SMM219 THE ORGANISATION IN ITS ENVIRONMENT

SMM219
THE ORGANISATION IN ITS ENVIRONMENT

Emirates
Airline

Student ID: 0951824

MBA Director: Dr. Adrian Haberberg

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 SMM219 THE ORGANISATION IN ITS ENVIRONMENT

TABLE OF CONTENT

Executive Summary………………………………………………………………… 3

Introduction…………………………………………………………………………. 3

Macro-Environment.........................................................................................……… 3

Competitive Environment...................................................…………………………… 4

Strategic Fit of Emirates……..........................................……………………………… 7

References.............................................................................................. …………… 10

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Executive Summary

Emirates is the most successful and innovative airline in the Middle Eastern region. Their

operations seem traditional and conservative at times. This is not conducive to the airline

industry which is growing and highly competitive and is shifting slowly towards low cost and

economy passenger segment. Emirates fortunes are directly connected to the Dubai economy and

their success as an airline can be attributed on a major part to the cheap and large availability of

fuel.

Introduction

Until 2009 Dubai was the largest and most prosperous emirate under the UAE. However

the financial crunch that led to Dubai’s bankruptcy and heavy debt has affected all nationally

owned companies. The Emirates airline is no exception. It has been affected nominally and a lot

of extra strategic implications were called for and like rest of Dubai, Emirates is riding this

crunch. Emirates is still one of the most popular airlines in the world and it has bounced back

strongly displaying strong profits recently. This report will attempt to look at the competitive

environment of Emirates and the macro-environmental factors affecting the airline industry.

Macro-Environment

There are several kinds of factors affecting the airline industry: both external and internal1. Some

of these factors are listed below but they are inclusive of others and not exhaustive.

1
Haberberg,A and Rieple.A. (2008) Strategic Management: Theory and Application; New York; Oxford University
Press.

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Political

Politically, the airline industry has seen strict regulations from governing authorities and from the
various governments across the world where the airlines operate; as such this influence is unique to
few industries in which the airline industry is one of them. Ever since the airline industry was de-
regulated allowing for more free market, open competition policies, there has been a huge growth
in the size of the airline industry. Socialist countries also have powerful trade unions for airline
employees.

Economical
World economical changes affect the industry. The credit crunch has dampened the profits of many
an airline. This is because the airline industry is dependent on grassroot economic realities. It is a
service that comes under premium transportation. An increase in the economic relief packages for
underperforming airlines, initiated by their home governments has further caused hyper-
competition in the industry.

Social
Socially the rise in average consumer income and average household income around the world has
increased the number of potential clients for the industry. This has led to many low-cost airlines and
economy class airlines that cater to the majority of fliers. This has led to growth of the airline
industry in terms of volume and number of participants.

Technological

Better technology has come in the form of better planes and better computer based service systems
which has increased the quality of service and most importantly with this industry, it has also
increased overally safety of travelling in airplanes.

Competitive environment:

The airline industry as such has an interesting environment which shall now be assessed using a

Five forces’ framework34.

2
Organisational Strategy-Emirates Airline [Online]. (2010) [Accessed 25 February 2010].
Available from: < http://www.articlesbase.com/flights-articles/organisational-strategy-emirates-
airline-1908526.html>.
3
Haberberg,A and Rieple.A. (2008) Strategic Management: Theory and Application; New York; Oxford University
Press
4
Porter, M.E (2008) The Five Competitive Forces that Shape Strategy, Harvard Business Review, Jan 2008.

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1. The power of suppliers to the airline industry can be theoretically high because the two

main suppliers are fuel suppliers and aircraft manufacturers- Airbus and Boeing. The

vulnerability of oil market and hypercompetitive atmosphere in aircraft sales leads to

extreme positions in airline industry. Most airlines are making losses while few airlines

like Emirates have managed to make profits consistently except during few occasions.

This could be attributed to the fact that Emirates airlines gets major concessions from the

Dubai/UAE government that provides jet fuel cheaply. Other suppliers include institutes

that train and supply cabin crew who are crucial to the service. But these are too

numerous to exert any influence individually.

2. Individual buyers are not powerful. They may have high switching costs if the destination

is remote with less traffic. Otherwise switching costs are low but due to very little price

differentiation amongst major airlines, quality of service also seems similar, hence the

apparent choice available to consumers does not translate to great power for buyers.

However if the individual consumer can generate widespread media coverage to voice his

displeasure, this could potentially damage the brand image of the airline.

3. Substitution for the airline service can be rail, sea and road services which are not as

attractive because of the huge time factor and for long international travel it is practically

unsubstitutable. However substitutes for purchasing power can be any luxury item

purchased for different consumer intentions. But travel is almost a necessity for which

airlines have no substitutes and hence this threat is very low.

4. Threat of new entrants in the airline industry depends on its barriers to entry and is

indirectly proportional to it. Due to the deregulation and easier finance options(prior to

the credit crunch), several new entrants managed to enter the airline market. However

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while this definitely increased competition, many entrants have eventually shut down and

gone bust. Theoretically, barriers to entry are low making threat of new entrants high but

it is not often a heavy threat. Successfully managed airlines can strategically

outmaneouver such threats.

