Emirates Airlines: Macro-Environmental Analysis

EMIRATES AIRLINES
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Table of Contents
TOC \o "1-3" \h \z \u Introduction PAGEREF _Toc502671399 \h 4
1.Part I- External Analysis PAGEREF _Toc502671400 \h 4
1.1.Macro-Environmental Analysis (PESTEL Analysis) PAGEREF _Toc502671401 \h 4
1.1.1.Political Factors PAGEREF _Toc502671402 \h 4
1.1.2.Economic Factors PAGEREF _Toc502671403 \h 5
1.1.3.Social Factors PAGEREF _Toc502671404 \h 5
1.1.4.Technological Factors PAGEREF _Toc502671405 \h 5
1.1.5.Environmental Factors PAGEREF _Toc502671406 \h 6
1.1.6.Legal Factors PAGEREF _Toc502671407 \h 6
1.2.Industry Analysis (Porter’s Five Forces Model) PAGEREF _Toc502671408 \h 7
1.2.1.Threat of New Entrants PAGEREF _Toc502671409 \h 7
1.2.2.Rivalry among Existing Firms PAGEREF _Toc502671410 \h 7
1.2.3.Bargaining Power of Customers PAGEREF _Toc502671411 \h 8
1.2.4.Bargaining Power of Suppliers PAGEREF _Toc502671412 \h 8
1.2.5.Threat of Substitute Products/ Services PAGEREF _Toc502671413 \h 8
1.3.Opportunities and Threats (Partial SWOT Analysis) PAGEREF _Toc502671414 \h 9
1.3.1.Opportunities PAGEREF _Toc502671415 \h 9
1.3.2.Threats PAGEREF _Toc502671416 \h 9
2.Part II – Internal analysis PAGEREF _Toc502671417 \h 9
2.1.Analysis of Emirates’ Resources & Competencies PAGEREF _Toc502671418 \h 9
2.1.1.Identification of the Resources & Competencies PAGEREF _Toc502671419 \h 9
2.1.2.Distinction between Threshold and Distinctive Resources & Competencies PAGEREF _Toc502671420 \h 10
2.1.3.Appraisal of the Resources & Competencies PAGEREF _Toc502671421 \h 11
2.2.Strengths and Weaknesses PAGEREF _Toc502671422 \h 12
3.Part III - Description of Emirates current corporate and business strategy PAGEREF _Toc502671423 \h 13
3.1.Emirates’ Corporate Strategy PAGEREF _Toc502671424 \h 13
3.2.Emirates’ Generic Strategy (Porter’s Generic Strategies Model) PAGEREF _Toc502671425 \h 14
4.Part IV- Emirates Issues and Challenges PAGEREF _Toc502671426 \h 14
5.Part V – The Selection of Strategic Options PAGEREF _Toc502671427 \h 15
5.1.Generating Strategic options PAGEREF _Toc502671428 \h 15
5.2.Evaluating the Strategic Options PAGEREF _Toc502671429 \h 16
5.3.Implementation PAGEREF _Toc502671430 \h 16
Conclusions PAGEREF _Toc502671431 \h 17
Reference List PAGEREF _Toc502671432 \h 18
Appendices PAGEREF _Toc502671433 \h 20
Appendix 1 PAGEREF _Toc502671434 \h 20
Appendix 2 PAGEREF _Toc502671435 \h 21
Introduction
This report seeks to examine the strategic issues surrounding Emirates Airlines. The report begins by carrying out the external and internal analysis of the company to unearth the issues present in its business environment. This report also evaluates Emirates’ corporate and business strategy, issues and challenges, and strategic options. Emirates is a Dubai-based airline company that provides in-flight and flight entertainment systems that include business, economy, and first classes. It is one of the fastest growing firms in the world, and as noted in the case by Alcacer & Clayton (2014), it took the company just twenty-five years to grow and become the third-largest airline worldwide in terms of capacity. In addition, in regards to the number of international passengers, the company is the largest in the world. As pointed out by Alcacer & Clayton (2014), the geographical markets covered by Emirates are Europe, Africa, Asia, the Gulf and the Americas. The main stakeholders of Emirates are the government, customers, the management, and its employees. Differentiation is the generic strategy followed by the firm. Emirates achieves this through the provision of advanced services and experience for its passengers such as e-ticketing, wide seats, and technology. The main stakeholders of Emirates are the government, customers, the management, and its employees. Each of these main stakeholders has interests in Emirates’ operations.
