Sustaining in the Marketplace: of Etihad Airways - Case Study Example

Business Strategic Project "Sultan" Executive Summary A good strategy is the key operational factor of an organization because the success of any organization directly depends upon how effectively the management using it. For the purpose of strategic analysis, we have chosen Etihad Airways which is an aviation giant operating from Dubai headquarters. Etihad Airways is a premium aviation service industry focused on serving business to the upper middle and middle class people. Their main business is focused on the upper middle class and middle class customers. This report is concerned with the strategic implementation process through which Etihad Airways must undergo in order to sustain in the marketplace. In this report, we have tried to solve the company’s service issues in their product offerings by performing SWOT analysis along with the developments of their business environment outlook with a view of the competitors and consumers existing in the market place. Finally, after analyzing the necessary secondary information, we have concluded that the company should go for value added service offerings and globalization strategy through strategic alliance with foreign governments. Contents Executive Summary 2 Introduction 4 S.W.O.T. Analysis 6 Business Environment Outlook 8 Consumer Analysis 9 Competitive Landscape 14 Strategic Scenario 17 Recommendations 18 Action Plan 18 Final Recommendation 19 References 20 1.Questionnaire 22 2.Consumer Experience and Feedback 22 Introduction A good strategy is the key operational factor of an organization because the success of any organization directly depends upon how effectively the management using it. Any business is analyzed using the following the factors: The first and the foremost factor that is needed to be taken into account is the analysis of the industry’s environment, both in terms of the internal and external. The industry in which the business lays it is very important to analyze its core factors and its changes what are happening in current time.The next factor is the development factors that are necessary to improve the quality of performance of the organization. Internal and external environment analysis of a firm can be done by S.W.O.T analysis, which is nothing but the type of environmental analysis that helps in determining the strategies of any company by analyzing the internal strengths and weaknesses as well as the external factors like opportunities in the industry and the threat existing in the form of competitors. In order to customize and modify the strategy, the organization must keep an eye of the consumer profile of the company, especially the list of potential consumers. Consumer analysis helps to understand the customer, theirneeds,wants, and improvement required in the product. Competitive advantage needs to be sustained for a longer duration for survival in the market place as well as to receive substantial profit. The above said factors help a lot in analyzing the management strategies and on the basic of these factors generally an organization designs its whole management structure. According to the given guidance for analyzing any particular company’s management strategy the airways industry has been selected of UAE. The reason why this particular industry has been considered are as follows: Aviation industries are the most lucrative industries in the world. And in case of a country like UAE, it is highly supported by their strong financial structure and money flow. It engages a large number of people in their workforce and the industry is subjected to numerous stakeholders. Aviation is primarily a service sector. Generally in case of service sector, service performance comes in the position of first priority because of its intangible and inseparable nature. Service needs to be served right at the first time. And if the customer is dissatisfied, it results in significant loss of business. Thus, in case of service sector, diverse consumer feedback can be obtained. Aviation industry in UAE is dominated by few large business houses who compete with each other in the market place. These big business bodies have the capability to influence the country’s economic condition. For the purpose of strategic analysis, we have chosen Etihad Airways which is an aviation giant operating from Dubai headquarters. Company Overview Etihad Airways is a premium aviation service industry focused on serving business to the upper middle and middle class people. Their main business is focused on the upper middle class and middle class customers. The airlines have different types of products for various sectors. The organization has it’s headquarter in Abu Dhabi. It is the only airline that can term itself as the National Carrier of the UAE. Etihad Airways is fully owned by Abu Dhabi Government. The company is one of the leading aviation industries not only in the Middle East and North