Macroeconomics

Name: Professor: Institution: Course: Date: TABLE OF CONTENTS 1.1: Exclusive Summary --------------------------------------------------------------------------------3 1.2: Introduction ------------------------------------------------------------------------------------------3 2.0: How well is the company's present strategy working------------------------------------------4 2.1: SWOT ------------------------------------------------------------------------------------------------5 Strength---------------------------------------------------------------------------------------5 Weaknesses----------------------------------------------------------------------------------6 Opportunities---------------------------------------------------------------------------------7 Threats----------------------------------------------------------------------------------------7 2.2: Competitive power of resources strength--------------------------------------------------------8 2.3: SWOT listings reveal------------------------------------------------------------------------------ 8 3.0: Price and costs competitive -----------------------------------------------------------------------9 4.0: Competitively stronger or weaker than key rivals --------------------------------------------10 5.0: Strategic issues and problems--------------------------------------------------------------------12 Conclusion-----------------------------------------------------------------------------------------------13 References-----------------------------------------------------------------------------------------------14 1.1Executive summary The purpose of this study is to outline the technique of evaluating internal situation of emirates Airline Company, comprising of its competitive strength versus its rival, its relative cost position and its valuable resources and capabilities. The analytical spotlight will be on emirates airline so as determine how well its strategies are working, what are its competitively important capabilities and resources, are its cost and prices competitive, is the airline competitively stronger or weaker than key rivals and finally, what are the strategic issues and problems need to be addressed by the Emirates management team so as to gain competitive advantage. 1.2 Introduction Emirates airline is a brand which is truly coming up as a global image with its logo stands for Arabic script as a mark of its origin. The airline has been building on delivering high quality services, coming up with an operational and service approach of a sincerely global provider and with exclusive pride as one of the youngest in the airline industry with advanced fleet that is loyal clients worldwide. Today, emirates airline boast of more than 12 million passengers per year and flies78 destination in 55 countries. The airline has received awards globally and more than 270 accolades and the most worth to note of these accolades is the Skytrax Airline award of the year which is the worldwide barometer of client opinion about airline companies (Tayeh 2006). This report on Emirates airline will mainly focus on internal situation analysis where we are going to evaluate the company’s competitive strength, resources, cost positing and identify the strategic issues Emirates manager managers must address. 2.1 How well is the Company strategy working After experiencing the worst global recession, unforgiving markets and economic uncertainties in large scale, the Emirates Group has inarguably gone through testing times but come out shining. Despite this, last year Emirate made a net profit of AED 4.2 billion compared to year 2008-209 where it made a net profit of AED 1.2 billion. These are excellent results and they did not happen by chance but strategies need to be developed. Emirate was launched in 1985 with the Dubai Government being the sole owner and sole investor. The airline extended its destinations to sixty destinations in 42 countries throughout Middle East, Europe, Far East, Asia Africa and Australia. Some of the company’s early strategies emphasized quality in equipment, product, organization and services which has seen the company conducting multinational crew recruitment, purchase of a modern fleet and promotion of the overall quality image. Within a fairly short time, the Emirate airline was able to take off, boost technology, achieve high returns, enter new markets and expand its destination networks. Emirates venture into the new markets was something that made the company to be envied and especially by the major global carriers who had all along viewed Emirates as a global airline operating in Middle East and not an Arab airline operating abroad something that triggered the already established carriers in Australia and Europe such as KLM, British Airways, Air France, Qantas and Lufthansa to see Emirates Strategic positioning as a major threat. A large group of this carriers found it very difficult to deal with Competitive cost advantage of the Emirates airlines with some of this airlines like Qantas and Air France openly accusing the airline of being given hidden subsides by the state and maintain an expensive relationship with the Dubai airports authority (El Namaki 2007). Regardless of these allegations, Emirates has a strong marketing strategy which has kept ahead of competition through creating strong brand