Etihad Airways Challenges and Opportunities Report

Introduction

This report aims to analyze the challenges and opportunities, faced by such a company as Etihad Airways. This organization was founded in 2003 and since then it has passed through a period of rapid growth; its operational capacity as well as its revenues have increased by many times. At the moment, its fleet numbers 54 airplanes which operate approximately 1000 flights per week (Etihad Airways, 2010, p 2).

Etihad Airways does not have to withstand fierce rivalry of local or foreign airlines since it is a flag career or the company, protected by the state. However, the recent changes in the global economy have demonstrated that even such organization is exposed to many external risks. In this report, it is necessary to assess the core competencies of this company and weaknesses, if there are any. For this purpose, we will need to use SWOT analysis, as it can throw some light on many of the problems, encountered by the company and help us identify the solutions to these problems.

SWOT Analysis of the Organization

• Strengths
  • Safety record: the first competency that we need to mention is the impeccable safety record. Since the time of its foundation, Etihad Airways had no fatal or technical incidents, and this reliability definitely produces a favourable impression on domestic and foreign customers.
  • Flexible pricing policy: the services of Etihad Airways are affordable to the clients of various income levels. It should be noted that the company offers three types of services: “diamond” or first class, “pearl” business class, and “coral” economy class (Etihad Airways, 2010, p 8).
  • The wide range of destinations. At the given moment, the company operates flights to more than forty countries in Europe, Asia, Africa, North America, etc.
  • The quality of customer service. Etihad is famous for the politeness, efficiency, and courtesy of its personnel.
• Weakness
  • Increased dependence on the governmental support. One should take it into account that in Etihad Airways is a national or flag carrier airline which means that it is protected from external competition by governmental regulations, preventing foreign airlines from accessing the UAE market.
  • High spoilage rate. Unfortunately, Etihad Airlines has a very high spoilage rate which means that very often their airplanes are not filled to their full capacity. This eventually results in substantial decrease in the profitability of the enterprise and unnecessary expenses.
  • Small cargo fleet. The company has only six freighter airplanes, and this amount is insufficient, especially given the fact that the imports in the UAE continue to increase.
• Opportunities
  • The increasing importance of tourism for the economy of the UAE. Over the recent years the number of people, who visit the country for the purposes, unrelated with commercial activities, has dramatically increased. This factor can beneficially impact national airlines.
  • The growing imports of products into the UAE. The company should make more use of the economic situation in the country. A great number of products and services are imported into the country, and this eventually creates opportunities for those airlines that have the resources for cargo transportation.
• Threats
  • Deregulation of the airline industry. As it has been noted before, Etihad Airways is a state-owned organization and the government pursues a policy of protectionism toward it, for example, by setting low tax rates. The thing is that foreign airlines that try to operate in the UAE market, are denied the right for competition on equal terms. If the government of the UAE decides to participate more actively in free trade agreements, Etihad Airways will have to compete with other companies in terms of price and services.
  • Environmental Threats. This group of risk is very diverse and continuously changing. First of all we need to speak about the possibility of epidemic outbreak that can easily disrupt air traffic. The most notorious example is the epidemic of avian influenza. Secondly, one should not forget about the possibility of natural disasters that may occur far away the country. The eruption of Eyjafjallajökull significantly decreased the revenues of many airlines, including Etihad Airlines because virtually all European flights were cancelled (Wearden, 2010, unpaged).

Overall, this analysis shows that there are many factors which are out of the company’s control. Its management cannot impact the foreign and domestic policies of the country, let alone the forces of nature. However, there are some aspects of performance that can be managed. In particular, we need to speak about the arrangement of flights and great spoilage rate. For this reason, we need to speak more about the load factor in Etihad Airlines.

The Allocation and Use of Resources in Etihad Airlines

Judging from the load factor report, issued by this company, one can argue that the resources of this organization are not used to their full capacity. Namely, the majority of outbound passenger flights do not generate even fifty percent of the expected profit. The flights that go to such destinations as North America, Europe, Australia, or the Far East are filled at approximately 42 percent, while inbound flights are filled at 44 percent. These data indicate that passenger flights give a very low return on ratio.

In sharp contrast, freighter flights are much more profitable, especially when we are speaking about those flights that come from Europe, North America, India, and China. In part, these data can be explained by the fact that the majority of manufacturing facilities are located in these areas. Therefore, it would not be an exaggeration to say that the allocation of resources in Etihad Airlines is not efficient.

Recommendations

At this point, it is necessary to map out those strategies that may help the company increase its profitability and reduce operational costs. One of the possible solutions is to allocate more aeroplanes to charter flights. The thing is that in this case, the company would not have to worry about the number of passengers because they will receive the payment beforehand (Lubbe, 2005, p 10). On the whole, the great number of the so-called “empty” legs is one of the reasons why charter flights have become so popular among airlines. More importantly, charter flights will enable the company to cut the expenses on fuel and workforce.

Under circumstances, the key customers of Etihad Airlines will be travel agencies and holiday customers. The tickets will be sold to them, rather than to directly to passengers. Moreover, we should not forget about various governmental organizations such as the Ministry of Foreign Affairs, Abu Dhabi Heritage and Culture Authority, Central Bank and so forth. The representatives of these organizations frequently make international business trips and they may certainly use the services of Etihad Airlines.

The second strategy is to increase the cargo or freighter fleet. In the previous section of the report, we have already mentioned that freighter flights usually give a higher return on investment. This argument is particularly relevant if we refer to the inbound flights from North America, Europe and India. Overall, it is possible to say that domestic and foreign private companies can greatly increase the client base of the organization.

The key task of Etihad Airlines is to convince them the company provides the best price-quality ratio. However, at first, it is necessary to identify those regions from which the majority of exports come. Overall, these strategies will enable the company to achieve several objectives in 2011 and in the year to come. These objectives are as follows

1. to increase profitability of the enterprise and reduce the operational costs;
2. to establish long-term partnership with private institutions both in the UAE and abroad;
3. to decrease the company’s dependence on governmental support;
4. to insure oneself against vis major circumstances such as the eruption of volcano or epidemics of avian influenza;
5. to strengthen its competitive position abroad, and 6) to better adjust itself to the forces of globalized economy.

Conclusion

The challenges faced by Etihad Airlines are very much similar to those ones of European or American companies. One of them is the growing necessity to predict the demand for the services. The airlines have to estimate at least the average number of customers who will buy tickets, and sometimes it is rather difficult to do, because load factor greatly depends on political, economic, cultural, and even environmental forces. This is why the organization of charter flights seems to be the most viable option in this case.

Reference List

Etihad Airways. (2010) “Etihad Airways Factsheet”. Web.

Lubbe. B. (2005) Tourism management in Southern Africa. Pearson South Africa.

Wearden. G (2010) “Ash cloud costing airlines £130m a day”. Guardian. Web.