International Strategic Management in Emirate Airlines - Case Study Example

International strategic management Case study (Emirate airlines) Table of contents Part A Executive Summary Page 3 2. Introduction : Page 5 3. Background information about Emirates Airlines : Page 5 4. Strategic issues : Page 6 5. Analysis of External environment of Emirates Airlines : Page 6 6. Analysis of External environment of Emirates Airlines : Page 7 a. Threat from new entrants : Page 7 b. Competitive rivalry : Page 7 c. Bargaining power of buyers : Page 8 d. Bargaining power of suppliers : Page 8 e. Substitute products and services : Page 8 Part B 7. Business strategies : Page 9 a. Background : Page 9 b. Probable strategies for improvement : Page 9 c. Implementation : Page 10 8. Corporate level strategy : Page 11 a. background : Page 11 b. diversification : Page 11 c. Possible alternative Strategies : Page 12 d. Probable obstacles and solutions : Page 12 e. Corporate social responsibility : Page 13 9. Conclusions : Page 13 10. Recommendations : Page 13 11. References : Page 14 Part A Executive Summary Operating in 55 countries and to 77 destinations, Emirates airlines is one of the prominent airliners in the world at present. Started operations from Dubai in 1985 and currently serving in almost every major destinations of the world, Emirates airlines has won the best airliner award many times because of the excellent services it offers to the customers. The increased focus on diversification and the thirst for injudicious strengthening of the company using acquisition strategies has created certain strategic problems to the Emirates airlines at present. The major segment of the stakeholders, the customers and their interests were overlooked by the company when they too much focused on other aspects of the operations of the company. The customer service standards have been adversely affected and the reputation of the airline has been affected badly in the few years. In an ever changing world of business, customers have attained the topmost priority and the bargaining power of the sellers is low compared to the buyers at present. Moreover, competition has been increased a lot because of the new organizations entering into the airline business which forced Emirates airlines to think strongly in terms of restructuring its business policies and strategies to suit the needs of the current business world and the stakeholders. At present Emirates airline has started to reinforce its competitive power by implementing many revised strategies to make the customers happy. Owned and administered by some of the royal family members of the Dubai administration, the major strength of Emirates airline is its immense financial capabilities. Money is not a barrier for emirates airline to try and test new strategies in its business to satisfy the customers. But this enormous financial strength, one way or other misled the company towards unwise strategies like untimely diversification overlooking the interests of the passengers. The rapid progress of Dubai towards becoming the world’s topmost business hub has provided immense scope of business for Emirates airlines. At present, tourists from all over the world selecting Dubai as their favorite destination for spending their leisure time because of the big shopping facilities it offers to the visitors and Emirates airlines can utilize these opportunities for their advantages. Major airliners like Air India, Etihad, Gulf air, British airways, Qatar airways etc are raising stiff challenges to the smooth operations of Emirates airlines. These competitors are offering cheap flights to passengers by lessening their facilities inside the flight cabin whereas Emirates never tried to such cheap flights to counter the threats from the competitors. Introduction Background information about Emirates Airlines For a long period till 1985, Dubai had been used as the stopover on routes between Europe and Far East which forced the Dubai royal family members to think in terms of formulating an airline company to utilize the business opportunities.”Because of Dubais 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, 2001). Maurice Flanagan was the managing director of the new airline under the chairmanship of Sheikh Ahmed bin Saeed Al Maktoum, nephew of the ruler of Dubai who was only 27 years old in 1985 when the Emirates airline was founded. Two of the initial airline were provided by Dubai Royal Air Wing and the the first Emirates flight took off on October 25, 1985, from Dubai to Karachi. “Thereafter, Emirates Airlines reached Delhi and Mumbai. Within the first nine months of its existence, it started showing profits. 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, 2009)Under the strong leadership of Sheikh Ahmed and Maurice Flanagan Emirates airline became profitable within nine months and thereafter Emirates airline never looked back. According to Knorr and Eisenkopf (2007), Emirates airline will become the world’s largest passenger and cargo airlines by the end of the next decade. Strategic problems Even though, immense growth potential and financial capabilities are there, the profits of Emirates can be reduced considerably in the current decade because of some critical strategic problems. ‘The major problem facing by Emirates airline at present is the poor service standards and inconsistency in service quality. Moreover, Emirates is focusing too much on their high – end acquisition and diversification in spite of the risky effects of such decisions (Butod, 2009). Analysis of External environment of Emirates Airlines Most of the researches done in the airline industry have predicted significant growth prospects for airline industry in the coming decade. The worldwide airline industry may achieve an impeccable $711 billion business in 2012 which means an increase of 65.4 % since 2007. Moreover, in every chance, in the place of 2,076 million passengers in 2007, 2,362 billion passengers estimated for 2012 (Datamonitor 2007) Moreover, Emirates has realized the importance of the cultural aspects of the passengers they are handling and also the societies and communities they are servicing. In order to fulfill their social commitments, one of the key factors of business, the environment protection has been taken as a serious issue by emirates. Swine Flu and SARS like contagious diseases, when spread the world some of the airliners were forced to cancel their operations to some of their destinations. But Emirates was able to continue their services to these destinations without any cancellations because of the extreme safety measures taken by them. 