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Is the Prime Airline Segment an Attractive Place to Compete?

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Question 1

A prime airline segment is an attractive place for Emirates to compete for many reasons, including its present position, future growth potentials, and its ability to use diverse strategies that will enhance its competitive advantages. According to Porter (2008), in the market for commercial aircraft, fierce rivalries between the dominant producer’s Airbus and Boeing, the bargaining power of the airlines that place huge orders for airplanes are strong, while the threats of new entries and the use of substitutes, as well as the violence of suppliers, are more than benign.

Is the Prime Airline Segment an Attractive Place to Compete

Bargaining Power of Buyers 

The Emirates 2020 schedule for aircraft production calls for 09 A-380 to be deployed intensively to North America, Latin America, Western Europe, and several major East Asian points, according to RBS (2011), and Airbus has won the contractual rights to deliver these products as ordered.

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Emirates traditionally are expected to retire its in-service fleets after twelve years. Still, in light of its new competitive thrust, the market analyst is not certain that this will be the case this time, because they could use their leverage status with the suppliers to reduce the delivery time for the A-380 and retain as much of its present fleet on the market to be able to dump capacity on the market successfully, and capture as many passengers as possible.

The fact that the A-380 are wide-bodied has the largest passenger capacity, attracts low or economical price passengers, and is used on long routes. It gives the Emirates a substantial advantage to succeed in the prime market if it decides to use its bargaining power as a buyer to pressure Airbus to deliver.

According to Porter (2008), rivalry among competitors: the strongest competitive force or forces determines an industry’s profitability and becomes the most important strategy formulation.

The Emirates faces intense competition from Lufthansa, BA, American Airlines, Continental Airways, Air France, Elitad, Qatar, Virgin Blue, and Asiana. Still, it can develop strategic alliances with those competitors, based on industry analysis, that are operating sub-optimally, and achieve win/win solutions which enable it to capture higher market shares in the prime markets.

However, it will have to overcome strong and persistent lobbying strategies engineered by its European competitors, restrict its traffic rights, ease the availability of EXIM financing from Europe, national aviation taxation, and the forthcoming emission trading schemes.

Emirates is advantageously placed compared to its European competitors in particular, because information on its modus operandi is not available to the public, and an analyst will always find it difficult to accurately predict the model they are going to employ it reaches the market. This gives the competitors very little time to modify or even replicate these strategies. By the time they can achieve it, Emirates would have made other significant changes that all marketing leading companies would normally achieve and maintain their competitive advantages.

The approach is in line with Porter’s (2008) recommendations that organizations in competitive environments should reshape the forces in their favor and exploit changes.

Emirates, therefore, can use these strategies from the vantage point of the rivalry among competitive forces aspect of the model and succeed in the prime segment of the market because of the assets it brings to it and its ability to maximize any competitive advantage gained.

Threats of New Entrants

 Threats of entry puts a cap on profits, and when it is high, incumbents must hold down prices or boost investments to deter competitors, according to Porter (2008). Emirates entrance into the prime airline segments of the market in Europe, North America and Asia may force other airlines to resist its access by lowering prices is possible, offer new incentive to ensure customer loyalty, increase investments, increase route frequencies, or use moral suasion to force their governments to increase aviation taxation.

This strategy may benefit customers for an interim period but may force Emirates out of the market if it cannot compete. However, the company could have been prepared and immediately lower its prices and increase capacity at the same time and improve the quality of services beyond what prevails.

Emirates would do well to pursue this strategy because hypothetical projections based on limited information see it entering 21 new markets over five years, extending into 2015. They include 5 in North Asia, 3 in East Europe, 4 in Europe proper, 2 in South East Asia and North America, and single destinations to South Asia, Australasia, and Latin American

By 2010, Emirates, by its development plan, will have flight schedules that include 70 A-360, 67 B777, and 90 A380, of which 19 will be assigned the most high-density configuration service zones, competing in these prime markets to maximize revenues.

The airline company is, therefore, a major threat as a new entrant into the prime segment of markets, and be able to hold its place and allow passengers to enjoy the benefits of low-cost fliers, even on long and extended routes, despite attempts by European and other competitors that may advocate political instability in the Emirates operating base, the airline threat to European security, industry and jobs, and different unethical strategies, to deter passengers from using the airline.

Bargaining Power of Suppliers

 In the airline industry, a manufacturing duopoly seems to exist between Airbus and Boeing, but Airbus appears to have out muscle its competitor to win the contractual manufacturing rights to Emirates huge order by perhaps using supply-side economies of scales.

