Porter’s Five Forces Analysis

Discuss about the case study Emirates Airlines for A Breakthrough in Aviation Industry.

Emirates Airlines is a UAE-based aviation company providing commercial air transportation services across the world. According to the findings of the Annual Report 2010-2011, the company has reached to highly prestigious ranks mostly because of its strategies focusing on the importance of adoption and encouragement of fair competition, transparency and an open skies policy. At present, the company operates 1200 flights per week across 6 continents from Dubai International Airport. The phenomenal success of the company in the global markets is reflected in the number of aircraft services it is offering to its customers. At present there are more than 170 aircraft, including the latest Airbus and Boeing Aircraft. The prime aim of the company is to effectively include the trending innovations in its ongoing workplace practices to become the most admired airlines across the world.

The five forces analysis is a tool for understanding where power lies in a business situation and even compares the current strength of the company with that of the competitors. In case of the Emirates Airlines, following are the specifications in this context:

1. Threat of Entrants:The airline industry has always been a low entry barrier industry, which means its rules and regulations have always been flexible for the new entrants. The Middle East has a number of good sources of finance which is considered as the prime entry barrier. As the industry requires a periodic advancement in the technology and the level of expertise it has incorporated into its working strategies, hence, the sources of finance make all things purchasable conveniently. There is a direct impact on the profit rates of the company due to the entry of the new entrants hence the risk is quite high.

2. Intensity of Competitive Rivalry:The level of competition in the airline industry has always been quite high and due to this reason the company tends to earn a low return on every new venture it introduces. But the risks posed by the competitors are highly avoided due to the support offered by the government in terms of finance or legal flexibilities.

3. Bargaining Power of the customers:The bargaining power of the customer or the buyer in the Aviation industry is somewhat low. This power is defined as the ability of the customer to put pressure on the service providers so as they introduce new services and reformations in the current ones in compliance to the perceptions and needs of the customers. If the bargaining power is high, then the customers are less sensitive towards the price changes in the market.

External Analysis

4. Bargaining Power of the suppliers:The bargaining power of the suppliers is quite high in the company. For Emirates Airlines, Airbus and Boeing are the major suppliers and the competition between the two is quite high. The power of suppliers is high because they may refuse to work with the firm during economic turmoil or may also introduce exorbitant prices for the exclusive resources.

5. Threat of Substitute Products:In the Middle East markets, there are two types of players namely budget and luxury. This leads to a huge price difference. So for a short distance flight most of the people prefer cheaper tickets. This lowers the profit rates of the Emirates that highly focus on its luxury flights. Also, the services offered by the competitors have a wide difference in the price performance when compared to the Emirates.

The external analysis of the company could be done using the PESTEL analysis tool. It is an analytical tool that helps the organization to map the external trends or forces that may have a positive and negative impact on the organization. The PESTEL analysis of the Emirates Airlines is as follows:

Political: The two major political issues that have a deep impact on the working strategies of the Emirates include Wars and terrorism. The activities related to both these issues leaves the countries unattractive for the tourists and business partners. The terrorist activities in countries like USA, Lebanon, UK and Qatar have contributed in cutting down the passenger traffics in such vulnerable areas.

Economic: The aviation industry has boomed greatly because there has always been a financial support from the countries in which it is operating. For instance, UAE has always readily invested in its major airports of Abu Dhabi and Dubai and the researchers have also predicted that this investment will tend to exceed DH 71 Billion in the coming two decades.

Social:The social factors include increasing global population, literacy rates and improving lifestyles of the people. In UAE, the number of expatriates has increased a lot in the last decades and this has made a direct profit for the aviation company as these expatriates travel regularly to their homelands. But the population of a country isn’t always expanding. In times of epidemics, like Bird Flu and other killer diseases, the population of a country declines rapidly and at that time the economy of the company dwindles.

Technological:Technology has always influenced business both in a positive as well as in a negative manner. For instance, the e-ticketing service and availability of the internet has made people to consider Airlines as a quick and a better option. At the same time it has also bought the current and potential customers closer to the Aviation Sector. On the contrary, the concept of Tele and Video-Conferencing has made the corporate business person to interact with one another without travelling. This has reduced the numbers of businessman travelling to various countries for face to face meetings.

Internal Analysis

Environmental:The climate changes due to increase in pollution levels have also posed a number of challenges to the company. Like all the others, Emirates have to follow a concept of “Green Flying” to protect the environment. Such initiatives are quite costly and the companies have to keep aside additional money for their implementation.

