Numerous measures, such as market research, observation, and using social media, help obtain information about the external environment. Effective recognition and understanding of these environmental changes can enable organizations to take measures to ensure they meet their corporate objectives. The analysis of the business environment can be conducted through the PESTEL framework, which includes factors such as Political, Economic, Socio-Cultural, Technological, Environmental/Ecological, and Legal.
Political factors: The government has a responsibility to support businesses to ensure their smooth operations. The United Arab Emirates consists of seven emirates established in 1971. The federation is made up of the rulers of all the emirates, and like many federal structures worldwide, a provisional constitution delegates some powers to the federal body while others remain under the governance of each emirate. The President and Vice-President are elected from the members of the Federal Supreme Council, which includes the rulers of the seven emirates.
Traditionally, open discussions known as ‘Majlis’ are conducted with the common people. These discussions are commonly chaired by the emirate ruler, a senior family member, or a ruler-appointed ‘Wali’. In November 2009, H. H Sheikh Khalifa Bin Zayed was re-elected for another five-year term. This re-election ensures stability and consistency in the government’s policies and procedures, allowing organizations to remain focused on long-term objectives.
Etihad Airways, a national airline of the UAE, is supported by the Government of Abu Dhabi in terms of physical infrastructure, including business headquarters, designated airport terminals, sales offices, and transportation. Additionally, the government provides social infrastructure by promoting equal opportunities and enforcing laws in the region. In 2012, the UAE government took strict actions against individuals who organized a protest via social networking platforms. Furthermore, in 2013, 94 individuals were put on trial under the suspicion of attempting to seize power (United Arab Emirates profile).
Despite political unrest in the constituency and the European crisis, the economy has been affected. However, due to its strong financial position, Etihad Airways has been able to make smooth progress (according to UAE faces lower growth but outlook positive- Gulf News). It appears that Etihad Airways does not have any cash flow issues as it is funded by the Abu Dhabi government, which is experiencing rapid development thanks to its abundant oil reserves. As the national airline, Etihad Airways holds a dominant position and the government may prevent any other airline from entering the market in order to benefit financially.
Economic factors: The economy of UAE in the early ages relied on fishing, dates, and the declining pearl industry. However, the discovery of oil in 1962 changed the country’s civilization and wealth. Abu Dhabi was the first emirate to export oil, marking a significant transformation. Currently, there is a strong emphasis on reducing dependence on natural resources like oil and gas while expanding the economy through sectors such as tourism, construction, and trading. Compared to Abu Dhabi, Dubai has been more proactive in implementing this strategy (United Arab Emirates profile).
The country of UAE experienced a decrease in projected GDP growth from 3.9% in 2011 to 2.6% in 2012, mainly due to external factors (UAE faces lower growth but outlook positive- Gulf News). However, the country is still achieving its strategic goals overall. Additionally, Etihad Airways had an average growth rate of 28% from 2010-2012 (Revenue analysis figure).
UAE has an open economy with high per capita income and a significant trade surplus. It is a favorable destination for foreign investors, particularly in its free trade zones where fully foreign ownership is allowed and no taxes are applicable.
According to the United Arab Emirates Economy Profile 2013, the country’s GDP is US $361.9 million, with an inflation rate of 1.1% in 2012. Etihad Airways made significant decisions regarding cost efficiency at the end of 2010. Their product and services team implemented amendments, while their efficient workforce contributed to providing high-quality services at a lower cost. Etihad Airway’s Product offerings indicate that these changes have been advantageous. In 2011, the company achieved its first full-year net profit, and in 2012, they experienced a performance increase of 200%.
The presence of oasis and the irrigation of date palms using water from mountain aquifers were significant socio-cultural factors in the UAE. Water was also used for gardening during the summer months. However, rapid economic growth and development, especially after the oil export boom, resulted in urban expansion. This has created a distinct contrast between life now and life four decades ago. The people of the UAE have a strong affinity for luxury and opulence, evident in their desire to live lavish lives. To meet this demand, Diamond Class Suites were introduced as an extravagant service option. Etihad Airways plays a crucial role in facilitating the people’s interest in traveling worldwide by acting as a gateway to the rest of the world.