According to Porter (2008), these economies can arise when firms produce a very large volume of enjoys low cost per unit, employ more efficient technology, or command better terms from their material suppliers. Airbus may have used its bargaining power as a supplier to offered Emeritus excellent rates in terms of the unit price for the 90 A-380 and its delivery times to defeat Boeing. Additionally, it can also use its demands for a high volume of raw materials close to 2020 to gain favorable deals on raw materials suppliers for the aircraft, thereby working the vertical and horizontal integration aspect of the market to secure Emeritus’s prices.

Threats of Substitutes

A substitute, according to Porter (2008), performs the same or similar functions as an industry product by different means. Like other airlines in the industry, Emeritus faces threats from substitutes like video conferencing, teleconferencing, and the use of websites to book passengers instead of travel agents. Still, it has to distance itself from the competitor by improving its product and consistently promoting its superior quality to maintain market dominance.

According to Porter (2008), aspiring entrants that arm themselves with new capacity and hunger for market share can ratchet up investments required to become competitive.

Expert research done by RBS (2011) has shown the Emirates has become a real threat to European network carriers in terms of traffic flows from Europe to the Middle East, India, South East Asia, and Australia/New Zealand, despite the use of alliance strategy, network planning, export credit resistance, and heavy investment on these routes by European carriers, they have not been able to lure customers away from Emirates with their substituted service offerings.

Porter (2008) defines EEmirate’s strategy to maintain its competitive advantages as positioning itself where the forces are weakest. This will enable Emeritus, who similarly to how Paccar succeeded in the trucking industry, by targeting individual truckers with packages that they found difficult to reject (because they specifically meet their needs) to excel in the airline’s prime segments market. Paccar found a weakness in the trucking industry (among the individual truckers) and positioned its forces to maximize revenues fully.

The five forces of a competitive marketing model can certainly propel Emirates into the prime segments of the market so that it can dump capacity on the competitors with its 90 A-380 as well as other units in the fleet at low cost to consumers, but high-quality service that will ensure their loyalties on the different routes.

Question 2

Emirates can continue to survive and deliver value and prime services in the middle of threats and lobbying pressures by European carriers by constantly performing excellent industrial analysis and using the information to develop strategies that will advance its status, including strong competitive advantages in key areas.

The airline, by distinguishing temporary or cyclical changes from structural changes among its competitors in terms of results, strategies and behaviors, and the underpinnings of the competition, according to Porter (2008), will be able to determine the root causes of their profitability, as well as its own, and make adjustments to more effectively deliver value.

The Dubai Hub, for example, is optimally located for the airline, when it decides to dump capacity on the India-US, China-Middle East, and China-Africa routes, where it has the maximum competitive advantages, can deliver significant economies of scale and can add value to its products, despite the tactics of the European carriers.

The gains from these routes in terms of profits and the capacity achieved can then interpreted by Emirates as significant structural change that can be replicated with some level of modifications on other ways to boost overall performance and growth trends.

Additionally, as Emirates grow in these markets and improve its products offering to customers by providing services unique to its culture, and differentiates it from the competitors. The strategy’s viability is without question, as RBS has confirmed in its research and hypothesis that many European competitors using the Dubai Hub are financially weak, relatively small, and offer lower standards of service.

The airline can also use the profits earned from its operations through the Dubai gateway to subsidize other routes and increase the frequency of flights to undercut its competitors’ capacity and ticket prices until it has significantly grown its market share in the prime segment.

Finally, Emirates can also use the option, should it fail to negotiate desirable changes in traffic rights rulings, leveraging its capacity advantage in other nonprime markets not yet entered and increasing the competition among those active carriers in those regions. According to RBS, this move would see greater capacity displayed in Europe, even into the fifth freedom segment of the market.

European Carriers Strategy

European carriers suffering from the Gulf carriers lower unit cost and highly competitive prices, as well as faster growth rates, has to constantly work within the constraints of international laws to reduce the carrier cost advantage and access rights, and fight to slow down the liberalization process that is imminent in the industry in their environment.

They are aware that little can be done to deprive the Emirates airline and other Gulf Stream entities from using all the freedoms when requested, but using lobbyists to pressure their respective governments to provide protective barriers as long as possible, until they can develop workable market strategies that can compete more effectively with the Emirates, should consider and implemented as soon as possible if they are to remain competitive in the industry.

