London Gatwick in 1987 and also added Frankfurt, Singapore and Male to its network later on” (Emirates Airlines). Within nine months from the beginning operation, EA became profitable. Even though chairman Sheikh Ahmed bin Saeed Al Maktoum was only 27 years of age at the time, of taking charge of the airliner, he succeeded in converting EA into one of the most prominent airliner in the business with the company of Maurice Flanagan. As mentioned earlier, the differences with Gulf Air, motivated the Royal Family of Dubai to give take the growth of EA as a challenge. The Royal family allotted lavish funds for the initial expenditure, and took the growth of EA as major challenge to prove their credentials. It should be noted that Dubai and Abu Dhabi are the prominent emirates in the seven-member emirates country UAE. Both Dubai and Abu Dhabi are always in friendly competition with each other. Abu Dhabi has their own airline Al-Itihad. So, the passion for an airliner was there in the bloods of Dubai royal family. This passion coupled with the business prospects resulted in the formation of EA. EA is considered as a socially committed company. It’s past records show that EA gives more importance to sustainable development and corporate social responsibility. For example, when Swine Flu and SARS like contagious diseases evoked havocs in the world, EA continued its services to all destinations taking extra safety measures. It should be noted that many other airliners cancelled their flights to many prominent locations and caused huge problems to the passengers. “Emirates was able fly to major airports in the US during this period, including New York where cases of the flu virus have been discovered” (Saberi). One of the major success factors of Emirates Airlines is the huge support it gets from the Royal family. The Royal Family supports EA financially, whenever EA faces some problems. In fact EA is a national symbol of Dubai. Majority of the Dubai people take pride in the operations of EA. EA has not shown in reluctance in embracing new technologies. The updating of operations with emerging technologies is another success factor of EA. For example, “Emirates have implemented new technologies like IT/IS systems in their operations and also they are at present utilizing the internet communication and booking facilities to maximize their marketing power” (Emirates Airlines Leadership Analysis). During the initial periods of its history, EA has undergone rapid growth; however, in recent times, it suffered lot of setbacks because of visionless diversification and expansion. EA is currently undergoing some of the most difficult periods of its history. The recent recession and the subsequent financial problems in Dubai are affecting EA also. The service standards dropped considerably over the last few years because of financial problems. It is often accused that EA is giving more focus to diversification and expansion and hence they failed to give enough attention to service standards. Moreover, threats from new entrants and other airliners such as Qatar airways, Air India, Etihad, Cathay and Singapore airlines are causing big problems to EA. Moreover, the bargaining power of the suppliers and the buyers are increasing day by day because of various reasons. Aim & Objectives As mentioned earlier, EA is currently facing many strategic problems and as a result of that its marketing activities fail to bring desired results. The objective of this research proposal is to analyze the strengths and drawbacks of EA and the strategies necessary to improve its marketing activities. Methodology Both primary and secondary data will be used in this research. I have plan to interview some of the officials of Emirates group and the passengers to know more about EA. I do believe that the passengers can definitely provide deep insights about the service quality they receive from EA compared to other airliners. Moreover, the interviews with the officials will give me more insights about the business strategies and marketing activities of EA. Secondary sources such as printed articles and internet will be used extensively for the secondary data collection. Timing This research is intended to complete within thirty days. The first two weeks will be used for data collection from primary and secondary sources. The third week will be used for data analysis and the final week will be used for writing the paper. Literature Review & Discussion Despite of winning the best airline awards for two consecutive years 2001 and 2002, the graph has started to decline for Emirates airlines from 2002 onwards. Emirates has achieved number 2 spot in 2004 whereas it slipped to number 9 in the 2008 and 27th in the top 100 businesses of the Muslim world in 2009 (Skytrax). These statistics clearly suggest that the progress of EA started to decline even before the beginning of recession. If that is true, it is evident that some strategic problems