Emirates Airlines Business Strategy

Introduction

Emirates Airlines is one of the major government owned companies in UAE. The company was established in 1985 after the government of Dubai set aside over $10 Million as a capital to be invested in the national carrier services. Through Investment Corporation of Dubai, the government channeled the money to be invested in the start up and expansion of the airline. While the company was still at its infant stages, it was supported by some established airlines in the region particularly the Pakistan International Airlines. The Pakistan International Airlines supported the new airline with managerial and technical skills necessary to bring up the company from the ground (Yip, 2002). The Pakistani government offered the airline the first international flight. The maiden flight, EK600, was from Dubai to Karachi. The airline remained the property of the Government of Dubai. Since the first investment, the company has grown to become self-financing.

The company mission, objectives and strategies

The company mission

The Emirates Airlines major aim is to strive in order to increase mobility and connecting people all over the globe. The company mission requires increased innovativeness and be proactive to any eventuality. In essence, the company’s mission strives to bring individuals closer to their destinations while inspire the employees’ thoughts and ideas (Lancaster, 2013).

The company objectives

The company’s main objective is to be the market leader in the region and beyond. In addition, the company aims to expand globally and offer services in other regions beyond Middle East. To achieve the aims, the company has put in place various objectives that include

  • To deliver quality customer services
  • To enhance its brand image globally
  • To be cost effective in all its operations
  • To be financially sound, stable and remain profitable in the industry
  • To be modern, innovative and customer oriented air travel services provider

The company strategies

The company strategies revolve around achieving the global expansion. Since its inception, the company major goal is to provide global air connections and be a global leader in the airline industry. In other words, the company strategies aim at attaining the global competitiveness in the aviation industry. To attain its global expansion strategy, the company has adopted the marketing plans that aim to position its brand among the major world airlines. In addition, the company has taken advantage of the both regional and global opportunities while utilizing its both internal and external strengths to increase its competitive advantage.

The bottom line of all the strategies is the cost control strategy the firm has adopted in the recent years. The main financial strategy of the airline is to keep its costs under scrutiny particularly the cost of operations. The strategy has enabled the company to be stronger particularly during the financial crisis. The financial strength has increased the company competitive advantage. The company believes that the strategy will enable the airline search for appropriate measures to control costs and improve its effectiveness in its services delivery. The cost control strategy is aimed at ensuring and growth, enhanced quality and performance in terms of services delivery as well as long-term sustainability (Lancaster, 2013).

The marketing strategy includes popularizing its brand within the region and in the global market. The company’s increased brand awareness have contributed to the increased revenues, enhanced the customer loyalty, enabled constant price margins and increased the company competitiveness in the global aviation industry. The company strategy of building a global brand includes sponsoring sports activities particularly the major world teams as well as building the sports infrastructure including stadiums.

Moreover, the marketing strategy is also based on the services delivery. The airline brand positioning is founded on the delivery of high quality services and is perceived as the youngest company with advanced fleet and quality services aimed at satisfying the needs of the customers. In fact, the marketing strategies are achieved through various means particularly the brand position and delivery of quality services (Lancaster, 2013). The attainment of the aims, goals and objectives of the company depends on the manner in which the company incorporates all these strategies into both long-term and short-term corporate strategies.

The current financial condition of the company

The financial objective of the company is to attain effectiveness and efficiency in all the operations of the company. The company financial performance have improved over the years despite the 2008/2009 financial crisis as well as weather drawbacks experienced in the major Western European markets. In fact, the company has continued to record financial growth since 2010 particularly in revenues and market capitalization. The growths in revenue have increased the company financial strength that has enabled its achievement in the global expansion strategies.

For instance, the growth in revenue in 2011 was 26% from the previous year while the total revenue in 2012 was 44% representing 15.6 billion increases in total revenue in 2012. The operating profit was 1.6 billion increases in 2011 financial year alone. The increases indicate the growth in gross, operating and net margins of the company. The growth in profit margins the recent financial years indicates the manner in which the company is efficient in attaining its corporate goals, strategies and objectives.

The growth in the net profit margin was up by 1.8%, which is an increase from 8.1% to 9.9% from the previous year. The increase in the profit margins indicates the financial strength as well as capabilities of the company. In addition, the returns on the shareholders funds also grew from 21.6% to 28.3% representing 6.8% growth. The growths in both the profit margins and the returns on the shareholders capital have been consistent since the 2009 financial year. Moreover, the company financial strength is also indicated by the strong cash flows the company has been generating over the years since 2009. In the last financial year, the company has achieved its strongest cash flow recording the highest cash generated from operating activities.

