Strategic the world’s largest international airline, with product innovations,

Strategic Plan for the Emirates Airline

Abstract

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Strategic planning plays a crucial role in company’s successful operation since it involves the mission, vision and the goals, as well as the methods to be taken to reach these goals. It is a constant process for every public or private entity to improve their performance in a fast-changing environment and get better results.

The Business Dictionary defines the concept of strategic planning as “a systematic process of envisioning a desired future and translating this vision into broadly defined goals or objectives and a sequence of steps to achieve them” (Business Dictionary).  

The proposed project provides a complete overview of the strategic planning process applied to the company Emirates Airline. The research involves four basic stages: analysis, strategy generation, strategy selection, and monitoring. It describes the detailed context and key questions important for strategic management as well as the methodology used in conducting the research. The paper engages in-depth analysis of the current situation of the company and discusses various statistical data, surveys and information gathered from different sources, which helps to understand the environment and its effect on the company. Strategy formation section of the paper develops the final strategy involving three elements: comparing strategies, the general strategy proposed, and the functional strategies. Following the definition of the strategy, the paper determines the methods for strategy implementation process monitoring and the tools for evaluating its performance. The paper also provides analysis of company’s strengths, weaknesses, the opportunities and threats reflected in its overall operation. The summary includes key findings based on analysis as well as ideas for further research.

Introduction

The Emirates Airlines is an international airline based in Dubai, United Arab Emirates (UAE). It was launched in 1985 and initially started operating with two aircrafts only. At present, the company operates with Airbus A380 and Boeing 777 which are world’s biggest and one of the most modern airplanes providing a combination of fuel efficiency and comfort for passengers.

The company was always focused on ensuring world-class service which is the main reason for its success becoming the world’s largest international airline, with product innovations, exceptional service and a fastest growing network of worldwide destinations.

At present, the Emirates is operating in 155 destinations in more than 80 countries around the world, and the network is constantly expanding. Almost every year the company introduces new destinations to its global network. In 2017 three new destinations were introduced (Emirates Group 2017).

According to the Emirates press-release, the company has carried over 59 million passengers since January 2017, 2.5 million tonnes of freight, added 21 new aircrafts, opened the Emirates Flight Training Academy to support the high-quality training and skill-building for pilots (Emirates Group 2017).

 The company aims to increase the growth and maximize profit without compromising on quality and service. In 2017 the Emirates received thousands of positive reviews from customers at TripAdvisor and was recognized as the “Best Airline in the World” by the TripAdvisor Travelers’ Choice Awards for aviation companies (Emirates Group 2017).

The Emirates continues to invest in product and service development by providing advanced facilities and services onboard. It also keeps building strategic partnerships with other world’s leading airlines and hotels. At present, it partners with 14 companies, including Qantas and Easyjet and with 24 hotel brands (Emirates Group 2017).

Theoretical Framework and Topic Statement

The research purpose is to review the company’s performance in rapidly changing context, which will reveal its position in the market, examine opportunities and challenges helping the management to re-assess its strategic goals and approaches to reach the sustainable long-term growth.

Since the company is aimed to continue the increase of growth, it needs to further improve its service to attract more customers, enlarge its network, and the number of strategic partners. Thus, the research will be a helpful tool to evaluate its current trends.

The industry analysis, which is also known as Porter’s Five Forces Analysis refers to the “framework for understanding the competitive forces at work in an industry, and which drive the way economic value is divided among industry actors” (Harvard Business School).

The concept of five forces was first developed by Michael Porter in 1979, that helps companies to evaluate the effectiveness of their industry and its profitability by understanding the competitive landscape of the sector and find better strategic positions in the market.

The components of Porter’s five forces are as follows: Bargaining power of buyers, bargaining power of suppliers, a threat of new entrants, a threat of substitute products and service and rivalry among existing competitors.

Bargaining power of buyers refers to the powerful buyers having a significant influence on prices. “Buyer power is highest when buyers are relative to competitors serving them, products are not differentiated and there are few switching costs to shifting business from one competitor to another”(Harvard Business School).