1 Part I- External Analysis
1 Macro-Environmental Analysis (PESTEL Analysis)
1 Political Factors
Emirates airline works effectively by signing agreements with countries within the Asian Pacific region. Any political instability, war or terrorist activities in any of these countries largely affect the operations of the airline because they result in suspension of flights over routes through those affected countries. For example, the recent political friction between Asian Pacific countries due to a diplomatic rift has affected the airline, which has forced them to suspend their flights in and out of some countries (McMah, 2017).
2 Economic Factors
The airline industry is largely affected by fluctuations in fuel prices, and when the fuel prices change, the bottom line of the airline is affected too (Cento, 2008). The company suffered a decline in its profits early last year due to low oil prices experienced by Persian Gulf economies (Kamel, 2017). In addition, the level of investment in the country and in countries in which the airline routes pass through determines the number of tourists visiting the country. The more the investments, the more the number of tourists, resulting in an increase in profits generated by the airline.
3 Social Factors
The airline industry depends largely on the number of travelers. As the population of people globally increases, the number of travelers increases as well. This, in turn, promotes the growth and financial performance of the airline. In addition, a lot of people are lately traveling to Dubai and other countries in the UAE, which has resulted in an increase in profits reaped by the company. A decrease in population, on the other hand, affects the airline negatively. The airline also incorporates people from different background in their workforce (Alcacer & John, 2014). This has promoted social diversity among the employees.
4 Technological Factors
Technological factor also form part of the PESTEL Model (Hill & Gareth, 2009). Technology has affected the airline in various ways. For example, on one hand, it has facilitated reservations through the electronic booking system and online purchase of tickets. On the other hand, it has reduced the number of passengers since teleconferencing has enabled people in different places to communicate without traveling. The company was among the first airlines to adopt a technology that facilitates efficiency and cost-effectiveness of its fleet of planes (Parmar, 2013). Emirates airline needs to keep reviewing their technology to ensure that they are up to date with new innovations that will help them offer better customer services and improve their business processes.
5 Environmental Factors
The airline industry is largely affected by weather and climatic changes (Chapman, 2007). The airline industry is also affected by natural disasters such as earthquakes which interfere with the landing of planes and forces the airlines to reroute the planes to other airports for landing. The climate in Dubai, Emirates airline home country, is dry and the airline is therefore not affected by storms caused by heavy rains unless when flying over other regions that have different climatic conditions.
6 Legal Factors
The airline industry is governed by laws and regulations that are determined by legislators. These laws and regulations vary from one country to another, and it is important for Emirates airline to observe those laws. For example, the protectionist aviation policies enacted in Canada and other countries affected the airline, as indicated in the case study. When these laws and regulations are changed, the airline industry is usually affected, and it has to change some of their procedures and practices to ensure that they do not break the law. These changes at times are costly and may result in a decrease in profits generated by Emirates.
2 Industry Analysis (Porter’s Five Forces Model)
7 Threat of New Entrants
The threat of new companies entering the market is an issue that affects many firms (Orcullo, 2007). When new companies enter the airline industry, they pose a threat to the existing companies as they may offer better services to clients at lower costs than the existing ones. The existence of entry barriers can help existing airline companies avoid the threat of new entrants. With high entry barriers, it is difficult for other firms to enter the industry since they will be at a competitive disadvantage (Hitt et al., 2006). For example, one of the barriers faced by new entrants is the threat of a strong brand name such as Emirates Airline which gives existing companies a competitive advantage. Additionally, huge capital investment is required by any company willing to venture into this industry because purchasing of aircrafts is quite expensive. New entrants cannot be able to deal with Emirates airline investments in planes that have been modified to increase aircraft range, as indicated in the case study.
