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Industry Competitive Analysis - Qatar Airways - Case Study Example

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The paper "Industry Competitive Analysis - Qatar Airways " is a perfect example of a business case study. The global airline industry has suffered setbacks in its tremendous growth during the phase of the economic downturn. Despite the downfall, the aviation industry is expected to grow at an annualized rate of 2.9% over a period of 5 years ending 2015…
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Extract of sample "Industry Competitive Analysis - Qatar Airways"

EXECUTIVE SUMMARY This report focuses on industry competitive analysis of airline industry comparing the current market scenario of two companies Qatar Airways and its counterpart Emirates Airlines. The report highlights the industry indicators of airline industry and the driving forces of airline industry. A PEST analysis has been conducted to evaluate the external factors in which the industry operates. Further a competitive analysis through a SWOT analysis of both the companies had been prepared where results show Emirates Airlines to be in a better position than Qatar Airways. However, future prospect of Qatar Airways still look very promising and bright. Porter’s Five force model has been studied minutely to evaluate various factors which has an impact both internally and externally on airline industry. The current status of Qatar Airways has also been discussed which shows tremendous growth by the company and bright future prospects for the same. Finally the report is concluded to provide a practical and theoretical understanding of the entire report under study. TABLE OF CONTENTS 1.0Introduction 3 1.1Company Analysis 3 2.0Industry indicators 3 3.0Industry driving forces 5 4.0PEST Analysis 6 5.0Competitive Analysis 7 5.1SWOT Analysis of Qatar Airways 7 5.2SWOT Analysis of Emirates Airlines 8 6.0Porter’s five force model 9 7.0Industry Attractiveness 10 8.0Current Position of Qatar Airways 10 9.0Future Outlook 11 10.0Conclusion 11 11.0Refernces 12 1.0 INTRODUCTION The global airlines industry has suffered setback in its tremendous growth during the phase of economic downturn. Despite the downfall, aviation industry is expected to grow at an annualized rate of 2.9% over a period of 5 years ending 2015. Mainline carriers can be regarded as the industry’s largest product segment contributing to over 60% of the revenue of the industry. The airlines typically generate over 1$billion annual revenue and offers both domestic and international flights. With an increase in the purchasing power of people on a global basis, number of passengers is expected to rise with an equal increase in mergers and acquisitions during the coming phase of next five years. With greater rivalry among major competitors and increase in the number of sellers, price wars are most serious threat to the airline industry. 1.1 Company Analysis Qatar Airways is one the largest growing airlines in the world with the company based in Qatar. Ever since its re launch in 1997 the company has shown significant growth in its fleet size and sharp rise in its passengers. The company with a small fleet of 4 aircrafts in 1997,grew to 50 aircrafts in 2006. Today the company operates over 68 Boeing and Airbus aircraft and with a fleet of 87 aircrafts serves over 100 destinations worldwide. The company provides huge employment to more than 18000 employees across various Far East, Middle East, Central Asia and other regions of the world. Emirates Airlines is a Dubai based company which came into existence in the year 1985 with its first flights to Karachi and Mumbai in Pakistan and India respectively. The airline is a subsidiary of the Emirates Group which is wholly owned by Government of Dubai. Emirate’s is the largest airline in the Middle East providing its services to more than 72 countries and across 6 continents worldwide. The company operates both Aircrafts and Boeing and shown tremendous growth in terms of its financial stability and year-per-year growth. Emirates was also voted airline of the year in 2013, and has a strong brand name in the aviation industry particularly known for its service excellence, rapid growth, higher profits and complete customer satisfaction. 2.0 INDUSTRY INDICATORS Industry indicators play a vital role in understanding the current environmental scenario in which an industry operates. The various industry indicators have been discussed as under. SIZE AND GROWTH RATE Global airline industry has been much hurt with the global economic slowdown however the industry is still expected to grow at an annualized rate of 2.9% per annum. Qatar airways has grown its business to over 120 destinations worldwide and has shown tremendous growth ever since its re-launch in the year 1997. The company has been financially strong and offers unmatched excellent services with a growth rate of over 17% per annum. Emirates Airlines on the other hand is the leading airline company in the Middle East and has shown remarkable growth of over 21% in the last few years. Emirates Airlines is one of the ten largest