are definitely causing problems to the progress of EA. According to Porter’s five forces theory, there are five forces which control the competitive power of an organization in the modern business world. They are; Threat of substitute products; Threat of new entrants; Intense rivalry among existing players; Bargaining power of suppliers and Bargaining power of Buyers (Porter’s Five forces Model) (See appendix 1 for more details). Threats from new entrants seem to be less in airline industry compared to other industries because of the huge capital required for the establishment of an airliner. However, the threat from existing competitors cannot be neglected as far as the business interest of EA is concerned. Service quality can make or break an organization in the modern business world because of the increasing prominence customers are getting in the business world. In the case of airline business, this fact is more important. “Emirates failed to live up to the changing demands of the customers which resulted in their downfall to such an ordinary level. The current customers can be classified into different categories based on their expectations; fuzzy, implicit, precise, explicit and realistic” (Robinson, p.129). It is suicidal for Emirates to cater the needs of one segment of customers and avoid the interests of other segment of customers. Emirates concentrate more on the interests of travelers in the luxury class while avoiding the interests of passengers in the economy class. Such a discrimination may not help EA in the long run. It should be noted that passengers in the economy class are the financial backbone of any airliner since the revenue generated from the economy class passengers are extremely higher that that generated from the luxury classes. It should be noted that customers have many options in the airline industry nowadays. So, they can select the preferred airliner from a list of service providers. In short, the bargaining powers of the customers or the buyers are more in airline industry. Since mediators like travel agents, are involved actively in airline industry, bargaining power of the buyers is extremely high in this industry. Moreover, internet booking like modern ticket booking methods, helped the buyers immensely to bargain for ticket prices. Aircraft manufacturers, fuel suppliers and food suppliers are the major suppliers in airline industry. One of the unique features about airline industry is the fact that only two aircraft manufacturers are there in the entire world; Boeing and Airbus. These two companies have monopolized the aircraft manufacturing business. They can fix the prices of aircraft much higher than the actual cost. In short, the bargaining power of aircraft manufacturers is extremely high in airline industry. Even though the increasing price of fuel is a major problem for other airliners, it is not a big problem for EA since Dubai is an oil producing country. However, the oil resources are rapidly exhausting because of increased exploitation and hence EA may suffer problems with respect to fuel prices in near future itself. Currently, Emirates airline employs workers from different parts of the world to preserve diversity. Diverse workforce often increases the competitive power. At the same time, it has the potential to bring problems also. Another unique feature of airline industry is the absence of substitute products. The competition from substitute products is virtually zero in airline industry, since at present no other convenient mean of transportation is available for air transportation. The major competitors for Emirates airline are Gulf Air, Qatar airways, Air India, Etihad, Cathay, Singapore airlines etc. These airliners are introducing innovative business strategies to improve their competitive power. Moreover, competitors have introduced different price mechanisms to exploit the busy and dull seasons. It should be noted that airline industry is highly seasonal. In other words, during some seasons, airline industry becomes busy and in some other seasons, they may not be so. So, flexibility in ticket pricing is necessary in airline industry. EA has to consider variable pricing strategies instead of fixed pricing mechanisms to exploit the market fluctuations. Unlike many other industries, the possibilities of introducing a breakthrough product is less in airline industry. However, it is possible for the airliners like EA to mesmerize the customers with the quality of customer service. Customers should feel something unique about the customer service of EA to select EA quite regularly for their travelling needs. The reaction to the services offered to a customer from Emirates airline must result in an expression like “Wow” from the customers. Training, development and empowerment of the diverse workforce is necessary for EA to make necessary changes in the attitudes of its employees and to bring out the emotions such as ‘Wow’ from the