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, 2009). 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 (Butod, 2009). The technological leadership can serve as a plus for Emirates airlines. Economic stability is one of the key strengths of Emirates airlines. As per the ministry of Economy, UAE, the current global financial crisis has not affected UAE much and most of its industry and business sectors are performing well even under the difficult circumstances. (Ammari, 2009). Moreover, the immense financial capability of the Royal family which actually owns the Emirates airline is another positive aspect for the Emirates airline. Analysis of Emirates airlines using Porter’s five forces Threat from new entrants Unlike many other business industries in the world, threats from new entrants to airline industry are very less. It is not easy to start an airline business because of the huge investment required to do so. Moreover, because of the large locally available fuels, emirates need to spend little on fuel price and low tax benefits is another major advantage for Emirates airlines. Currently, Emirates airline employs workers from different foreign nations which help them to preserve diversity, the much needed entity in airline industry. Competitive rivalry Competition is everywhere in business industry and Airline industry is also not an exception. The major competitors for Emirates airline are Qatar airways, Air India, Etihad, Cathay, Singapore airlines etc. Bargaining power of buyers Bargaining power of the buyers is one of the highest in the airline industry because of the involvement of mediators like travel agents and also because of the internet booking like marketing strategies. Internet booking and travel agents always forces airline marketing people to succumb to the needs of the buyers. Bargaining power of suppliers Aircraft manufacturers, fuel suppliers and food suppliers are the major suppliers as far an airline industry is concerned. Since there are only two aircraft manufacturers at present (Boeing and Airbus) airliners in general and Emirates in particular need to surrender some of their interests to the aircraft builder’s interest. The bargaining power from the fuel companies is feeble because of the large availability of fuel and the fuel suppliers. Food suppliers are also large in number and hence their bargaining power is also comparatively less. Substitute products and services The competition from substitute products is virtually zero since at present no other mean of transportation is as convenient as the airline transportation. Part B Business Strategies Background 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, 2009) 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 2004). Each customer group may have specific needs and Emirates need to cater all of them in order to achieve better performance results. But it failed miserably in doing so while its competitors like British Airlines, Etihad Airlines, Malaysian Airlines and Thai Airways did exactly that (Ulrich 2005). Growth and stability of a business can be sustained only if the company was able to establish strong tie ups with their customers, distributors, employees etc (Dubov 2009). All the above factors combined well in contributing to the poor performances of Emirates airlines at present. Probable strategies for improvement It is not all over for Emirates airlines. They can still attain the higher spots if they rectify some of the key mistakes they committed earlier as mentioned in the above paragraphs. Diversification or differentiation of service strategies may help emirates airlines to grab its higher position once they achieved and then lost. ‘Access to leading scientific research, highly skilled and creative product or service development, strong sales team with the ability to successfully communicate the perceived strength of the product and corporate reputation for quality and innovation are some of the probable differentiation strategies Emirates airline can think of (Porter’s Five Forces, 2007) Emirates airlines need to mesmerize the customers with some unique and unusual business tactics to regain their lost customers. The customers should feel something special about the Emirates airline in order to opt for it for their travel needs. The approaches towards customers and the facilities offered inside the cabin must be something which the customers never experienced before from any other airliners. For example, food and drinks served inside the aircraft plays an important role in judging the quality of services offered to the customers. Emirates must remember that it is not necessary that all the customers are equally fond of some particular foods. Food needs are different for different people from different counties and hence including variety of foods in the menu list may satisfy the diverse customers. The reaction to the services offered to a customer from Emirates airline must result in an expression like “Wow” from the customer in order to achieve the desired result for the new strategies implemented. In order to achieve that, Emirate Airline should differentiate itself in every aspects of their business strategies (Wirtz and Johnston 2003). Implementation The implementation of the strategies discussed above is not easy for emirates airlines. They need to restructure their organizational setup slightly to accommodate the changing needs of the customers. They need to appoint more talented employees in the customer servicing workforce armory. The existing employees might be reluctant in implementing such revolutionary ideas because of their traditional business concepts. Emirates airlines should consider the blending of fresh bloods with experienced in their workforce. Special attention must be provided to the training of the cabin crews who are directly interacting with the passengers in order to raise their performances up to the expectations of the customers of different types. Training of the front line staff plays an important role to implement the “Wow” strategy successfully (Olson 2002). Management training alone may not help Emirates to obtain its business goals. Along with training