Emirates Airlines Macro Environmental Analysis: PESTEL

EMIRATES AIRLINES
Student Name:
Professor:
Course Title:
Date:
Emirates Airline
Emirates Airline, which operates in the airline industry, was established in the mid 1980s by the leaders of the Emirate of Dubai. It operates in 7 geographical markets including Europe, South-Asia, Africa, Middle East/Gulf region, Latin America, Asia-Pacific, and North America. It flies to over 133 destinations in 70 nations in these geographic markets. At the moment, the airline possesses a fleet of over 169 airplanes, and has another about 220 airplanes on order worth over $83 billion (Campbell & Kamel 2017, p. 34). The products/services offered by the airline are first class flights, business class flights, economy class flights, and sky cargo which is the company’s cargo/freight division (Squalli 2014, p. 139). The firm also offers airport services, self-service kiosks, and the recently introduced service called Emirates Holiday, which is essentially a new way of inspiring holiday. The market segments for Emirates Airlines include the premium passenger segment. The mission of a firm is to become among the leading lifestyle brands globally. According to its vision statement, Emirates Airlines seeks to make civil aviation, sustainable, leading and safe. Its value or goal is to reach the top by shining and standing out in what it does. The airline company effectively follows the differentiation strategy as it strives to innovate and remain ahead of its competitors. Emirates Airline is one-hundred percent owned by the Dubai government and therefore this government is the main stakeholder (Melly 2013, p. 18). Even so, other stakeholders include customers, suppliers, top management/senior executives, and employees. This paper provides a full strategic appraisal of Emirates Airlines. The appraisal covers an external and internal analysis, description of the current business and corporate strategy of the firm, the challenges and issues it faces, as well as the selection of strategic options.
Part I: External Analysis
Macro-Environmental Analysis: PESTEL
Political Factors
One tool commonly used for carrying out analysis of a company’s external environment is the PESTEL analysis, in which the legal, environmental, technological, social, economic, and political factors are examined (Dockalikova & Klozikova 2014, p. 418). Regarding political factors, the United Arab Emirates has signed agreements with various nations, including those in the Asia Pacific region, North America, and Europe. These agreements strengthen the trade exchange and political association between nations, including the improvement of the aviation sector. It is of note that these agreements have allowed the firm to broaden its network. Additionally, the company is fully supported by the Dubai Government by offering infrastructure developments aimed at increasing the growth of the city and the airline company itself (Sanati 2013, p. 3). In Dubai International Airport, the company has exclusive Terminal Three. It also pays low charges and fees at this airport. Other political factors that affect the operations of Emirates Airlines include the easy to issue work permits and visit visas for foreign employees to fulfil the labor requirements of the Government of Dubai; the no taxation policy; as well as same opportunities provided by the Open Skies policy to all airline companies (O’Connell 2014, p. 338). Nonetheless, the political instability within the Middle East region currently may decrease the company’s growth. Equally important, the airline company has to follow all the regulations and rules of the Government of Dubai and of the countries in which it operates.

