Emirates Strategic Analysis
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Is Emirates Airlines going to become the #1 long-haul carrier in Asia Pacific region?
Introduction
The purpose of this report is to analyze the possibility of Emirates becoming then the #1 long-haul carrier in Asia Pacific region. First the attractiveness of the industry will be looked at. Then the present and the future of the industry will be justified through the analysis of the external environment. Next company’s resources and capabilities will be examined and potential sustainable competitive advantage will be identified. Finally, appropriate conclusions will be drawn.
Analysis
Company profile
“Life must be wonderfully simple when the airline, government and airport interests are all controlled and run by the same people.”
Qantas Chairman Margaret Jackson
Starting its operations in 1985 with two leased planes and a $10 million loan from the Dubai government Emirates have developed into one of the most profitable carriers that have achieved a record result of $708 million net profit from $5.2 billion operating revenue in fiscal year 2005 (www.emirates.com). The airline is based in Dubai, United Arab Emirates and owned by The Emirates Group that is 100% owned by the government. At present, Emirates operates services to 78 destinations in the Middle East, Far East, Europe, Africa, Indian subcontinent, Asia-Pacific and North America. Its fleet consists of 78 Boeing and Airbus models aircrafts that are among the newest in the air (Maier, 2005).
1. Is the industry attractive?
Industry dynamics and competition: 5 forces model
Threats of new entrants
Economies of scale
Larger airlines enjoy increased economies of scale, which mitigates the effects of the high cost structures that have come to define the large network carriers. (Ward, 2003)
Capital requirements
Opening a new airline needs a heavy investment in the start and ongoing sufficient funding for a long period of time before the company would start to return profit. Though leasing simplifies the acquirement of the aircrafts as it reduces the start up costs considerably.
Access to distribution channels
Airline company is highly dependent on various supporting industries, such are airports, maintenance, etc. which are usually fully booked by the existing companies. New entrants may find it hard to obtain slots and find limitations on the number of flights from particular airports, thus having to fly from non-major and secondary airports in order to enter the industry.
In view of the congestion apparent at many international airports, the ownership of slots at certain airports (the right to take-off or land an aircraft at a particular time of day or night) has become a significant tradable asset in the portfolios of many airlines. Clearly take-off slots at popular times of the day can be critical in attracting the more profitable business traveler to a given airlines flight and in establishing a competitive advantage against a competing airline. (Airline, Wikipedia)
Government policy
However, it is believed that in future liberalization in the industry will encourage new entrants to the industry. Canadian transport minister Jean Lapierre said in a recent speech in Toronto: “The fundamental structure of the air industry is changing — not just in Canada, but around the world. The traditional industry model — closed domestic markets, strong national flag carriers and bilateral agreements — is giving way to a new model. We have been seeing a worldwide trend in recent years toward making aviation markets more accessible, with decisions being left increasingly to market forces”(Airline Business, April 2005).
Though the laws may change in the next 20 years the opening up a new airline business which will fly long-haul especially still is largely dependant on the investment and governments are those bodies which are able and willing to invest into the airline industry. Therefore the aeropolitical multilateralism will make in future the legal issues easier in terms of flying to a broad number of destinations, but there are still be a number of legal aspects such are health and safety policies, security, environment, etc, which the airline company would never be able to avoid. This means that if even the whole world will adopt “open skies” police the establishment of the new airline will be still strictly controlled by the governmental policies.
Threat from the substitutes
As we consider the long-haul industry, there is no other mean of transport that is capable of satisfying the same buyer needs.
The buyer power
Buyer concentration
About 3.5 billion people reside within a 4,000-mile radius of Dubai, within reach of an eight-hour flight (Business 2.0, October 2005). Big economic and population growth in the region increases the necessity to travel and boosts the airline industry.
Importance of the product to the buyer (cost / quality)
There are two segments: business travellers, for whom the quality of service during the long-haul flights is important and who do not have much financial constraints because their expenses are usually paid by their companies and tourists, who remain price-sensitive. Emirates targets both segments. An example of the outstanding service provided to business and first class passengers are a recently opened separate terminal for those passengers, free limousine service to and from the airport, wireless e-mail access etc (Maier, 2005)) For the price conscious customers Emirates offer lower than competition fares due to its cost efficiency.
Switching costs
The cost of switching a carrier for customer is very low and nothing prevents them from choosing different airlines which gives them a better offer. Therefore Emirates loyalty card policy may make the difference in future when the competition will get stronger and �points saving’ starting from now may tie the customers to the company as it will ensure them a better deal.