Despite this, the people of the United Arab Emirates (UAE) continue to highly value their norms and values. In modern times, individuals have the opportunity to become familiar with desert life through desert excursions, and even tourists enjoy spending a night outdoors in the desert. The UAE’s culture is also evident in other locations such as fishing harbors and markets, known as souqs, which include gold and spice souqs among others. Throughout the year, various sociocultural events are organized to showcase the customs and culture of the UAE and promote tourism in the country. These events encompass fairs, hunting competitions, dhow races, horseback riding, and camel races.
The UAE is considered both culturally conservative and one of the most liberal nations in the gulf region. It respects and permits the practice of other faiths, creating a welcoming environment for diverse cultures. Presently, foreign workers and expatriates comprise over 75% of the population in the UAE (United Arab Emirates profile). The entire region is witnessing economic expansion, with passenger traffic closely linked to this growth. In terms of demographics, there are approximately 100 million individuals under 24 years old, and expatriates play a significant role in shaping the UAE’s population. This results in a demand for air travel to their respective home countries (10-The Air Arabia).
Etihad Airways has a diverse and experienced workforce, with human resources from over 125 nationalities. This diversity can lead to increased customer satisfaction, as it allows for better service to customers from all around the world. In addition to having a diverse workforce, Etihad also contributes socially by providing employment opportunities for UAE nationals. Currently, Emirati employees make up the largest nationality group in the organization (AR 2102 page 6). The role of technology in any business is crucial.
The UAE is ranked 27th in terms of technological availability and has an exceptional IT structure. It also has the highest number of internet users in the Middle East region (Oxbridge-9). The growth of Etihad’s web revenue in 2012, which increased by 23 percent, is a result of this high number of internet users. In July 2012, new features for hotel reservations and car rentals were introduced on UAE’s website. These features will be further extended to other regional websites in 2013 (AR 2012 page 42). Technological developments can benefit Etihad Airways by improving efficiency and reducing costs.
Etihad Airways understands the importance of redefining business practices and is committed to investing in improving system efficiency. The airline’s IT infrastructure is diverse, consisting of over 3000 personal computers and 170 applications across a global network operated by 300 servers. In 2011, efforts were made to enhance the IT department’s ability to provide strong and cost-effective support within the organization. Additionally, restructuring measures were implemented, including the introduction of tablet devices for cabin crew to enhance customer service.
In 2011, Etihad Airways made a 10-year technology agreement with Sabre Airlines Solutions to address the fast-paced advancements in the technological industry. This collaboration aimed to integrate software systems in various areas such as reservations, inventory, e-commerce, planning, marketing, distribution, among others. The implementation of Sabre’s software was planned for February 2013, with the expectation of reducing technology expenses significantly and improving operational efficiency while fostering future revenue growth (Annual Report 2011 page 44).
The transformation taking place at Etihad (AR 2102 page 9) is a significant one. The continuous addition of new and innovative aircraft to the fleet is improving fuel efficiency, resulting in lower carbon emissions. In 2013, the company expects to receive fourteen new aircraft (AR 2012 page 30). The airline industry is facing scrutiny regarding ecological concerns and must adhere to strict regulations to meet legal requirements and minimize negative impacts on society.
Etihad Airways is focused on reducing its carbon dioxide emissions. The addition of new airlines to its fleet in 2011 led to increased resource use and emissions; however, there was still a noticeable improvement in fuel efficiency when measured per passenger kilometer (CSR Report 2011). In 2010, 86% of Etihad Airways flights departed on time, a decrease of 2% due to the European volcanic ash crisis and the weather-related closure of Heathrow (Business Review 2010 page 15).
Efforts are being made at the corporate level to achieve compliance with the Greenhouse Gas Protocol and the Global Reporting Initiative Guidelines. The focus on aircraft development and operational controls aims to enhance efficiency, while also drawing attention to the utilization of alternative sustainable fuels. This emphasis seeks to contribute to the de-carbonization of the airline industry. By addressing concerns regarding supply, refining capabilities, and cost parity, the potential impact of bio-fuel usage in de-carbonizing the sector can be significant.