Economic Factors
Emirates Airline is a major aviation firm and this allows it to maintain growth and stability every year. The Dirham UAE currency is pegged to the United States dollar and thus there are no significant currency fluctuations. However, the economic conditions in different parts of the globe, particularly in the nations in which Emirates Airline flies, could affect this firm (Maier 2014, p. 99). The potential investments in Dubai of the business world and of the tourism industry would encourage more people to visit the city. In addition, fluctuations in the prices of fuel are creating obstacles for this airline firm to make more profits. In excess of 40% of all of the airline’s expenditures are related to jet fuel (Monteiro & Sull 2012, p. 60). Given that the Government of Dubai holds a controlling stake of the company, its fortunes would always be entwined with that of the economy of Dubai, which could actually be a curse and a blessing.
Social Factors
The world population and the middle class are growing quite fast and this increases the number of tourists, business people, and other travellers who are travelling by air. Emirates Airlines maintains its cultural and social diversity by offering services and products to people from various traditions, religions, societies and cultures who are all interacting at one place (Clayton & Alcacer 2014, p. 5). At the moment, 80 percent of the population of the UAE is expat, which make it sensitive to various social and cultural characteristics (Flottau 2013, p. 47). Also, the company’s staff members always try to adapt themselves in accordance with the cultural/social environment they operate in.
Technological Factors
In the aviation sector, technology is of great importance given that it is critical to the success of any airline in the competitive market. It helps in decreasing the sound of the engine, decreasing the consumption of fuel, and providing higher quality services/products at lower costs (Walker 2017, p. 15). Furthermore, the electronic ticketing system reduces the customer services expenses and time. Emirates Airline has been able to develop the online ticket purchase system that made it more convenient for customers to buy tickets. Also, technological advancements have brought in-flight entertainment services to a higher level and have also facilitated in-flight communication services (Maier 2014, p. 102).
Environmental Factors
Most airlines are shifting toward eco-friendly operations and aircraft. Emirates Airline seeks to be environment-friendly and sustainable in all of its business operations. The objective is to decrease its carbon footprint as stated in the Emirates Group’s Environmental Policy (Anderson 2014, p. 169). The firm mostly uses Airbus and Boeing airplanes, which are environment-friendly. The Airbus 380, for example, consumes less amount of fuel and produces low emissions of greenhouse gases.
Legal Factors
The regulations and rules stipulated by the government, both within the United Arab Emirates and around the world, allow companies in the airline industry to be more careful in their business operations and activities (O'Reilly 2012, p. 12). In order to prevent difficulties with its practices, Emirates Airline makes sure that all of its operations are lawful and follow the best practices (Flottau 2013, p. 48). The Dubai government treats Emirates Airline as a completely autonomous company and attributes this to the success of the firm (Appendix A).
Industry Analysis
Porter’s Five Forces Competition
Intensity of Competitive Rivalry – High
There are many competitors, including regional flyers such as Qatar Airways and Gulf Air, local flyers such as Etihad Airways, and international flyers such as Air France-KLM, British Airways, Lufthansa, Turkish, Delta, and American Airlines among others. In essence, there are numerous airline companies that fly to and from Dubai. Competitors are constantly offering promotions to lure customers (Campbell & Kamel 2017, p. 31).
Threat of Substitutes – Moderate
Airline passengers are generally very sensitive to price. There are a lot of substitutes to air travel, for instance, people can use buses, trains, in addition to their personal cars. They can use these alternatives, mainly when travelling within the same region or nation. Cruise ships also offer a notable substitute. However, for quick long distance travels, especially between countries or between continents, there is no alternative to air travel (Sanati 2013, p. 4).
Threat of New Entrants – Low
There are significant challenges that hinder new companies from entering the airline industry, including complex regulatory procedures and high capital costs to acquire new airplanes and skilled personnel (Dron & Moores 2017, p. 54). Also, Emirates Airline is Dubai’s sole carrier and this hinders the entry of other airline companies in the city of Dubai. Established airline brands enjoy customer loyalty which new entrants may not have.
Bargaining Power of Suppliers – High
Suppliers generally have a high bargaining power. This is primarily because there are limited suppliers in the airline industry. The main suppliers are Europe’s Airbus and America’s Boeing.
Bargaining Power of Buyers – Moderate
The new electronic ticketing and electronic booking technology provides airline passengers with the flexibility and opportunity of searching for airline companies that offer cheaper costs and/or better services. It is of note that the customers of Emirates Airlines are not highly sensitive to price. However, it is relatively easier for customers to switch between airline companies (Appendix B)
Opportunities and Threats
Opportunities
There is the opportunity is to tap the market of budget travelers. The Emirates Airline is part of the Emirates Group and thus the parent company could establish a low cost airline aimed at attracting travelers who are not able to afford expensive tickets on Emirates Airlines. Secondly, the company can leverage its infrastructure business to get first choice (Garner 2017, p. 56). Thirdly, there is the opportunity to expand into markets that have strong growth forecasts such as the trans-Pacific routes between the Americas and Australasia. It can also fully tap the lucrative trans-Atlantic market by replicating the success of its Dubai-Milan-New York flight in other major markets in Europe, rather than just relying on the mega-hub model. As such, it should rethink its mega-hub model.
Threats
One notable threat is intense competition from both regional and international airline companies. Fluctuations in exchange rates and high prices of oil also affect the company’s cost of operations. Whilst Emirates Airline welcomes competition on quality products and on routes, the company’s innovations like in-flight bars are being copied by the competitors. This threatens the ability of the airline to differentiate itself (Sanati 2013, p. 4). Political instability in the region, especially in Syria, Yemen, and Libya could affect flight routes as well as passengers to such destinations and to neighboring countries. Acute illnesses such as deadly flu, and natural disasters such as floods and earthquakes generally affect travelling and tourism. Variations in demand as well as failure to forecast demand also pose a threat given that fluctuations in customer demand serve to disturb the capacity to accurately predict demand (Maier 2014, p. 103). Another threat pertains to security. Terrorist actions like hijacking of airplanes could cause a reduction in the number of passengers and increase the company’s cost of operations. The other threat is anti-competitive claims from various countries and airline companies that Emirates Airline’s sole ownership structure gives it unfair advantages, including preferential government treatment and implicit government underwriting. Some nations use such claims in restricting the access of Emirates Airline into their airports.
Part II: Internal Analysis
2.1 Analysis of Emirates Airlines’ Resources and Competencies
2.1.1 Identification of the Resources and Competencies
Porter’s Value Chain is made up of primary activities and support activities. The Value Chain model for Emirates Airline is illustrated in Appendix C.
2.1.2 Distinction between Threshold and Distinctive Resources and Competencies
Competency framework
The following competency framework shows threshold resources, threshold competencies, distinctive resources, and distinctive competencies for Emirates Airlines. Threshold resources and threshold competencies are those that are required to satisfy the minimum requirements of the clients. On the other hand, distinctive resources and distinctive competencies are those that are not easy for rivals to obtain or imitate, and they strengthen competitive advantage (Mooney 2014, p. 111).
Figure 1: Competency Framework



2.1.3 Appraisal of the Resources and Competencies
Table 1: VRIO framework
Resource / CapabilityValuable?Rare?Imitable?
Difficult to imitateExploitable by the organization?Competitive implicationsAdvanced technology usedYes. The airline has the most sophisticated technology for entertainment, aircraft, and in airportsYes. No competitor has the same level of technologyMaybe, but many other companies in the industry have not yet adopted such advanced technologyYesTemporary competitive advantageOutstanding customer service levelYes. The firm implements this in attracting lots of passengers and filling many airline routesYes. Allows the firm to be exceptional Occasionally, but Emirates could sustain it through offering newer innovative service techniques YesTemporary competitive advantage Large and innovative fleetYes. Emirates Airlines has the largest and most advanced fleet in the industryYes.Yes. The associated operational expenditures are hugeYesSustained competitive advantageHighly trained and very diverse staffYes. Trained personnel from over 90 different countries who offer high quality servicesYes. Has the largest number of in-flight personnelYes, especially for smaller airline companies such as Air ArabiaYesSustained competitive advantageAdvanced infrastructure Yes. Very sophisticated infrastructure in Dubai city and Dubai International AirportYes, as a very few airlines like Etihad can have such infrastructureYesYes, it is not easy for other countries to have similar infrastructureS...