Legal:Emirates Airlines, like all the other Airlines in the Aviation industry, are constantly bombarded by the customers and staff members with lawsuits in times when they are displeased with the services or working policies of the company. Also, there are a number of rules and regulations of a country, to which the company has to abide and moreover all these rules are in a dynamic state, so the company has to reform its strategies and policies according to these changes.

The internal analysis of the Emirates Airlines could be done by using the SWOT analysis tool. It is a structured planning method that evaluates the Strengths, Weaknesses, Opportunities and Threats for a company being analyzed. The SWOT analysis for the Emirates is as follows:

Strengths:

• A strong financial and political support from the Middle East Government.
• The company has been able to establish a strong hub in Dubai.
• The services offered by the firm are satisfying millions of people all over the globe and hence has become the most preferred airlines among the customers.
• The company has provided job to around 50,000 employees till now.

Weaknesses:

• High prices and luxurious services in comparison to the competitors.
• Limited services for the middle classes and budget travelers.
• High operating costs due to huge investment in buying an aircraft.
• It is a young airline and also it is not a member of any global alliance.

Opportunities:

• As mentioned above, the UAE government will be making huge investments in development of airports in Abu Dhabi and Dubai in the coming two decades.
• The global population is growing at an accelerating pace.
• The people are becoming well versed with computers and the internet these days.
• The improving lifestyle of the people has attracted maximum customers towards tourism industry, promoting sales of the company.

Threats:

• The political stability in the Middle East region is very low and it is prone to a number of wars and terrorist activities.
• The competitors and new entrants are offering similar services at lower prices.
• The bargaining power of the customers is quite high and hence can pose threat to the company.
• The natural crisis like Earthquake, Landslide, or Hurricanes could hamper the tourism flow in the country.
• The technological reformation of e-ticketing system could be hacked illegally by the hackers or could face the virus attack hampering the booking system of the company.

A stakeholder is a person, group or organization that has a say in the company’s decision and is affected by the objectives and actions of the company. The major stakeholders of the Emirates are:

1. Customers: These are the ultimate source of profit and the Emirates develop a number of strategies to retain the current customers and attract the new ones. Although customers are quite pivotal to the firm yet they do not play a major role in influencing the management of the firm.

2. Employees: As Hospitality is a prime element of the Travel and Tourism industry, hence, the staff members play a crucial role in the company’s decision-making process. There are a number of cases when the company has reformed its strategies due to dissatisfaction among the employees.

3. Competitors: Emirates has been a market leader when one talks about luxury travelling, but there a number of competitors that offers cheap flights in the markets. The major competitors include Etihad Airways, Qatar Airways, Jet Airways and Air India.

4. Suppliers:The major suppliers of the company include Boeing and Airbus. These suppliers have a great share in the profit of the company. Apart from this, the company also highly depends on the online travel agencies for the e-ticketing services. These agencies are namely, cheapflights.co.uk, expedia.co.uk, etc. These websites provide cheap and convenient deals to the customers.

Stakeholder Analysis

5. Media:Media plays a crucial role in promoting the services of the company. The advertising campaigns attract a huge customer base for the firm. The company also tries to keep good relations with the firm to maintain a close relationship with its customers.

6. Government:The Company has a number of legislations: European, Domestic and International. These legal systems are quite strict and cannot be easily tailored according to the requirements of the firm. There are a number of cases when the legal obligations of some specific countries do not allow the company to operate its flights.

Emirates Airlines has been so successful till due to its pricing strategy it uses against its competitors. Apart from the airlines industry, the company has also adopted a number of new positive moves by entering into new innovative businesses. The corporate strategy of the firm aims to create a good image of the company in front of its customers to rapidly increase its customer base. The four building blocks of competitive advantage of the emirates are efficiency, Quality, Innovation and Customer Responsiveness. The company has adopted a number of measures to address these building blocks. The simplest measure of Efficiency is the quantity of inputs that it takes it to produce a given output. Emirates has always developed its strategies and policies in compliance with the needs of its customers. In other words, it has always given an input predicting a high level of outcome. Contrary to its competitors, Emirates has introduced better services to attract a huge customer base. The Quality of the services offered by the company has been appreciated by millions of customers all over the globe. This is because the company has never compromised with the services it offers. Customers are considered as a prime element by the firm and most of the policies and services are framed keeping in mind the changing needs of the customers.

