External environment’s information is obtained by numerous measures such as market research, observation, using social media, effective recognition and understanding of environmental changes can facilitate the organization to take measures in order to ensure that corporate objectives are being met. The analysis of business environment can be planned in PESTEL framework consisting following factors – Political, Economic, Socio-Cultural, Technological, Environmental / Ecological and Legal.
Political factors: It is the responsibility of government to facilitate the businesses in order to ensure its smooth activities. United Arab Emirates is comprised of seven emirates established in 1971, federation comprises of rulers of the all emirates and as in many federal structures throughout the world provisional constitution assigned few powers to the new federal body and others continued to be under each Emirates governance. President and Vice-President are elected amongst the members of the Federal Supreme Council, which comprises of the rulers of the seven emirates.
Traditionally open discussions are held with the common people called as ‘Majlis’ commonly chaired by the emirate ruler, any senior family member or ruler may appoint ‘Wali’ in order to gain knowledge and communicate with the community. The re-election of H. H Sheikh Khalifa Bin Zayed for the another term of five year was done in November 2009. It helps in ensuring stability and consistency in the government’s policies and procedures enabling organizations to be consistent and focus on long term objectives.
Etihad Airways being a National airline of UAE and Government of Abu Dhabi is facilitating the airline with the physical infrastructure like business headquarters, designated airport terminals, sales offices and transportation. Social infrastructure is also provided by creating equal opportunities and ensuring law enforcement in the region. The UAE government dealt strictly with the people who organized a protest using social networking in 2012 and 94 persons are put on trial for supposedly trying to seize power in 2013 (United Arab Emirates profile).
Political unrest in the constituency and European crisis has an impact on economy but the strength of financial position has helped in the smooth progress of Etihad Airways (UAE faces lower growth but outlook positive- Gulf News). Apparently there are no cash flow issues for Etihad Airways as they are funded by AbuDhabi government, which is developing rapidly because of being heavily blessed with oil reserves. Being a National Airline, Etihad Airways is in a dominating position and government may not allow any other airline to get in the way Etihad’s market in order to gain financial benefit.
Economic factors: In the early ages economy of UAE was reliant upon fishing, dates and deteriorating pearl industry. Since the oil is discovered in the 1962, Abu Dhabi being first of oil exporting emirates has helped in changing civilization and wealth of the country. There is a significant concern about minimizing the dependency on natural resources (oil and gas) and diversifying the economy through tourism and construction sectors and being a trading hub. The emirate of Dubai has been more aggressive in this approach as of Abu Dhabi (United Arab Emirates profile).
The country of UAE had projected GDP growth of 2. 6 per cent for the year 2012, in contrast it was 3. 9 per cent for the year 2011. This shrink was mainly due to external factors but as a whole country is achieving its strategic goals (UAE faces lower growth but outlook positive- Gulf News)and Etihad’s average growth from 2010-2012 was 28 per cent (Revenue analysis figure). It has an open economy, experiencing high per capita income and ample trade surplus. Foreign investors are attracted to invest in country’s free trade zones facilitating fully foreign ownership with no taxes applicable.
It has GDP of US $361. 9 million with a 2012 Inflation rate being 1. 1% (United Arab Emirates Economy Profile 2013). In relation to cost efficiency, Etihad Airways took significant decisions in the end of Year 2010, their product and services team made amendments and efficient workforce helped them to serve best in class services at a lower cost (Etihad Airway’s Product offerings). The overall factors are being favorable for Etihad, 2011 was first year with full year Net Profit and in 2012 200 per cent increase in performance was recorded.
Socio-Cultural factors: In UAE there are several oasis, date palms were irrigated and water was brought from aquifers in the mountains and in the summer water was also used for gardening purposes. However recent economic growth and development specially after exporting oil resulted in expansion of urban areas and now it’s incredible to measure resemblance in life as it was 40 years ago. People of UAE love to live luxurious lives and introduction of Diamond Class Suites is a step towards those lavish services. Excursion throughout the world is also their interest and addressed by Etihad Airways being an enabler to the world.
