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Is this
precede five or six years of improved per-
formance. But profitability in the good
booming, globetrotting years is generally low, in the range of 2-
3% (net profit). In times of profit, airlines
the Right
lease new generations of airplanes and
is no longer a perk in the upgrade services in response to higher
demand. Consolidation is a trend, though
variable in shape. Airline groupings may
corporate world. With
Strategy?
consist of limited bilateral partnerships,
long-term, multi-faceted alliances between
carriers, equity arrangements, mergers,
the advent of internet or takeovers.
Since governments often restrict owner-
ship and mergers between companies in
and rapid innovations in different countries, consolidation is
restricted within the country. The Middle
East is a textbook example of such weak-
the field of communica- nesses. Events such as September 11,
the Iraq conflict, the conflict in Lebanon
and Palestine, constitute to the socio-polit-
tions and travel, the ical imbalance in the region. These factors
invariably affect the economy of the
region. Directly or indirectly.
world has truly shrunk in Emirates Airlines was conceived within
this turbulent environment and has demon-
strated an unfailing ability to grow in these
size. Plastic money is unstable conditions. Moreover, it has been
able to develop a global strategy that has
taken it beyond the limits of the regional
passé. Time is the new market. (New Nation Online, 20 May,
2006).
The following case study explores
global currency. Emirates Airline’s rise to success and
questions present day strategies of the
airline and their sustainability in the long
run.
(
tinations carrying 14.5 million passengers
Emirates Airline's comes to major cost items such as taxa-
tion, security, insurance and fuel. A major and one million tonnes of freight. By 2010
revenues totalled competitor in the Gulf area is Gulf Air, a we will have 156 aircraft serving 101 des-
AED 22.7 ($6.3 partly government owned airline (govern- tinations, carrying an estimated 26 million
billion) for the year ment of Abu Dhabi) with strong support passengers per year. Such is the project-
2006 or 27% above and wide network. Gulf Air posed a seri- ed growth of Emirates”. (Emirates Annual
ous threat to Emirates thanks to the so Report 2005-2006)
2005 level. Passenger called open skies policy, a policy that Emirates continues to shine in its share of
seat factor also allows free access to Dubai airport and glitter. It was awarded prestigious airline
reached 75.9%, 1.3% minimal entry restrictions. Yet profitability of the year award for the first time in 2001
above 2005 level too. histories of both airlines diverge strongly. and repeated the feat in 2002 to become
At a time when Gulf Air is facing negative a two-time award winner of the airline of
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Business Strategy
kind of environment, runs parallel to Figure: Emirates Strategic Behaviour explains that there is a succession plan in travel in stark contrast with Emirates. In total operating costs, up from 21.4% the
Ansoff’s product market strategies Matrix. place. The carrier has a programme to contrast to the low-cost airlines, Etihad is previous year. Like other airlines, Emirates
Actually the parallel is so close that one Today’s product Tomorrow’s product bring along UAE nationals, and eventually focusing on offering a product that was forced to increase the fuel surcharge
doubts whether the top management or a local will run the show. But there are no appeals to travellers who want a premium component of the fare, which only cov-
those responsible for the strategy formu- targets or timescales. .. Flanagan himself service, at a competitive international ered 41% of incremental costs (New
lation function within the corporation have shows no sign of slowing down, nor is price. Key to the Etihad’s promise is a Nation, 20 May, 2006). This could lead to
been working with this model in the back there any dimming in his enthusiasm for move away from the traditional classes, the question of how far a cost cutting
of their minds. Emirates’ strategies Today’s Product the carrier …”(Airline Business Nov 16, as it becomes the first regional airline to strategy can go given the very lean staff
Penetration
include penetration strategies, product market Development 2006) take the concept of premium economy and the sharp eye that the airline holds on
development strategies, market develop- Key vice presidents of the airline are all and reworks it for the regional market- other cost items.
ment strategies and even a recent ele- expatriate executives too. Those include place. • Why buy, why not integrate backwards?
