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ASSIGNMENT 1

UNIT NAME – BUSINESS STRATEGY & ANALYSIS


UNIT CODE – MPM703

BUSINESS STRATEGY IN A GLOBAL ECONOMIC RECESSION


AIRLINE INDUSTRY: EMIRATES AIRLINES

Prepared By: Group 02


VINH QUOC NGUYEN – ID# 800671555
JUAN DAVID CAMPUZANO – ID# 800346294
JUAN CAMILO MORENO – ID# 800238145
XI ZHENG – ID# 800244062

DEAKIN UNIVERISTY
FACULTY OF BUSINESS AND LAW
DUE DATE: 30/04/2009
Word Count: 4000

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TABLE OF CONTENTS

EXECUTIVE SUMMARY................................................................................................3
1 INTRODUCTION............................................................................................................4
2 STRATEGIC ANALYSIS................................................................................................6
3 CONCLUSION AND RECOMMENDATIONS...........................................................19
REFERENCES.................................................................................................................21
APPENDICES..................................................................................................................24

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EXECUTIVE SUMMARY

This report on strategic analysis of the airline industry with Emirates Airline, as a case
study is to help concerned managers gain a closer review of changing environments in
which the company operates. As a result, they are able to position themselves in the
marketplace, to make better decisions on strategic management. As in the current global
economic recession with falling demand and uncertain economic recovery, the need for
business to identify strategic issues becomes vital. This assists managers to review their
strategies, to identify their core competence, competitive advantage and any sources of
profit available to the business. In this effort, they are able to respond to change and
overcome the situational difficulty and possibly achieve superior performance afterwards.

The report outlines appropriate strategic options for business sustainability. In the
situation of uncertain demand, cost management needs to be effectively executed.
Consolidation and concentration within alliances may also be necessary for reducing
costs and gaining benefits. Route restructuring is needed to focus on routes of
profitability. As to the case of Emirates, the company will continue to sustain and gain
competitive advantages forwards, considering that strategic management take full
advantages of their core competences, economies of scale, learning and experience
curves gained throughout its life. Cost reduction is a long-term necessity for a capital-
intensive airline. Thus, cost cutting in the value chain needs to be strictly considered. In
view of shot-term effect of an economic downturn, strategic objectives for the situation
should be emphasis on market penetration by cutting price in existing markets and
competition on price basis when customers become price-sensitive nowadays.

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1 INTRODUCTION

Aim
It is vital to review the progress of business, particularly in a circumstance of rapidly
changing contexts. In this regard, there are core attempts that strategic management need
to do in reviewing business performance. In order to respond to change effectively, the
company must access its efficiency in current development direction. They need to
identify their competitive advantages, position themselves and find out how competitive
they are in the marketplace. As a result, management must redefine their business goals
and set new strategic objectives to sustain in a dynamic environment.

Scope
This report uses Emirates Airline as the case study and develops business strategies using
up-to-date information.

Company Background
From its humblest startup, Emirates flew its first routes out of Dubai with just two aircraft
—a leased Boeing 737 and Airbus 300 B4 in 1985 (Stanik, Smith, Erakovic, 2007).
Emirates pursues its focused differentiation in a legacy airline of luxury, hi-tech,
excellent quality. It has been successful and is now the Gulf’s largest carrier, one of the
world’s five best airlines, and expects to become the world’s largest airline by 2015
(Hugh, 2007). The success story of Emirates Airline is a phenomenon in terms of stable
growth, continuous innovation and significant global expansion. Emirates has drawn out
worthy lessons, even for major airlines.

However, the current global economic recession has enormous impact on business.
Obviously such an economic downturn affects business sustainability in several aspects
such as market demand, customers’ changing preferences and behavior, financial deficits,
internal resources etc. Economic recovery is uncertain. It is important that management
are aware of the short-term effect and its potential medium impact on the business.

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Emirates, therefore, must take its core competences, competitive advantages to overcome
such a situation and map out strategic objectives to sustain in the future.

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2 STRATEGIC ANALYSIS

2.1 Research Methodology


This report provides some exposure to practical review of the airline industry. It also
looks into the case study business: Emirates Airline to explore its business progress.