The firm has also been involved in introducing a number of advancements which are unique to the company and has given an edge over the similar players in the Aviation sector. For example, Emirates was the first company to introduce Audio and Video on demand on every seat of every class in its flights. Similarly, it was also the first to launch 1,000 entertainment channels on demand. The company is also known to adopt an innovative concept of on-board spa and shower concept giving a luxurious experience to its customers. The innovative ideas have allowed the company to take risks and strive in the business world.

A Major challenge for any emerging as well as for a well established business is to analyze the changing needs of its customers and then develop products and services in compliance to those changing demands. This is known as Customer Responsiveness. The Emirates has been successful in evaluating the perceptions of its customers and have collaboratively worked to develop services according to their needs. The other competitors of the same genre have also developed a number of services, but their timing was not perfect.

Strategic Alliance is an agreement of cooperation signed between two or more independent firms to work together to achieve a common objective in an efficient manner. After entering into this agreement, the participating firms remain independent from one another and do not form an entirely new entity. At present Emirates has already entered into a strategic alliance with the Qantas, having its traditional hub in Singapore. Although this partnership was specifically made to support the dwindling business of the Qantas, yet the other participant too had a direct benefit from the alliance as the competitive pressure was minimized to some extent. In a Strategic Alliance partnership, the following five criteria are identified as being crucial to success of any commercial partnership:

• Investment: As investments in alliances are made by all the participating firms, hence there are chances of raising huge funds for new plans for the companies. Even in times of economical crisis, one firm could help another to cope up with the adverse conditions.
• Innovation:As the competition in the aviation is rising day by day, due to entry of new innovative companies, hence the old leaders have to establish their strong ground by adopting a number of innovative ideas in their working strategies and even include technological advancements in the services they offer to their customers. As the Emirates has been known for being the first in introducing technological advancements, like Audio and Video on demand at every seat on the flight, hence seeking alliance could help the firm to maintain its position in this direction. The new emerging firms, although lacks a number of crucial resources, but still have the capability to take risks of adopting new innovative changes.
• Operations:As in Strategic Alliance, both the firms work independently, hence the operations also remain independent of one another. The operations planned for the participating firms are to be aligned to one another to avoid any sort of clash.
• Communications:The joint management of the alliance works together to gain the attention of the customers by communicating the efficient idea of the firm operations in a more efficient manner. The innovative ideas of all the participating firms could be combined to deliver the real objectives of the airlines and hence strengthening the customer-company relationships.
• Values:Creation of a joint value is a better option than employing values of a firm at an individual level. The joint values include the introduction of long term revenue generation plans and increment in the global reputation of both the participating firms. This could be employed on a large scale to improve the performance of the firms.

The Emirates Airlines has already adopted the idea of expanding its business from its hub in the Middle East and this decision was taken at a very early stage of its development. The idea of going global has already benefitted the firm in a variety of ways. For instance, as the bargaining power of the suppliers have always been quite high, hence with the idea of getting global the firm has discovered a number of cheap suppliers overseas with the same level of quality. In the same manner, as the lifestyle is changing all over the globe at a rapid pace, hence, the firm has also started to target a number of international customers developing services to meet their specific needs.

Although the idea of getting global is profitable in every sense, but it has a number of problems associated with it. Some of the recognized problems for the Emirates Airlines are:

• The international customers have different perceptions and demands when compared to the local ones. Analysis of such varying consumer behavior and developing company’s policies and strategies in alignment to them is a tedious job as the company executives will have to design different policies for different markets.
• The legal obligations also vary from country to country. Some countries have quite flexible legal structure for the aviation industry while the others are strict in this case. Hence, the firm has to face a number of legal problems associated to every new market they explore.
• The entry into global markets forces the firm to lay more emphasis on the quantity of the services they are offering rather than its quality. This is because as the popularity of any commercial increases worldwide, then its demand tends to increase automatically. In such a case the Emirates have compromised in the quality of services in certain small nations.

The recommendations for the above mentioned problems could be as follows:

• In order to minimize the losses at global level, the firm could introduce a handful of cheap flights for budget-conscious population and could use the generated revenues in strengthening its luxurious flights.
• The firm could also collaborate with the local leaders in the international markets to understand the behavior of the markets they are planning to target. This pre-analysis process will help the firm to introduce only selected services in the markets that are in compliance with the perceptions and economic-status of the target groups.
• A deep knowledge of international legal systems and forming a separate committee to handle such issues could help the firm to quickly resolve legal problems and focus entirely on generating huge revenues from new markets.

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