customers. Training on both theoretical and practical aspects of the new customers servicing policies should empower the EA workforce to adapt themselves to the changing needs of modern customers. Diversification of business often brings dividends to a company. However, in the case of EA, it brought many setbacks. It should be noted that Emirates group is currently one of the biggest business groups in UAE with around 15 diversified business projects. Apart from airline Emirates group engage in businesses like hospitality, cargo handling/logistics, Airport operations, aviation IT solutions, security services, Engineering etc. Even though as a group, the performances of Emirates is good, the performances of some of its individual components are not so good. EA is one among the poor performing components of Emirates Group. This is because of the lack of focus given to EA while the management forced to give more focus on other sectors. Financial experts believe the EA’s future could be determined by Dubai's sister emirate, Abu Dhabi, which could demand ownership of the company for bailing out its neighbor if the troubles at Dubai World worsen. Emirates was back on the defensive today as it reacted to speculation that it could be forced to merge with the Abu Dhabi carrier, Etihad. Maurice Flanagan, Emirates vice-chairman, described the media response to Dubai World's request for a debt moratorium as "hate Dubai week". In an interview with Bloomberg he added: "You wouldn't know it from the media comment, but Dubai has a number of substantial businesses." Etihad said there are "no talks" about a deal with Emirates. An aviation industry source said the Dubai government would be loth to let the airline go. "It's the family silver. Although the airline cannot decide whether or not it is sold, it is probably the last thing that the government would want to go under the hammer," the source said (Milmo et al.) Dubai is undergoing some serious financial troubles in recent times. The waves of these troubles are affecting EA in one way or another. Many people believe that the future of EA rests in the hands of Abu Dhabi government. In their opinion, Abu Dhabi might think of acquiring EA. However, latest trends show that Dubai is on the verge of a comeback. At the time of writing this proposal, EA has become the second-largest long-haul international carrier after Lufthansa, carrying 33 million passengers a year (Arlidge). The annual profit of EA has increases a lot since the 2007-2008 drops. (See appendix 3 for more details). Moreover, EA is acquiring many other competitors even though critics expected a merger of EA with some other airliners. The Australian airliner Qantas has already announced its plan to merge with EA. “Not only is Qantas merging its operations with Emirates: some of the most bitter critics of the group of Gulf airlines are rushing to jump into bed with them” (Arlidge). Emirates has introduced modern business strategies such as mergers and acquisition judiciously to reduce competition from other airliners. It should be noted that mergers and acquisition are widely regarded as the strategy necessary for big organizations to stay in the market. The objective of this strategy is to buy small firms and acquire more competitive power. Viral marketing is gaining prominence in the modern business world. Facebook, twitter like social networks are helping business groups immensely in building mouth publicity. Social network marketing is one of the latest trends in marketing. The major advantage of social network marketing is cheaper cost and increased effectiveness. It is possible to reach individual customers with the help of customized marketing strategies with the help of social networks. “Emirates is turning to Facebook to build an 'emotional' connection with its customers, as it looks to address its lack of social-media presence. The global airline group is hiring a digital agency to create a Facebook page as the first step in the process of establishing its ‘social-media footprint’”(Shearman) “The aim of the Facebook page is to make the brand more relevant to a wider audience, positioning it as ‘cosmopolitan’ and ‘prestigious’, as well as driving loyalty among current Emirates customers” (Shearman). Social networks are becoming an addiction among majority of the people in this world. According to a recent report, the membership strength of facebook has already crossed 1 billion. No other channels enjoy such a huge customer base as social networks do. People often value the opinions of their social network friends more than the advertisements in television or newspapers. In a heavily competitive world, it is difficult for the public to get the right information as companies always try to mislead the public with exaggerated ads. While people exchange their ideas through social networks, they always try to speak from their inner heart. In other words, people have a belief/illusion that