A macro environment analysis has been spotted to review various external influences on
business and shed lights on future trends that may affect the industry. Analysis of Porter’s
five forces will help understand industry competition and outline influences on
development of markets and business. Using this model helps the company build a
strategy to keep ahead of these influences.

Further, the spotlight is on analyzing the internal environment. In reviewing the business
performance and company’s strategies in place, key resources, a SWOT is essential. This
is done in an effort to help strategic management assess how to capitalize on business
strengths, minimize the effects of weaknesses, make the most of any opportunities and
reduce the impact of any threats.

Various sources have been used to gather industrial data. Most of the data is from
secondary sources such as database searches, industry reports, industry conference
agenda, news articles, journals, the World Wide Webs for business research websites:
IBIS, Roy-Morgan, business website and competitors’ websites. Theory from textbooks
is used to back up arguments in writing this report.

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2.2 External Environment

2.2.1 Macro Environment Analysis

Economic forces
For airline industry, demand for travel depends enormously on economic conditions.
Pride, Elliot, Rundle-Thiele, Waller, Paladino & Ferrell, (2006, p. 61) contend that
“current economic conditions and changes in the economy have a broad impact on
success of organizations’ marketing strategies”. Emirates grew and developed its
business in The United Arab Emirates which has a strong economy (World Fact Book,
2009). The markets where it selected to operate in are also powerful economies of stable
growth (Appendix 1 shows country GDP). Indisputably, stable economic growth is a
springboard to success of an airline’s development due to increasing demand in air travel
by high-income people for business and leisure. Emirates recorded an increase in
passenger numbers of more than 15 per cent annually (Stanik, et al, 2007).

Recent economic downturn has significant impact on the industry. Air travel demand has
fallen dramatically. Several major airlines will cut domestic and international capacity
further in 2009 due to a falloff of about 25 – 30% over the last quarter of 2008 (New
York News, 2009). Bisignani (2009) argues that the state of the airline industry today is
grim. Demand has deteriorated much more rapidly in the economic slowdown. IATA,
which represents 230 airlines including British Airways, Cathay Pacific, Emirates and
United Airlines, also raised its estimate of international airline losses in 2008 to $8.5
billion, from its previous $8 billion estimate, according to Bisignani (2009). The industry
is in intensive care (Roy Morgan, 2009). The challenge is how to survive beyond the
current crisis.

Political forces
Air travel between countries is by negotiated agreements (Dervaes, 1998). Aviation
regulations between governments impact greatly on the success of an airline’s operations.

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Weismen (1990) agrees most governments have strict regulations on foreign carriers to
operate certain routes in their home countries to protect the national or designated airline.
In the case of Emirates Airlines, however, Dubai is an unprotected market. Its open skies
policy helped Emirates to become a carrier that can compete with the world’s largest
airlines (Stanik et al, 2007). Emirates has grown in scale and stature not through
protectionism but through competition - competition with the ever-growing number of
international carriers that take advantage of Dubai’s open-skies policy (Stanik et al,
2007). Emirates has enjoyed the benefits of global market shares from entering
international destinations such as America, New Zealand and Australia due to recent
agreements on full traffic rights from the two governments (Stanik et al, 2007). Aviation
deregulation has boosted airlines to develop for open route entry, exit of air carriers,
competitive fares, service frequency (Goetz and Sutton, 1997). Further liberalization in
the industry is unstoppably increasing. Hence, the playfield competition becomes more
intense.

Social and cultural


Social and cultural factors have influences on development strategies. Both domestic and
international markets where Emirates operates have culture diversity. Dubai, Australia,
Canada, U.S.A and U.K are multi-cultural countries. Benefits come from a variety of
consumers’ trends in accordance to their values, attitudes, education, religion and
lifestyles. As a fact, stable incomers make holidays annually. Another example shows, in
U.S.A, three quarters of high-income people take an air trip each year (Hanlon, 1999). It
is true in European countries where most people have a strong demand to travel on
annual holidays. Emirates has advantages operating in destinations where the trend of air
travel is socially enhanced.