The strength in the cash flow indicates the strength of the company in its liquidity ratios enabling the company to finance its short-term operations. The capability of the company to settle its debts is also depicted in the growth of equity. The debt to equity ratio has decreased significantly in the last two financial years. The down growth in the debt to equity ratio shows how the company is efficient in its debt management, increased cash flows as well as revenues. In other words, the company has been decreasingly financing its expenditures from borrowings and loans. The financial strength the company has achieved over the years will enable the company attain strategic position in the industry. In other words, the financial capabilities increase the company competitiveness within both the regional and the global market. In addition, the financial strength is critical in the firm’s global expansion strategy.

The firm’s internal and external opportunities and strengths

The external opportunities and threats

The external opportunities and threats will be examined though the application of PESTLE analysis.

Political

The airline has been enjoying the political stability particularly at the regional market. Most of the Asian countries where the airline operates encourage trade through agreements relation to the aviation industry. The trade agreements have set favorable political stage for the airline’s operations within the region and beyond. In addition, the UAE have also signed trade agreements with other countries outside the region including US and most of the European countries. The trade agreements have opened new opportunities for the airline particularly within the global market. On the contrary, global operations open up the airline for increased competition from well-established multinational airlines.

Economic

The company majorly operates in the regions including the Asia pacific and the Middle East, which has seen a tremendous economic growth in the last decade. Most countries in the region have experienced expansion in their economic growth, which have a positive influence in the overall income. In other words, most of these countries’ revenues per capita are higher and thus capable of using air transport. The growth of the economy in the region has presented the airline with an opportunity to expand steadily. However, new economic policies are emerging with most countries streamlining their economic strategies to suit their airline industry. In the global front, the airline traffic has reduced significantly due to economic downturn. The reduced growth in the global air traffic poses a serious threat to the global expansion of the airline.

Social

The airline has highly skilled employees that are rarely demand for higher wages. The reduced cost in terms of wages falls within the reduced cost strategy of the airline and is significant in increasing the global competitiveness. Compared with most of the global airlines that averagely use over thirty percent of their revenue on wages expenses, the reduced wages cost put the airline a better position within the global competitive stage. In addition, the company operates in a region where labor issues rarely arise. Labor issues affect the employees productivity as well as the companies general output. The less extent to which labor issues have affected the company presents an opportunity for the company to expand while constantly improving the welfare of its workforce.

Technological

The firm has used technology to gain competitive advantage over other airlines. In fact, most of the services are provided at the clients’ convenience through the application of technology. The advancements in technology have brought about new opportunities, increase the customer base and have enabled the airline to expand rapidly into new markets. On the contrary, the company has also been affected by the rapid changes in technology that result in increased competition.

Legal

Most of the governments in the Middle East and Asia pacific where the airline operates initially operated within the protective policies. In fact, with no binding trade agreements, most of the governments protected their domestic airlines from external competitive threat. Such policies remain a threat to the airlines expansion strategies. However, with increased globalization in terms of trade and specifically in the aviation industry, the airlines are now open to competition where economic models are applied to sustain the competitive advantage. Therefore, the airline can utilize the opportunities brought about by globalization to expand into the new markets.

Environmental

The airline has adopted strategies that ensure environmental sustainability and improves the corporate image. Over the years, the airline has been keen on the amount of the carbon emissions and has ensured that most of its carriers are fuel-efficient and reduces the amount of waste to the atmosphere (Doganis, 2002). Most of the wastes are recycled and most of the airline environmental sustainability programs are managed under the corporate responsibility strategy.

The internal opportunities and threats

The internal opportunities and threats will be examined through the SWOT analysis.

Strengths

Emirates Airline has increasingly gained a firm position as one of the leading global airlines in terms of the fleet size, work force as well as profitability. For instance, the company boasts of having largest revenues, fleet as well as the number customers served in the Middle East. Further, through the company’s programmed passenger services in more than 120 destinations across over 70 countries globally has seen the firm register an increasing trend in revenues.

On the same note, the company’s customers continue to increase at an annual rate of fourteen percent. In 2012 alone, the Emirates Airlines carried over thirty-four million passengers. In addition, in the same year, the firm operated a fleet of one hundred and seventy airliners of Boeing as well as Airbus models. In principle, the firm’s strong market presence in leading airline markets presents the corporation with a fundamental competitive periphery over its rival competitors.