aviation growing company on a global basis. MARKET SIZE Market size of aviation industry is huge with a rapid increase in the same owing to sharp increase in frequent travelers. Market is anticipated to increase at a rate of 3.9% per annum with a sharp rise in international travelers in the Mid-East and Asian countries. Qatar Airways which is half owned by Qatar government has one of the big three network airlines within the Middle Eastern region of the world. The company operates its business in over 100 destinations globally. Qatar has also signed a one world global alliance in 2013. Emirates Airlines on the other hands stands in the leading position covering over 200 destinations on a global basis and has emerged as one the leading airlines globally (Zellner and Arndt, 2003). PRODUCTS/SERVICES Qatar Airways is known for its 5 star services and offers both travelling services in the domestic and international market along with other services like charter, courier etc. Aircrafts are specially designed targeting different segments of customers through its different services categorized as first class, business class and economy class (Zellner and Arndt, 2003). First class services are offered in selective Airbus within the gulf region whereas economy class and business class services are offered on all Qatar Airways flights. PROFITABILITY Airline industry is much attracted by its huge profitability and the industry experienced a revolutionized change in the year 200 when the industry went private. During the period of 2004-2011 the airline industry on a global forefront experienced an average ROIC of 4.1%. Airline profits in 2012 were US$ 7.6 Billion thus indicating a slim profit margin for investors in a risky business where investors could possibly get $17 billion more investing in bonds and equities with similar risks. Qatar Airways reported a profit of US$205 million in 2011 however Emirates reported a decline of 72% decline in its net profit in fiscal year 2012. Thus profitability seems to be a mixed bag for different airlines operating in the similar industry (Zellner and Arndt, 2003). CAPITAL REQUIREMENTS Capital requirement is huge in the airline industry. High capital requirement with increasing risks and competition discourages potential entrants. With financial barriers and increasing interest rates capital requirements has increased significantly. Further with declining profits and rising inflations investors are more pruned towards other equities and bonds as a means of investment in anticipation of higher returns. Depending upon the current factors the airline industry is very capital intensive and heavily dependent on economic cycles with a real bankruptcy risk. ENTRY AND EXIT BARRIERS Entry to any industry depends on various economic and environmental factors prevailing in a particular industry. Barriers to entry in airline industry are on the higher side owing to factors like large capital requirement both during the initial setup and for day to day working activities. Further new entrants face an additional risk of brand loyalty along with tight regulations and norms governing the industry (Kotler, 2006). Exit barriers are also stiff in airline industry owing to huge capital already invested in the industry. Further exit in airline industry affects the government to considerable extent as most of the company’s are backed with governmental support. LEVELS OF FRAGMENTATION/CONSOLIDATION In modern times industries fragments and consolidate at a much rapid pace. With fragmentation comes innovation to a considerable extent. Consolidation usually leads to a good deal for both sides involved in a merger and acquisition deal. Recently Emirates Airlines went in consolidation with Qantas Airlines to boost up sales and reach a larger audience. Qatar airway is also seeking consolidation with other major renowned airline companies to enlarge its business and generate higher profits. CUSTOMER CHARACTERISTICS With rising competition in the airline industry, consumers now have a wide choice of air carriers. Consumer characteristics differ broadly in terms of unique services provided by the airline company and customer satisfaction, unlike any consumer goods industry plays an important role in determining the success of an airline company along with building of customer loyalty (Gittell and Hoffer 2001). Customers may range from business travelers to economy class travelers with airline companies providing different forms of luxury in different segments to ensure cost benefit analysis to the consumers. CAPACITY UTILISATION Capacity utilization plays an important role in the airline industry as it determines the profitability of an airline company operating in the airline industry. Capacity utilization has an impact on the unit cost of a product. Recently Qatar Airlines has announced to increase capacity on its flights to Sri Lanka to lower cost and meet fuel expenses and maintain equilibrium in its profitability. Capacity utilization further helps airline companies to offer low fares as the cost of fuel and other expenditures are met to a considerable extent. 