Etihad ensures that all ground staff are trained in environmental awareness as part of their induction program. They also actively participate in events like World Environment Day and Paperless day to promote this message to both employees and the external world. In terms of legal factors, due to Abu Dhabi’s busy airport, the noise produced by aircraft can impact nearby communities. To address this, global regulations on noise control, enforced by ICAO, are implemented. Certification requirements include the establishment of noise restrictions for aircraft engines, with all aircraft being required to meet stringent Chapter 4 noise standards.
Each of these forces is analyzed critically as follows: Threats of new entrants: The entry of new competitors increases capacity and competition. This is influenced by the barriers to entry and the response from existing competitors (P3 Book BPP text page 47). In the airline industry, the entry of new players poses a challenge for Etihad due to the high cost of purchasing aircraft, as well as the expensive flying rights and airport fees caused by intense air traffic. Etihad has several options to mitigate these threats.
Barriers to entry in the airline industry revolve around economies of scale. The high fixed costs associated with the industry result in a significant breakeven point, as demonstrated by Etihad Airways, which took eight years to become profitable according to their Annual Report 2010-2011. In the absence of promising growth opportunities, new entrants must work diligently to gain market share from established competitors. Loyalty among customers is also a challenge in the airline industry, as there are only a limited number of loyal patrons who choose to remain with a particular airline despite the availability of alternative options. To address this, Etihad has implemented the Etihad Guest loyalty program as a means to enhance customer loyalty.
The airline industry requires a significant amount of capital investment and is associated with high risk. Consequently, the production of engines for major airlines is dominated by three companies: General Electric, Rolls Royce, and Pratt & Whitney. This makes it challenging for new entrants to compete. Additionally, obtaining the right to fly to destinations that are already served by established airlines can be difficult, especially if it has the potential to impact the network or revenue of the national airline.
Etihad Airways faces a threat from substitute products, which are produced by a different industry but satisfy the same customer needs. According to the BPP Book (page 47 or 48), if there is a high level of substitute products available, it can negatively impact the profitability of the entire industry. In the case of Etihad, the main threats come from the automobile and ferry boat industries. Customers have the option to switch from air travel to using their personal cars or other transport services if there are routes available. The decent road network in UAE provides an alternative for customers, and some may prefer using ferry boats for travel due to their leisurely nature.
Assessing feasibility, this could be cost-effective in many cases with minimal switching costs (Page 49 bpp text). The bargaining power of customers depends on factors such as industry and non-industry options, switching costs, product or service standardization or customization, and customer price sensitivity. In the region, there are more than 90 established carriers providing customers with a wider range of choices (Oxbridge Affect Business Venture 22 April).
Dubai is located 127 km from Abu Dhabi, making it easily accessible by a good transport system. This means that customers can consider flying to Dubai if they find a cost-effective flight for their desired destination. With multiple options available and minimal switching costs, customers have a high bargaining power when it comes to choosing Etihad Airways. However, the high number of expatriates in the UAE has made air travel a necessity rather than a luxury.
This necessity may benefit low-cost carriers over full-service airlines in certain situations. Demanding customers can negotiate lower prices, which can erode profit margins. The bargaining power of suppliers is influenced by the availability of suppliers, the threat of new suppliers entering the market, the level of standardization or customization of their products, and the switching cost. In the airline industry, there are three major aircraft engine manufacturers (Page 47 bpp), giving customers limited choices for selecting a supplier.
Etihad’s main suppliers are Boeing and Airbus (V. P Corporate reporting). The airline faces high switching costs due to the lengthy authorization process required by Standard Operating Procedures (SOPs). Additionally, the specialized nature of aircraft and the risk of damages make it difficult for the airline to frequently change suppliers. This can lead to compromises and ultimately give suppliers a strong bargaining power.