Bargaining power of suppliers means that powerful suppliers may demand premium prices and can cause the limit of company’s profit. Powerful suppliers may decrease the profitability of the company by demanding higher price from suppliers or better terms from market competitors.

The threat of new entrants implies that new entrants into the market bring more pressure on prices and thus create the potential threat to industry growth.

The threat of substitute products or services means that if the substitute products are available on the market, it may prevent company’s ability to increase prices.

Rivalry among existing competitors refers to the situation when intensive competition lowers prices and reduces the profit for companies operating in the same industry.

The SWOT analysis is an important method to examine the environment where the company is operating. It contains strengths and weaknesses referring to the internal environment of a company, and also, opportunities and threats analyzing external factors (The Economic Times).

Methodology

The research examines the performance of the Emirates Airlines involving the external factors having influence on company’s current and future activities. It analyses Porter’s five forces helping in building the sustainable strategy for the company.

The analysis also includes assessment of internal factors and SWOT, helping to shape the company’s place in the market, review its strengths and weaknesses and formulate strategic goals in the way to eliminate threats and support opportunities.

During the analysis the data was gathered from various sources, such as, business and research websites, an official website of Emirates Airlines.

Analysis

External Environment Analysis

The UAE has one of the largest and fastest-growing economies in the world because of rich natural resources. It is predicted that the growth in both oil and non-oil sector will pick up significantly in 2018. The increase of growth in the non-oil sector is related to Dubai 2020 World Expo attracting lots of investors from all over the world. According to the Focus Economics panelists, “the GDP is expected to rise 2.9% in 2018, and in 2019 it will reach 3.1% “(Focus Economics 2017).

The table below shows the economic data of UAE (Focus Economics 2017).

 

 

 

 

 

 

 

 

 

 

 

 

 

It shows the fluctuations in economic growth during the last three years, imports decrease and the rising trend of foreign debt. Also, the inflation rate is experiencing some fluctuations during the last years, which may have a negative effect on the economy in terms of rising consumer prices, influencing currency exchange rate, increasing the cost of production of goods and services for businesses, making them uncompetitive on the global market. According to the Focus Economics experts, the inflation rate is expected to reach around 3.3% in 2018 and 2.9% in 2019 (Focus Economics 2017).

Usually, an external environment has a huge impact on airlines industry, because it is one of the main triggers of economic growth, tourism and international investments for the country. Economic and political factors had a big role on airlines industry, for example, the September 11 terrorist attack caused the decrease of the number of international passengers because people were afraid to travel in countries attacked by terrorists. Also, the increase in oil prices decreased the profitability of the world airline industry. According to the International Air Transport Association (IATA), the loss equaled about 6 billion USD in 2009 (IATA).

The political and economic factors had negatively affected not only the Emirates Airlines but also the Emirates Group itself, which reported a Ph2.5 billion profits, down 70 percent on the previous financial year. The company reported its first full-year profit decrease of 82 percent which equals Dh1.3 billion for the 2016-17. It was caused by various foreign factors, such as currency rate fluctuation, UK’s vote to leave the EU, new US policies referring the air travel to the US, terrorist attacks in Europe (Financial Times 2017).

Emirates operation in the United States was impacted by the new regulations imposed by the new president related to entry visa requirements, security prohibitions on electronic devices. The set of terrorist attacks in Europe, which are one of key destinations for Emirates decreased the travel demand and thus the revenue for Emirates during 2016-17. According to the Emirates Group annual report “the Group reports a profit of AED 2.5 billion (USD 670 million), down 70% from last year’s record profit, and Group total revenue of AED 95 billion (USD 25.8 billion), a 2% increase compared to 2015-16 (Emirates Group 2017).

The industrial environment factor has big influence on Emirates Airlines. Since the UAE is the business and tourism hub in the Middle East, it makes the company one of the high demanded airlines in the country.