ment of diversification. Let us examine the President of Emirates Airlines, the Etihad refers to passengers as guests and Emirates have been embarking upon a
these: President of the Group Support Services has guest zones rather than fare classes. massive buying swing that will inflate the
• Market penetration. The Middle East Tomorrow’s Market and the President of DNATA and associat- The three zones - Diamond, Pearl, and size of fleet and expand capacity. The vol-
Diversification
is Emirates’ prime market segment and market Development ed companies. Coral - do not correspond directly to first, ume of investment is sizable and the
the segment that justified the creation of Whose strategies are those followed by business, and economy classes. Those strategic implications are far reaching.
the company in the first place. This mar- the airline? are potent rivals working hard to change The strategic question that could be
ket is being thoroughly penetrated by • Is Emirates’ disregard for the rising critical product features. Is Emirates able posed here is why, buy? Why not integrate
Emirates in a deliberate policy of market Are they effective or unique? regional competition strategically oppor- to meet this challenge? backwards? Put differently why not acquire
penetration. There is little doubt that Emirates strategies are effective. Results attest to that. tune? Competition, however, is on the hori- • How far can a cost cutting strategy go? equity into the aircraft building industry?
zon. Etihad Airways, a government of Abu Emirates is under cost pressure. Fuel Qatar is flirting with the idea. It may even
Dhabi creation, is coming up with a differ- costs remained the top expenditure in be more than flirting but what is wrong
Table: Emirates Performance 2005, 2006 ent approach to regional and international 2006 accounting for 27.2 per cent of with that? They seem to be following the
PASSENGER CARGO OTHERS TOTAL
2005 2006 2005 2006 2005 2006 2005 2006
2006 Revenue 13.8 17.5 3.5 4.5 0.6 0.7 17.9 22.
Total assets 23.0 30.5 0.06 0.3 0.6 0.6 23.7 31.3
Capital expenditure 3.0 4.4 0.06 0.2 0.05 0.2 3.2 4.7
• Product development: Emirates prod- 27% above 2005 level. Passenger seat its 18th consecutive annual profit, and we
uct development is of modest proportion. factor also reached 75.9%, 1.3% above are pleased to have achieved this solid
It related to product specifications and the 2005 level too. And capacity increased to performance while expanding our opera-
type of services offered more than the 15,803 million tonne kilometres. tions in an increasingly competitive envi-
introduction of changes in product mix. Breakeven load factor remained relatively ronment."
• Market development: Emirates geo- low at 60.3%, and yield improved for the There are strategic flaws, though. They
graphic expansion including the entry into fourth consecutive year, to $0.55 cents boil down to the following:
the United States market is a typical per Revenue Tonne Kilometre. Introducing • Is Emirates really the product of Arab
example for market development. the 2006 annual report, the Chairman strategic thinking? Emirates is managed
• Diversification: Emirates’ entry into the said: "These results clearly show that by a board whose chairman is Sheikh
storage market is yet another example of Emirates' customer-oriented approach Ahmed bin Saeed Al Maktoum and Vice
its attempts at diversification. One has to and investments in providing a quality chairman is Maurice Flanagan, an expatri-
state, though that these attempts are all product - the best aircraft that money can ate, who is also a President of Emirates
at related product and market diversifica- buy; top-flight service and travel experi- Group. While there is little doubt that the
tion. ence at a competitive price - has paid off broad strokes are Sheikh Al Maktoum’s,
Not only revenue, asset and capital expen- in terms of retaining and winning new cus- there is equally little doubt that Mr.
diture performance improved over time, tomers globally…It has been another Flanagan is the strategic steward and the
but also other measures of performance. tough year with pressure from fuel costs prime decision maker within the airline.
Emirates Airline's revenues totalled AED continuously dampening our robust net “… While there is no pressure from his
22.7 ($6.3 billion) for the year 2006 or income production. Emirates has returned employers to retire, Flanagan, who is 77,
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