Five Forces Analysis of Emirates Airlines - Case Study Example

Five Forces Analysis of Emirates Airlines Student’s Name Institution Five Forces Analysis of Emirates Airlines Company Background Emirate Airline was founded in the year 1985 within the UAE. It is the national airline for Dubai. It is considered to be one of the most profitable airline companies in the global platform. The airline is entirely owned by the United Arab Emirates government and operates about 142 aircrafts with a subsequent average fleet of about 69 months (Emirates Airlines, 2103). According to Reuters, Emirates Airlines is the largest superjumbo jet operate that flies to over 100 destinations located within 60 countries across the globe. The firm’s current Chief Executive Officers who also doubles-up as its chairman has put enough strategies to ensure that the company is able to expand not only locally but also to other geographical destinations across the world (Emirates Airlines, 2103). The company’s recent expansion plans include an additional purchase of about 170 aircrafts that included about 50 A380s model (Emirates Airlines, 2103). The company is current focused on maintaining its immediate commitment in relation to the protection of the underlying operational environment and also, remains highly flexible in regards to both paradigm shifts in both internal and external environments (Emirates Airlines, 2103). The airline industry is considered to be one of the most significant and fundamental industries today and thus, it is affected immensely by Porters’ Five Forces Model (Namaki, 2010). The central perspective of this model rests with internal rivalry within the airline industry. In the case of the global airline industry, the aforementioned item represents the fundamental force today given that the airline market has been completely saturated over-time. This is because there are more airline service providers in both local and international platforms. These airlines are competing for the same amount of customers that further leads to the strengthening of yet another force; the power of the buyer. Such an airline operating within this rather saturated market platform is Emirates Airline that has a reputable brand name to protect (Namaki, 2010). Airlines are in constant competition against one another in regards to the provision of such aspects as ticket prices, technology, customer-focused services as well as in-flight models of entertainment. The immediate end outcome of this intensive level of competition manifests itself in the rather slower growth of the entire airline market (Namaki, 2010). Therefore, this paper tries to examine the immediate result of the Porter’s Five Forces Model on Emirates Airline in relation to the underlying aforementioned saturated market (Namaki, 2010). 1) Entry into the Industry The current airline industry has been heavily saturated that it has become almost impossible for a new entrant finding its way into the market; both local and international markets. The biggest cause of this challenge rests with the costs that are attributed to securing aircrafts as well as penetrating the already acquired market destinations. Another important facet that is attributed to the aforementioned larger costs involve the costs incurred in the course of securing safety and security measures, customer-focused services and the notion of competent human skills especially with the limited levels of qualified pilots within the industry (Namaki, 2010). Emirates Airlines can be said to be enjoying the aforementioned factors given that since its establishment, it has managed to acquire a large fleet of advanced aircrafts like the superjumbo jets. The company also maintains fair and premium remuneration policies that have been able to attract a skilled level of personnel from other countries. The firm’s promotion of a quality image also helped its inception into the airline industries in its early years of operations. This positive brand image has straightened the firm’s customer-base given its cost effective strategies adopted to meet the immediate needs of the consumer (Namaki, 2010). Therefore, it is safe to postulate that the airline industry is a low entry barrier industry in relation to Emirates Airlines (Porter, 2008). This is because the aspect of financial prowess and other notable entry barriers are readily available within the Middle East section of the world. Notably, aspects of both technological advancements and levels of expertise are likely purchasable within this region altogether (Namaki, 2010). 2) Competitive rivalry within the industry As mentioned earlier, the airline industry operates under a very competitive platform as such airlines Qatar Airways, Lufthansa and Southwest Airlines embark on devising newer concepts that relate to improvements in technology, affordability in ticket prices, and in-flight entertainment models (Namaki, 2010). For Emirates Airlines, the competition is also stiff. The firm’s immediate competitor is Gulf Air but competes with a total of about twenty-three airline companies that operate within the sixteen countries within the Middle East region. All of these companies share the objective of a need for effective management and also, cost reduction strategies especially in such cost items as taxations, levels of security due to threats of terrorism, insurance and the aspect of fuel availability and prices (Namaki, 2010). The Gulf Air is a fundamental competitor given its backing from the Abu Dhabi government that has helped it secure immense levels of operational networks. This airline posed a significant level of threat to Emirates Airlines especially after the adoption of the open skies policies was implemented. This policy allows for a free access to Dubai airport by way of a limited entry rules and regulations set