Technological forces
Latest technology is a success driver in airline industry. The need for technological
advances to become the first mover in the industry will create the advantage of gaining
more of the lucrative business market (Oum, Park and Zhang, 1999). Emirates is fully
aware of this principle in sustained investments in latest technology pursuing its

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differentiation in the 5-star standard airline. Emirates’ current order-book stands at 244
aircrafts of the newest Boeing and Airbus, with a total value of approximately US$60
billion. It is already the youngest and will be one of the most modern fleets in worldwide
commercial aviation (Emirates, n.d.). It aims to be a pioneer in technological advances,
Emirates signed in-flight mobile phone coverage agreement with Aero Mobile,
developing the use of mobile phones onboard (M2 Communications Ltd., 2006). For
many years, Emirates has been awarded numerous awards such as the world’s airline of
technological advances, Best Global Airline Website, Best in-flight Entertainment, Best
IT developer in in-flight entertainment etc. (Emirates, n.d).

Sustainability
Rosenthal (2008) states that high fuel prices and increasing shortage of natural resources
are facing manufacturers to make smaller, more eco-friendly vehicles. Further, the
environment has been degraded by global warming and climate change and the airline
industry has been a factor to a faster-growing source of greenhouse gas emissions
(Rosenthal, 2008). For years, airlines have countered pressure from environmentalists
with denials and public relations about their green credentials (Rosenthal, 2008). In
recent years, airlines are working hard to develop biofuel for their jets. It is high time that
airlines need to enter an environmental partnership with aircraft builders for eco-friendly
aircrafts, quieter takeoffs and landings, substantially reducing environmental impacts.

2.2.2 Industry Environment Analysis

Porter’s Five Forces


This will give a snapshot of the industry competition level (Thompson et al, 2007).

Threat of new entrants:


A highly profitable market boosts increased level of competition (Hill, Jones, Galvin and
Haidar, 2007). In this effort, new firms will enter to take some market shares away. The

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Asia Pacific region is an example of a dynamic market where inbound tourism enjoys
increasing growth of 7.9% and outbound with 25% by 2010 (WTO, 2008). All airlines,
operating in the region before the current financial crisis, were having high profits:
Qantas’ profit after tax: $618 million in 2007 (Qantas report, 2007); Cathay Pacific of
HK$7,023 million in 2007 (Cathay Pacific, 2007). Consequently, Emirates, together with
other players, have thrived to exploit new regional markets for high profitability as
demand is growing.

Rivalry among established companies:


Emirates competes with Air France-KLM and Lufthansa, the two largest carriers in
Europe; with Cathay Pacific in Asia Pacific region; and with United Airlines in the
Americas (Hoovers, 2008). These well-established network carriers operate within the
same destinations such as NZ, UK, Hong Kong and America. The competition is
aggressive as the global industry is witnessing boosting growth of low-cost airlines
(Hofmann, 2007).

Bargaining power of buyers:


Competition between companies is intense. Emirates may face a threat now and in future
when customers nowadays have an ability to make demands on their products, in term of
lower prices, higher service or product quality. Therefore, Emirates is unlikely to exhibit
high rates of turnover over time due to price reducing, and investing more in product
innovation (Hill et al., 2007).

Bargaining power of suppliers:


Boeing and Airbus are the two dominant aircraft producers for the world’s airlines.
Orders by all airlines for the latest aircrafts are placed to either of them. As a large buyer,
Emirates still has to face the threat of paying higher prices or even delivery delays.
Moreover, Emirates depends so much on these suppliers as required products are
differentiated while the suppliers have high expertise.

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Substitute products:
Most airlines offer products of similar features: low price, good quality and excellent
service. In the region, for example, other direct substitute products to Emirates are
Qantas, Cathay Pacific, and Singapore Airlines. Therefore, Emirates will experience
challenges when most players become competitive enough to launch new products
globally. An example is Virgin Blue, which launched V-Australia for Trans-Pacific
services in 2008 (Virgin Blue, n.d). Customers benefit from a wider choice for their
products of cheaper price but higher quality.

Strategic Groups
There are obviously strategic groups existing in the industry in similar markets. Examples
are named: Cathay Pacific, Qantas, Air France-KLM and Lufthansa. These major players
offer similar products in terms of luxury passenger package, young flyers, in-flight
entertainment etc. This signifies that Emirates is aggressively competing with others.

