Introduction
Emirates Airlines was incorporated in 1985 with the assistance of the Dubai’s royal family. The company started with only about $10 million as the starting capital. The company commenced business with wet leased planes, namely, Boeing 737 and Airbus 300, before procuring its aircrafts later (Nataraja and Al-Aali 477). However, the firm did not record profits until 1987 when it realized its first net profit. Since then, the company’s revenues have tremendously grown. In 2014, it was listed among the best-performing airlines in the globe. Initially, the airline operated within the domestic market, Karachi, New Delhi, and Mumbai. However, as time went by, it extended its operations to the global market.
The company’s success is attributed to its exceptional business model of Reinhold and Bieger that enables it to provide quality services at an affordable cost. Reinhold and Bieger’s model is founded on the principle of customer-centered services whereby the quality of services is prioritized. Currently, the company operates in close to 130 locations around the globe with over 200 airplanes. The company’s mission is to become the aviation champion, to provide excellent services to its clients, and to transform Dubai into a global and long haul aviation hub. This paper will explore the company’s business model of Reinhold and Bieger to gain insight of the forces that have guaranteed the firm its success against the backdrop of the stiffening competition.
Theory/Literature
A business model refers to a specification that outlines the business’ purpose, its goals, and the strategic map for achieving them. It incorporates the firm’s objectives, processes, and procedures in place to facilitate the achievement of such goals. Various scholars have come up with different models that try to shed light on the best business practices (Demil and Lecocq 230). Bieger and Reinhold’s business model is built upon the following concepts, which match Emirates Airlines’ goals and objectives:
- Value creation
- Value proposition
- Communication of such value to customers
- Capture of the value by the creator
- Value dissemination
- Value development
Value Proposition
Value proposition refers to the generation of an idea, which if implemented, will lead to the creation of valuable goods or services. Before an idea can be executed, the creator must assess its viability to save the company from incurring a loss that may result from the failure of the product or service.
Value Creation
Value creation refers to the process of transforming an idea into tangible or intangible valuable goods or services. It denotes the fulfillment of value proposition to create a worthy product or service.
Value Communication and Transfer
Value communication refers to the marketing and promotional strategies used by the firm to notify customers of the existence of a product or a service. The communication may be done through advertisement via the media or the internet (Demil and Lecocq 242). The sole aim of promoting a product or service is to attract customers to test the new product. On the other hand, transfer refers to the process of distributing a commodity or service to customers.
Value Capture
Value capture refers to the process of re-acquiring the value created by the original company. The products or services are offered at a discounted fee to recapture the value of the created product or service.
Value Dissemination
A company charges a fee as a consideration of the value gained from the product or service. The fee is inclusive of the costs and benefits for the creator of the product or the provider of the service (Hanlon 241). The earned profits are distributed to the firm’s owners in the form of dividends and interests. Part of the profits may be used to service loans. Besides, the proceeds may be taken back in the form of new investments. Value propagation denotes the way the earnings are distributed to the stakeholders.
Value Development
This aspect of a business model refers to a set of strategies designed to achieve continued creation of value. It denotes the strategies that a company adopts in its attempt to ensure that the business achieves its long-term objectives (Hvidt 418). For an enterprise to achieve its long-term goals, it has to formulate a strategic plan and communicate the same to all those involved in the implementation process.
Methodology
This report was conducted to investigate the factors that have contributed to the success of Emirates Airlines, despite the stiff competition in the airline industry. Bieger and Reinhold’s business model will guide the analysis. The model’s application in the mentioned company will be addressed. The methods that will be used for this research include the SWOT analysis and Porter’s five-force analysis. The company’s current strategies will be covered in details to gain insight into the strengths and weaknesses of the firm. Moreover, the paper will explore the strategies adopted by the firm to achieve its long-term goals.
