SMM219 THE ORGANISATION IN ITS ENVIRONMENT

SMM219THE ORGANISATION IN ITS ENVIRONMENT

Emirates Airline

Student ID: 0951824MBA Director: Dr. Adrian HaberbergTABLE OF CONTENT

Executive Summary3

Introduction.3

Macro-Environment......................................................................................... 3

Competitive Environment...................................................4

Strategic Fit of Emirates..........................................7

References.............................................................................................. 10

Executive SummaryEmirates is the most successful and innovative airline in the Middle Eastern region. Their operations seem traditional and conservative at times. This is not conducive to the airline industry which is growing and highly competitive and is shifting slowly towards low cost and economy passenger segment. Emirates fortunes are directly connected to the Dubai economy and their success as an airline can be attributed on a major part to the cheap and large availability of fuel.IntroductionUntil 2009 Dubai was the largest and most prosperous emirate under the UAE. However the financial crunch that led to Dubais bankruptcy and heavy debt has affected all nationally owned companies. The Emirates airline is no exception. It has been affected nominally and a lot of extra strategic implications were called for and like rest of Dubai, Emirates is riding this crunch. Emirates is still one of the most popular airlines in the world and it has bounced back strongly displaying strong profits recently. This report will attempt to look at the competitive environment of Emirates and the macro-environmental factors affecting the airline industry.

Macro-EnvironmentThere are several kinds of factors affecting the airline industry: both external and internal[footnoteRef:1]. Some of these factors are listed below but they are inclusive of others and not exhaustive. [1: Haberberg,A and Rieple.A. (2008) Strategic Management: Theory and Application; New York; Oxford University Press.]

[footnoteRef:2] [2: Organisational Strategy-Emirates Airline [Online]. (2010) [Accessed 25 February 2010]. Available from: < http://www.articlesbase.com/flights-articles/organisational-strategy-emirates-airline-1908526.html>. Organisational Strategy-Emirates Airline [online]. (2010) [Accessed 25 February 2010]. Available from: Organisational Strategy-Emirates Airline [online]. (2010) [Accessed 25 February 2010]. Organisational Strategy-Emirates Airline [online]. (2010) [Accessed 25 February 2010]. Organisational Strategy-Emirates Airline [online]. (2010) [Accessed 25 February 2010].]

Competitive environment:The airline industry as such has an interesting environment which shall now be assessed using a Five forces framework[footnoteRef:3][footnoteRef:4]. [3: Haberberg,A and Rieple.A. (2008) Strategic Management: Theory and Application; New York; Oxford University Press] [4: Porter, M.E (2008) The Five Competitive Forces that Shape Strategy, Harvard Business Review, Jan 2008.]

1. The power of suppliers to the airline industry can be theoretically high because the two main suppliers are fuel suppliers and aircraft manufacturers- Airbus and Boeing. The vulnerability of oil market and hypercompetitive atmosphere in aircraft sales leads to extreme positions in airline industry. Most airlines are making losses while few airlines like Emirates have managed to make profits consistently except during few occasions. This could be attributed to the fact that Emirates airlines gets major concessions from the Dubai/UAE government that provides jet fuel cheaply. Other suppliers include institutes that train and supply cabin crew who are crucial to the service. But these are too numerous to exert any influence individually.2. Individual buyers are not powerful. They may have high switching costs if the destination is remote with less traffic. Otherwise switching costs are low but due to very little price differentiation amongst major airlines, quality of service also seems similar, hence the apparent choice available to consumers does not translate to great power for buyers. However if the individual consumer can generate widespread media coverage to voice his displeasure, this could potentially damage the brand image of the airline.3. Substitution for the airline service can be rail, sea and road services which are not as attractive because of the huge time factor and for long international travel it is practically unsubstitutable. However substitutes for purchasing power can be any luxury item purchased for different consumer intentions. But travel is almost a necessity for which airlines have no substitutes and hence this threat is very low.4. Threat of new entrants in the airline industry depends on its barriers to entry and is indirectly proportional to it. Due to the deregulation and easier finance options(prior to the credit crunch), several new entrants managed to enter the airline market. However while this definitely increased competition, many entrants have eventually shut down and gone bust. Theoretically, barriers to entry are low making threat of new entrants high but it is not often a heavy threat. Successfully managed airlines can strategically outmaneouver such threats.5. Firms rivalry within the industry is highly competitive and has resulted in some competitive tactics like price wars, undercutting etc which has sometimes led to shabby service and the rise of low cost airlines which are a definite trend for the future of this industry.Depending on these factors, the airline industry can be called growing, highly competitive, difficult to succeed, etc and one can define some key survival and success factors for the industry.