Key Success Factors

Cost competitiveness:
This is vital for a capital-intensive industry such as airlines (Oum, Yu, 1999). It is critical
that good managers can run operation costs at minimum level to increase highest profits.
To balance total operation costs, the management must solve the problem on cost cutting
in process to keep profitability (ANZ, 1990).

Economies of Scale:
Emirates is well-established with strong network alliances over international destinations.
On the other hand, Emirates has continuously invested in its fleet and enjoyed high
profitability (refer to Appendix 4). This means the company is able to increase capacity
while still able to maintain fixed costs compared with other players. Emirates can have

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access to global markets with greater geographical coverage. Thus, this creates a high
barrier to other entrants due to high costs and scope of business.

Brand loyalty and product quality:


Emirates has built up its brand and image significantly within the last two decades. More
customers have become loyal and chosen Emirates when travelling from the Middle East
and Europe or NZ (Stanik et al, 2007) because of high quality, product innovation and
excellent service.

Appropriate strategy:
Emirates is differentiated as a legacy airline where advanced technology, staff skills and
ancillary services are the main drivers for success. Therefore, Emirates is aware of the
need for continuous innovations, not only in fleet and staff expansion but also in
premium services. Emirates has been renowned for technology development and skilled
staff of multi-culture backgrounds (Stanik et al, 2007).

Nature of customers and market segments


Market segmentation has been obviously defined: legacy airlines, low-cost and budget
airlines. As a luxury and legacy airline, Emirates has determined its focused
differentiation, targeting at sophisticated customers and business travelers. As its logo
says: “Step aboard an interactive tour of all the elements that make up the Emirates
difference, on and off the ground… excellent service, outstanding comfort and superior
technology” (Emirates, n d.).

Industry markets have become apparently segmented. Boosting budget airlines have
attracted passengers and created higher competition when customers become more price-
sensitive. This requires Emirates to re-consider strategic development direction.

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2.3 Internal Analysis

This section will explore Emirates’ key resources in an effort to identify its SWOT and
outlines how the business’s value chain is structured; what strategies it has pursued and
how competitive it is, compared to competitors.

2.3.1 Tangible resources


In light of latest technology and excellent service strategies, Emirates is in the forefront
of the industry, owning the most modern fleet of 113 aircrafts, global markets of 100
destinations in 62 countries, over 12,800 highly-skilled staff of more than 100
nationalities and significant market share (see Appendix 4). It is undeniable that these
resources are vital to Emirates’ success. Emirates has highly-developed infrastructure
such as home-base airport, exclusive terminal, supporting services. Further, the
company’s finance is highly stable. All of these contribute to competitive advantages
over competitors.

2.3.2 Intangible values:

Management’s competence
Staff’s skills and know-how together with strong dedication are crucial to success (Stanik
et al, 2007). These can be proved through how they survived and made profits after the
9/11 event which was a crisis in the industry while other airlines announced bankruptcy
or losses. Emirates was cautious about not creating over-capacity and appropriate launch
of new products when and where demand and profitability are high (Stanik et al, 2007).
Emirates succeeded in expanding into NZ in 2003 when this new destination saw 29
international airlines offering services to the country. This know-how and core
competences can not be copied. Thus, Emirates owns a great value of its goodwill,
established throughout its life.

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Absolute cost advantages
Emirates actually obtained advantages from Dubai’s ultra-efficient airport, tax-free
environment and especially low-labor costs, less than 20 per cent of its total costs while
competitors struggled with that up to 35 to 40 per cent (Stanik et al, 2007).

Brand loyalty
Emirates has built up its brand significantly within the last two decades. More customers
have become loyal and chosen Emirates when travelling from the Middle East and
Europe to New Zealand and Australia (Stanik et al, 2007) in terms of high product
quality, product innovation and excellent service.

