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Emirates Airlines’ Strategic Choices and Decisions Report


Introduction

This report presents a strategic analysis of Emirates Airline, a Dubai-based national carrier with operations in three segments: “airline, in-flight, and all other” (MarketLine 2014, para. 5). The aim is to identify the strategic choices of the firm that could improve its competitiveness in the industry. Emirates’ current strategies include improving in-flight services for travelers and lowering its operational costs to enhance efficiency. On the other hand, one potential strategy is expanding its network to overseas markets. The analysis will cover the suitability, acceptability, and feasibility (SAF) of these strategies. Based on the findings, the report will identify and recommend one strategy for implementation by the Emirates.

The SAF model applied to Emirates indicates that each of the three strategic options is essential in the airline’s growth. Based on this framework, the three strategies are good choices for the firm. However, skill development and proper financial development are required to support implementation. In terms of acceptability, the three strategic choices can be considered appropriate for the firm, but their utilization would require sound stakeholder management to reduce political risks.

Feasibility evaluation reveals that the strategies are executable because of the firm’s large capital base and internal resources. However, external constraints, such as industry rivalry and fuel prices, may affect the adoption of the first strategic option. Although each of the three strategic alternatives represents a viable option for Emirates, cost, financial risk, and customer service considerations make the second strategy the best choice for implementation.

Identification and Review of the Strategies

SWOT Analysis

A SWOT matrix (Appendix 1) was applied to Emirates to reveal its internal strengths and weaknesses as well as potential market opportunities and threats in commercial aviation. SWOT analysis is a strategic tool for the evaluation of a firm’s internal and external environments to determine its strategic position in the industry (Kotler & Keller 2011). Based on the evaluation, the following three strategic choices were identified:

  1. To lower the operational costs through a lean workforce and maintaining low overhead costs.
  2. To enhance luxury travel through integrated passenger lounge and in-flight services.
  3. To expand its network into emerging markets or international destinations in Asia and the Americas.

Porter’s Five Forces Analysis

Porter’s five forces provide a useful framework for analyzing industry structure and processes to identify the “sources of competitive advantages” for a firm (Porter 2008, p. 67). Applying this model to Emirates indicates that the forces could have a significant effect on the airline’s competitiveness. The threat of new substitutes, supplier power, buyer/customer power, and industry rivalry is high. However, the threat of new entry is low because of the high capital/resource requirements and brand equity enjoyed by established carriers (Sheffi 2006). In particular, the rise in the competitive rivalry in the low-cost segment, rising fuel costs, and expansion into the Asian market present a threat to the Emirates’ competitive position. A detailed Porter’s five forces analysis is included in Appendix 2.

The Strategic Drift Model

A strategic drift arises when a firm’s strategies are shaped gradually by its history or organizational culture that is not in consonance with industry trends (Grant 2002). It encompasses three phases, namely, incremental change, strategic drift, a period of flux, and transformational change. The risk of strategic drift for the Emirates is low because of the firm’s IT solutions segment. In addition, Emirates has installed the latest in-flight technology, including TVs, audio/video systems, and on-board communication devices that enhance the travel experience (Emirates 2012). It also offers a range of in-flight amenities, including hotel services, and lounge services to corporate clients and tourists (strategic option 2).

The Existing Strategies

Cost-reduction Strategy

Emirates utilizes this strategy to reduce costs to enhance its competitiveness. Its key elements include product differentiation to compete in the low-cost segment (Graham et al. 2009). It employs a hybrid pricing strategy for its ticket prices for the economy and business classes. The airline has a cost reduction model that entails a “lean workforce and young fleet” compared to other players gives it a strong competitive profile (Jammoul 2014, p. 7).

The firm’s other cost-efficient operations include

  1. raising its passenger capacity through short- and long-hauls to several in-demand destinations
  2. utilization of large carriers, such as Airbus A340, with a considerable carrying capacity (Lohman et al. 2011).

The firm’s A380 fleet is the largest in the industry globally (Lohman et al. 2011). Emirates airline also uses fuel-efficient technologies in its fleet to cut down operational costs.

Enhancing Passenger Lounge and In-flight Services: Recommended Strategy

Emirates has full-service lounges at its primary airport in Dubai to cater for arrivals and departures. The aim is to offer customers an efficient and enjoyable traveling experience. The airline has adopted the IATA-recommended guideline dubbed ‘Simplifying the Business’ or StB to further improve the efficiency of its pre-flight lounge services. The StB entails five features that automate the entire traveling process, namely, “e-ticketing, eCheck-In, eBoarding pass, eBaggage Management, and eFreight” (International Air Transport Association [IATA] 2008). In addition, it offers integrated in-flight catering and accommodation for travelers. The airliner invested in 37 lounges in different destinations globally to provide dining services to passengers (Jammoul 2014).

