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Dynamic Aviation Environment

Choose one airline/airport affected by the crisis and provide a brief justification for your choice (5%)

  1. Based on the given data sets, determine the nature of current trends in the aviation sector (10%)
  2. Carry out a definitional analysis of the term ‘geopolitical’ using 3 appropriate sources (10%)
  3.   Carry out a media analysis of the organisation using a range of suitable sources to determine how it has been affected by the crisis (25%)
  4. Analyse the performance of the organisation chosen over the last 3 years using figures relating to passenger numbers, revenue, costs, profitability and customer satisfaction (30%)
  5. Determine the effectiveness of the organisation in response to the Qatar diplomatic crisis (20%)Introduction

    This case study is an analysis of the Emirates Airline as one of the organizations adversely affected by the Qatar Crisis. The paper presents an evaluation of the issue of intense competition and its possible effects on the performance of the company in the industry. This is followed by the evaluation of how the crisis affected the performance of the organization. The effectiveness of the approaches adopted by the organization in responding to the crisis is also presented

     

    Part 1: Case Study

    The Aviation Industry

    The aviation sector has grown significantly in the last two decades owing to the booming tourism sector and the push for greater connectivity amongst nations. The expansion of the middle-class in different economies has also fueled the growth following their affordability of the flights and desire to take holidays and business tours. The growth of the low-cost carrier segment of the airline industry has also contributed to its significant growth due to its reduction of flight fares and enhanced accessibility of the means of transport. The international air transport association estimates that a significant increase in the global commercial airline profitability will be reported in the future. The association forecasted that the profitability will increase from $ 34.5 to $ 38.4 billion in the year 2018. Greater demands for  flight services are likely to be observed in the future, thus an indication that more profits will be made by the players in the sector.

    As much as the industry has experienced massive growth and is likely to continue growing, significant challenges are likely to ensure. Intense competition is one of the challenges that are likely to be experience by the players in the industry. According to () the increasing demands presented has instigated many companies to venture in the sector with the hope of maximizing profits and overall performance. Most players come in as low –cost carriers posing significant challenges to existing players in the market. According to () since the year 2008, significant reduction in the flight fares have been observed, 0.9% reduction per year, due  to the emergence of low-cost carrier. The high cost of infrastructure needed in operating an airline does not go with the reduction in the fare prices. Also, the constant increase in oil prices presents a major challenge to players in the industry. Companies that focus on the provision of luxury flight services face serious competition from low-cost carriers. As much as there is potential for growth in the industry, an organization must be able to address the operations challenges brought in by the increasing oil prices and the competition instigated by the low-cost carriers to acquire a larger market share.

    Emirates Airline

    Emirates airline is one of the major airline players in the UAE. Since its inception in the year 1985, the company has expanded its operations to 96 destinations and about 56 countries across the world. The organization’s major operations are from Dubai International Airport; however, the company operates the longest flights in Texas, New York and Los angles.  Emirates Airline has reported significant growth since 1990. Better performance was also reported after the year 1994, when the company formed a partnership with American Airlines. Further agreements formed with various government including Sri Lankan Air Lines, Bangkok, Paris and Saudi Arabia amongst others have enhanced the accessibility of the markets to Emirates further improving its growth and performance in the sector. However, Emirates is still not the best player in the global sector based on its profitability and market share. This presents the need for the evaluation of the strategies employed by the company to enhance its performance in the international arena.

    Figure 1:

    Corporate Strategy                                          

    Emirates Airline has adopted a competitive business strategy to enhance its performance in the aviation sector. The company has adopted a strategic fuel partnership strategy to assist it deal with the fluctuations in oil prices. The company has been involved in various partnerships and deals with the oil producing firms to enjoy discounted oil prices, despite the fluctuations. Emirates airline has also invested in long haul flight services with the goal of meeting the presented demands and offering relatively lower prices to the target customers. However, the long haul service is still limited to few destinations, barring the company from fully reaching out to the customers in the middle and low classes of the society.

    Diversification is another strategy that has been employed by Emirates Airlines to enhance its competitiveness in the market. Besides the commercial airline services offered by the company, Emirates is currently offering cab services at various airports to ensure customers’ reach their destination safely. The company has also enhanced its airport surveillance and security to minimize cases of threats from terrorists’ and other criminal activities to create a positive image for the company.

    Despite adopting the above strategies to enhance its competitive advantage and overall performance, Emirates Airline still faces significant hurdles in the airline market. The entry of the new airlines in the sector that offers relatively cheap fare prices have not only intensified the completion in the aviation sector, but have also contributed to the low market share reported by the company. According to () emirates airline reported a significant decline in its market share following its inability to penetrate the new markets and develop the existing ones, due to the emergence of low-cost players in the sector. In Australia for instance, the company has reported a lower market share in comparison to other players such as Qantas airways, Jestar airways and Singapore Airlines. The International market share of Emirates is equally lower presenting the need for the company to device means of improving its competiveness to expand its market share.

    Competition in the Australian Aviation Industry

    Emirates airline has registered a relatively higher level of performance in its domestic market, the UAE. However, its performance and growth in the international market has been worrying. The company has constantly reported a decline in its market share over the years, with the company taking up a third position in terms of its market share in the previous financial year. The profitability of the company went down by 69% to $ 237 million in the year 2018, and its market share equally declined to 9.45% in the same year against Qantas’ market share of 16.6% in Australia.  The market share was even lower in other markets such as Saudi Arabia. Emirates is also yet to explore other international markets, that are dominated by other major players in the sector further contributing to its low market share in the international arena.