3.0 INDUSTRY DRIVING FORCES Airline industry unlike any other industry is characterized by its own driving forces. These driving forces are factors that help in grooming of the industry and lay a foundation for future growth and success of companies operating in the airline industry. Industry driving forces in airline industry includes socioeconomic forces, technological forces and regulatory forces. Socioeconomic forces include aggregate demand and customer tastes and preferences towards a particular airline company (Bachmann, 2002). Technological forces can be categorized as the performance level and input cost of each airline company operating in the airline industry. Regulatory forces include the level of rivalry and competition among various airline companies operating in the airline industry along with unique operational methods. Airline industry has a direct impact on the tourism department. Rise in tourist passengers lead to increase in business for airline companies. Tourism can be regarded as one of the strong driving forces in the airline industry. There has been sharp rise in the tourist travelers through aircrafts, though the number of flyers had a sharp dip after the terrorist attack on September 11th, the industry has revived to a considerable extent. Fuel prices also acts as a driving force in the airline industry since the same is regulated via different domestic and international cartels which have a direct impact on the cost structure of an airline company. Qatar airways and Emirates Airlines even though operates majorly in gulf countries where prices of fuel are considerably much lower than other parts of the globe are still affected to a large extent by rise or fall in fuel prices. Governmental taxes and maintenance cost also affects the pricing structure and acts as driving forces in the airline industry as revenues and profits are largely affected by a rise or fall in the tax structure of a particular country. 4.0 PEST ANALYSIS PEST analysis is commonly used to evaluate the external factors which affect the running of a business in a particular industry and is beyond the control of any particular organization. A PEST analysis is tabulated as under in which Qatar Airlines operates. POLITICAL Middle Eastern airline industry can be regarded as a region where demand and supply impetus is involved. Induced demand has a considerable effect on the growth rate of airline industry in Qatar which is mainly on account of political stability in the Gulf region and not just in Qatar. Further, since Qatar airlines operates on a global basis it has to minutely deal and consider various international policies and the company has to evaluate political environment on a continuous basis to prepare itself from any possible problems and threats rising though political instability (Schermerhorn, 2009). ECONOMIC Topography of gulf countries further supports airline industry in this region as people favor travelling by air for intra-regional transport. Further, the per capita income is on the higher side which shows promising signs of future growth and hence a bright future for airline industry. However socio-economic constraints along with uneven distribution of wealth and high number of people living below poverty line affects the growth of Qatar airlines to a considerable extent. SOCIAL Qatar Airlines make sure that the services and products it offer and the technology used to provide such services are accepted by people at large on a global basis. Building good relations with different sectors of the society further helps in building customer loyalty and ensuring higher customer satisfaction to its users (Flattoau, Matthews & Lott, 2006). Social factors play an important role as airline industry depends much on customer taste and preferences which ultimately helps a consumer in making its purchase decision. TECHNOLOGICAL Qatar’s strength is derived from its huge oil and gas industry which makes the country one of the richest country in the world. The IT market of Qatar is further expected to show rapid rise between 2013-2017. Qatar airways further introduce new concepts and innovations with regards to airline industry. Since the world is seeing a rapid technological advancement it is important for every industry and company in the airline industry to keep in pace with the rapid technological advancements and ensure new innovations to provide better customer satisfaction and excellent services (Pearce and Robinson 2003). Thus we see the PEST analysis of Qatar Airlines in terms of the external environment in which it operates and how different external factors impact the growth and success of various airline companies operating in the airline industry. 5.0 COMPETITIVE ANALYSIS A competitive analysis is used to evaluate the level of competition that two organization in a similar industry faces. Discussed here is a competitive analysis of two airline Qatar Airways and Emirates Airlines through the help of a SWOT analysis to understand the potential opportunities and threats. 