Etihad Airways Strategy - Case Study Example

Etihad Airways Second Baggage Case Study 2/6 Rohit Table of Contents Table of Contents 2 Introduction 3 Issue 3 Literature Review 4 Etihad Airways Strategy (Hogan, 2008) 5 Second Baggage - Review 6 Options 6 Strategy - Short Term 7 Increasing the number of flights to major destinations 7 Communicate to customers about the core of its business 7 Business Class 8 Strategy - Long Term 8 Tie-ups with tours and trip organizers 8 Indian Market 8 Conclusion 8 Bibliography 9 Case Preparation Chart 10 Introduction Based in Abu Dhabi, Etihad Airways was established in 2003 and is the flag carrier of Abu Dhabi, United Arab Emirates (Etihad Airways). It operates services to the Middle East, Europe, Indian Subcontinent, North America, Far East, Africa, Central Asia and Oceania (Etihad Airways). Since its inception, the airline has failed to make a profit (Asia travel tips, 2008). However, the growth of the airline is exponential; its growth rate has never ever fallen below 40% (Asia travel tips, 2008). The case shows that James Hogan was hired in 2006 solely to turn the airline into a profit making venture by 2010. His major aims were to increase the profitability and the yield by 2010. In order to satisfy this condition, James came up with a second bag charge to be imposed on the customers. The case also gives out certain aspects of the future plan of the airline. The airline has placed an order for 205 aircrafts for $43 billion. This will increase the fleet size to 100 in 5 years. This move will generate more revenue as the capacity of the airline will increase. The case says that Etihad Airlines gives much importance to customer value. They have a loyalty program for their customers which is called Etihad Guest. It includes features like, immediate rewards, no black-out periods, anytime availability, widest choice, miles plus cash, miles that are worth more and family membership. They had high end redemption awards. The case further says that the Indian market shows much stronger signs of improvement. Given, the current scenario, a passenger seat load factor of 76-77 percent is being expected. Issue The Etihad Airlines is under a major issue of profitability and yield. James was hired to take the airline to profits by the year 2010. However, the chances seem to be slim. The International Air Transport Association has showed concern and has estimated that the global aviation industry will show a global net loss of $5.6 billion in the year 2010. To face the problem, James has announced the charging of second baggage to customers to increase revenue. However, the major question which it posses it is, whether such a move is profitable I the short run as well as the long run. And also what are the other options to achieve the target as well while maintaining the customer value or adding it. Literature Review Profitability is the term used to describe the ability of a company to earn profit (profitability definition). Passenger seat load factor is the measure of the airlines passenger carrying capacity being used. Second Baggage is the fees charged by an airline for carrying excessive baggage. Value proposition states that the functional and emotional benefits attached with a product or service is communicated in such a way that it appears higher than the cost of the product or service to the customer (Philip Kotler, 2009). A tool to identify ways to create more customer value is the value chain (Philip Kotler, 2009). The value chain shows the primary activities and the supporting activities of the business which together create value for the customer. Source: (Philip Kotler, 2009) Etihad Airways Strategy (Hogan, 2008) Etihad Airways does a lot of innovation to keep up the standards realistic to the market place. It has a clear policy of providing the customer with the best that there is. They have been using the below mentioned techniques: To reduce the costs they have been reducing space within the aircraft by maximizing the number of seats to the extent possible. They have been trying to stay technologically updated. Regularly reviewing and updating their business through researches. They have been following a very rigorous recruitment procedure, so they hire only the best staff that is available. They have also been organizing on the job training for the staff to stay updated with the latest innovations. They have their own pilot training program which helps them training talent from scratch and thus ensure better member for their staff. Second Baggage - Review The second baggage charge is currently levied by all the major airlines around the world (Nigam, 2010). This charge was imposed because people started to bring with them huge luggage. This increased the cost of the airlines due to more baggage handling charges, delay due to loading and unloading time of baggage, more fuel consumption due to increase in the weight of the aircraft, increase in turnaround time and so on (Goltsch, 2008). The second baggage charge not only makes the customer bring fewer luggages and thus save costs for the airlines but also gives an additional area to earn some revenue when people bring in additional luggage. Etihad Airways is now considering charging this fee and thus this will help to reduce the losses to some extent. However the Arabs and Indians are both used to be charged baggage charges on the basis of the weight of the luggage and not the numbers (Nigam, 2010). This might prove unconventional to the major chunk of its passengers and thus hamper the image of the airline. Options The following options could be considered by Etihad for the future to increase the profitability and yield while maintaining or adding value to the customer. Introduce Low cost airlines. Buy secondhand aircrafts instead of new ones. Increase the number of destinations served by the airline. Aggressive advertising. Introduce more loyalty programs and benefits for the consumer. Try to portrait the image of a socially responsible company and thus