The rivalry between Etihad Airways and Emirates Airlines is the subject of many debates. This is because of the cutthroat competition between the two companies. This competition exists despite significant differences in the business strategies of the two companies. This project seeks to investigate the nature and impact of this rivalry. The research question guiding the project is, “What are the marketing strategies of Etihad Airways and Emirates Airlines and how do these strategies influence the rivalry between them?”
The major components of this question are the need to decipher the market entry models used by both airlines, an interrogation of the elements that define the rivalry between the two airlines, and a peek into the future of the two airlines based on their current marketing models. These issues define the broad objectives that underpin the research project. In particular, the objectives of this project as stated in the project proposal are as follows.
- To investigate the market entry models of Etihad Airways and the Emirates Airlines.
- To investigate the defining elements and the implications of the rivalry between the Etihad Airways and the Emirates Airlines
- To determine the long term prospects of the two airlines in relation to their existing marketing strategies in the context of their rivalry
Literature Review
A look into the definition of the term “marketing strategy” reveals several things. First, a marketing strategy is about marketing (Sahaf, 2008). A marketing strategy is specific to the marketing elements of a business concern. Secondly, a marketing strategy is about strategy (Sahaf, 2008). It is a long term and wholesome look at the way an organization organizes all the elements that constitute its marketing activities (Shaw, 2004).
Thirdly, marketing strategy is about the optimization of resources (Sahaf, 2008). Every business has several options relating to how it can deploy its resources. Each of these configurations seeks to optimize the returns that the business can attain from its marketing resources (Mongay, 2011). Fourth, marketing strategy is about profit (Sahaf, 2008). Every organization needs to generate surplus for it to remain competitive. Marketing is what assures the company of a sustainable revenue stream.
Porter (1980) developed a model that helps an organization to evaluate its competitive position. This model is useful for companies planning to enter a new market, or to expand its market share. The model is also valuable for companies whose market share is dwindling.
The five forces analysis looks at the threat posed by the arrival of new competitors, the threat posed by the arrival and availability of products that can substitute a company’s product, and the bargaining power of customers (Porter, 1980). The model also proposes that an ideal analysis of the competitive environment should consider the power of suppliers, and the pressure from rivals in the market (Porter, 1980).
Montgomery and Porter (1991) identified three forms of generic strategies that should guide the development of market strategies. First, a company can choose to pursue cost leadership as a marketing strategy (Montgomery & Porter, 1991).
Under this strategy, a company seeks to use economies of scale and efficiency to drive prices down to levels where its competitors cannot survive. Southwest Airlines made its mark on the American market as a low cost carrier by removing all frills from its services to focus on efficient operations (Hartley, 2007). It is a good example of the application of this principle in the airline industry.
Secondly a company can choose to pursue is a differentiation strategy (Montgomery & Porter, 1991). Under this strategy, a company must have a strong point that gives it an unassailable competitive advantage. This strength should provide customers with a unique value. A good example of this strategy is Google’s search engine. Google developed a search engine, which is now the leading provider of search services online (Byrne, 2011). Google differentiates itself as a provider of online software services.
The third strategy identified by Montgomery and Porter (1991) is niche strategy. This marketing strategy involves identifying a unique market segment and becoming the best-placed company to meet the needs of this niche. This strategy is risky if bigger competitors can meet the demands of the same niche at a lower cost. In reality, most companies pursue a mixture of strategies in order to maximize their returns (Sahaf, 2008).
While marketing strategies have a long-term perspective, they often change midstream to address strategic concerns such as the making of losses over a prolonged period. Market research is necessary before the development of a market strategy (Thomas, 2011). Failure to research the market can lead to huge losses caused by wrong marketing strategies.
Marketing strategy is also about the interaction of the four P’s of marketing. The four P’s represent Product, Price, Placement, and Promotion (Mongay, 2011). Product refers to the item or service that is available for sale. Price is the consideration expected from exchanging this item or service.
Costing strategies depend on whether the item is available in bulk, or in single units. Typically, the cost of an item needs to cover the cost of production, and the expected margin. Promotion refers to the efforts made to make consumers of the product aware of its presence.
At the same time, promotion aims at building demand for the product by highlighting the aspects of the product that can appeal to potential buyers. The fourth P is Placement. Placement refers to the availability of the product to the potential buyers. Elements of placement include the distribution plan, display at the point of sale, and the use of showrooms.
Methodology
This project utilized three main sources of data. The use of secondary data proved useful because of the international nature of the entities studied (Corson, Heath, & Bryant, 2000). The objectives of the research project required broad based information to cover the subject adequately. As such, there was a need to review literature from various sources to develop a comprehensive picture describing the rivalry between the two companies.
The reason for relying on secondary data came from the objectives of the project. It was not feasible to address the objectives of the project by collecting primary data. Analysis of secondary data required the use of careful scrutiny to find out credible and consistent information (Yu, 1998). In order to establish the validity and admissibility of the information collected, a literature review was necessary to find out the specifications of the information required (Corson, Heath, & Bryant, 2000).