Economies of Scale
As outlined in ‘Key Success Factors’

2.3.3 Established Value Chain


Emirates is renowned for a huge range of properties, diversified business, contributing to
its full operations. Most operations are owned and run by Emirates. Dubai International
Airport has exclusive Emirates Terminal 3 (Emirates, n d.). Emirates adopts vertical
integration into its core business structure, incorporating diversified properties. This
resembles itself through manufacturing, marketing and technology. Emirates directly
operates check-in, service desks, boarding and lounge services, baggage and handling and
airport push-backs (Emirates, n d.). In addition, Emirates hotels & resorts; Emirates sky
cargo; Emirates aviation college for pilot and staff training; Emirates engineering centre
for repair, maintenance and training; Emirates catering, incorporate business support
(Emirates, n d.). These activities make up smooth operations for the airline’s success.
Obviously, Emirates has a great potential to create added value through vertical
integration in the value chain, defined by Hill et al (2007). As stated, there are many
Emirates-branded subsidiaries and partner companies that operate in conjunction with the
business. On the basis of this assessment, Emirates outweighs competitive advantages

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over competitors, in terms of productivity, cost efficiency and entrepreneurial
management.

2.3.4 Key strategies employed


Reviewing the company’s business-level strategies, its focused differentiation as a 5-star
standard airline, underlines product development in terms of luxury, excellent quality and
service. Emirates has proven to be a successful company exploiting this market segment
with high profitability.

Considering its capabilities, competences, competitive advantages and economies of


scale, Emirates has decided to expand global markets on its own. Explaining to the
direction of not joining a major alliance, Maurice Flanagan, Vice-Chairman, answered
the company had examined and could not see any business case for it (Stanik et al, 2007).
Explicitly, this indicates how strategic the management are as they consider possible
impact of entering major alliances with strong competitors of similar-level economies of
scale, operating within the markets and channels. Taking into consideration that it is well-
established and can compete with other major players with its own competitive
advantages and core competences. Emirates avoids giving away its know-how,
technology and other resource values to potential competitors (Hill, et al., 2007). This
becomes an example of excellent strategic management.

Emirates is in stable growth stage of the industry lifecycle. The company’s strategies
have been appropriate. Thus, Emirates grew at an average annual rate of 25% - one of the
20 biggest and the five most profitable airlines in the world in 2004 (Stanik et al, 2007).
Appendix 4 shows revenues and profitability.

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2.3.5 SWOT Analysis
A SWOT analysis, enclosed as Appendix 3, provides a clear basis for examining
Emirates business performance and prospects. It helps management review its strategic
direction in response to changing contexts.

The thorough analysis of external and internal environments discloses significant


implications. The company is able to review its strengths, weaknesses in the contextual
environments. Strategic management are those who are able to identify future trends for
the business and respond to changes, particularly in the current economic downturn.
Appendix 2 details future challenges and trends.

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2.4 Strategic Options for an Economic Recession

Outline of Industry Issues


The airline industry is experiencing hard time ever in the financial crisis, facing the
prevailing issues:
• Slowing down in key economies such as US, Japan, China and EU.
• Overcapacity in many markets, especially in long-haul markets – this is linked to
deregulation and alliances where competition is intensive.
• Falling yields due to overcapacity, low-cost airlines and falling demand
• Rising labour costs

It is clear that weakened economic condition combined with significant financial


obligations, including financial deficits, increasing unemployment, falloff in travel
demand makes recovery uncertain for the airlines (Doganis, 2005). Most airlines scale
back on planned expansions. Management should be aware of situational strategies in
order to sustain business.

Possible strategic principles for companies operating under conditions of an


economic recession:
• Cost cutting and cost management in any activities of the value chain need to be
executed. In the situation of uncertain demand, bureaucratic costs, involved in
managing vertical integration of full operations from inputs and in-line processes
for the business, may hamper cost efficiency (Hill et al, 2007).
• Management should decide upon whether route restructuring is needed, (Doganis,
2005). Focused operations should be intended for profitable routes.
• Company’s assessment on cash reserves and financial capability is important.
Management should be aware of sufficient finance to survive or need state aid,
(Doganis, 2005).

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• Consolidation and concentration within alliances, (Brueckner, 2001) result in
efficient operations and cost reduction while companies still benefit from
profitability.

Strategic options for Emirates Airlines


It needs to consider that cost reduction is vital as long-term necessity when demand is
currently uncertain.

Internal resources and organization structure are the keys to consideration for strategic
options. They can be:
• Restructure organizational resources
• Cost management by reducing bureaucratic costs
• Network and fleet rationalization

Moreover, Emirates needs to redirect its strategy in focused differentiation to price


competition for lager market shares as customers become more price-sensitive. Further,
the growth of low-cost airlines is increasing. Management need to consider whether there
is a need to compete on low-cost flights considering that Emirates has competitive
advantages from experience curves and economies of scale throughout its life of
development.