They should also contemplate portraying the Emirates entry into the prime markets and their growth development plans for their 90 A-380 in the media as excessive, illusory, and doomed for failure because there are no available markets for them to operate in. This may force the Emirates to face pressure from the stakeholders, and possibly revisit their growth plans and reduce the magnitude of the order for the 90 A-380 placed with Airbus for phased-in deliveries going into 2020. Should this strategy bears fruit, the European carriers may gain some respite and thus develop their capacities and reduce prices to match the Emirates over the same period.

Failure in the strategy mentioned above may lead the European carriers to adopt another approach that may earn them some temporary respite. This is for them to strongly advocate that the Emirates’ entry into this prime segment of the market is a threat to European business, jobs, and security. The use of their competitive advantages is unfair to the European Airline Industry.

This approach may be considered by many as unethical and poor socially responsible behavior. It could lead to losses in human resource capital and customers, especially in the Emirates, can successfully withstand the attack with strategies more effective than what was thrown at them.

Finally, for European carriers to be effective in their market strategies going into the future, they have to position themselves to access vital information about the modus operandi of the Emirates and other Gulf airlines, and this can be done through more effective use of marketing intelligence strategies, one of which is to recruit present and past employees of this organization and promote them to the position of influence and authority, where they can implement strategies learned from their previous employers.

Over time, this will enable these European carriers to understand the cultures of their major competitors better and be able to develop strategies that will enhance their competitiveness and keep them alive in the industry globally.

Question 3

The Emirates project itself to grow its aircraft fleet by 4.9% CAGR between 2010 and 2010, emphasizing the purchase and use of these aircraft to carry passengers. Provision was also made to gradually increase the cargo capacity with the passenger increases by maintaining an appropriate ratio.

Reliable forecast by RBS (2011) for 90 A-380, 70 A-350, and 48 B-777 to be produced and delivered on a phased basis going into 2020 is quite troubling to industry analysts, as they are not certain if the airline will retire the aging B-777 and A-350 at the end of their 12-year operational life span.

The Emirates is expected to have 226 and 23 passengers and cargo aircraft, respectively, by 2020. Still, if it chose not to retire its aged units timely, it will be able to dominate the markets even more, because it has more airlines at its disposal to dump capacity on greater numbers of calls at the same time.

Strategically, the Gulf carrier can analyze the seat departures by region from the table provided by RBS (2011) – courtesy of OAG Max on September 2010, noting that it excluded flights leaving the Dubai hub and launch comprehensive strategies to outperform its competitors, using tthe-380’s with their large capacity, long routes orientations and low pricing.

The table revealed that Western Europe, South Asia, the Middle East, South East and southwest Pacific, and North-East Asia commanded 23.1, 21.0, 9.4, 8.7 and 6.3 % respectively or 82.3% of the daily seat passengers departing to these destinations.

Emirates can therefore use this information to dump its capacity on these locations, maximize its service quality, and keep prices at a minimum to attract major shares of the market going into 2020. It can also maximize its selling of fifth freedoms in these specific zones to ensure its competitive advantage and major market share.

Use should also be made of India’s importance in the strategy, due to the constantly large flows of immigrant workers from that country to Dubai and The Middle East. The VFR inflows to Europe and the growing importance of UK tourists fascinated with the Dubai tourism products should also be factored in the ccompany’ drive to add value and maintain a competitive advantage. The Emirates can further reshape the forces operating due to these movements, in its favor, to cement its market status.

The organization should also contemplate exploiting the statistics regarding the volume of passengers departing from specific airports within its operating environment, as according to the RBS (2010) case study, 14 of the major departing airport’s shares between 1.8% and 3.7 % or 51% of all seats departing passengers. This makes it feasible for the airline to concentrate its fifth freedom selling strategies (which is a function of immature routes) within these 14 locations, to optimize the capacity of its AA-380’s

Under dynamic leadership, the Emirates could add more values and achieve planned profits by seeking alliances with airlines operating in regions like Africa (all areas), North America, East and Central Europe, and Latin and South America, which falls into the lower 0.5 to 3.9% range for seat departing passengers. These airlines may have been suffering from capacity limitations due to poor capitalization and could benefit from win/win alliances with a major market leader in the industry.

Conclusion

In the final analysis Emirates, by embracing these different sound strategies, may continue to add value, achieve planned profits, and maintain competitive advantage going into 2020 and even beyond, with its 90 A-380 being globally visible and a fearsome sight to its competitors.

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