on management concepts, training for the implementation of the concepts is also required to the customer servicing staffs. In other words, the staff should be given training on both theoretical and practical aspects of the new customers servicing policies. Corporate level strategy Background Emirates group is one of the biggest business groups in UAE with around 15 diversified business projects. Airline industry is only one of them form them. Apart from airline Emirates group engage in businesses like hospitality, cargo handling/logistics, Airport operations, aviation IT solutions, security services, Engineering etc. Diversification Diversification is the only way to stay in the current market. Nobody can stay in the market using a single product alone. Emirates group has identified this principle much earlier itself and they have given more focus to diverse businesses as mentioned in the above paragraph. Unexpected calamities like the current recession in global economy, contagious diseases like SARS, swine flu etc can happen any time anywhere in the world and the air travel industry can be affected because of it. Only a diversified business group can overcome such situations with the help of their other business portfolios. It is just like investing in the shares of different companies rather than investing fully in the share of the same company. Possible alternative Strategies Emirates group need to diversify their business activities more in order to utilize the business opportunities opened by the globalization and liberalization policies. Gulf countries in general and UAE in particular is famous for the business prospects for real estate people. Emirates group can think in terms of investing in the real estate sector in future even though at present it might not be a good decision because of the economic decline globally. IT sector is another area which can be focused by Emirates group. India like countries have immense manpower potential as far as IT is concerned and in order to utilize such cheap labor markets, Emirates can think in terms of establishing IT businesses in India like rapidly developing countries. Probable obstacles and solutions It may be difficult for the middle managers to convince the top management about the need of diversification because of the current economic recess. But it should be remembered that the current recess may not be long lasted as many countries have already shown the signs of recovery. Another obstacle for diversification might be the bureaucratic structure of Emirates airlines. Majority of the current bureaucrats have not much idea about the requirements of the changing world and hence inclusion of certain fresh blood at the top level may rectify such problems. Corporate social responsibility It should be noted that apart from profit making, corporate groups have some kind of social responsibilities as well. No business groups can operate in a society overlooking the social needs. Emirates group is engaged in some kind of social servicing activities wherever they operate like helping the needy people including children and adults. Conclusions In short, Emirate airlines is one of the topmost airliners in the world as far as the service quality is concerned. It has attained the top spots in many occasions, but at present because of some strategic failures it failed to live up to its reputations. The major issue needed to be corrected by Emirates airline is to find solutions for the service slips happened during the initial years of the current century. Another problem is the lack of diversification even though Emirates group has many other business projects. All the Emirates group businesses are concentrated in airline industry or associated industries which are a dangerous situation since any damages occurred in airline industry might damage the entire group. Recommendations Diversification or differentiation of products and services is the first and foremost recommendation I can provide to Emirates group. While focusing on the existing products and services, Emirates group need to develop new diversified products and services to cater the needs of the customers and to stay in the market. Real estate, IT sector, communication areas are some of the new areas I can recommend for Emirates group. References 1. Ammari S. (2009), UAE Minister: Global financial crisis had minimal impact on UAE economy in 2008’, Retrieved on 14 October 2009 from http://www.ameinfo.com/190074.html 2. Butod, M (2009), Thinking Made Easy: Emirates Airlines Leadership Analysis, Retrieved on 14 October 2009 from http://ivythesis.typepad.com/term_paper_topics/2009/02/emirates-airlines- leadership-analysis.html 3. Datamonitor ,(2009), The Global Airline Industry will reach a value of $711 billion in 2012, Retrieved on 14 October 2009 from http://www.reportbuyer.com/transport_travel 4. Dubov L. (2009), Master Data Management: The Importance of Relationship Management”, Information Management, Retrieved on 14 October 2009 from http://www.information-management.com 5. Emirates Airlines, (2009), Retrieved on 14 October 2009 from http://www.iloveindia.com/airlines-in-india/international/emirates-airline.html 6. Knorr A, & Eisenkopf A, (2007), How sustainable is Emirates’ Business Model, AerLines e-zine edition, issue 38, Retrieved on 14 October 2009 from http://www.aerlines.nl/issue_38/38_Knorr_Eisenkopf_Emirates_Business_Model.pdf 7. Olson R (2002), Maintenance News, Western Michigan University Physical Plant, v.2, 1, pp. 1-8. 8. Porter’s Five Forces, (2007), Quick MBA: Strategic Management, Retrieved on 14 October 2009 from http://www.quickmba.com/strategy/porter.shtml 9. Robinson L. (2004), Public leisure facilities: managing customer expectations”, proceedings of the Institution of Civil Engineers,ME2,pp 129-133. 10. Saberi. M, (2009), The Nation: Swine flu has not affected Emirates airline flights or schedule, Gulfnews.com, Health, Retrieved on 14 October 2009 from http://www.gulfnews.com/nation/Health/10309092.html Skytrax, (2009), The world’s most Respected Airline Awards”, World Airline Awards, Retrieved on 14 October 2009 from http:// www. Worldairlineawards.com 11. The Emirates Group,(2001), Retrieved on 14 October 2009 from http://www.fundinguniverse.com/company-histories/The-Emirates-Group-Company-History.html 12. Ulrich, M. (2005), Emirates Airlines, Strategic Management in A Global context, pp.1-30 Read More