Business Model of Emirates Airline
The company’s model is founded on a myriad of factors that mainly revolve around reducing the overall operating costs. Some of the components of the firm’s business model are discussed hereafter:
Labor Cost Economies
The airline company is located in Dubai where the cost of labor is cheaper compared to other countries around the globe. In the United Arab Emirates, the overall cost of labor is low to ensure that businesses that operate in the region do not incur high costs in terms of salaries and wages. Records from major enterprises in the region indicate that the enterprises, which are situated in the area, spend only about 10% of their annual profits in labor costs (Morrell 63). The employees in Emirates Airlines are not unionized. This finding is a great advantage to the company. Workers’ unions largely contribute to an improvement in the labor cost through their constant request for salary increment for their employees. Moreover, unions often call for strikes that may hinder the smooth operation of the affected enterprises. However, the company has faced critics from skeptics, owing to its strategy of discouraging labor unions. The skeptics argue that the company earns enormous profits at the expense of the employees.
Fleet Cost Economies
The company operates only wide body and a long-range fleet of aircrafts to cut the cost of its operations. The wide body fleet type of planes has a bigger cargo capacity compared to the narrow body aircrafts (Morrell 65). The high capacity of the crafts ensures that the company leaps huge profits due to the aircrafts’ efficiency. Moreover, the company saves a lot of money during seasons of low traveling since it only engages a few planes to ferry passengers. Another significant advantage that the company has over its rivals is the reduction of costs in terms of maintenance and repair costs. The firm maintains the youngest fleet of jets. This strategy is in line with Bieger and Reinhold’s business model that upholds the achievement of savings in terms repair and maintenance costs.
Strategic Distance
The company has been reluctant to join the global airline alliances on grounds that joining such alliances will only increase its operation costs. By refusing to join the unions, the company avoids the annual subscription fees that usually reduce other companies’ net profit. In addition, the company avoids the regulations stipulated by the alliances to avoid limiting its operations.
Opportunistic Strategies
The opportunistic strategy adopted by the company also ensures that it remains ahead of its competitors. The firm tends to exploit every gap in the market to increase its market share. Whenever the company penetrates into a new market, it lowers the fee charged to customers to attract more clients.
Well Positioned Hub
The location of the company’s hub in Dubai is a great advantage for the enterprise. Almost 80% of long haul destinations in the world are accessible from Dubai, which makes the company a center for all the destinations (Hanlon 221). This long haul flight model ensures that Emirates Airlines operates at a profit since the long hauls are less expensive compared to the short ones. Moreover, the strategic location of the hub has favored the company since the hub serves as the center of cargo businesses. Shipments from the East and the West are transported through Dubai, a factor that has led to increased passengers for the company.
Extensive Marketing/Branding
The firm has been actively involved in advertising its services to the prospective customers. The company has advertised its brands in almost every country in the world, hence increasing its reputation. Additionally, the firm engages in a myriad of corporate philanthropic activities, which enhance its reputation further. In partnership with the affected communities, the company participates in environmental initiatives to gain customer loyalty. Moreover, the company engages in fundraising activities to help the needy class in the society. The mentioned philanthropic endeavors ensure that the company gains customer confidence. The efforts have also acted as a strong advertising strategy.
Organizational Structure for Emirates Airlines
The company is premised on a flat organizational structure that helps it to lower the operational costs, hence ensuring that the firm charges lower fees compared to its competitors. Some of the benefits that accrue to the company because of the said organization structure include:
- Minimal level of management, which results in quick decisions and actions
- Less overhead costs since only a few managers exist
- Communication is faster and clearer
- Better productivity at work since subordinates are free from strict and close supervision and control (Less Stress)
Current Strategies
The exceptional performance of the Emirates Airlines Company can be traced to the strategic planning that has characterized the company since its incorporation. The company has a set of strategies that guide its operations. The first strategy that the company has adopted recently is the “high-quality provider strategy” (Nataraja and Al-Aali 482). Under the strategy, the company strives hard to ensure that customers enjoy the services offered. The security of passengers is prioritized to reduce the number of accidents that occur in the course of traveling. Customers’ luggage is also preserved well during the travel to avoid losses. Through the Smart Landing and the Smart Runway safety solutions, the clients’ security is guaranteed, thus minimizing the risks of accidents (O’Connell 345). The company has won various awards for being one of the best airline businesses in terms of customer satisfaction. The firm has consecutively attained the medal for being the finest in-flight leisure provider from Skytrax right from 2003. The awards are indicative of the company’s commitment to providing the best services to its customers.