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3 CONCLUSION AND RECOMMENDATIONS

From analyzing external and internal environments, it is worth that Emirates management
identify its capabilities and competitive advantages and access how competitive it is in
the field. From such an analysis, there are implications requiring Emirates to respond to
change in changing contexts such as political, technological and particularly current
economic downturn. Management must be aware of issues and develop new strategies
accordingly in order to sustain.

In response to the outlined challenges (Appendix 2) in an economic recession, Emirates,


in order to succeed, should follow credible direction of development strategies, in terms
of cost reduction, market penetration, to be recommended:
• As labor accounts for 25-35% of total costs (Doganis, 2005), it is possible for
Emirates to re-structure organizational resources. Allen (2008) suggests that
reducing staff numbers, reallocating resources is appropriate in the event of
internal revenue cutback. This is a trustworthy solution in expense control.
Besides, Emirates need to renegotiate work practices and control wage increases,
(Doganis, 2005).
• To survive beyond current financial crisis, Emirates need to outsource some
operations in the value chain such as engineering, maintenance, catering or
ground handling. This will significantly help reduce bureaucratic costs run.
However, the company will benefit from high expertise and efficiency by
contracting services, (Hill et al, 2007).
• Market penetration is recommended through cutting prices in existing markets.
Emirates should redirect its strategy to price competition to widen market
coverage from lower-cost market. This effort is to balance short-term objectives
against long-term needs, guided by Howard (2008). This is probable because
customers are more price-sensitive and growth of budget airlines is increasing.
• Emirates need to re-access its profitability within particular geographic markets. It
is necessary to go into code-share alliances in certain markets where there is a

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decline in profitability. By going into strategic alliances, Emirates will cut down
significant costs, and obviously still gain marketing benefits of large size and
network spread and reduce competition on duopolistic routes, (Brueckner, 2001).
• From competitive advantages and economies of scale, Emirates can also
strengthen or expand the function of Emirates cargo flights to existing markets to
gain profitability.

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Deregulation and Privatisation, Monograph

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<http://news.yahoo.com/s/nm/20090324/bs_nm/us_financial_airlines>

Borenstein, S., “The Evolution of U.S. Airline Competition,” Journal of Economic


Perspectives 6, 45-73 (1992).

Brueckner, J.K. and P.T. Spiller, “Economies of Traffic Density in the Deregulated
Airline Industry,” Journal of Law and Economics 37, 379-415 (1994).

Brueckner, J.K., “The Economics of International Codesharing: An Analysis of Airline


Alliances,” International Journal of Industrial Organization 19, 1475-1498
(2001).

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Doganis, R 2005, Current Challenges and the Future Shape of the Airline Industry,
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Emirates Airlines, n.d. Emirates’ Story; Fleet; Chauffeur Drive; Emirates’ Experience,
Emirates News, retrieved: 20/04/2009, <www.emirates.com>

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Hanlon, P. 1999, Global Airlines: competition in a transnational industry, 2ndedn.
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Hill, C. Jones, G. Galvin, P. and Haidar A., 2007, Strategic Management An Integrated
Approach, 2nd edn, John Wiley & Son Australia, Ltd. Milton Qld.

Hofmann, 2007, Airlines implement strategies to compete with low cost carriers, website
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Hoovers, 2008, Industry news, retrieved 21/04/2009, <http://www.hoovers.com>

Howard, S 2008, Corporate Responsibility and the Financial Crisis, Video, Commentary
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M2 Communications Ltd., 2006, AIRLINE INDUSTRY INFORMATION

Oum, T.H. Park, J.H and Zhang A. 1999, Globalization and Strategic Alliances: The
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Qantas Report, 2007, retrieved 20/04/2009, <www.qantasairlines.com>

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Zealand” in Hill et al, Strategic Management: An Integrated Approach, Wiley:
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15th edn, McGraw-Hill, New York NY 10020.

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Virgin Blue Airlines, n.d. Virgin Blue’s history, retrieved 16/04/2009,
<www.virginblue.com>

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APPENDICES

Appendix 1:
Table of GDP per country

Below is a table of GDP of the countries in which Emirates operates: the figures of GDP
growth rate in 2007 and 2008 respectively of these countries.