[footnoteRef:5] [5: Haberberg,A and Rieple.A. (2008) Strategic Management: Theory and Application; New York; Oxford University Press.]

Strategic fit of Emirates:Any strategy is analysed on the basis of three parameters1. Fit2. Distinctiveness3. Sustainability[footnoteRef:6] [6: Haberberg,A and Rieple.A. (2008) Strategic Management: Theory and Application; New York; Oxford University Press.]

Emirates is definitely not a low cost airline. During its initial growth phase, during the mid to late 1990s, Emirates managed to procure a service differentiation that was highly popular and is now an industry standard. It was Emirates that started the use of an individual TV set fit behind the seat. This was so popular that it boosted their sales tremendously and even provided them with a strong brand image of being people friendly. Thus their strategy during that phase was to be consumer-friendly and to generate a good brand image.As Emirates grew, once their brand image was established and there was a strong Emirates presence in the market, the focus of the strategy was to obtain market share at the expense of competitors. This was to be accomplished with maximum scaling possible. This strategy was in fit with the requirements of the industry as stated above in the report.With the decline in the premium passengers segment and the continuing decline in the air cargo sector in the current fiscal year, Emirates is now beginning to focus on the economy class passengers. This strategic shift is positive and is in line with the current success factors in the industry. A quick look at the traffic volume of airlines is warranted.

[footnoteRef:7] [7: Organisational Strategy-Emirates Airline [Online]. (2010) [Accessed 25 February 2010]. Available from: < http://www.articlesbase.com/flights-articles/organisational-strategy-emirates-airline-1908526.html>.]

[footnoteRef:8] [8: Organisational Strategy-Emirates Airline [Online]. (2010) [Accessed 25 February 2010]. Available from: < http://www.articlesbase.com/flights-articles/organisational-strategy-emirates-airline-1908526.html>.]

As it can be inferred from the figures above, which are of 2009 travel statistics, low cost airlines like Ryan Air and EasyJet have managed to take a great chunk of passenger volume. Emirates is good compared to carriers in the Asia-Pacific and Middle Eastern region but its volume is still less than some of the Anglo-European carriers. However Emirates has a greater chance of superceding many of the carriers in that list. British Airways and American Airlines are running under tremendous losses. Their days at the top are numbered. Virgin Airlines is another upcoming airline which could provide tough competition to Emirates. However Virgin Airlines seems to still cater to premium passengers and their ticket prices are too high. With the industrial focus shifting towards emerging markets like India, China and Brazil, Emirates would do good by focusing on achieving a balance of low cost and premium passenger airlines.They tend to be flexible as an organisation. They are about to buy the A380 which is the largest commercial plane in the world. This is not the wisest of choices. Emirates should attempt to include smaller aircraft in its fold to cater to low-cost economy passenger segment. When Ryan Air ferries more than twice as many passengers as Emirates does, it clearly shows opportunities are there for Emirates to expand.Another strategic success of Emirates is that like most successful airlines, Emirates has stayed away from mergers and acquisitions which in this industry seem always doomed to fail. Because the dubai government holds controlling stake of Emirates, the airlines fortunes are forever intertwined with that of the Dubai economy. This can be a blessing as well as a curse. Sustainability of Emirates will lie in their managing to ride the Dubai credit crunch of 2009-10. They seem to have done this successfully. The main target of Emirates should be to diversify its operations.

Organisational Strategy-Emirates Airline [online]. (2010) [Accessed 25 February 2010].1