The second strategy in place at the company is the ‘be the earliest to launch new commodities.’ The company invests heavily in research to unravel best ways to improve customer satisfaction. Innovation has characterized the company ever since its incorporation. The strategy has led to better customer experience during the travels. Employees are encouraged to come up with new ideas to enhance the services offered by the company. Moreover, the company has embraced the use of IT in its systems to manage its clients. The company has innovatively introduced personal entertainment systems in all passenger seats to ensure that customers are maximally entertained when on board.
Additionally, through technological innovation, passengers can make or receive calls while on board. Customers are at liberty to select the nature of services they wish to enjoy while traveling through selecting the first, second, or third suites. Passengers in the first-class private suites enjoy a myriad of services not to mention that their privacy is guaranteed. The availability of different suites in the airbuses allows customers to make choices regarding the services they wish to enjoy, thus increasing their satisfaction. The company was the earliest business to commence leisure services in its aircrafts in 1992. The innovative move was meant to attract customers and to improve the clients’ experience while on board.
The third strategy employed in the company is the ‘finest client service giver’ that targets the ground services. The approach facilitates early and simple check-in to save time for more flights. Moreover, the company has well-maintained waiting lounges for customers to rest before boarding. In line with Bieger and Reinhold’s business model strategy, the company offers easy chauffeur driven airport transfers in selected cities in the region (Hvidt 413).
Lastly, the company also has in place a strategy called ‘become exceedingly mechanized.’ Under the strategy, almost all operations in the firm are mechanized to fasten the processes and to improve customer satisfaction. The Smart-Landing safety solutions coupled with the auto check-in systems are good examples of the automation strategy. Additionally, the company has embraced the use of technology in employee training and customer handling. Automation of the fundamental processes has ensured that the company reduces the overall operation cost since the number of staff members required to perform such tasks is minimized. The company’s growth strategy is founded on the long-term customer satisfaction. The business aims at offering exceptional services to its clients in the end. In the execution of its long-term strategy, it has established close to 20 lounges along its major landing fields for its supreme customers.
Future Strategies
The company’s future strategies are founded on long-term goals that include market penetration, market development, and product improvement. The company intends to extend its services to other international airports to reach more customers and to increase its profitability. The company plans to invest heavily in the international market to boost its revenues. It is estimated that by 2020, the firm’s fleet size will be composed of more than 400 aircrafts (Nataraja and Al-Aali 479). Currently, the company has about 200 airplanes that operate in different parts of the globe. The increase in the fleet size will be in the pursuance of the long-term strategy that revolves around centralizing its operations in Al Maktoum Airport in Jebel Ali. The new airport is estimated to serve about sixty million passengers a year.
The company also has a strategy called “related diversification” that aims at increasing its market share, as well as the product line. In implementing this strategy, the firm has invested heavily in subsidiaries to penetrate the international market. Moreover, the company has diversified its product line by making the investments in related industries. Some of the areas that the company has made notable investments to diversify the product line include aircraft ground handling, aviation engineering, air catering, and tour operator operations (O’Connell 339).
SWOT Analysis
Strengths
The company’s greatest strength is in its exceptional branding that has enabled it to attract more customers over the past few decades. The business has been ranked among the best companies in terms of customer satisfaction (O’Connell 343). The company also enjoys significant government support due to its large size and the high quality of services it offers. It also has the youngest fleet of aircrafts. The fleet minimizes the cost of maintaining the machines. The mentioned advantages help the company to charge relatively lower prices compared to the cost that rival companies charge, hence increasing the number of passengers who use its services.