5.1 SWOT ANALYSIS OF QATAR AIRWAYS Strengths Qatar airlines gain much advantage from the huge support from Qatar governments both in terms of finance and legal aspects. The company has a large fleet of over 100 aircrafts and operates in over 100 international destinations, thus covering a large market area. The company is equipped with latest technology and provided employment to over 18000 employees. Weaknesses Qatar Airways rely heavily on International Moving Traffic thus acting as a dependent rather than individual identity for generating business. The company has limited market share growth and is less equipped with modern techniques in comparison to its counterparts. Opportunities Qatar Airways still has ample opportunity to brand its new fleet to gain more loyal customers and boost up sales The company has ample resources to position itself as an alternate hub in comparison to UAE. Better branding and marketing techniques along with further expansion through consolidation can help Qatar Airways to generate higher revenue and improve its profitability along with market share. Threats Rising competition in the Middle East market with threats from both existing and potential new entrants in the airline industry. Increasing global fuel prices shall definitely affect daily sales to a large extent. Changing government policies and regulations may lead to unfavorable market scenarios. 5.2 SWOT ANALYSIS OF EMIRATES AIRLINES Strengths Emirates Airlines is known for delivering its high standard of performance including safety, security and high customer satisfaction. The company has a strong hub in Dubai and is the most preferred airlines in the Middle Eastern region of the globe. Large market size covering over 72 countries and 6 continents. Provides unique services to its customers which ranges from luxury to extra luxury comforts during travel. Weaknesses The company has been successful in creating bench marks in the airline industry which requires huge maintenance cost. The company is not much known in the African countries and concentrates more in the gulf region. Opportunities Branding through modern means can help company to boost up sales. The company is still not the only choice or the first choice for travelers when it comes to dealing with tourist travelers. Expansion of business by covering more international destinations which has a potential demand among the travelers. Threats Rising competition especially its counterpart Qatar Airways which has covered a potential market not tapped by the company. High business risks owing to rising fuel prices, governmental taxes and inflation. Strict international policies and regulations which keep changing on a continuous basis. Thus we see the competitive analysis of both the companies through the help of SWOT which shows promising signs of development for both the companies with Emirates Airlines in a much better position when compared to Qatar Airlines in terms of growth, future potentials and market share. 6.0 PORTER’S FIVE FORCE MODEL Porter’s Five Force Model helps to measure the intensity of competitive forces within an industry. An analysis of five forces develop by Porter in context to airline industry is discussed as under. Threat of new entrants A glance view of airline industry may seems that entry for new potential entrants may be difficult but it is not the same as a potential entrant can through financial stability and bank loans with government support can enter the airline industry (Porter, 2008). However with intense competition and customer loyalty profitability for new entrants shall be on the lower side. Further more in comparison to other industry new entrance in airline industry is difficult in comparison to other industries. Power of suppliers The airline industry is much dominated by Boeing and Airbus owing to which competition among the suppliers is on the lower side. Furthermore vertical integration of suppliers is more unlikely to happen in the airline industry which in other terms means there is a very little possibility of suppliers manufacturing aircrafts running their own airlines owing to huge capital investment already blocked by means of working capital (Porter, 2008). Power of buyers Customers or buyers have the ability to make a choice before making the final decision on purchase of travel. Bargaining power of buyer is on the lower side in terms of airline industry due to high switching cost (Porter, 2008). Furthermore when buyers have less money to spend they look to use air travel less frequently which poses a serious threat on the profitability of various airline companies. Availability of substitutes Airline industry has different level of threat from substitutes when it comes to domestic and international travel. With regards to domestic travel it faces huge threat from other means of transport particularly less expensive railways and roadways (Porter, 2008). However in terms of international travel threat from waterways is on the lower side owing to huge time constraints for travelers in reaching their destinations. Competitive Rivalry With more entrants entering into the airline industry and rise in per capita income of people on a global basis competition in airline industry has risen sharply. Furthermore since most of the airline companies offer similar services with some unique characteristics competition has rose more significantly (Porter, 2008). Qatar Airlines faces tough competition from Emirates Airlines among other small airline companies who also occupy a considerable portion of the market share in airline industry. 