to assess the situation (Namaki, 2010). However, the profitability levels of both of these two firms can be seen to very divergent in nature. For instance, in a period when Gulf Air, despite its expansive network, faces negative financial results and thus, it is obliged to cut-down on the number of its routes, Emirates Airline is perceived to enjoying a great financial success as indicated by its constant expansion of one airline cycle to another (Namaki, 2010). This is because the firm operates a distinctively younger fleet whose average does not exceed 5.4 years of age. Subsequently, the more than favorable trading terms that were offered by both Airbus and Boeing during the period that followed the September 11 resulted to the firm engaging in a massive acquisition of the aircrafts for future use. For example, the airline purchased about 150 long-haul superjumbo jets that were characterized with wider-level bodies capable of carrying tones of loads as well as passengers within any given moment. The acquisition process also made the airline the largest operator of Boeing 777 flights across the global airline market (Namaki, 2010). The firm continues to enjoy a rather massive customer base due to the ever-acquisition policies of the firm. Emirates continue to shine in this sector despite the stiff rivalry amongst the competitors. This can be indicated by the recent prestigious awards the airline continues to receive in relation to its service-quality and environmental maintenance aspects. Therefore, following this line of reasoning, it can be established that the airline industry within the Middle East section of the word is generally competitive in nature (Namaki, 2010). This higher level of competition among the firms has led to low-returns since the resultant cost of competition has been highly positioned for a longer period. This is a likely risk to the low cycle times when companies receive less or minimal travelers due to external uncontrollable factors like bad weather and political unrest within the region as a whole. However, the Middle East section talks of a completely different story in relation to the aforementioned uncontrollable facets. This is because governments within the area have acted promptly to cushion the airline industry against such shocks by way of allowing for subsidies and ensuring to maintaining a higher government sovereign borrower index all year round (Namaki, 2010). In this regards, Middle East operative environment is saturated with the threat of newer entrants as well as competitive rivalry but does not suffer threats associated with possible product substitution or power of both the suppliers and buyers for that case (Namaki, 2010). 3) Power of Suppliers As noted earlier on, Emirates Airlines acquires most of its advanced aircrafts from both Boeing and Airbus who coincidentally form the major suppliers of aircrafts across the globe. In the post September 11 era both of these companies devised flexible trade policies that allowed Emirates Airlines to acquire an expansive number of fleets at a reasonable price (Namaki, 2010). This has resulted to the company’s ability to offset market demand and supply exhibited by travelers. Following this line of reasoning, competition between the aforementioned two suppliers is perceived to be probable in nature. However, this competition risk is considered to be catastrophic in nature since it cannot be diluted with the number of fleets serving the airline. Most importantly, the likelihood that the supplier can integrate in vertical terms is almost impossible given the measures put forth to avoid such models of conflicts in the future (Namaki, 2010). 4) Power of Buyers The Middle East has a fewer number of airline buyers in comparison to other notable areas as Europe and the United States of America airline industry. There are about sixteen airline operators within the region while most of them are unable to acquire larger fleets at any given moment in time (Namaki, 2010). In fact, the two of the most fundamental buyers of advanced aircrafts are Gulf Air and Emirates Airlines which operate a substantive percentage of fleets within the region. Therefore, these two operators do not enjoy any bargaining power hence making the overall power of buyers at a relatively lower position (Namaki, 2010). 5) Threat of Substitute Products The threat comes with the availability of possible substitutes within the Middle East section is quite minimal in nature (Namaki, 2010). This largely because of the extrapolated distances within the area and also, it is attributed to the fast pace of activities that has become to be known as a great symbol within the area. To sum up the above discussion, it can be ascertained that Emirates Airlines operates in airline industry that is highly competitive in nature, which translates to a lower level of returns due to the coincidental cost of competition. The power of buyers is quite low due to the limited number of advanced airline buyers within the area. The availability of substitutes is also minimal given that there is a relatively larger distance in the area. In regards to the threat of new entrants, the airline industry is considered to be a low-entry barrier industry due to the fact that both finance and other notable features like advanced technology and skilled personnel are completely purchasable at an affordable rate. References Emirates Airlines Annual Report 2103. Company background. Retrieved on July 28, 2014 from http://content.emirates.com/downloads/ek/pdfs/report/annual_report_2013.pdf Namaki, S, M. (2010). Emirates in a league of its own: Is this the right strategy? Retrieved on July 28, 2014 from www.micm-canada.org/Emirates_Apr07.pdf Porter, E. (2008). The five competitive forces that shape strategy. Harvard Business Review. P.86-104 Read More