Weaknesses
The company’s strategy to suppress the workers’ unions may not work well in the future. To achieve customer satisfaction, employees must be well remunerated to boost motivation and innovation. Poorly paid workers are reluctant to offer exceptional services to clients. The firm should offer good salaries for its employees. It should also make a substantial investment in their developmental programs.
Opportunities
The company has earned customers’ loyalty due to the exceptional services it offers to its clients. The high reputation that the company enjoys may help it to penetrate the international market to increase its profitability. The company also needs to come up with powerful marketing strategies that can help it to attract more customers.
Threats
The company’s policy to charge lower prices for quality services can be limited by the rising cost of jet fuel. The cost of jet fuel has risen in the recent past. This situation might lead to high operational cost and hence increased prices for air travel (Hvidt 406). The increased extremism may also pose a great challenge to Emirates Airlines. The widespread terrorist activities have the capacity to influence the tourism industry negatively. Such life-threatening activities reduce the number of air travelers. Some countries in the world have enacted protectionist policies to protect their local airlines. Such laws may limit the company’s ability to exploit the global market.
Porter’s Five-Forces Analysis
Competition: Moderate
Although Emirates Airlines is one of the leading aircrafts in the world, in terms of customer services, it faces stiff competition from rival companies. Some of the main competitors include Qatar Airways, Oman Air, and the Gulf Air (Hanlon 234). The increased deregulation of the airline industry is a significant challenge to the company since it may stiffen the competition as international investors may penetrate the Dubai market to enjoy the low-cost labor.
Suppliers’ Bargaining Command: Weak
The company invests in the expensive large body airplanes on a large-scale basis. In this regard, it can negotiate for discounts from suppliers.
Buyers’ Bargaining Authority: Moderate
The company offers advanced services compared to its rivals. Hence, it stands a better ground to retain its loyal customers. However, it must remain innovative to serve its clients better and to avoid a possible shift of customers to the rivals.
Threat from Substitutes: Moderate
Other airline companies offer similar services as those offered by Emirates Airlines. Thus, customers may quickly turn to rival companies.
Threat from New Entrants: Weak
Dubai market is currently saturated where companies in the industry have dominated the market. Therefore, the threat of new entrants is minimal.
Conclusion
Emirates Airlines is one of the best performing airline companies in the world with about six subsidiaries across the globe. The firm’s business model is founded on the principle of customer-centered services whereby clients’ needs must be satisfied at all cost. Ever since its incorporation, the firm has recorded increased revenues and has retained certain strategies that guarantee its stronger competitive advantage over the rivals. The company operates under four strategies, namely high-quality provider strategy, being the first to introduce new products, being the best customer service provider, and becoming highly automated. The company intends to increase its market share by making more investments in the global market. By 2020, it is estimated that it will have about 400 jets in its fleet of aircrafts serving different destinations around the globe. Through the “related diversification” strategy, the company intends to diversify its product line to exploit opportunities in the aircraft ground handling, aviation engineering, air catering, and tour operator operations. However, the firm faces a myriad of challenges ranging from the high cost of fuel to stiff competition from rivals.
Works Cited
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Hanlon, James. Global airlines: competition in a transnational industry, London: Routledge, 2007. Print.
Hvidt, Martin. “The Dubai model: An outline of key development-process elements in Dubai.” International Journal of Middle East Studies 41.03 (2009): 397-418. Print.
Morrell, Peter. “Can long-haul low-cost airlines be successful?.” Research in Transportation Economics 24.1 (2008): 61-67. Print.
Nataraja, Sundaram, and Abdulrahman Al-Aali. “The exceptional performance strategies of Emirate Airlines.” Competitiveness Review: An International Business Journal 21.5 (2011): 471-486. Print.
O’Connell, John. “The rise of the Arabian Gulf carriers: An insight into the business model of Emirates Airline.” Journal of Air Transport Management 17.6 (2011): 339-346. Print.