Airlines Competition in the United Arab Emirates Research Paper

Managerial Economics Assignment: Evaluation of the Airline Industry

The UAE’s airlines are highly known in the world, as Etihad Airways and Emirate Airlines have been viewed as the best air transportation companies in the world (Rapoza, 2014). Meanwhile, Etihad Airways has been awarded and ranked as the best global airline recently (Rapoza, 2014). Nonetheless, it is still unclear whether the particular variables in the competition tend to drive the profitability of the companies and their recognition.

In this instance, the primary goal of this research paper is to evaluate the nature of competition in the airline industry while assessing the sustainability of the competitors in the market and their strategies applied to enhance their profitability. Simultaneously, the core risks and uncertainties will be analyzed while determining the variables influencing the overall functioning of the industry. In the end, the conclusions are drawn to summarize the critical findings of the paper.

Nature of Competition and Sustainability in the Market

The analysis of the nature of competition and the definition of the key variables affecting the sustainability of the companies in the market are the initial steps in the context of the presented research paper. The overall competition in the industry can be divided into sectors including the regular-premium (Emirates and Etihad) and coasters such as Air Arabia and Flydubai while having the operations in national (Rotana Jet) and international segments (Flanagan, 2015).

Meanwhile, the airline industry tends to grow due to the emerging nature of the country, while Emirates remains a leader in the market with a revenue of 82,636 (in AED) in 2015 (Graham, Papatheodorou, & Forsyth, 2016; The Emirates Group, 2016). Consequently, the second place is occupied by Etihad ($4,100 million) and others have lower revenues and share the rest of the market (Ishak, 2012).

In turn, not only the cheap airlines practice the short-distance flights but also have the connections with the long-distance locations, and these factors define their ability to be considered as one of the competitors for the rest of the carriers (Flanagan, 2015). Based on the information provided above, the primary diversification is based on the quality of the services and the additional features offered while the overall competition can be considered as intensive, as the companies from all sectors tend to aim at the increase of their market shares.

Meanwhile, the sustainability of the companies is affected by various factors including the satisfaction of the customers, safety, innovation, eco-efficiency, and other aspects, which are defined by the International Air Transportation Association (IATA) (IATA, 2016).

In this instance, the compliance with the aspects mentioned by IATA determines the Emirates success in the market, as it highly focuses on the eco-friendliness and development of the favorable conditions for the customers (Emirates: Emirates greener 2016). Nonetheless, other variables including the potential changes in consumer behavior have a dramatic impact on the size of the market shares of the competitors. Nowadays, the customers tend to scarify comfort for the lower price, as some users view the airlines as a mode of transportation without any need for the supplemental services (Middleton, Fyall, & Morgan, 2010). This aspect explains the growing popularity of the low coasters in the UAE airline industry and affects the distribution of the customers among competing firms.

Strategies to Increase Profitability

Based on the information provided above, the carriers tend to utilize sophisticated strategies to improve their position in the airline segment, as the competition and contest for the market shares tend to elevate the level of intensity. In turn, this chapter has a correlation with the influencers (variables) of the overall competitive environment such as changes in the regulations related to sustainability and safety, consumer preferences, and public image. In this case, Emirates combines the reliance on the recognition, security, and the environmental support (Emirates: Emirates greener, 2016). In turn, Etihad also uses a similar strategy while aiming at no diversification between its clients and vehement significance of comfortability with having a perception of one of the best airlines in the world (Rapoza, 2014).

As for the low coasters, they tend to rely critically on the changes in consumer behavior while attracting the customers with affordable prices by reducing costs in the maintenance of comfortability. For instance, Air Arabia is one of the most profitable representatives of this segment, and its slogan states “More than Just Low Fares” (Air Arabia, 2016, para. 1). The airline tends to highlight its ability to fly to numerous destinations for a low price with its slogan and attracts an extended variety of customers by this feature.

Lastly, Rotana Jet is one of the airlines, which diversifies itself from the competitors by limiting its areas of operations to the flights within the UAE (Rotana Jet, 2016). However, despite its initial focus, it tends to increase its coverage by enlarging the number of destinations (Rotana Jet, 2016). Its unique strategy helps the company to improve its profitability, as it is a pioneer in offering national flights.

Risks and Uncertainties in the Airline Industry

Despite the favorable conditions for the airline’s development and its leading position in the world, various risks and uncertainties are currently present in the UAE and may affect the future advancement of the airlines. One of the risks is the modifications of the international agreements and political restrictions, which are aimed at the decrease of the power of the Gulf carriers due to the violation of the Open Skies Agreement (“War on competition”, 2015).

This matter might be discovered as a potential cause of the limitation of the flights destinations while questioning the future profitability of Arabic airlines operating at an international level. In turn, this factor has a substantial influence on the companies operating globally such as Etihad, Emirates, and Flydubai while domestic carriers like Rotana Jet will also experience adverse consequences due to the shift of the competition in the national market.

Another risk is the continuous increasing intensity of the rivalry, as the entry barriers remain low due to the globalization and an extended variety of markets (Cederhom, 2014). Meanwhile, this trend cultivates the development of the price wars by causing changes in consumers’ preferences, as the customers prioritize the price over quality (Middleton, Fyall, & Morgan, 2010). In turn, the client’s choice is affected by the current crisis and economic disturbances simultaneously, as it tends to limit customers’ possibilities by having an effect on the income. A combination of these factors changes the overall functioning of the airline industry by leading to the rise of the low-coasters while causing the risk to airlines such as Emirates, Etihad, and Rotana Jet with a different pricing strategy.

Despite the currently escalating trend of the low coasters’ popularity, the consumers’ preferences remain vague due to the constantly changing factors related to the continuous technological progress (Das, 2015). This matter can be viewed as a potential threat, as it cultivates the development of uncertainty concerning the probable areas of the strategic direction. Meanwhile, it implies that the inability to adapt to the changes will be a cause of the loss of the market share.

Due to the dependence of the United Arab Emirates on the oil production, the currency and the economic condition are highly reliant on this part of the revenue (International Business Publications, 2016). This matter can play in favor of the competitors due to the co-dependence of oil prices and the currency exchange. Consequently, the fares of Arabic carriers are highly reliant on the exchange rates, and strengthening positions of Dirham will lead to an increase in fares. Meanwhile, the competing companies from China and Qatar will attract the customers by lower prices.

Lastly, the overreliance on the reputation can be regarded as the potential threat, as any presence of the negative feedback will affect the perception of Etihad and Emirates while highlighting the outstanding services of Qatar Airlines, the primary competitor in the premium segment (Rapoza, 2014). Despite the rarity of the occurrence of the adverse situations related to the UAE airline industry, this factor cannot be unnoticed, as Flydubai’s plane had recently crashed in Russia while substantially questioning the overall reliability of Arabic carriers (Hanih, 2016). This negative portrayal might lead to the development of the political sanctions and limitations of the areas of operations while building adverse perceptions among consumers.

Conclusion

In the end, the airline industry in the UAE is a highly competitive, as the companies tend to focus on the quality of the services while aiming at the world’s recognition. In the interim, the low-cost and domestic airline providers tend to develop new marketing approaches with the focalization of the particular geographical areas and cost-leadership strategies. In this case, changes in the regulations, consumer preferences, and flexibility of the competitors have a substantial influence on the nature of competition and define the necessity of the alterations of the airlines’ strategies for sustainability and growth.

Based on the factors provided above, the critical uncertainties are related to the intensified level of competition due to the low entry barriers, the absence of the adaptive nature of the companies, political instability, and the economic disturbances while highly relying on the company’s image and quality of the services.

References

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