Porter’s Five Forces

Bargaining Power of Suppliers

Suppliers can easily affect market because of quality of service, high demand and control on prices. In airlines industry main supplier groups are airports, fuel providers, aircraft. According to Porter, “Airlines often face high cost of switching suppliers because of the benefits of fleet compatibility and the necessity of utilizing major airports” (Harvard Business School).

Bargaining Power on Buyers

Buyers can influence the industry by reducing prices, demanding higher quality and services. Airlines face the difficulty to create customer loyalty and switch the prices despite the fragmentation of buyers (Harvard business school).

Threat to New Entrants

Since the airline industry is growing rapidly, the new entrants in the market causes a threat to existing company because it may offer lower costs and better services. Emirates has to maintain the leading position in the industry which will help in competing with new entrants.

Threat of a Substitute Products or Services

There is a low threat of substituting products or services in airline industry, because air travel has no effective substitute. Especially, when it comes to long-distance travel.

Rivalry Among Existing Competitors

The rivalry among the existing competitors is very high because in the airline industry numerous companies are operating offering different price, goods and services. The low differentiation and high fixed prices create a pressure for price competition demanding in technological, customer service, the cabin features improvements from competitors (Harvard Business School).

Competitive Advantage

The Emirates Airlines gained competitive advantage amongst its rivals in the market by developing innovative products and providing high-quality services, for example, it was the first airline introducing e-ticket system, self check-in service for passengers at the airport and TV screen in aircraft cabins. It helped the company to increase the brand awareness and increase the demand and income.

SWOT Analysis

Strengths

Constant innovation and advanced technology;

Skilled, high-qualified staff;

Developed infrastructure: modern local airport, terminal, lounges and services;

Brand loyalty;

Absolute cost advantages;

Rapidly growing network;

Foreign partners;

Competence of strategic management.

 

 

 

Weaknesses

Profitability and performance directly affected by various political and economic factors;

Financial dependence on oil export having negatively affected the sector by drops in oil price;

Dependence on local economy, government subsidies;

Due to the huge investments to establish modern technologies and purchase new aircrafts, the Emirates is bearing high operation costs;

The Emirates was established in 1985 and it is a young airline compared with others having longer history of operating in airline industry;

Opportunities

Constant increase in travel and business demand in UAE increases the number of passengers;

Investments made by UAE government to develop main airports in Dubai and Abu Dhabi;

Since the UAE is a business and tourism hub in the Middle East, various international companies establish their offices in UAE which will increase the number of passengers;

Having market benefits because of large network when being of consolidation;

Higher global market expansion because of liberalization;

Brand awareness;

Threats

Fluctuations in oil prices and foreign exchange rates;

Economic challenges;

New entrants in airline industry with low cost;

E-ticketing system needs financial resources to ensure the system safety to avoid cyber-attacks by international hackers;

Political decisions of foreign governments related to regulations for international airlines will affect the Emirates;

Enhancement of security costs will increase the Emirates operational costs;

Increase of the fuel cost will rise the Emirates operational costs;

Natural crises and disasters: earthquakes, hurricane, climate change, global warming, shortage of resources.

 

 

Strategy Formation

The analysis of company’s external and internal environment, including the SWOT analysis gives the complete picture about Emirates strengths and weaknesses creating the basis to develop the strategy plan to respond the challenges and reach the future goals.

The Emirates Airlines is using an effective business model and marketing strategy to become the leader in the industry, though it needs to consider current world economic and political factors to continue the growth. The quality control is the main method for gaining reputation and success. The company’s strategy is focused on developing and providing a high-quality product and service to customers. Having sufficient competencies, financial resources and capabilities, the company decided to expand its global network by adding new destinations every year. It has competitive advantage and resources and is able to compete with major competitors in the market. The aviation education and training aiming to build capacity for airline personnel and ensure quality service for consumers is one the key points in company’s strategy. The company’s growth strategy involves expansion of global network, establishing new bases with advanced facilities and services.

Based on the analysis of current trends the company should formulate the new strategy. First of all, the future strategy should consider the economic challenges described above. The weak economic situation in key economies in US, EU, China, rising labour costs and overcapacity in markets are the main factors that should be reflected and responded in the strategy.