8 Rivalry among Existing Firms
There exists a certain level of rivalry between existing firms in any given industry, and the airline industry is no different. Intense competition among existing firms affects profit generation in any given firm, especially if it is based on prices (Porter, 2008). Being one of the largest airlines globally, Emirates airline has quite a high number of competitors who are all trying to increase their market shares by attracting and retaining their customers. As indicated in the case study, airline companies were competing for premium passengers, and the competition was intense as evidenced through the copying of Emirates airlines’ products which they had initially innovated. Emirates airlines will be required to constantly innovate products and improve their customer services to ensure that they have a sustainable competitive advantage that will ensure their survival in the airline industry.
9 Bargaining Power of Customers
Customers can decrease the market prices by using their bargaining power. Fewer customers possess a higher bargaining power. The switching cost for customers also affects the bargaining power of customers. Online booking of tickets has reduced the switching costs for customers from one airline to another, and this has affected Emirates airlines.
10 Bargaining Power of Suppliers
Suppliers in the airline industry have a high bargaining power (Chae & Heidhues., 2004). This is because they are few and can, therefore, be able to raise market prices high, lowering the market attractiveness of the industry. When Emirates was extending their aircraft range, Boeing modified an existing version of one of their line to meet Emirates airlines demand (Alcacer & John, 2014). This was however costly because the bargaining power of Boeing was high.
Threat of Substitute Products/ Services
The airline industry does not have many threats of substitute products, especially over the long distance since it offers efficiency and effectiveness in comparison to other carriers in the transport industry.
From the above analysis, it is evident that airline industry is profitable to Emirates airlines because the high capital requirements lock out new entrants in the industry. In addition, it enjoys a strong and well-recognized brand that gives them a sustainable competitive advantage. The industry is also profitable because of the low threat of substitute products.
3 Opportunities and Threats (Partial SWOT Analysis)
Opportunities
Emirates airline has an opportunity to innovate new products. They can also create new markets by introducing new routes to other countries, and this can be made possible by their government which assists them in signing new agreements and providing them with favorable policies. Emirates have an international presence and can, therefore, access new markets such as in Europe (Scott, 2015). In addition, the constant growth of population across the globe will give the airline a wider customer base to serve, which will, in turn, increase the profits generated.
Threats
Emirates airline face intense competition for premium passengers from other airlines. In addition, the airline realized that other airlines were copying its products (Alcacer & John, 2014). This indicates that their products are imitable and cannot give them a sustainable competitive advantage. The other threat is the fluctuating fuel prices which affect their profitability in the long run. Political instability and terrorism in the region is also a threat to the airline as it reduces the number of passengers traveling to or from the region. The high customer bargaining power is a threat that affects the industry’s attractiveness.
2 Part II – Internal analysis
4 Analysis of Emirates’ Resources & Competencies
Identification of the Resources & Competencies
The value chain framework is used in the analysis of a firm’s specific activities which can be used to achieve competitive advantage and create value. According to Sekhar (2009), the concern of the value chain is to focus resources and attention to the areas of the value chain where the majority of the value comes from and reduce on parts that contribute little value. In this case, therefore, the resources that make the operations of Emirates successful include its management team that is headed by Sheikh Ahmed bin Saeed al Maktoum. The team leads more than 55,000 employees that strive to make the operations of the company possible (Alcacer & Clayton, 2014). Other resources and competencies that are integral to its operations include technology development and procurement. Its investments in new aircraft in technology have contributed significantly to its growth. As shown in the case, it allowed the company to start non-stop service to cities such as Sydney and New York. Procurement of its airline fleet through leading airline manufacturers, that is, Boeing and Airbus is also a major competency for the firm.
Distinction between Threshold and Distinctive Resources & Competencies
The threshold resources for the company include office equipment, its headquarters’ location, flights, employees, a...