awareness to all customers all over the world. Emirates have been sponsoring sports events and clubs in UAE and around the world considering sponsorship as a crucial marketing strategy. The strategic geographic location as well as the new order of A380 has enabled the company to continue growing and even serve at its competitors hubs. Other Emirates strategies of the emirate airlines include product development strategy, market penetration strategies, market development strategies and even diversification. In using product development strategies, emirates ensures that its product development is modest in proportion where it focuses more on types of services offered and product specification other than introducing changes to the product mix. Under market penetration strategies, Emirates airlines prime market segment and the segment that justified the establishment of the company in the first place is the Middle East. Emirates airline is thoroughly penetrating this market using a deliberate policy of market penetration. Using market development strategies, Emirates is embarking on geographic expansion for example, entry into US market is a typical example of market development. Entry into the storage market is a good example of Emirates attempt at diversification (El Namaki 2007). Emirates success has also been attributed to its functional level strategies. One of the most unique functional level strategies is how the airline has been able move into the tourism and resort space through acquisition and creation of spars and resorts as well as emphasizing on quality control. The airline has capitalized on its international airline domain knowledge as a key profit centre through development of the software for the industry. The airline has been using its trained programmers and its knowledge to come up with an IT development company for the airline industry, a strategy that has been another addition to the excellent business strategy of Emirates. Extensive aviation training is another fundamental strategy to the Emirates airline success since this strategy does not only add and keep key aviation talent but also forms a huge footprint as it trains other people in the airline industry. The brand recognition and image created by this business segment is a valuable strategy. The cornerstone of Emirates airline success has been Quality Control. From the creation and maintenance of the airline fleet, to keen attention on the treatment of the customers in all aspects of the business, all things are done with application of high standards (Gang yu 1997). 2.1: SWOT Analysis Strengths • They have a unique business policy that effectively tackles some of the global threats that are attacking the aviation industry. (Butler 77) • Of the total Asia pacific continent aviation market share, emirates airline owns 39 % of it. • They provide in flight entertainment facilities which include email services for clients, text news and won several awards from the entertainment association • Emirates airline nearly operates in all parts of the earth which ensure that all customer have asses to it. It operates in almost 100 cities in the world and servers 2400 passengers in a week. • They have invested more on international market where the airline has sponsors a number of sports and festivals. • Emirates airline is strategically located airline as it lies between west and east of Asia which makes it possible for them to gather resources more effectively and hence giving the company a competitive advantage. • Emirates airline ensures low emissions and promotes environmental friendly practices. • Emirate airline is the first airline to use digital windscreen systems • The company is fully owned by the United Arab Emirate government as a result of this, when trade treaties are being signed, they most likely get the first priority in getting the deals. • They have established a brand identity which has ensured their customers are brand loyal. • They have a high research and development which ensures that they keep at pace with the market. • Offering self service kiosks in the airports that the airline operates • They have a strong management team which come up with effective strategies and help the company to have a competitive advantage over its competitor. • The airline of one of sponsors of 2010 world cup and as a result it increase its brand awareness all over the world. . (Butler 2007 p77) • Providing its employees with rewards, performance programs and training thus increasing employees loyalty and reduce labour cost. • It has enhance its customer services interaction through choosing Dexterra mobile platform in its front offices Weakness • With the increasing fuel prices throughout the world and huge airline companies such as emirate should tackle this situation but emirates cannot cope with this price since its eating up its profits. • The airline does not cater for budget travelers and middle class customers. • The company’s diversification and approach plan have not been fully successful and this has made it impossible to net all the regions worldwide with its success. • Emirate airline needs to revise its labour policies and this will motivate employees and as a result, they will double their output. • The company does not cater a lot of place in USA • Emirates is known to charge high prices on its tickets as compared