5. Firms rivalry within the industry is highly competitive and has resulted in some

competitive tactics like price wars, undercutting etc which has sometimes led to shabby

service and the rise of low cost airlines which are a definite trend for the future of this

industry.

Depending on these factors, the airline industry can be called growing, highly competitive,

difficult to succeed, etc and one can define some key survival and success factors for the

industry.

Survival

1. Minimal differentiation in both service and in operations

2. Positive relationships and relationship management with suppliers
3. Very thought out scale and scope of operations.
4. Ensure marketing through word-of-mouth through excellent service
5. Utilise the best ticketing strategies to get a slight edge

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Success
1. Maximum differentiation in both service and operations
2. Limit power of suppliers through scale and scope of operations
3. Ensure a good relationship with political machinery under operating territory
4. Opt for detailed marketing through cost-efficient advertising that strengthens brand
image
5. Scale and scope of operations should be aimed at getting exclusive traffic.
6. Getting direct control over fuel requirements that is backward integration in value
chain is a huge advantage.

Strategic fit of Emirates:

Any strategy is analysed on the basis of three parameters

1. Fit

2. Distinctiveness

3. Sustainability6

Emirates is definitely not a low cost airline. During its initial growth phase, during the mid to

late 1990’s, Emirates managed to procure a service differentiation that was highly popular and is

now an industry standard. It was Emirates that started the use of an individual TV set fit behind

the seat. This was so popular that it boosted their sales tremendously and even provided them

with a strong brand image of being people friendly. Thus their strategy during that phase was to

be consumer-friendly and to generate a good brand image.

As Emirates grew, once their brand image was established and there was a strong Emirates

presence in the market, the focus of the strategy was to obtain market share at the expense of

competitors. This was to be accomplished with maximum scaling possible. This strategy was in

fit with the requirements of the industry as stated above in the report.

5
Haberberg,A and Rieple.A. (2008) Strategic Management: Theory and Application; New York; Oxford University
Press.
6
Haberberg,A and Rieple.A. (2008) Strategic Management: Theory and Application; New York; Oxford University
Press.

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With the decline in the premium passengers segment and the continuing decline in the air cargo

sector in the current fiscal year, Emirates is now beginning to focus on the economy class

passengers. This strategic shift is positive and is in line with the current success factors in the

industry. A quick look at the traffic volume of airlines is warranted.

Rank Airline 000s

1 Ryanair 49,030
2 Lufthansa 41,322
3 Air France* 31,549
4 EasyJet 30,173
5 British Airways 28,302
6 KLM* 23,165
7 AmericanAirlines 21,479
8 Emirates 20,448
9 Singapore Airlines 18,957
10 Cathay Pacific 17,695 7

Airline Market Ѕhare

Emirateѕ 39%
Air India 2%
Gulf Air 8%
Qatar Airwayѕ 13%
Ѕri Lankan Airlineѕ 4%
Ѕingapore Airlineѕ 26%
Thai Airwayѕ 8% 8

As it can be inferred from the figures above, which are of 2009 travel statistics, low cost airlines

like Ryan Air and EasyJet have managed to take a great chunk of passenger volume. Emirates is

7
Organisational Strategy-Emirates Airline [Online]. (2010) [Accessed 25 February 2010]. Available from: <
http://www.articlesbase.com/flights-articles/organisational-strategy-emirates-airline-1908526.html>.
8
Organisational Strategy-Emirates Airline [Online]. (2010) [Accessed 25 February 2010]. Available from: <
http://www.articlesbase.com/flights-articles/organisational-strategy-emirates-airline-1908526.html>.

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good compared to carriers in the Asia-Pacific and Middle Eastern region but its volume is still

less than some of the Anglo-European carriers. However Emirates has a greater chance of

superceding many of the carriers in that list. British Airways and American Airlines are running

under tremendous losses. Their days at the top are numbered. Virgin Airlines is another

upcoming airline which could provide tough competition to Emirates. However Virgin Airlines

seems to still cater to premium passengers and their ticket prices are too high. With the industrial

focus shifting towards emerging markets like India, China and Brazil, Emirates would do good

by focusing on achieving a balance of low cost and premium passenger airlines.

They tend to be flexible as an organisation. They are about to buy the A380 which is the largest

commercial plane in the world. This is not the wisest of choices. Emirates should attempt to

include smaller aircraft in its fold to cater to low-cost economy passenger segment. When Ryan

Air ferries more than twice as many passengers as Emirates does, it clearly shows opportunities

are there for Emirates to expand.

Another strategic success of Emirates is that like most successful airlines, Emirates has stayed

away from mergers and acquisitions which in this industry seem always doomed to fail. Because

the dubai government holds controlling stake of Emirates, the airline’s fortunes are forever

intertwined with that of the Dubai economy. This can be a blessing as well as a curse.

Sustainability of Emirates will lie in their managing to ride the Dubai credit crunch of 2009-’10.

They seem to have done this successfully. The main target of Emirates should be to diversify its

operations.

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