African region, but also in the world. On average Etihad currently operates: 187 flights per day; 1,311 flights per week; 5,638 flights per month; and 68,172 flights per year (current estimates) (Etihad Airways, 2010). Etihad Airways is committed to providing guests with an outstanding travel experience from the moment of booking through to the ground and inflight elements. S.W.O.T. Analysis Etihad Airways share a healthy market share in UAE, along with the competitors such as Emirates. Although the market share is substantial enough to make the firm a global aviation giant, but still it is subjected to different internal and external factors. The internal factors of the organization is a direct indication of the resources and capabilities of the organization that are needed to build sustainable competitive advantage over its competitors, whereas the external factors indicate the market potential of the firm. In case of Etihad airways, its respective internal and external analysis is explained below: Strengths: Being a government organization, the organization enjoys strong backing and government supported benefits provided by Abu Dhabi Government. UAE is an oil rich nation. It has strong financial and economic backbone. For this reason, the company enjoys the advantage of being present in this oil dominant financial zone. The airlines provides large number of flights for upper middle and middle class customers. This has increased their market share in the upper middle and middle sector significantly. Etihad airlines adopts a standardized globalization policy to expand their market share. They cover almost 55 countries across the world with the strong service standardization policies. Etihad Airlines has actively sponsored many cultural and business events. This has been a successful method of promoting their brand (Etihad Airways, 2010). Weakness: The company’s business relies heavily on international onward moving traffic. More international dependency creates volatility in business performance. The rich aviation market is dominated by different big players from different countries. In UAE only, the aviation industry is saturated due to large number of competitors. Intense inter firm rivalry between firms results in restricted market growth rate of the firm. Opportunities: The company has always been successful in keeping an eye on the changing customer needs and wants. The new branding approach can improve the customer’s confidence in the airline’s services. The global market is diversified in nature and it is continuously growing. Thus the company has huge potential if it follows diversified approach to reach distant places of the world. Threats: There are certain substitute products in the aviation market in global market. Due to global recession, many customers are opting to fly with low cost airlines. The expense of fringe benefits associated with travel is no longer a viable option to the customers. Due to this. Many airlines are providing their service at cheaper price range. There exists threats of established rivals in the marketplace. Etihad airways competes directly with Emirates Airlines in terms of market share within the UAE aviation sector. There are other established competitors too like Air Arabia and Fly Dubai. These aviation industries are expanding their number of fleets rapidly. The competition between these giants are quite intense. The cost of fuel is increasing rapidly which increases the cost of operation. Maintaining right profit figure in this scenario is becoming very tough. Another very vital barrier faced by the organization is the political unstable environment in the Middle East. Business Environment Outlook Despite the continued importance of the petroleum sector, the UAE is aggressively seeking to expand its economy and create new streamlined and business areas. The UAE has recently turn into a real global maker of aluminum and has started ventures in the aviation and defense sectors. In the U.A.E., financial and economic activities in the country is directed by the unique emirates, and additionally by the federal government. The U.A.E. aviation industry is one of the leading aviation industries not only in the Middle East location but also in the world. There is huge growth of the market in the Middle East as well as in the North African Region. The strategic location of the country is the biggest opportunity that the aviation sector can take advantage of. The country’s aviation sector has seen a staggering 70 billion AED investments in infrastructure building and an approximate 435 billion AED in total aircraft and engine orders. The investment in aviation sector is one of the largest in the world (Rahman, 2010). The business environment is subjected to the laws and regulations of the emirates government which promote redevelopment programs. The industry is currently undergoing the redevelopment activities of their eight international airports to serve more global customers (Rahman, 2010). The country has five regional airlines. Each of them are trying to increase their fleet at a rapid pace. This results in tight competition in the market place that also ensures low revenue from business (Isaac, 2010). Future Developments A great part of the late development over the business has been pushed by the tremendous expansion of local carriers like Emirates Airline, Etihad Airways and fly Dubai. The UAE has also figured out how to slot itself into the aviation manufacturing supply chain and inventory assembling network. Composite manufacturing plant in Al Ain owned by Mubadala Development, made arrangements at the Dubai Airshow valued at up $5 billion to provide composite materials and metallic structure parts to Airbus and Boeing air ship.Authorities are focusing on 20,000 employments inside the aviation business by 2030. Until then, flying is prone to turn into an increasingly integral plank in the nations economy (Arnold, 2013). Consumer Analysis Etihad Airways, which is the region carrier of Abu Dhabi primarily serves the customers who are primarily based in Abu Dhabi and Al Ain. Thus the target customers for the organization are the passengers who travel through Abu Dhabi International Airport. Based on the pricing strategy, the company focuses on middle class and higher social class sector. The company, at present, is targeting customers who opt to travel with luxury and high standards of hospitality. Etihad airlines has currently segmented their potential customers on the basis of usage purpose. The passengers are segmented into different categories like Tourist, Personal, Religious, and Business and in transit passengers who use Abu Dhabi airport to reach other distant regions in the world (Milne, 2009). United Arab Emirates is rapidly developing both in terms of business and in terms of tourism. The country’s tourism industry predicts a growth in tourist arrivals in hotels in Abu Dhabi from 1.34 million in 2006 to 3 million by 2015 (Jones Lang LaSalle, 2009). Result of Customer Interviews To find the needs and wants of the customers, as well as the drawbacks and areas of improvement, semi structured interviews with a mix of closed and open ended questionnaire are performed. Commercial consumers are interviewed on their level of satisfaction on service offerings. Customers were asked about the level of satisfaction they perceive from different class of business. The customers are segmented on the basis of their travelling class, like business or economic. Their responses about their experience during the trip is summarized below: The economy consumers and the business class consumers were reviewed on the basis of the same factors, namely, Value for money – The consumers’ perceived value about the service offering which is nothing but the difference between values received and cost incurred. Seat Comfort – this is another intangible dimension that needs to be taken into account. It is found that consumers want more comfort and pleasure while sitting in the seats with price ranges affordable to them. Staff Service – The staffs must be helpful and eager to fulfill customer demand whenever needed. Catering – Catering services have both the product and service wings. The product served must be right at the first time. Entertainment – these are the additional benefits that are added to the service. This can make the firm significantly distinct from its competitors (SkytraxAirtravel rating and reviews, 2014). According to review criteria, these five factors were judged on a scale of 5 stars whereas the rating were asked in a scale of 10. The people were also asked about their recommendation on the particular organization. Customer sample size was chosen as 10, because each of the customers were significant enough to judge the potential of the business. The Average ratings from the customer feedback is shown in Appendix 2. If we analyze the data, it is found that, in case of economy class, each of the sectors need careful consideration of the organization. The economy class is suffering from lack of proper service from the company’s, and this result in dissatisfaction among most of the customers. (Source: SkytraxAirtravel rating and reviews, 2014). On the other hand, when the business class customer feedback was collected. The result became different. It was found that most of the business class customers were satisfied with the company’s offerings. When asked about their recommendations, most of them instantly expressed strong favoritism towards the brand (Skytrax Airtravel rating and reviews, 2014). Consumer wants It is found that there are two types of consumers; one is the economically sound ones, who prefer to travel in the business class, and are more concerned with the extra added benefits they are supposed to receive, another one is the economically backward customers. These customers, known as the middle class segment, consider basic travelling option as the primary