An Airline Industry In Emirates

ARTICLE SUMMARY

In Dubai, Emirates Airline goes all in on luxury, betting high-profit margins from first-class tickets and is doubling down on a different strategy. For the past few years, the airline has been investing billions of dollars into its fleet of planes, in-flight entertainment, wine lists and seats which caters to relatively small but loyal group of the world’s biggest-spending travellers. This is in line with their long-time President Tim Clark goal of making every customer feel like they are walking into a Ritz-Carlton and Mr. Mueller goal of turning Emirates into a high-end lifestyle company for the world’s wealthiest passengers. This case study examines the competitiveness and attractiveness of Emirates in the Airline Industry with the use of Porter’s Five Forces.

COMPETITIVE RIVALRY-HIGH

As a whole, the competitive rivalry in the airline industry is quite intensive for many reasons. The Emirates, just like any other airlines has a number of competitors that offer differentiated and low-cost services. Specifically, budget carriers and premium like Lufthansa sales of Europe, the Middle East, and Africa. U.S. carriers, including Delta Air Lines Inc. and United Continental Holdings Ins. The market industry growth rate is stable seeing that it is already in its mature stage of the business cycle. Emirates have an extremely high fixed cost considering highly complex investments in planes and facilities.

An example of which happened just last year in November, where Emirates rolled out private suites on its newest Boeing 777 jets. Even upgraded its fleet of chauffeured cars that whisk upmarket fliers to and from the airport and have spent $6.7 million building a lavish lounge at one of the airports in Boston. Making it hard for the airline and other competitors to leave the industry. The competition is decreased by the brand identities of these airlines. Emirates which is known for its fancy amenities caters to a specific market share in which such strategy seems to be too expensive and risky as compared with other full-service airlines that have tried in recent years to match the prices and passenger growth of discount carriers. But Emirates have also relied on filling the rest of their planes with lower-paying economy passengers to squeeze revenue out of every flight. Big carriers add capacity, trying to fill planes and capture market share. But the excess supply naturally depresses prices, eroding profit margins.

SUPPLIER POWER-LOW

In the airline industry, Boeing and Airbus top as the major manufacturers that produce almost inputs evenly standardized. Emirates differentiated among any others airlines on its luxurious amenities that make it unique in such area. As for fuel suppliers, it is not yet known but American and European airlines accuse Emirates of benefiting from unfair, hidden subsidies from the oil-rich government owners. Long-term contracts make it difficult for airlines to switch suppliers. Considering that the industry has a high capital investment with the planes itself, most airlines commit long-term and also take advantage of its good credit terms. Airplane manufacturing industry has high capital cost that leads to difficulties in entering and have left the industry few in numbers. Also, airlines are the source of income for these manufacturers that is difficult to forward vertically integrate.

BUYER POWER-LOW

Emirates airline focuses on its top-paying customers, who aren’t inclined to make purchases based on price with a higher proportion of business and first-class seats and puts less emphasis on filling every seat. Emirates acquired tactics from budget carriers, selling discounted fares in its economy cabin, charging extra for a seat assignment of checked luggage. Also, last year, it began to team up with budget airline Flydubai, to cooperate on some routes to accommodate customers who prefer flight based that contributes to low switching costs. Emirates have a relatively good score in terms of customer feedback and considered as one of the top carriers by Skytrax that provide incentives to decision-making on the buyer side. Though having a low market share, the airline as part of the Emirates group reported revenue of $25.2 billion for the latest fiscal year ended March 31 and a profit of $762 million. Overall, the bargaining power of buyers has a low threat in this industry.

THREAT OF ENTRY – EXTREMELY LOW

In terms of the threat of entry, it is extremely low not just for Emirates, but any other airlines. Most likely because of the industry requirement of high capital and licensing which can take years, contributing to a large cost advantage. Aside from licenses, insurance and other qualifications required in this industry, a strong retaliation or competition from existing players can also be a challenge for a newcomer entering the industry.

THREAT OF SUBSTITUTES - HIGH

Emirates, as an airline industry have high substitute risk level considering the fact that consumers can take any other forms of transportation like car, bus, train, or boat though having performance limitations. On Emirates, a round trip between Dubai and London for mid-July travel was recently priced at around $10,400 in first class and $4,600 in business. Emirates Superluxe strategy, a mode of transportation only the rich could afford let customers tend to likely go for substitutes disregarding the time of travel. Switching cost for other transportation substitutes can be as low and can weaken Emirates position, contributing to the high threat of substitutes.

Conclusion

To conclude Emirates in the Airline industry is moderately attractive with high competitive rivalry, low threat of supplier power, moderate threat of buyer power, extremely low threat of entry and high risk or threat of substitutes.