Emirates Airline is renowned for its superior in-flight services globally. The firm has won several accolades for its quality in-flight products, including the Airline Passenger Experience Award and the British Travel Award, among others (Lohman et al. 2011). The awards help reinforce the firm’s brand image globally. Emirates should continue improving its on-board facilities, e.g., entertainment and communication (Wi-Fi), and catering services to maintain its strong competitive position. Its product development efforts should focus on installing technologies that enhance passenger comfort and communication while on-board.

Potential Future Strategy

International Expansion Strategy

The airline is considering a geographical diversification strategy to spread its operational risks. The top destinations for expansion include locations in South Asia through code-share agreements with other carriers such as Malaysia Airlines (Lovestock, Wirz & Keh 2002). In recent years, the airline has attracted traffic from the S. Asian market to N. America, enabling travelers to avoid passing through EU airports such as Heathrow and Frankfurt (Lohman et al. 2011). Thus, the LCC-dominated markets in Asia, including China, India, Malaysia, and the Philippines, are potential destinations for Emirates (Damuri & Anas 2008). Passengers from these countries can stopover at Dubai International Airport en route to North America or Australia and New Zealand (Auckland destination).

Evaluation of the Strategies using the SAF Model

The three strategies will be analyzed to determine their suitability, acceptability, and feasibility in the commercial aviation context.

Suitability

The appropriateness of the strategic options for Emirates will depend on their relevance to the firm’s internal capabilities and strategic vision as well as to the macro-environment forces/trends in the industry (Dess, Lumplin & Eisner 2007). The key trends identified in the commercial aviation industry include global/regional economic slowdowns, environmental concerns (emissions), rising fuel prices, and competition from low-cost carriers (McGee, Thomas & Wilson 2005).

The three strategies can help Emirates reduce costs (strategy 3), increase its revenue through diversification (strategy 1), and improve the quality of customer service (strategy 2) in line with macro-environment trends. In addition, Emirates Airline has a large fleet size (217 large carriers), integrated services, and brand equity (intangible resource) to support its growth. However, the successful implementation of these strategies will require staff training and development.

Acceptability

The acceptability of a strategic choice evaluates stakeholder expectations to determine their reactions and anticipated returns or risks (Slack, Chambers & Johnston 2004). The ‘acceptability criteria’ applied to Emirates can indicate the stakeholders’ expectations, expected returns/profits, and inherent risks. The main stakeholders include the Dubai government, company management, passengers, travel agents, aircraft providers, and staff. There is a good chance the Dubai government will accept the strategies that enhance the government-owned carrier. Emirates’ management, which features experienced practitioners, is likely to accept measures that strengthen the airline’s competitive position (Emirates Group 2015).

However, the staff is likely to oppose the cost-cutting measures (lean workforce) contained in the strategic action 1. Passengers will readily accept cheaper, but quality schemes that include improved in-flight/lounge services. On the other hand, the aircraft suppliers and travel agents may not be affected by the airline’s cost-reduction measures because they depend on many clients.

Emirates airline reported a 34% growth in revenue in 2015 ($1.5bn) (Research and Markets 2013). Its healthy financial position means that the firm has sufficient cash flow for investing in in-flight amenities and fund overseas expansion. Therefore, the strategic options will not reduce the financial returns/profits of the airline.

Feasibility

The feasibility of the strategies based on its resources and constraints. The requirements for the implementation of the strategies include financial systems, passenger management systems, and HR systems. The firm already has technology (Emirates IT) to support these systems. The constraints may include fluctuations in fuel prices, the growth of the LCC sector, and political risks (government control). Overall, the three strategies can be implemented without incurring extra costs.

The Implementation of the Recommended Strategic Option

  • The involvement of executive management is needed to streamline internal processes and remove administrative barriers.
  • The financial investment to purchase and install or upgrade systems that improve the in-flight experience.
  • Customer training on the use of the new systems is required. Interactive feedback can help tailor in-flight services to customer needs.
  • Staff training may be necessary for front-line employees.

Conclusion

The SWOT, five forces, and strategic drift analysis revealed three strategies that Emirates could utilize to strengthen its competitive position. An evaluation of the strategies using the SAF model showed that the three options could contribute to the airline’s growth. However, internal resources (finance and costs) and external constraints make the improvement of in-flight services the best strategy for Emirates for now.

References

Damuri, Y & Anas, T 2008, The Emergence of Low Cost Carriers in South East Asia. Web.

Dess, M, Lumplin, C & Eisner, F 2007, Strategic Management: Creating Competitive Advantages, McGraw-Hill, New York.

Emirates 2012, Airlines and Subsidy: Our Position. Web.

Emirates Group 2015, Leadership: The Senior Management Team. Web.

Graham, F, Nigel, D, Ison, S & Humphreys, I 2009, ‘The Transferability of the Low-Cost Model to Long-Haul Airline Operations’, Tourism Management, vol. 28, no. 2, pp. 391-398.

Grant, R 2002, Contemporary Strategy Analysis, Concepts, Techniques, Applications, Blackwell publishers, London.

International Air Transport Association [IATA] 2008, Fact & Figure Environment. Web.

Jammoul, A 2014, The Strategic Diagnosis: Emirates Airlines, Sophia University Presss, Nice, France.

