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Etihad Airways Company Managerial Economics Essay


Etihad Airways is one of the leading airlines in the Middle East. The airline is the flag carrier of the UAE and operates from Abu Dhabi. The establishment and success of the Etihad Airways is a good case study in managerial economics. While Etihad started its operations as a government project, the airline is currently one of the fastest growing airlines in the world. This paper examines various aspects of the operations of the Etihad Airways.

Ownership and Management of Etihad Airways

The Government of Abu Dhabi established the Etihad Airlines via a royal decree. The ruler of Abu Dhabi issued a decree that brought the Etihad Airways into existence in 2003 (IATA, 2012). The current owner of Etihad Airways is the government of Abu Dhabi.

This position gives the airline perceived preferential treatment and access to government financing for expansion projects because the government is its main shareholder. The Government of Abu Dhabi appoints the managers of the airline using processes similar to those used to appoint the heads of the business units owned by the government. The ruler of Abu Dhabi appoints the chief executive of the airline who in turn runs the affairs of the airline.

Competitive Advantages of Etihad Airways

Etihad Airways has several competitive advantages that make it one of the most influential airlines in the Middle East. These competitive advantages are as follows. First, the airline has access to government funding that can aid it in its expansion projects. The government of Abu Dhabi wholly owns the Etihad airways. This makes it relatively easy for the company to implement financial projects such as the acquisition of new aircraft, improvements in service delivery and implementation of quality initiatives. Access to financing makes it relatively easy for the airline to expand its business as well as to undertake commercial projects.

The second competitive advantage of Etihad Airways is the preferential treatment the airline receives from the government of the UAE. The airline is the flag carrier of the UAE. As such, the airline enjoys preferential treatment in the country. This treatment does not directly result in a commercial competitive advantage. The airline still has very good performance by itself and is not overly reliant on the government for success. In any case, the local advantages it enjoys do not exist in markets outside the UAE.

Etihad Airways is not part of the three major airline alliances. These three largest alliances are Star Alliance, SkyTeam, and OneWorld. Instead, Etihad has a large number of code share agreements with specific airlines in all the three alliances(Cameron, 2012). The result is that the company has arrangements that meet its direct needs.

One of the disadvantages of becoming a member of an airline alliance is that the alliance precludes the market options available to individual airlines. On the other hand, it reduces the effort needed to negotiate code share agreements(Shaw, 2004). In this case, Etihad’s ability to negotiate and maintain numerous code share agreements with various airlines is a unique strength the also gives it unique a competitive advantage.

The fourth competitive advantage of Etihad Airways is its equity investment in partner airlines. The airline decided against expanding its brand to some markets because the markets already had dominant players. Competition in these markets was not financially justifiable because of the market entry costs. The airline therefore decided to buy equity stakes in such airlines as a way of accessing these markets. The equity stakes, coupled with the Etihad’s extensive code share agreements account for a significant competitive advantage.

The fourth source of competitive advantage for Etihad Airways is its commitment to quality. Etihad Airways packages itself as a quality player in the airline industry. Customers associate its brand with quality. The company brands itself a luxury travel provider. The company regularly receives accolades for its first class services in the airline industry. Its reputation for high quality services gives it the luxury to charge a premium for its services.

Competitors of Etihad Airways

Etihad Airways has several competitors owing to its large footprint in the global airline industry. It is possible to classify these competitors into three main groups. First, the airline deals with local competitors who operate flights within the UAE and the Gulf. Regional players present strong competition for Etihad because they handle a specialist market. They can respond better to market changes.

The second category of competitors includes international players who have a direct interest in the same markets that Etihad serves. Etihad Airways operates flights on more than 88 routes throughout the world. This puts it in direct competition with other major airlines. The most visible competitors the company deals with include Emirates airlines, Gulf Air, and Qatar Airways.

The third category of competitors includes companies that fight for market share with the airlines that Etihad owns equity stake. For instance, Etihad owns equity stake in Virgin Australia. Therefore, any company that competes with Virgin Australia is also in competition with Etihad Airways. The specific list of competitors fighting for market share against Etihad Airways is large considering that the airline has operations in all parts of the world. The company operates flights to many major cities in Europe, North America, Australia, Africa, Asia, and the Middle East.

Financial Performance

The performance data of Etihad Airways show a marked improvement in profitability in the last two financial years. The airline first turned a net profit in 2012, and increased this profit fourfold in 2013. The airline has revenue from its partnership agreements with other airlines in other regions. These profits grew by 30% from 2012 to 2013.

In addition, the cargo revenue of the airline also grew by 30% in the same period. Many airlines do not turn a profit within ten years because of the heavy capital outlay needed to set up an airline. The total revenue of the company in 2013 was $6.1 billion, which was as increase from the total revenue in 2012 of $4.8 billion.

2013 AND 2012 Comparison
Key Indicator 2013 2012 Variance
Total Revenue 6,100,000,000 4,800,000,000 27%
Net Profit 62,000,000 42,000,000 48%
Passengers (M) 11.500,000 10.300,000 12%
Seat Factor 78% 78% 0%
Cargo Revenue 928,000,000 716,000,000 30%
Partnership Revenue 820,000,000 629,000,000 30%
All figures in million dollars

Table 1: Etihad’s Financial Performance in 2012-2013 Financial Years

Conclusion

In the final analysis, it is clear that Etihad Airways is on a high growth trajectory. The company’s performance has already shown great growth and its marketing strategies have given it a strong place in the market. Etihad will keep on playing a key role in the airline industry in the coming years. Its business strategy is likely to inspire other airlines to adapt their business models to grow market share.

References

Cameron, D. (2012). Airlines Shuffle Marketing Alliances. The Wall Street Journal, 1-4.

IATA. (2012). CEO Interview: Etihad – Staying Focused. Retrieved from Airlines International: .

Shaw, S. (2004). Airline Marketing and Management (5 ed.). Hampshire: Ashgate Publishing.

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IvyPanda. (2020, May 1). Etihad Airways Company Managerial Economics. Retrieved from https://ivypanda.com/essays/etihad-airways-company-managerial-economics/

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1. IvyPanda. "Etihad Airways Company Managerial Economics." May 1, 2020. https://ivypanda.com/essays/etihad-airways-company-managerial-economics/.


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IvyPanda. "Etihad Airways Company Managerial Economics." May 1, 2020. https://ivypanda.com/essays/etihad-airways-company-managerial-economics/.

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IvyPanda. 2020. "Etihad Airways Company Managerial Economics." May 1, 2020. https://ivypanda.com/essays/etihad-airways-company-managerial-economics/.

References

IvyPanda. (2020) 'Etihad Airways Company Managerial Economics'. 1 May.

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