Human Resources at Etihad Airways not only provide customer services but also have a significant impact on the bargaining power in the short term. This is because it is crucial for airline customers to be treated courteously, and extensive induction and training processes are conducted to improve their expertise and skills, making them irreplaceable. Additionally, the competition among current airlines in the UAE industry is multifaceted, with each airline striving to capture a larger market share.
The high bargaining power of customers in the sector means that Etihad Airways and other well-known carriers in the region, such as British Airways, Singapore Airlines, Air France, KLM, Swiss Air, Qatar Airways, Emirates Airline, and Gulf Air, must offer attractive packages to become the preferred choice of travelers. In addition to Etihad, there are over 90 other carriers operating scheduled flights to more than 120 major cities daily.
However, being the largest exporter of oil in the UAE, Abu Dhabi has great potential for economic growth. Etihad Airways can gain a competitive edge by focusing on customer loyalty programs, providing excellent customer care, and offering a luxurious traveling experience. While Etihad follows a full-service airline strategy, they can also compete with low-cost airlines by creating a sub-brand that focuses on cost strategy, following the example set by companies like Toyota with Lexus and Fiat with Ferrari.
Critical Success Factors (CSFs): Safety is the top priority for Etihad Airways and is integrated into all processes. The IOSA Operational Safety Audit ensures that the airline meets international standards in areas such as organization and management, flight operations, cargo and cabin operations, security, and safety management systems. The airline underwent an IOSA audit in both 2010 and 2012 and received no findings (AR 2012 page 34). Additionally, an external audit was conducted in 2012 to ensure compliance with Abu Dhabi’s new environmental health and safety management systems, which Etihad Airways fully complied with.
Etihad has been awarded the ISO/OHSAS 18001:2007 Certification for Occupational Safety, which is a globally recognized occupational health and safety management system (AR 2012 page 34). The People and Performance department at Etihad plays a critical role in ensuring efficient and effective operations, along with support from other divisions (Key success factors, product offerings… Slideshare). Additionally, the labor force at Etihad is highly diverse and experienced, consisting of more than 125 nationalities (AR 2012 page 52).
In 2012, eight new stations were managed and nearly 40% of administrative positions were filled within the organization personnel (AR 2012 page 52). The ‘iachieve’ employee performance initiative reached its three-year milestone in 2012. All employees successfully achieved their set objectives, and bi-annual appraisals were conducted (AR 2012 page 52). The Etihad Academy, accredited by IATA, provides IATA Diploma programs in Airport operations, reservations, cargo, and IATA Harvard leadership & Management diploma.
Enrolments in employee diploma programs had reached 150 by the end of 2012 (AR 2012 page 54). Etihad Airways permits its pilots and other crew members to make official visits to their destinations, thereby enhancing their level of comfort (Key success factors, product offerings… Slideshare). The implementation of improved induction and training programs for inflight cabin crew has resulted in outstanding customer service. Etihad Airways’ staff received the accolades of ‘Middle East’s Leading Cabin Staff’ at the World Travel Awards 2012 and ‘Airline with the best Cabin Crew’ at the Business Traveller Middle East Awards (Page 62 AR 2012).
Like any service organization, Etihad relies on its products and services to gain a competitive advantage. This includes inflight developments, aircraft developments, and ground product offerings. In recent years, Etihad has particularly focused on enhancing its inflight offerings in the far eastern market. As a result, longer routes such as Bangkok, Seoul, and Beijing now feature multiple course meals, hot desserts, and hot drinks. Additionally, Etihad has introduced a traditional Japanese inflight service method called Kaiseki, complete with bespoke utensils and beverages.
Inflight entertainment was improved with new visuals, including live news availability, access to e-mail, and Microsoft Office accessibility (Key success factors, critical issues, mission and strategy Slideshare). Etihad’s success in providing unique onboard products and services, along with its high guest satisfaction scores, led to the airline being named the World’s Leading Airline for the fourth year in a row, as well as the World’s Leading First Class (AR 2012 page 46). Etihad prioritizes offering top-quality products and exceptional customer service (AR 2012 page 6).