to other airline (Directory2007) Opportunities • The company should expand its services to other regions of Asia through positive marketing and this will increase its profits. • The company should come up with flights services for business travels and middle class customers. • As a result of innovations that being introduced in the aviation industry, emirates should tap into more markets. • They should continuously develop new generation of more advanced aviation services and airline. (Doganis 2002) Threats • Rival airline companies such as Gulf and Etihad are major threats. • Since the company is fully owned by the state, it is always affected by the government policies and this threatens its working at any standpoint • The company’s inability to recognize its demand and keeping in pace with innovations in this industry. • Introduction of Lower Cost Carrier (LCC) such as Jazeera Airways and Air Arabia • The rising fuel cost • The possibility of the spread of killer diseases such as Bird flue and SARS which will ultimately affect the tourism and airline industry (Directory2007) 2.2: Competitive power of resources strength Strength can be referred to as something that a company does well as compared to its competitors in the industry (Doganis 2001). Emirates is among the top ten airline companies in the world and it is ranked first in the middle east in terms of fleet size, passengers carried and revenues. The company has valuable physical resources such as air planes, Resort and Hotel which exceed Dh71 billion mainly in Dubai and Abu Dhabi airports and this has enabled the company to offer fast and quality services to its customer which has created customer loyalty. More over the company has invested more in technology; for example, it was the first airline company to offer E-ticketing to its clients. This has enabled the company to have a cost advantage as compared to its competitor making it to have a competitive advantage (Thompson & Strickland 1995) Emirates airline have a high skilled and reliable human resource. This has been made possible by the fact it has well established a training institution for its employees. As a result, their operations have run smoothly and this has enabled the company to be reliable to its customer which has created customer loyalty. Also, the company possesses some attributes such as a strong brand name which have placed the company in a positive to gain market advantages. Other strengths include valuable organization assets, established distribution channels; valuable competencies which have help the company to gain a competitive advantage over its competitor in the industry. (George 1982) 2.3 What do the SWOT listings reveal' The above SWOT analysis reveals that Emirates Airlines has several strengths such responsiveness to new technology which include as self check- in services, e-ticketing, differentiation from other companies and they have established a brand identity which has ensured their customers are brand loyal. However, Emirates has one obvious weakness which is high prices charged on the tickets as a result of huge investment while making orders for their aircrafts. Even though there are several opportunities such as increase of the UAE income per capital and investments in AD airports, there are several threats facing the airline which include establishment of LCC’s, high fuel cost and high spread of killer diseases which affects tourism and the airline industry. 3.0 Competitiveness of Emirate’s profit and cost Emirate’s profit and cost are competitive since its business model is base on the following premises: • Labour cost economies A combination of Emirates young fleet and lean workforce account for its exceptional low cost and a strong based competitive profile. This is made possible by a very lean workforce rather than other traditional flag carriers. Along with the company’s simple organizational structure, this enables the airline to minimize overheads.(Delfmann , W 2005p 229) • Government blithe support Emirates have continually received direct and indirect financial and non-financial support from the government of Dubai. • Fleet cost economies The airline operate an wide body fleet leading to a lower unit costs compare with other airlines operating combined wide/ narrow body fleets. This makes it possible for emirates to use these aircraft cargo capacity to increase its overall revenue and profits, especially when an economic downturn adversely impacts the customer number or when customer business passes through a seasonal trough (Delfmann , W 2005 p 230) • Strategic Distance The airline has refused to join any alliance with other airline since it question about the advantages that are brought about by such alliances and also it considers the high cost of compliance of the alliance membership. • Well positioned hub Dubai airport is an extremely good hub which allows emirates to profitably serve secondary destinations as well as connect such places via its global Dubai hub 4.0 Evaluating whether Emirates is competitively stronger or weaker than key rivals This analysis will provide useful conclusion about airline’s competitive situation and as a result, we will be able to know how well the firm rank to its key competitors on the factors that determine market success and if emirates company has a competitive advantage or disadvantage against