Moreover, the global presence has facilitated the reduction of business risk. Emirates Airline’s business operations are extended across various markets. In fact, the company operates in over seventy nations serving over a hundred and twenty destinations globally. The operations of the company cover the Middle East, America, Europe as well as Asia. All the locations where the company operates form the spread of the firm’s income.

Considering the two thousand and twelve fiscal year, thirty percent of the company’s total revenue was contributed by the Middle East and Australia owing the fact that the region is geographically largest. Further, the firm’s global presence and the evenly extended income bases warranties the company non-reliance on a single source of market revenue. In this regard, the firm’s uncertainties emanating from reliance on a single market in the volatile airline industry is significantly toned down.

Weaknesses

The financial liability mostly incurred during the financial crisis has been cited as the major point of the company weakness. The high financial liability has restricted the company’s flexibility in terms of growth and implementation of both short-term and long-term strategies. Over the years, the Emirates Airline Company has built up a considerable amount of debt. In fact, by the end of March 2012, the company’s long-term liabilities were approximated at $7300 million. In addition, the firm experienced a reduction of its net operating cash to thirteen percent in the year two thousand and twelve. The accumulation of debts and reduction in net of operating cash pose serious bottlenecks for Emirates Airline Company to settle its borrowings.

Opportunities

The company due to its financial strength has opportunities for acquisitions, joint ventures and partnerships with other firms thereby expanding its operation networks. In essence, the firm has been increasingly entering into strategic alliances with leading companies as well as acquiring emerging companies. In this regard, the firm has realized significant steps in averting competition. Actually, the strategy has seen the company acquire significant market share thereby expanding its operational complex.

The development of an assortment of key projects in Dubai creates a center of attention amongst tourists and investors. As such, the firm offers flight services to the tourists as well as businesspersons to the destination. In fact, the Metro has continuously played an essential role as a tourist attraction destination while others are underway and will significantly boost the number of tourists.

Threats

Significant expansions continue to be realized in the aviation industry. As a result, low cost carriers are surfacing and intensifying competition. In other words, local as well as global competitors with low fare budgets make the firm less viable. Further, the company continues to face cutthroat competition emanating from the mergers among the competitors. In fact, the transition in the industry may lead to further consolidation of airline industries.

The threats of intense competition as well as mergers among the surfacing companies emanate from a number of aspects. New entrants, threats of substitute, bargaining power for customers as well as bargaining power for suppliers and current rivalry are the sources of competitive forces.

First, the growth in the airline industry has encouraged the entry of new investors into the industry. Entering the airline industry is considerably undemanding because there are no significant bottlenecks especially in the United Arab Emirates where there is open airspace. In fact, the entrants in the industry introduce advanced technologies. In addition, the competitors pioneer low cost budgets thereby making the Emirates Airline Company less competitive (Taye, 2006). In fact, new competitors often collaborate with each other in their operations thereby benefiting from the economies of scale. In principle, the collaborations lead to mergers among the entrants and become a force that poses great challenge to the Emirates’ Airlines in terms of competition.

Secondly, over short expanses, alternative substitutes to air travel are in wide ranges. In other words, the substitutes include road, rail and water transports. In fact, people are offered with the prospect of not travelling at all by air. Further, up to date technology such as video-conferencing aids virtual alliance thereby thinning the needs of travelling.

Thirdly, in the airline industry, the consumer power varies with presented choices. In the global competitive markets including Dubai, the many airline and transport companies offer the consumers with a considerable power due to the availability of the services. Further, in the surfacing where the company is making its entry such as Africa, the consumers have no much choice thus have less possession of bargaining power.

Fourth, labor, fuel and aircrafts constitute the major inputs in the airline industry. Further, the leading manufacturers of commercial airplanes comprise McDonnell Douglas, Airbus as well as Boeing. The manufacturers possess somewhat high power in terms of supply of the aircrafts. In addition, the labor force comprising the pilots, ground personnel as well as crew is usually unionized thereby offering the aircraft manufacturing companies reasonable bargaining power. Further, the delivery of airline gas is verified through the market forces.

Lastly, extreme rivalry among competitors exists presently. In fact, the rivalry is evident in the pricing where severe undercutting is common. As a result, the stiff competition typically leads to surplus seat capacity in competitive markets.