In 2012, a scheme was launched to improve the guest experience, which included various enhancements such as having Inflight Chefs on all first class routes, improving meal services and content, and introducing Wi-Fly Panasonic connectivity on an Airbus A330-200 in December 2012 (AR 2012 page 47). In addition, ground product offerings at Abu Dhabi airport Etihad terminal include Wi-fi access, luggage storage, family lounges, and prayer rooms. The recent promotion called ‘leading the World with a smile’ has been implemented to further enhance the delivery of guest services (AR 2012 page 48).
In 2012, 96% of guest comments showed the satisfaction of Etihad Guests (AR 2012 page 48). A new campaign with the slogan ‘Guest First’ is planned to begin in 2013 (AR 2012 page 48). Etihad has a direct network of 86 destinations, with 70% of those served daily (AR 2012 page 6). The airline also has four Equity partners: Air Seychelles, Airberlin, Virgin Australia, and Aer lingus (AR 2012 page 6). These partnerships help provide economies of scale, increased purchasing power, and improve synergies among the airlines (AR 2012 page 6).
Etihad Airways stands out among Middle East airlines with its extensive network of 338 destinations on 6 continents, made possible through its 41 code share partners (Etihad Inflight March 2013 Issue, Page 80-81). The airline’s revenue from Equity and code-share partnerships surpassed US$600 million in 2012 (AR 2012 page 12). This paper will discuss Etihad Airways’ product offerings, key success factors, critical issues, mission, and strategy.
SWOT analysis is a helpful tool for identifying an organization’s strategic position and understanding its resources, capabilities, opportunities, and external threats (P3 Kaplan study text page 88). Etihad Airways, the National Airline of UAE, enjoys a competitive advantage over other carriers due to this status and the level of trust associated with being the National Airline. This advantage allows Etihad Airways to attract loyal customers, both local citizens of UAE and expatriates. Additionally, as Etihad Airways is wholly owned by the Government of Abu Dhabi, UAE, it has the necessary financial requirements to support its operations.
Hence, the financing for the carrier is mainly through government subsidies. Abu Dhabi, being the top oil exporting Emirate in the UAE, has a strong financial position with a Gross Domestic Product (GDP) of $361.9 million (Index Mundi). The geographical location of the UAE is advantageous for trade and business, as it connects Europe, Asia, the Soviet states, Hong Kong, and Japan. Ultimately, this aids in the growth of the tourism and airline industry.
Etihad Airways has an average fleet age of 60 months, as stated on page 31 of their AR 2012 report. On the other hand, Emirates Airlines has an average fleet age of 77 months, as mentioned in their Emirates Annual Report 2011-2012. Having a young fleet allows Etihad Airways to operate more efficiently, with less fuel consumption and lower repair and service costs. In addition, Etihad Airways plans to expand their fleet by delivering fourteen new aircraft in 2013. Another advantage of Etihad Airways is their low cost management culture, which has earned them a five-star airline rating according to the V.P Corporate Reporting. Their onboard products and services have also been recognized with the World’s leading First Class award at the Skytrax Awards 2012, acknowledged on page 46 of their AR 2012 report.
Etihad implements a complete service offering, but they adopt a low-cost airline approach in their management philosophy, particularly by enhancing operational efficiencies (AR 2011 page 11). Additionally, Etihad has entered into sponsorship collaborations with Manchester City Football Club and Harlequins Football Rugby Club, and the achievements of both teams in their respective leagues were cause for celebration for Etihad (AR 2012 page 44). Furthermore, in 2012, Etihad signed a multi-million dollar agreement to extend its naming and promotion rights for Melbourne’s well-known Etihad Stadium (AR 2012 Page 45).
Weaknesses: One of Etihad Airways’ weaknesses is its heavy reliance on one hub, Abu Dhabi, the capital of the UAE. This means that all flights either originate or lay over at this hub, which can pose a problem if there is a natural catastrophe or any other disruption. In such situations, the airline may incur high compensation costs and have very limited alternative options.
Another weakness is that Etihad Airways is still a developing airline, having been incorporated only 10 years ago. In comparison, Emirates Airline has been operating since 1985. This means that Etihad will take time to adapt to market conditions, dynamic environmental changes, and technological developments. Therefore, the airline needs to take into consideration these factors in order to remain consistent and build a strong and loyal customer base.