Data from industry sources was the most valuable type of information for the project. Recorded interviews with the executives of the company and company reports also formed sources of credible information. Information from unnamed sources did not meet these standards. In addition, information from personal blogs, personal websites that had no peer review mechanisms did not meet the threshold (Johnson & Johnson, 2009).
The most important difficulty faced in the course of the project was finding the latest information relating to developments in the UAE airline industry. It was necessary to find the dates of the information provided to ensure the accuracy of the information collected. Online forums proved useful as passive sources of information on customer satisfaction.
Forums hosted by the two companies, and those dedicated to issues relating to the two companies proved useful in gauging the customer satisfaction levels of customers. They also illustrated the depth of the rivalry of the two companies.
The main sources of data used for the project were as follows. Published literature from trade magazines relating to the operations of the two companies, company reports and publications from the two airlines, and periodicals published by marketing analysts and aviation analysts.
The Market Entry Strategies of Etihad Airways and Emirates Airlines
In order to examine the market entry strategies of Etihad Airways and Emirates Airlines, it is important to define the use of the terms “market entry” in this section. The meaning of market entry used in this project is that of an ongoing process. When companies start, they need a market entry strategy. This need does not dissipate with growth. Rather, as the company expands its services and its customer base, market entry remains a fundamental function (Thomas, 2011).
Etihad Airways is much younger than Emirates Airlines. Etihad will celebrate its tenth birthday in 2013 (Cameron, 2012). Both airlines are pursuing very aggressive market entry strategies based on the prevailing economic outlook of the Gulf region. Some of the elements of the rivalry between the two airlines in relation to their market entry strategies include the acquisition of new aircraft, and the formation of partnerships with airlines in other regions of the world (Cameron, 2012).
Etihad Airways will start operations in Washington DC, Ho Chi Min City and to the City of Sao Paulo in South America within 2013 (IATA, 2012). In the same year, the company will receive 14 aircrafts to expand its fleet (IATA, 2012).
The company plans to expand its fleet by ninety new aircrafts. In addition to these efforts, Etihad Airways is pursuing relationships with Air Berlin in Germany and Virgin Australia to increase its profits (Cameron, 2012). Part of Etihad Airway’s attraction to Air Berlin came from the fact that the two companies have similar cabin design, which will enhance both brands.
Emirates Airlines on the other hand is pursuing similar expansion by forming alliances with other airlines. Currently there is a relationship between Emirates and Qantas from Australia (Cameron, 2012). Emirates Airlines, which vowed not to join any of the big three airline alliances, has pacts with airlines that are part of the alliances.
For instance, Etihad has a pact with Air France-KLM, which is part of the Sky Team alliance (IATA, 2012). The alliances are business relationships between several airlines, which work to coordinate their schedules in order to enjoy better customer loyalty. The airlines share frequent flier programs, and other incentives meant to keep customers within the alliance.
Based on Porter’s generic marketing strategies, the two airlines positioned themselves as niche players offering premium services. The target market for the airlines is the high-end segment. This strategy, combined with the strategic location of the two airlines in the fast growing region of the Middle East, is responsible for the growth that the two companies continue to experience despite their bitter rivalry. Emirates Airlines will become the largest Airline in the world by 2015 if it maintains its current growth momentum (Thomas, 2011).
Defining Elements and the Implications of the Rivalry
The scope of the rivalry between the two airlines comes from the similarity of their marketing strategies. Both airlines compete for the high-end market. Therefore, most of the marketing initiatives they employ tend to be similar.
For instance, both airlines landed in Japan for the first time on the same day (Wright & Underwood, 2010). This illustrates the intricate nature of their rivalry. In the last decade, many airlines in Europe became part of the three global airline alliances. The three alliances are Sky Team, Star, and One World (Cameron, 2012).
Both Etihad Airways and Emirates Airlines have not pursued membership in any of the three alliances. Rather, the two airlines are using different strategies to counter the impact of the alliances. Emirates Airlines is famous for its individualist attitude (Griffiths, O’Callaghan, & Roach, 2008).
It prefers organic growth and battling for market share, rather than forming alliances and partnerships with other airlines. As such, the recent alliance with Australian Qantas is an exception rather than the rule in the marketing strategy of the airline (Rivers, 2012). On the other hand, Etihad Airways bought equity in Virgin Australia and Air Berlin (Thomas, 2011). Etihad prefers to buy stake in established brands in markets that it does not want to commit operational resources.
This gives the company the advantage of local presence without brand building obligations. This is a faster way to penetrate a market and it offers the airline the opportunity to understand a market without the risks associated with fresh market entry. This fits with Etihad’s strategy of favoring growth over profitability in the short term.
The two airlines are scrambling for space in the international aviation markets. Both have set their eyes on the American, Australian, and Chinese markets. Etihad Airways is on track to launch flights to two cities in the Americas. The maiden landing of both airlines in Tokyo on the same day is symbolic of the market rivalry between the two players (Wright & Underwood, 2010). On the part of Australia, Etihad is part of Virgin Australia as a shareholder, while Emirates Airlines is working with Qantas to access the Australian Market.