Critical evaluation of the firm’s objectives, mission and strategies

As indicated before, the firms major objective is to increase its global presence and become the leading airlines services provider both at the regional and global markets. Based on the major global expansion aim, the firm business objectives and goals include

  • To position the Airline as the leading carrier choice within the Gulf and the world market
  • To put Dubai at the center stage in modern commercial activities in the middle east
  • To provide excellent airline customer services in the region and beyond
  • To enhance the brand image and position of the airline in the aviation industry

The current objectives of the firm can only be attained if the company adopted the new business and corporate strategies that enhances global integration. The firm has pursued global integration in the past two years as a business model for expansion into the new markets. Specifically, the airline has adopted the business and global integration strategies driven by economic and technological factors to expand into the global markets (Yip, 2002).

The specific actions needed for implementation of the chosen strategies

For the global and business strategies to attain the specified objectives, the firms must adopt both long-term and short-term financial, marketing and operational strategies enhanced by appropriate information systems and sound human resources management. In marketing strategy, the company must continue improving its image. The Hello Tomorrow plan is among the most innovative marketing strategies that the company should adopt to attain some of the major objectives.

The plan involves the expansion of the company’s business network by linking people all over the world. The strategy is in line with country’s bid to host world major EXPOs 2020 and beyond. Since the EXPOs attract diverse stakeholders, investors, and tourists, the company associates itself with the initiative by sponsoring the bid. The company aircrafts carry the EXPO 2020 logo to ensure the promotion of the cause. Such initiatives improve the company image. The success of the bid will see the Emirates’ profit soar. In addition, Dubai will also be portrayed as stipulated in the objectives.

Emirates endeavor to maintain the array of sources of competitive advantage in the context of cost control and distinctiveness that have led to cost and differentiation advantages. The cost controls should be the major aim of the financial strategy (Sundaresan, 2013). In fact, operational and financial strategies should involve const controls and differentiation. Despite the notion that cost and differentiation advantages are reciprocally exclusive, the company should be able to maintain both. In fact, the strategies implements a broad target competitive range that entails the utilization of both cost and differentiation advantages. The company’s business strategy should also encompass both the cost and differentiation advantages leading to the sustainability of the company’s long-term strategies.

In order to attain cost control advantages, various strategies are supposed to be employed by the company. For instance, by using cheap labor, the company will be capable of lowering labor costs by more than 30 percent. In addition, the company should strategize on how it should enjoy economies of scale by purchasing airliners en-mass. The mentioned cost control strategies should be pursued in the long-term. In terms of differentiation strategy, the company should adopt and implement a variety of strategies. The most apparent strategy entails offering glamour in the first class bookings including showers and beds.

Additionally, the company should offer free food to its customers. The strategy is in contrast to the competitors who segregate the price of air ticket from the meals offered in-flight. The price of the air ticket is usually slightly high but the strategy creates the perception that the meals are free. The company should also associate itself with the leading food companies to ensure high quality of meals. In addition, the company should also be associated with excellent companies that offer complementary services to enhance quality to the customers.

Recommended procedures for strategy review and evaluation

The strategies will be evaluated depending on the level of achievements of the company global expansion objectives. The company will obviously continue to expand into new markets. Therefore, it should be imperative for the company to adopt strategies that enhance the attainments of the global expansion trends (Butler & Keller, 2011). In other words, the company should adopt the strategic approaches that efficient, cost effective and differentiate the air carrier from the competitors as well as take into cognizance the quality services to the targeted customers. In essence, excellent quality customer services, efficiency, cost effectiveness should be the benchmark for evaluating the global expansion strategy of the company.

Besides, technology should also be adopted while designing the global expansion strategy for the company. Technology provides new ways through which customer satisfaction within the airline industry is enhanced. In other words, technological adaptation is another benchmark through which the company strategies can be evaluated. The company should also adopt unique strategies to differentiate itself from some of the major airlines in the industry. The strategies and objectives of the company should be reviewed annually to ensure relevance to the need of the customers.

References

Butler, G. F. & Keller, M. R. (2011). The handbook of airline operations. Aviation week, 3(1), 15-18.

Doganis, R. (2002). Flying off course: the economics of international airlines. New York, NY: Routledge.

Lancaster, P. (2013). Flying the flag for Dubai. The Middle East, 1(2), 51-52.

Sundaresan, S. (2013). Competitive Strategy. EWM, 1(1), 1-7.

Taye, T. (2006). The view from Dubai: international and industry affairs Emirates Airlines. Harvard Business Review, 4(2), 87-94.

Yip, G. S. (2002). Gateway to entry. Harvard Business Review, 6(2), 85-93.