Etihad Airways also has a multicultural staff, with more than 12,656 employees representing over 125 nationalities as of the end of 2012 (AR 2012 page 52).
This may help in creating synergies, but it can be challenging to communicate with individuals from diverse customs and values. It requires expertise to effectively address and communicate with them. OPPORTUNITIES: Global Events: In 2012, more than 2.3 million people visited Abu Dhabi city. This was not only due to popular attractions like Ferrari World Abu Dhabi or Yas Waterworld, but also because of its reputation for hosting global events and symposiums (Winning with CEO & President, Etihad News, March 2013 Issue 2013 18, Page 3). Abu Dhabi hosted the Future Energy Summit 2012, and being the host of such global events allows Etihad Airways to serve the participants as distinguished guests and create a memorable travel experience for them.
Etihad does not provide its services from Dubai, a city that greatly contributes to the economic development of not only the UAE but also the entire region. However, if Etihad were to offer flights from Dubai, it could potentially expand its network by collaborating with its codeshare partners. This strategic dialogue could lead to a mutually beneficial outcome for both Etihad and Emirates Airline, which currently dominates the aviation industry in Dubai. In terms of environmental sustainability, Etihad Airways maintains a young fleet, enabling them to operate efficiently and reduce their carbon footprint.
Further investment in advanced technological aircrafts can enhance the reputation of Etihad and attract environmentally conscious customers who are willing to pay more for their services. In addition, Hala Travel Management, a joint venture, offers travel management services for corporate clients, making it possible to provide additional incentives to attract and retain them (AR 2012 page 14). Another viable option is to improve loyalty cards and their benefits specifically for corporate clients in order to successfully attract and retain these clients.
Threats:
– Fuel prices volatility: Etihad Airways has been proficient in fuel hedging. However, fuel costs for airlines form a significant portion of operating expenses and are prone to unpredictable fluctuations caused by non-controllable events. If not managed effectively, these fluctuations can lead to negative financial consequences. Therefore, continuous attention is required to minimize the risk of unfavorable fluctuation.
– Low Cost Carriers: Etihad, recognized as a five-star airline according to V. P Corp Reporting, faces competition from low-cost airlines in the region, particularly Air Arabia and Fly Dubai.
These airlines operate on the “no-frills” concept, which helps them minimize costs and offer lower ticket prices. While the strategies of full-service and low-cost airlines are different, in today’s volatile economic environment, many customers prefer cost-effective airlines over luxurious ones. Switching to Competitors: As mentioned earlier, Abu Dhabi serves as the hub for Etihad Airways. Customers face negligible switching costs if they choose to travel from Dubai, which is only 127 km away from Abu Dhabi. They may find opportunities to travel with other competitors because there are over 90 established airline carriers in the region. Instability in the Middle East region: Recent turmoil in Middle Eastern countries, such as…
In 2012, Etihad Airways saw a significant increase in profits, rising by 200% to reach US$ 42 million. This growth can be attributed to a combination of factors, including organic growth and partnerships through codeshare agreements. Additionally, the company’s strong focus on cost control and overall financial discipline played a key role in driving this success.
Throughout the years, Etihad Airways employed hedging strategies for jet fuel, with levels reaching 82% and 80% in 2010 and 2011 respectively (AR 2011 Page 22). However, these levels have decreased to 76%, 38%, and 16% for the years 2013, 2014, and 2015 (AR 2102 page 12). This approach represents a prudent way to mitigate the risk of higher fuel costs.
Emirates Airlines saw a steady increase in its net profit margin from 2009. However, in 2012, there was a significant drop from 9.9% to 2.4%. This decrease was primarily due to higher jet fuel costs, political unrest in the region, and fluctuations in exchange rates (Emirates AR 2011-2012 Page). The main cause of this substantial downturn for Emirates may be attributed to their lack of hedging against volatile fuel costs, which are beyond their control (Emirates AR 2011-12 page 52).