Further East, the booming Chinese economy is leading to an increase in demand for international flights (Zhu, 2010). This demand comes from traders seeking markets for their products, and foreigners going to China to buy goods. In addition, a growing middle class in China needs flights to other countries where they can go to tour. All these factors serve to intensify the rivalry of the two carriers.
The acquisition of big planes, ostensibly to enhance the capacity for long range flights is also a common feature in the rivalry between the two airlines. Etihad has plans to buy up to ninety new planes from Boeing to increase its current fleet (Cameron, 2012). Fourteen of these will be ready within 2013. On the other hand, Emirates Airlines signed a deal with Airbus for the supply of 32 Airbus 380 Jumbo jets (Thomas, 2011). This focus shows a strong commitment to long-term growth in the wake of increasing demand for air transport.
The final element in the rivalry between Etihad Airways and Emirates Airlines is in the cargo business. There is increasing demand for cargo haulage across the world. This demand is strengthened by the increasing volume of cargo transiting via Dubai (Griffiths, O’Callaghan, & Roach, 2008).
The result is that the two airlines are responding to the growing demand by increasing their cargo fleet. Etihad Airways is increasing the cargo space in its new passenger aircrafts to enable it to take advantage of the cargo business that falls within its passenger routes. This is in addition to increasing its fleet of cargo jets.
Long Term Prospects of the Two Airlines
Despite the rivalry of the two airlines, both airlines have very good prospects. The two airlines are pursuing aggressive growth that will see Emirates become the largest airline in the next three years. The basic aspect of the rivalry between the two airlines is that they are not local carriers. They are international carriers. This gives both of them unique competitive advantages that rivalry alone cannot wipe off.
There is increasing demand for air transport across the world. This demand is strongest in Asia and the Australian region (Walker, Walker, & Schmitz, 2003). The demand for air transport in Africa is also growing. This means that the two companies are competing for new business, based on their unique competitive advantages.
The growth in demand for air transport comes from the increasing demand for goods and services from Asia. This demand is also growing because of an increasing number of tourists and traders from Asia and the Middle East, and increasing travel by students, researchers, and government officials to Asia and the Middle East (Walker, Walker, & Schmitz, 2003).
Secondly, the location of the UAE is strategic. The location of the UAE makes it an ideal hub for international travel. The fact that the leaders of the UAE used this location to position Dubai as a trading hub proves this point.
Dubai is an ideal replacement for European cities as a hub for international transport (Corson, Heath, & Bryant, 2000). This advantage, coupled with the fact that the UAE airlines have planes that can reach almost any point on earth, makes UAE’s geography and business positioning a strong competitive advantage. These advantages are available to both airlines.
The Emirates Airlines historically favored organic growth in its operations. The airline giant started operations with a single leased aircraft twenty-five years ago. The Emirates Airlines did not make any deals with other airlines to form partnerships and alliances.
The success of Emirates is proof that its business model is sustainable. This means that the airline is strong enough to go into the future. On the other hand, Etihad started with a larger fleet, and sought to gain market share rapidly. Etihad is more open to diversification. Its preferred model is buying a stake in local airlines to benefit from existing market conditions, without the additional burden of brand building.
This concept is similar to the one used by many international airlines that form part of the three global alliances. It is also a sustainable model on its own. Therefore, the fact that Etihad and Emirates are rivals at home does not mean that either of them is in any kind of disadvantage. In fact, their rivalry is causing them to pursue aggressive growth strategies, which is making then formidable airlines.
Finally, the two airlines enjoy strong government and private sector backing. The Emirates Airlines receives support from the Dubai government while Etihad receives support from several small backers in the Emirates (IATA, 2012). This support increases market confidence in the two airlines and makes them more secure at home.
These factors prove that the two airlines have a strong future ahead of them regardless of their rivalry. The question is not whether the two airlines can survive the rivalry. Rather, the question is which of the two airlines will emerge stronger.
Conclusions
The main difference between the two companies is in market fundamentals. Emirates Airlines has a history of profit making, because it grew organically by fulfilling market demand over the last twenty-five years. Etihad Airways on the other hand entered the market to take advantage of the lucrative market that came up in Abu Dhabi. The company is just about to start posting profits.
Several elements define the rivalry between the two airlines. The following five elements indicate the defining issues. First, the two are not keen on joining any of the three global alliances (Cameron, 2012).
Secondly, both airlines prefer to form partnerships with other airlines to increase their operations efficiency (IATA, 2012). Thirdly, the two airlines are showing strong interest in the Americas, Australia, and China (Wright & Underwood, 2010). Fourth, both airlines have very ambitious growth plans. Finally, both airlines are turning their attention to cargo business.
The fact that there are strong growth prospects comes from the increasing demand for air transport, and the strategic nature of the UAE as a transport hub. In addition, the two airlines have developed different but sustainable growth models and they both enjoy strong domestic support.
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