requirements. Competitive Landscape The UAE aviation industry is subjected to numerous competitors. They are both domestic and international in nature. Foreign investors have invested in this country significantly which has increased the existing competition in the marketplace. The key competitors of Etihad Airways are the big aviation houses like Emirates Airlines, Flu Dubai, and Air Arabia operating within the country. The company is a global aviation giant, and their direct competitors in the Middle East and North African Region not only includes these domestic airlines, but also some other aviation organizations from other Middle East Countries like Qatar Airways, Gulf Air, and Oman Air. It is also found that in case of service to the south Asian countries, Singapore Airlines has emerged as another strong competitor. Etihad does its benchmarking activities according to the standards of Emirates Airlines (Airline Leader, 2012). The competitive position of Etihad Airways is explained below: Airlines Etihad Airways Emirates Airlines Air Arabia Year of Establishment 2003 1985 2003 Product Luxurious Air Transportation Luxurious Air Transportation Basic air transportation service with no added fringe benefits. Price Market Penetration Market Skimming Market Skimming Place Abu Dhabi Dubai Sharjah People Well skilled and educated service staffs Well skilled and educated service staffs Well skilled and educated service staffs Promotions Direct Marketing Print media Advertisements Website Sponsorship Public Relation Activities Brochures and flyers Events Same as Etihad. Additionally Emirates advertises on luxury impact of their service on business class consumers. Same as Etihad, but they focus more on providing basic service with affordable price, and their advertisement focuses on them. (Source: Airline Leader, 2012). The foreign competitors of Etihad Airways are as follows: Qatar Airways: The business outlook for Qatar Airways consists of a mix of aggressive organic growth and new acquisitions strategies as it targets key traffic markets in the Middle East as well in other countries. The company works with a polycentric strategy of targeting customer segments with distinct strategies. The airline completed a strategic acquisition in 2011 and is now assessing other opportunities exiting in the marketplace. Qatar Airways is presently planning other major route expansion strategies, with a target of approaching the European, Asia Pacific, African and Middle Eastern destinations. Profitability for its present financial year is expected to have been hurt by the regional political unrest, but the airline is still confident of achieving a solid result. The airline is expected to face stiff competition from Emirates and Etihad Airways, but is confidently pursuing its own strategy with a mix of regional and long-haul operations, with an emphasis on premium traffic (Source: Airline Leader, 2012). Gulf Air: This airline is the principal carrier of Bahrain. The country operates in almost 30 countries across the world. It was established in the year 1950 and from the very first day, it has kept its objective of adopting the latest aviation technology and providing additional hospitality services. It carries large number of passengers from different parts of the world and today, it is one of the most major threats of Etihad in Middle East market. With a strong brand image generated from long service records, this airways company is surely a brand leader in the marketplace (Gulf Air, 2014). Singapore Airlines: Singapore Airlines Limited is 5-star airline of Singapore and it has solid vicinity in the Southeast Asia, East Asia, and South Asian Markets. It was declared by the International Air Transport Association as the second biggest aerial shuttle on the planet by business capitalization with a worth of 14 billion US dollars. Founded in the year 1947, the organization started its operations 41 years ago and today, it is one of the biggest airlines in South East Asia (Singapore Airlines, 2014). Strategic Scenario The company is facing strategic issues regarding service quality and customer service management. The key to success in diversely competitive marketplace is to resolve the issues that are being faced by the customers. From the analysis based on customer feedback, it can be said that – For Economy Class consumers: The company is not providing the appropriate service quality that the consumer is expected receive. Their main drawbacks are in providing seat comfort and entertainment in their service portfolio. Although it is true that provision of appropriate service is only possible if the price of tickets go up, but it can reduce sales. For Business Class Consumers: The customers are overall happy with the service offerings. But in this case also, staff service and entertainment are two key issues that the company needs to address. Overall, there exists a service quality gap. When the company is doing business in the foreign