its key rivalry’s (Barney 2008),. Emirates competitive strength will be assessed through the following steps. • Step 1: list the key success factors of the Airline industry and other competitive strength and weakness measures. • Step 2: Allot weight to each competitive strength measure on the basis of its perceived importance in determining competitive success. (Ranges from 1-10) • Step 3: calculate the weighted strength by combining the score on each strength measure for each competitor and then multiplying the assigned weight by the assigned rating. • Step 4: sum up the weighted strength ratings on each key success factor to obtain the overall competitive strength measure for each airline company being rated. • Step 5: use the overall weighted strength rating to reach a conclusion about extent and size of the firm’s competitive advantage or competitive disadvantage and take note of area of strength and weakness. (Morrison1995) Key success factors Importance weight American Airline Qatar Airways Singapore Airways Emirates Airways British Airways Importance weight Strength Score Strength Score Strength Score Strength score Strength Score Differentiation 0.35 9 3.15 4 1.4 5 1.75 9 3.15 9 3.15 Strong brand name 0.3 8 2.4 5 1.5 3 0.9 8 2.4 9 2.7 Alliance 0.19 10 1.9 3 0.57 2 0.38 9 1.71 7 1.33 Relation with employee 0.16 8 1.28 7 1.12 8 1.28 9 1.44 8 1.28 Sum of important weight 1 Weighted overall strength rating 8.73 4.59 4.31 8.70 8.46 Source: Airlines Industry Profile. (2007). From the analysis, one can confidently say that emirates airline is competitively stronger than its three major competitors (British airways, Qatar airways and Singapore airways) while American Airways stronger than the airline. The overall strength rating score of emirates airline shows that the firm is at a net competitive advantage and this ratings will offer guideline to the management for designing wise defensive and offensive strategies. 5.0 Strategic issues and problems merit front burner managerial attention Since the airline industry is in the maturity stage, the competition between airlines is strong. Besides doing internal and external analysis, each company should adopt offensive strategies which may affect the strategic positioning of a firm. It is for this reason that Emirates airline management should address the following strategic issues and problems. To begin with, the operational cost of the Emirate airline has been increasing as a result of increase in the prices of fuel and huge investment by the airline on services and aircrafts. The management of the airline should consider reducing this cost by making several operational improvements which include making effective flight schedules, maintaining high aircraft utilization and improving the overall maintenance process. Moreover, it can reduce this cost by introducing new technology on distribution channels so as to reduce labour cost. For example, it can reduce labour cost by making efforts to put up more self service kiosks in the airports that the airline operates in as it has already put up some in Dubai airport (Smith 2008) In relation to the threat that is brought by low cost carriers’ airlines, emirates airline should not overcome this threat by lowering its price tickets, instead the airline should come up with a new low cost brand as a supplement of Emirate group which will capture the business and middle class travelers who are the customer of the LCC and hence increase their market share. The airline should also extend routes since there is growth in tourism in UAE. There are several regions in the world like Canada where emirates don’t have routes in. The company should extend its operations all over the world especially those areas which are perceived to be attractive. This will help the airline to increase its destinations, offer more fare options for their consumers which will in turn help the airline solve the problem of new LCC’s. Emirates should also consider investigating technology to improve customer service. It should also consider signing a contract with an e-business company which offers airline technology solutions. Emirates should implement E-CRM strategy which is a new technology that is adopted to cope with the increasing number of internet users and allows an airline to manage long-term relationships with clients (Jiang 2003). In General, Emirate management should consider conducting an analysis of its internal and external factors as well as that of its competitors and come up with new competitive strategies to stay competitive in the market. (Jiang 2003) Conclusion The airline industry is composed of many companies producing less differentiated or similar products or services. The services in this industry are becoming increasingly similar and hence causing increased competition on prices. This has lead to emirates focusing more on its strategies, strength and the opportunities offered by the external environment to gaining competitive advantage over its key rival. To maintain it strength, Emirate management should consider conducting an analysis of its internal and external factors as well as that of its competitors and come up with new competitive strategies to stay competitive in the market. References Airlines Industry Profile.2007. In Business Source Premier online. 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