7.0 INDUSTRY ATTRACTIVENESS Airline industry from the very onset has been able to generate interests of professionals, academics and business class owing to its huge impact on the growth of an economy. The industry suffered a major setback with the attack of 9/11as there was a sharp fall in the sales of tickets which lead to huge losses for the existing airline companies on a global level. However the industry once again revived with new innovations and better security and promising airlines. The airline industry in the gulf countries attracts a larger segment owing to lower fuel prices and quality services. The growth in airline industry is much attractive with an annualized yield of 3.9% per annum. Average profit in 2012 was US$7.6 Billion with an ROIC of 4.1%. The airline is much attractive in terms of delivering highest customer satisfaction and governmental support for potential entrants to enter into the industry to encourage a competitive environment with equal backing from banks to meet the financial requirements (Bonabeau, 2001). Further with rise in tourism sector all across the globe and sharp rise in the number of travelers by air the industry promises higher returns and alluring profits to be backed by financial corporate operating in the industry. Furthermore, world class airports, better management of air traffic and airports in smaller cities of the countries all across the globe ensures a larger market size with higher returns and scope for both existing and new entrants to expand their business on a global level and enjoy supernormal returns. 8.0 CURRENT POSITION OF QATAR AIRWAYS Qatar Airways unlike its counterpart Emirates Airlines which reported a decline of 72% in its net profit in 2012, continued its explosive growth in the year. The airline today serves 116 destinations on a fleet of 108 aircrafts. The company is new in the industry and has shown promising signs to go global and expand its business all across the globe. Even though Emirates Airlines still holds a position in the 10 best airline companies in the world, Qatar Airways has emerged as a tough competitor to it and has been successful in tapping a large market share in the gulf and Asian countries. Qatar Airlines has been voted airline of the year in 2011 and 2012 in the Sky trax industry audit and has expansion of route averaging 30% year-per-year. The company has been rewarded for its excellent services and 5star facilities. 9.0 FUTURE OUTLOOK Promising signs of becoming an international airline without losing the Arabic touch. Huge potential to attract customers from Far East Asian, European and Indian customers and generate higher revenues. With rapid growth in route expansion of 30% year-per-year, the company can certainly emerge as a market leader on a global forefront. The company had already increased flights to Srilanka and CEO promises more such expansions. Mix of aggressive organic growth and new acquisitions as it targets key traffic markets. Profit for its present year is expected to be hurt due to political unrest yet it shows confidence of achieving higher results in near future. Qatar shall continue to face stiff competition from Emirates Airlines but is confidently pursuing its own strategies to create an impact in the airline industry. 10.0 CONCLUSION The report provides a complete understanding of the airline industry which includes a PEST Analysis, SWOT analysis, industry indicators and competitive force models with regards to Qatar Airways and its counterpart’s performance Emirates Airlines. Even though Emirates Airlines appears to be much ahead of Qatar Airways in terms of size, market growth and profitability, Qatar Airways has been successful in expansion and can certainly emerge as a global leader in the airline industry. Future prospects for Qatar Airlines indeed look very bright and the company through its excellent services can certainly set benchmarks in the airline industry. 11.0 REFERNCES Bachmann, J. W. 2002. Competitive strategy: it's O.K. to be different. Academy of Management Executive, 16, 61-66. Bonabeau, E. 2001. Swarm intelligence. Harvard Business Review, 79, 106-115. Flattoau, J., Matthews, N. & Lott, S. 2006. Big Deal? Aviation Week & Space Technology, 164 (5), 41-42. Gittell and Hoffer J. 2001. Investing in relationships. Harvard Business Review, 79, 28-29. Kotler, P. 2006. Marketing Management, 12 Edition, Prentice Hall. Page, S. 2007. Tourism management: managing for change, 2nd edn, Butterworth-Heinemann. Porter, M.E. 2008 The Five Competitive Forces That Shape Strategy, Harvard business Review, January 2008 Pearce and Robinson 2003. Strategic Management: Formulation, Implementation, and Control, 8th ed. New York, NY: McGraw-Hill Higher Education. Schermerhorn, J. R. 2009. Management, 6th ed. New York, NY: John Wiley & Sons, Inc. Zellner, W. and Arndt, M. 2003. Can anything fix the airlines? BusinessWeek, 52-54. Read More
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