invest in CSR activities. Go for tie-ups with tour organizers and travel agents. Increase the number of flights to destination most visited by its customers. Strategy - Short Term Given hereunder are the overall strategies that the airline could follow based upon the facts in the case. Increasing the number of flights to major destinations The airline could increase the number of flights to major destinations of its customers. This would provide flexibility to the customers and also the availability of multiple flights would encourage more customers to use the Etihad Airways (Southwest Explores Change Fees, Bag Fees, and More, 2010). They have already ordered more aircrafts and thus this is a possible move in the future. Communicate to customers about the core of its business As given in the case the core of Etihad Business is that the customers are the most important. They are inclined towards giving the customers the best but in a different style than others. What they need to do now is to communicate this message to the world more aggressively. By doing this, the current customers will feel more pride of being attached to the airline and also the level of service promised will attract others as well. Business Class The Etihad already has services and benefits which other airlines are currently opting for in their business class. Thus being a pioneer, the airline could lure customers by communicating the forward thinking of the airline and that the customer service facilities are that of the future. This would add tremendous value to the value proposition of the customers. Strategy - Long Term Tie-ups with tours and trip organizers Etihad should also have have/increase the number of tie-ups with tours and trip organizers as they help in providing revenue in bulk (Qatar Airways, 2004). This way, customers who had not traveled on Etihad in the past will also get an experience and may opt willingly to travel by it only. Indian Market As per the case, the Indian markets were showing a promising opportunity. Etihad should take advantage of this and bring out some exclusive scheme or benefits to capture this market. They could come up with schemes such as higher loyalty points per mile and such. Conclusion Etihad Airways is one of the premium airlines with best in class services. Its focus on customer value is tremendous. Although, the airline has been unable to book a profit it has shown promising growth opportunities since its inception. The airline has been putting every effort to gain some profit this year. The recession and the terrorist attacks has been a major reason for the drop in the number of fliers leading to a consecutive growth in revenue and profits. However, since the economy is reviving, the future holds many opportunities which are to be grabbed. Bibliography Asia travel tips. (2008, April 8). Record numbers for Etihad airways 1st quarter. Retrieved February 6, 2010, from Asia Travel Tips: http://www.asiatraveltips.com/news08/34-EtihadAirways.shtml Etihad Airways. (n.d.). Our History. Retrieved February 6, 2010, from Etihad Airways: http://www.etihadairways.com/sites/Etihad/global/en/aboutetihad/etihadstory/Pages/EtihadHistory.aspx Goltsch, R. (2008, 23 June). Prediction: airlines will begin charging for carry-on luggage soon. Retrieved February 6, 2010, from Tripso: http://www.tripso.com/today/prediction-airlines-will-begin-charging-for-carry-on-luggage-soon/ Hogan, J. (2008, September 23). James Hogan: Full Steam Ahead at Etihad. (K. Ezard, Interviewer) Nigam, S. (2010, January 24). Etihad Airways charging a second bag fee Bad idea for a brand trying to establish itself - Simplifly || Aviation :: Brand. Retrieved February 6, 2010, from Simplylying: http://simpliflying.com/2010/etihad-airways-charging-a-second-bag-fee-bad-idea-for-a-brand-trying-to-establish-itself/ Philip Kotler, K. L. (2009). Marketing Management. India: Pearson Education. profitability definition. (n.d.). Retrieved February 6, 2010, from Investorwords.com: http://www.investorwords.com/3881/profitability.html Qatar Airways. (2004, November 10). Qatar Airways Signs Fly Rail Tie-Up with Eurostar | Qatar Airways press release. Retrieved February 6, 2010, from Qatar Airways: http://www.qatarairways.com/global/en/newsroom/archive/aboutus_news_10nov04.html Southwest Explores Change Fees, Bag Fees, and More. (2010, January 21). Retrieved February 6, 2010, from The Cranky Flier: http://crankyflier.com/2010/01/21/southwest-explores-change-fees-bag-fees-and-more/ Case Preparation Chart Case Title: Etihad Luggage : Second Baggage Case Assignment : Determine options to increase profitability and yield of the airline while maintaining or adding customer value Short Cycle Long Cycle Name: James Hogan Alternative Generation Position: CEO 1 Who: Issues: 2 No profits since inception and yield Profits to be made by the year 2010 3 What: Decision Criteria Why: 1 High Cost, lower passengers, competition, economy 2 When: 3 2010 Case Difficulty Cube: Alternative Assessment HOW: A fair case. Lack of concrete data to analyze however very clear on concepts. A very good presentation of the case, concise and simple. Quantitative | + | N | - | Qualitative | + | N | - | | + | N | - | | + | N | - | Decision |go |go | | | |no |no| | |no |no | Analytical; Conceptual; Presentation Quantitative | + | N | - | Qualitative | + | N | - | | + | N | - | | + | N | - | LONG CYCLE Decision |go |go | | | |no |no| | |no |no | ISSUES: Maintain or increase the customer value. Make profits and have higher yields. Quantitative | + | N | - | Qualitative | + | N | - | | + | N | - | | + | N | - | Immediate Basic Decision |go |go | | | |no |no| | |no |no | 1. Increase Revenue 1. No Profits or yield 2. Maintain customer value 2. Increase Customer value Preferred Alternative 3. 3. Action Implementation Who | [Urgent][Important] | Low | High What | Low |I |II When | High |II |IV Where | How | Case Data Analysis (framework/tool): Customer Value Proposition and profitability ratios. Missing Information Assumptions Read More