the information they receive from social networks are reliable or authentic. EA knows this fact very well and they are currently trying to exploit the possibilities of social networks as much as possible. Sport is another activity through which EA tries to build its brand name. Football, Rugby, Tennis, Power boating, horse racing, cricket, golf, sailing etc are some of the sports events currently sponsored by EA. EA sponsors both domestic and international sports events. According to His Highness Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Chief Executive, Emirates Airline & Group, “sponsorship is vital in the airline’s marketing strategy. “We believe sponsorships are one of the best ways to connect with our passengers. They allow us to share and support their interests and to build a closer relationship with them,” he said” (Emirates Sponsorship). In terms of destinations, Japan, India, Australia and UK are the prominent destinations of EA apart from UAE (TheAirDB). (See Appendix 2 & 4 for more details). Since India is one of the most heavily populated and rapidly emerging countries in the world, Emirates should give more attentions to its Indian operations. India’s national airliner Air India is currently in big trouble and Emirates can try to capitalize it. Conclusions Emirates Airlines is one of the prominent airliners in the world now. It faced lot of difficulties in the recent past because of recession, injudicious diversification and expansion strategies. However, the company was successful in bouncing back from serious setbacks and in becoming the prominent airliner of the world again. Diversified marketing strategies helped the company immensely in capturing its lost spot in the airline industry. Social network marketing, and sponsorship of sports events are some of the major marketing strategies adopted by EA at present. EA needs to implement more innovative marketing strategies to cater the ever changing needs of the people. Works Cited Arlidge, John. “Emirates Chief To Chart New Course”. Web. 12 November 2012. “Emirates Airlines Leadership Analysis”. 2009. Web. 12 November 2012. “Emirates Sponsorship”. 2012. Web. 12 November 2012. “Emirates Airline Ends The Year On A High”. 2012. Web. 12 November 2012. Knorr Andreas, & Eisenkopf, Alexander. “How sustainable is Emirates’ Business Model”. 2007. Aerlines magazine. e-zine edition, issue 38. Print Milmo Dan, Moya Elena and Scott Matt. Dubai Authorities May be Forced to Put Up Emirates Airline as Debt collateral. The Guardian., 30 November 2009. Print “Porter’s Five forces Model”. 2009. Web. 12 November 2012. Robinson L. “Public Leisure Facilities: Managing Customer Expectations”, Proceedings of the Institution of Civil Engineers, 2004. ME2, Volume 57.Issue 2. pp 129-133. Saberi. Mahmood. “The Nation: Swine Flu 'has not Affected Emirates Airline Flights or Schedule'”. 2009. Gulf News. April 30, 2009. Print Shearman, Sara. “Emirates Targets Rival Airlines With Facebook Strategy”. 2011. Web. 12 November 2012. Skytrax. “World Airline Awards”. 2009. Web. 12 November 2012 “The Emirates Group History”. 2001. Web. 12 November 2012. “TheAirDB”. Web. 12 November 2012. Appendix 1 (Porter’s Five Forces Model) 1. Threat of substitute products Threat of substitute is high when: There are many substitute products available Customer can easily find the product or service that you’re offering at the same or less price Quality of the competitors’ product is better Substitute product is by a company earning high profits so can reduce prices to the lowest level. 2. Threat of new entrants Threat of new entry is high when: Capital requirements to start the business are less Few economies of scale are in place Customers can easily switch (low switching cost) Your key technology is not hard to acquire or isn’t protected well Your product is not differentiated 3. Industry Rivalry Industry rivalry is high when: There are number of small or equal competitors and less when there’s a clear market leader. Customers have low switching costs Industry is growing Exit barriers are high and rivals stay and compete Fixed cost are high resulting huge production and reduction in prices 4. Bargaining power of suppliers Suppliers are more powerful when Suppliers are concentrated and well organized a few substitutes available to supplies Their product is most effective or unique Switching cost, from one suppliers to another, is high You are not an important customer to Supplier 5. Bargaining power of Buyers Buyers have more bargaining power when: Few buyers chasing too many goods Buyer purchases in bulk quantities Product is not differentiated Buyer’s cost of switching to a competitors’ product is low Shopping cost is low Buyers are price sensitive Credible Threat of integration (Porter’s Five Forces Model) Appendix 2 Destinations of EA (TheAirDB) Appendix 3 (Emirates Airline ends the year on a high) Appendix 4 (Emirates Airline ends the year on a high) Read More