market, they are most likely subjected to different competitors. The competitors are not only utilizing the constantly growing nature of the industry but also offering substantial competition. The already saturated home market has resulted in significant competition in the market place with customers having plenty of alternatives available for them. Thus they need to fulfill the hidden demand of the consumers. Recommendations 1. The company needs to increase their quality of service provided to both kind of consumers. Business consumers and economic consumers have two different choices, although they have something in common. All consumers want value for money in service offerings. Traveling is not just a mode of transportation now a day, but it is something more than that. Thus, the company should focus in value added service offerings. 2. In case of foreign market, tie up with the regional governments can be a good option to expand business. Most of the foreign markets are dominated by several big house players. They can be a market leader in their own operating country and can emerge as strong competitor outside it. Thus, collaboration with foreign governments can result in expanding market share. Action Plan Service Quality can be increased by: Appropriate service differentiation. Added services while delivering the offerings. Going global can be possible by: Strategic alliance with foreign government. Global strategic human resource strategy to expand the business in foreign market. Final Recommendation In the conclusion, it is recommended that the company should go for value added service offerings to retain the existing consumers and should go for strategic alliances with foreign governments to expand their business in new foreign market. References Etihad Airways, 2010. Factsheet. [Pdf]. Available at: https://www.etihadairways.com/sites/Etihad/Etihad%20Images/Resources/EY-Factsheet.pdf. [Accessed on March 25, 2014]. Rahman, S., 2010. Dubai aviation Hub UAE aviation sector hits great heights – Gulf News. [Online]. Available at: http://www.zawya.com/story.cfm/sideGN_15082010_160830. [Accessed on March 25, 2014]. Isaac, J., 2010. Khaleej Times Online – Overcapacity may impact UAE aviation sector yields. [Online]. Available at: http://www.khaleejtimes.com/DisplayArticleNew.asp?section=business&xfile=data/business/2010/august/business_august239.xml. [Accessed on March 25, 2014]. Arnold, T., 2013. Advances in UAE aviation sector soar to new heights. [Online]. Available at: http://www.thenational.ae/business/industry-insights/aviation/advances-in-uae-aviation-sector-soar-to-new-heights. [Accessed on March 25, 2014]. Jones Lang LaSalle, 2009. Point Abu Dhabi City Profile. Abu Dhabi: Jones Lang LaSalle IP Inc. Milne, D., 2009. King of the skies – Business Management Outline. [Online]. Available at: http://www.busmanagementme.com/article/king-of-the-skies/. [Accessed on March 25, 2014]. SkytraxAirtravel rating and reviews, 2014. Etihad Airways Passenger Reviews and Etihad Airways Customer Trip Reports. [Online]. Available at: http://www.airlinequality.com/Forum/etihad-2.htm. [Accessed on March 25, 2014]. Airline Leader, 2012. Middle East Airlines – Outlook. [Online]. Available at: http://www.airlineleader.com/regional-focus/middle-east-airlines-outlook. [Accessed on March 26, 2014]. Gulf Air, 2014. History. [Online]. Available at: http://www.gulfair.com/English/aboutgulfair/Pages/History.aspx. [Accessed on March 26, 2014]. Singapore Airlines, 2014. About us. [Online]. Available at: http://www.singaporeair.com/en_UK/about-us/sia-history/. [Accessed on March 26, 2014]. Appendix 1. Questionnaire Questions were same for economy and business class consumers. I. Describe your experience in terms of the following factors (out of 5 stars): a) Value for money b) Seat comfort c) Staff Service d) Catering e) Entertainment II. How many points do you want to give to this organization (Out of 10)? III. Do you recommend this organization to other customers? 2. Consumer Experience and Feedback Economy Class Passengers   Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 Customer 6 Customer 7 Customer 8 Customer 9 Customer 10 Average Rating Value for money (5) 3 5 5 1 3 2 1 4 3 4 3.1 Seat Comfort (5) 1 3 3 3 2 1 2 2 1 3 2.1 Staff Service (5) 3 5 4 1 5 3 2 4 2 4 3.3 Catering (5) 3 3 3 3 4 3 3 3 4 4 3.3 Entertainment (5) 3 4 3 3 4 4 3 3 3 3 3.3 Rating (10) 5 8 5 1 4 4 2 8 1 8 4.6 Recommendations (Y/N) N Y N N N N N Y N Y 30 % Yes Business Class Passengers   Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 Customer 6 Customer 7 Customer 8 Customer 9 Customer 10 Average Rating Value for money (5) 1 2 4 3 1 4 5 4 4 5 3.3 Seat Comfort (5) 2 2 5 4 2 4 4 3 4 5 3.5 Staff Service (5) 1 2 5 1 1 5 5 5 3 5 3.3 Catering (5) 3 2 4 1 3 5 5 5 5 5 3.8 Entertainment (5) 3 1 3 1 3 4 4 3 3 4 2.9 Rating (10) 1 1 8 1 2 9 9 8 7 10 5.6 Recommendations (Y/N) N N Y N N Y Y Y Y Y 60% Yes (Skytrax Airtravel rating and reviews, 2014). Read More