Country 2007 2008


Australia 4% 2.5%
Brazil 4.5% 5.2%
Canada 2.7% 0.7%
Germany 2.6% 1.7%
New Zealand 3% 0.6%
People's Republic of China 11.9% 9.8%
South Africa 5% 3.7%
United Arab Emirates 5.2% 7.4%
United Kindom 2.9% 1.1%
USA 2.2% 1.4%
Source: World Fact Book, 2009, https://www.cia.gov/

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Appendix 2:
Implications from External and Internal Analysis
From analyzing the macro and industry environments, it is worth identifying strategic
issues, future challenges and trends for strategic options.
Future challenges and strategic options, according to Doganis (2005):
• Surviving beyond current financial crisis
Is cost cutting deep enough? Is route re-structuring needed? Are cash reserves
sufficient? Is state aid needed?
• Trend to further liberalization unstoppable
This results in more open deregulated markets, more intense competition.
• Concentration and consolidation within alliances
This derives from economic and commercial pressures. Benefits, advantages and
disadvantages need to be considered.
• Low-cost revolution has undermined short-haul scheduled markets and network
airlines in USA and Europe and Australia, is spreading South America, Africa and
is booming in South East Asia.
• Continued decline of yields is due to overcapacity and impact of IT
• Cost reduction is long-term necessity
• Advance of IT seeks for strategic development
• Environmental constraints
• Infrastructure capacity constraints

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Appendix 3:
Emirates Airlines SWOT Analysis
Strengths Weaknesses
• Advanced technology and continuous • Lack of local skilled labour, almost relied on
innovation expats
• Developed infrastructure: exclusive• Finance heavily relied on oil export, possibly
terminal, local airport, ground services, resulting in financial deficit when oil price
lounges drops
• Large and young fleet • Cost-intensive business due to highly
• Stable finance capability; diversified value chain

• Competence of strategic management, • Local economy dependence: home


know-how government subsidies

• Skilled staff of diverse cultures


• Brand loyalty and good will
• Absolute cost advantages: low home-base
labour cost, fuel subsidies, free local taxes
• Economies of scale
• Scope of business, in term of established
value chain
Opportunities Threats
• Higher global market expansion and entry • Low-cost revolution: more intense
due to increasing deregulation and competition
liberalization • Unstoppable deregulation and
• Gaining marketing benefits of large size liberalization
and network spread when being of • Consolidation and concentration within
consolidation alliances
• Reducing competition on duopolistic routes • Fuel price fluctuation,
• Possible entry into low cost market • Uncertain recovery of economic crisis
penetration due to absolute cost advantages • Environmental constraints: climate
and economies of scale change, global warming, shortage of
resources, air pollution

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Appendix 4:

Emirates Airlines financial highlights


Year Total Revenue Total Operating Net Profit Yield Unit Cost Breakeven
Ended (AED’000) Expenditure Profit (AED’000) (Fils per (Fils per Load Factor
(31/03) (AED’000) (AED’000) RTKM RTKM) %
2005 18,130,998 15,628,282 2,652,291 ▲ 2,407,385 192 111 58.0%
2006 23,050,927 20,489,601 2,652,291 ▲ 2,474,999 203 122 60.2%
2007 29,839,618 26,675,891 3,338,873 ▲ 3,096,416 216 129 59.9%
2008 39,467,427 34,392,500 5,180,171 ▲ 5,020,400 236 148 62.7%
Source: Emirates Airlines Website, available: http://www.emirates.com

Emirates Airlines operating highlights


Year Traffic Passenger Fleet Average Aircraft Number of Passenger
Seat Age of Departure Employees Seat Factor
Kilometers Fleet from %
(months) Homebase
2004-2005 12,528,761 51,398,393 69 55 72,057 15,858 74.6%
2005-2006 14,497,536 62,260,070 85 61 79,937 17,296 75.9%
2006-2007 17,544,140 77,946,590 104 63 92,158 20,273 76.2%
2007-2008 21,229,225 94,345,721 115 67 101,709 23,650 79.8%
Source: Emirates Airlines Website, available: http://www.emirates.com

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