    As much as Emirates Airline has performed better in various destinations such as UAE, United Kingdom, India, and China, the company has performed poorly in Australia, and Saudi Arabia and other markets that are dominated by low cost carriers. The implications are significant reduction in the international market share of the company. As indicated below, the company has a low market share in relation to other major players in the Australian Aviation industry.

     

     

     

    Major Competitors in the Market

    British Airways

    British airways is a major airline in the international market. Apart from offering quality services to customers, the company focuses on the provision of highly differentiated services with the goal of availing the best inflight services to its customers. The company has an operating profit margin of 12-15% and a strong brand name that has contributed to its higher level of performance. Provision of high standard services, variety of choice and a focus on digitization and integration of information technology into various aspects of business operations and services provision are the major sources of competitive advantage for the company.

    Qantas Airways

    Qantas airways is the most popular and dominant airline in Australia. Since its inception in the year, 1920, the company has managed to maintain a large market share its international and domestic market. In Australia Qantas airways commands a larger market share since it owns about 26% of the market in the region. Together with its low-cost carrier, Jet Star, the company has managed to attract more passengers from different passenger classes contributing significantly to its enhanced market share.

    In reference to its financial performance, the company’s revenue is mostly acquired from passengers. As such, its corporate strategy is focused on offering quality experience to the customers. Qantas Airways main strategy is to offer safety to its customers to ensure they are satisfied with the services. Jet fuel contributes to 26% of the company’s expenditure; Qantas Airways has thus focused on the formation of partnership with suppliers to ensure the cost of the fuel is maintained at an affordable level. The highly satisfied passengers and the minimization of the cost of operations are the strategies employed by the company to enhance its competitiveness in the sector leading to its high market share.

    Singapore Airlines

    Singapore Airlines has also reported a higher level of profitability and performance in the aviation sector. The company focuses on the use of the most fuel-efficient fleet to minimize its costs of operations. The company also focuses on providing unique experience to all the customers in the different classes. The company offers suites, first class, business and economy classes to avail four different experiences to the customers. The results are low cost of production and enhanced customer satisfaction with the wide range of services offered.

    The Challenge

    As much as Emirates Airline commands a larger market share in UAE, the company’s international market share is lower than those of other players in the industry. This is more evident in the Australian market where the company has performed poorly and lost its market position to other smaller firms operating in the region. Much concern has been raised on how Emirates can improve its competitiveness and enhance its market share in the international market?

    Part 2:

    Analysis of the Competitive Landscape

    Porter’s five forces is used to analyze the competitiveness of Emirates Airline in the global market. Emirates Airline is a global company that operates in more than 80 countries across the world. The company has however reported a significant reduction in its international market share in the recent past.

    The threat of new entrants is one of the major factors that have contributed to the market share decline. As much as the airline industry has high entry barriers, low cost-carriers are considering venturing into the sector. The huge costs and infrastructure involved however lower the chances of starting a new airline in the business and the possibility of the new entrants to pose significant threats to the existing firms such as Emirates Airline.

    Buyers have a significant influence in the industry. The consumers have some influence on the flight price. Since the switching cost from one flight to the next is low, any airline must ensure that they meet the demands and needs of the customer. Quality, safety, and good experience are some of the service features that customer’ demands for. Emirates Airline emphasizes quality, but does not explicitly communicate on safety and unique experience, presenting the need for the same to ensure maximum customer satisfaction is achieved.

    The bargaining power of supplies is high since there are low limited number of airplane manufacturers, Airbua and Boeing. Most suppliers in the sector dictate the prices including the suppliers of jet fuel. Emirates survive the high supplier bargaining power by forming agreements with major supplies, collaborating with the manufacturers and forming partnerships to ensure the jet fuel prices are set at minimum value.

    The threat of substitute products is low, since consumers of flight services are likely not to replace the same with other means of transport. In fact, in international travels, air travel is the most preferred mode of transport for customers.

    There is intense competition in the international aviation sector; companies have to develop effective strategy to maintain financial supremacy and a larger market share. Improving the service quality, updating the aircrafts and focusing on efficient operation are approaches that can be adopted by the airlines to enhance their competitiveness. Emirates have focused on the provision of quality services; however, efficient operation is still a major challenge to the company. As a result, the company faces stiff competition from efficient operators in the global market such as Jet star Airlines. Other competitors such as British Airways, Qantas Airways, Singapore Airlines also performs better that Emirates, presenting the need for the company to improves its corporate strategy and enhance its competitiveness and growth in the sector.

    Market Growth and Development Strategies

    Market Penetration

     

     

     

    Product Development

     

     

    Market Development

     

    Diversification

    Different services – cab services

    Internet services

    Mobile usage on board

     

     

     

     

     

     

     

     

     

    Analysis of the Emirates Airline strategy shows that the company relies mostly on differentiation as its source of competitive advantage. The company ranks number one it terms of differentiation, Emirates was the first to offer additional services such as WIFI, usage of mobile phones on board and showering services. As much as the differentiation strategy has enabled the company to attract more customers, it is risky in nature since it calls for both product and market development. Emirates emphasized on product development and failed to focus on market development. As a result the company failed to offer the unique services into various market markets to increase its market share in the market. This explains the lower market share reported by the company in the global market.

    Market penetration strategy focuses on growing the market share of an organization using the existing products. The company may lower its prices to penetrate the

     

    References

    Center for Aviation , 2018, 2018 Aviation Outlook: 2017 was aviation’s sweetest spot ever. Oil prices could spoil the party, Retrieved from https://centreforaviation.com/analysis/airline-leader/2018-aviation-outlook-411152

    Routes Online, 2018, Analysis: Australia’s international market growth, Retrieved from https://www.routesonline.com/news/29/breaking-news/277448/analysis-australias-international-market-growth-/