Lohman, G, Albers, S, Koch, B & Pavlovich, K 2011, ‘From Hub to Tourist Destination–An Explorative Study of Singapore and Dubai’s Aviation-Based Transformation’, Journal of Air Transport Management, vol. 15, no. 5, pp. 205-211.

Lovestock, H, Wirz, L & Keh, P 2002, Service Marketing in Asia: Managing People, Technology & Strategy, Prentice Hall, New York.

Kotler, P & Keller, K 2011, Marketing Management, Prentice Hall, New York.

MarketLine 2014, Company Profile: Emirates. Web.

McGee, J, Thomas, H & Wilson, D 2005, Strategy Analysis and Practice, McGraw Hill, New York.

Porter, M 2008, ‘The Five Competitive Forces That Shape Strategy’, Harvard Business Review, vol. 23, no.1, pp. 1-9.

Research and Markets, 2013, Emirates Airline – Strategic SWOT Analysis Review. Web.

Sheffi, Y 2006, The Resilient Enterprise: Overcoming vulnerability for competitive advantage, Pearson Education, New Jersey.

Slack, N, Chambers, S & Johnston, R 2004, Operations Management, Prentice Hall, New York.

Appendix 1: SWOT Analysis

Strengths
  • Government support which gives it a competitive advantage in the GCC markets
  • Global presence (>150 destination), which helps spread external risks
  • Wide portfolio – activity in hotel services, cargo, etc.
  • Strong supply chain partnerships, e.g., with aircraft manufacturers, like Boeing
  • Integrated hotel & tourism services (5-star hotels)
  • Primary user of the Dubai international airport – an important stopover for travellers
Weaknesses
  • High debt burden (up to 42.4bn Dirham in FY2014) that affects its expansion efforts
  • Risky acquisitions and diversification actions
  • Weak HR processes – relies on low-wage labour for baggage handling
  • Declining liquidity level – current ratio dropped by 21.8% to 0.8 in 2014
Opportunities
  • Huge market in China – a fast-growing economy with tourist destinations
  • Market opportunities in the Travel & Tourism sector – Dubai visitors
  • Partnerships (horizontal integration) with airlines like Jet Blue to minimize operational costs (strategic option 1)
Threats
  • Rivalry from established national (Etihad), regional, and international carriers
  • Global recession trends in China and the EU
  • Fluctuation in fuel prices
  • Epidemics such as bird flu

Appendix 2: Porter’s Five Forces Analysis: Emirates

Threat of New Entry

In the UAE, national regulations and industry requirements act as barriers to new entry. Emirates Airline is a national carrier; therefore, it enjoys the government support (monarchy). Another entry barrier is brand equity, whereby established carriers boast of a strong presence and brand value. The huge capital investments constitute another barrier to new entry. Emirates is an established brand of the Emirates group. Therefore, capital is not a problem. Therefore, the threat of new entry is low.

Competitive Rivalry

The number domestic, regional, international carriers keep on increasing. Over 37 airlines serve Dubai. Emirates’ local competitors include RAK Airways and Etihad Airways. Competition from low-cost carriers (LCC) like Jazeera Airways and Air Arabia reduces the profits of carriers that offer long-haul services, such as Emirates. Therefore, competitive rivalry in the UAE commercial airline industry is high.

Buyer Power

Customers have a high bargaining power because ticket costs vary depending on the travel option (budget or luxury option). In addition, the switching costs between airlines are low. Thus, carriers compete by providing schemes that include cheap tickets with quality services. However, Emirates can integrate backwards with its in-flight amenities (strategic option 2) to compete. It also has a differential advantage due to its broad portfolio. Overall, buyer power is significant in this industry.

Supplier Power

The aviation industry has only two aircraft manufacturers, Boeing and Airbus. Therefore, switching costs for carriers are very high. In addition, many airlines depend on two suppliers for maintenance parts and services. Thus, supplier power is significant.

Threat of Substitutes

Travellers have many airlines to choose from, hence, the threat of substitutes is very high. Passengers often consider ticket prices and in-flight and lounge services when selecting a flight. The price difference between substitutes (LCC) and Emirates services is large. However, airline is a leader in the luxury segment. In addition, it uses product differentiation and geographical diversification (strategic option 3) to compete. Overall, the threat of substitutes is high in this industry.

Appendix 3: Strategic Drift

Phase 1: incremental change

  • Emirates adopted a growth strategy based on operational efficiency and cost reduction.
  • Current strategies are built around the firm’s capabilities, such as resources and technological expertise.

Phase 2: Strategic Drift

  • Emirates has been on the forefront in developing innovations that improve customer experience through its IT section.
  • It has backward integration with suppliers to develop custom-made in-flight amenities for its fleet.

Phase 3: A Period of Flux

  • The airline has managed to maintain a good organisational fit free of conflict.
  • Skilled and committed management coupled with government support has contributed to improved performance.

Phase 4: Transformational Change or Death

  • Emirates has reported a revenue growth since its establishment. It has never gone into receivership or merged with other airliners.
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