The cost leadership strategy creates competitive advantage by increasing profits with reduced costs and increasing the market share through decreasing the prices. The cost leadership strategy should consider the following measures:

Reducing the operation costs for cost efficiency in uncertain economic situation;

Concentration within alliances resulting in cost reduction and efficient operations;

Continues assessment of financial capability of the company which gives the management an information for deciding about investments, new routes development or need for a subsidy.

The differentiation strategy creates products and services different from what competitors offer at the market to attract more customers. It involves customer loyalty, brand image, functionality, features, innovation of product and services. By choosing the differentiation strategy requires from Emirates to conduct in-depth research, further develop innovative products and features, to invest in effective marketing campaigns to boost the sales and promote the brand.

The company’s main strategy should consider the cost reduction to survive in long-term in highly-competitive industry and an unstable financial environment. It should be done by restructuring organizational resources and reducing bureaucratic costs. Also, when expanding the global network it should prioritize only high demanded destinations where the company has competitive advantage and the government policies don’t create any obstacles for the company’s operation. In the airline industry the number of low-cost airlines is increasing very fast. The Emirates has to consider the need to compete with low-cost airlines and attract more customers. Considering the current financial challenges inside the company, the management should consider to reduce investments for purchasing new products as well. The outsourcing of some operations, such as catering, engineering will help the company to reduce the costs without sacrificing the quality as partnering with competent vendors will ensure the high-quality of services.

Monitoring and Evaluation

The monitoring and evaluation is an important process to assess whether the strategic plan applied is successful or not.

First of all, it needs to determine the SMART goals for the business, which should be specific, measurable, attainable, realistic and time sensitive. Also, an important phase is the reviewing of the strategic plan to make sure the SMART goals match with its objectives. It also involves the income statement preparation for the period of a one year or two, depending the period Emirates needs to evaluate. Employees and customers surveys will help to evaluate the success of the strategic plan. The creating of anonymous online survey containing specific questions will help to determine the success and challenges faced during the period and gives an idea what aspects need to be sustained or improved. Using ads or researching the resources about sales will help to keep track of the outcomes of promotional plan. Also adding customer reviews to the website to create customer experience data will be a helpful to constantly monitor the quality of products and services provided to customers in a competitive industry.

Conclusion

Based on the analysis of internal and external factors having direct influence on Emirates operation, the company needs to respond to challenging competitive environment and also to the financial constrains facing in the world economy reflected in Emirates Group financial revenues. Thus, it needs to develop new strategy to increase and sustain the growth during the upcoming years.

The company should focus on the cost reduction strategy by decreasing organizational and operational costs, be rational and careful towards expanding the global network, and compete with low-cost airlines for boosting global sales.

Bibliography

The official website of Emirates Group, 2017, retrieved from https://www.emirates.com/english/about-us/history.aspx (Accessed Jan. 2018)

Business Dictionary, retrieved from http://www.businessdictionary.com/definition/strategic-planning.html (Accessed Jan. 2018).

Harvard Business School, The Five Forces, Retrieved from https://www.isc.hbs.edu/strategy/business-strategy/Pages/the-five-forces.aspx

The Economic Times. Definition of SWOT Analysis. Retrieved from https://economictimes.indiatimes.com/definition/swot-analysis

Focus Economics (2017) United Arab Emirates Economic Outlook. Retrieved from https://www.focus-economics.com/countries/united-arab-emirates (Accessed Jan. 2018)

Financial Times (2017) Emirates Airline’s Profits Plunge After “Destabilizing events”. Retrieved from https://www.ft.com/content/780665f6-3629-11e7-99bd-13beb0903fa3 (Accessed Jan. 2018).

International Air Trade Association. Retrieved from http://www.iata.org/publications/pages/index.aspx (Accessed Jan. 2018)

The Emirates Group (2017) Annual report 2016-17. Retrieved from https://cdn.ek.aero/downloads/ek/pdfs/report/annual_report_2017.pdf (Accessed Jan. 2018)

 

 

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