Even so, the norms and values are held in high regard by the UAE’s people. Now a day’s people can be familiar with the desert life all the way through desert excursion and even visitors love to spend a night in an open air at desert. UAE’s culture is embedded in other places like fishing harbors, souqs (markets), gold souqs, spice souqs and many other sites. During the whole year several sociocultural events like fairs, hunting competitions, dhow races, horse riding and camel races are organized showcasing the UAE’s customs and culture along with enhancing tourism industry in the country .
The people of UAE are culturally conservative but it is one of the most liberal countries in the gulf region, where other cultures and beliefs are respected and worship of other beliefs is freely allowed. Now the foreign workers along with expatriates are more than three quarters of the population of UAE (United Arab Emirates profile) . Economic growth is being experienced in the whole region and passenger traffic and economic growth are correlated. Demographically 100 million people are under the age of 24 and expatriates are major part of UAE’s population, driving necessity of air-travelling to home countries (10-The Air Arabia).
Etihad Airways human resources belong to more than 125 nationalities, representing a diversed and experienced workforce; it may lead to more customer satisfaction as it facilitates customers all around the globe. Apart from having a diversed work force, Etihad is contributing socially by employing UAE nationals. Now 1250 Emirati employees are largest nationality group in the organization (AR 2102 page 6). Technological factors: The function of technology in any business is decisive.
Technological availability in UAE is ranked 27th and has exceptional IT structure having highest number of internet users in the Middle East region (Oxbridge-9). This pressure of internet users illustrates the growth of Etihad’s web revenue as in 2012, it grew by 23 per cent. New features of Hotel reservations and car rentals were introduced in July 2012 for UAE’s website and will be further extended to other regional websites in 2013 (AR 2012 page 42). Technological developments can help Etihad Airways in two ways i. e helping in improvements in efficiency and reduction of costs.
Etihad Airways realizes the significance of and puts efforts to redefine the way business is conducted and this requires investment in order to improve the efficiency of the systems. IT structure at Etihad Airways is multifarious comprising more than 3000 personal computers and 170 applications around the global network run by 300 servers. In 2011, IT sector at business was enhanced in the pursuit of offering robust and cost effective IT support within the organization. Restructuring provision was also made and measures such as use of tablet devices by cabin crew were introduced to improve customer services.
The rapid innovations in technological world lead Etihad Airways to sign a 10 year technology deal in 2011 with Sabre Airlines Solutions. This will help in integrated software across the fields of reservations, inventory, e-commerce, planning, marketing, distribution and others. The software created by Sabre was supposed to be implemented in February 2013 and will help in substantial reduction in technology costs enabling more efficient operations and future revenue growth (Annual Report 2011 page 44).
This transformation is major of its kind at Etihad (AR 2102 page 9). Frequent addition of new and innovative aircrafts in fleet is helping to improve the efficiency of fuel consumption consequently less carbon emissions. Fourteen new aircrafts are expected to be delivered in 2013 (AR 2012 page 30). Environmental/Ecological factors: Airline industry is questioned on ecological concerns and are required to comply with stringent regulations in order to operate according to legal requirements, minimizing the adverse effects on society.
Etihad Airways is primarily committed to reduce its carbon dioxide emissions. Introduction of new airlines it its fleet in 2011 resulted in enhancement in resource use and emissions but nevertheless there were significant enhancement in fuel efficiency when measured per passenger kilometer (CSR Report 2011). In 2010, 86 per cent of flights of Etihad Airways departed on time i. e. down by 2 per cent because of Europe’s volcanic ash crisis and Heathrow’s weather related closure (Business Review 2010 page 15).
Steps are being taken at corporate level to ensure compliance with Greenhouse Gas Protocol and the Global Reporting Initiative Guidelines. Along with aircraft development and operational controls, in order to get better efficiency, attention is driven on use of alternative sustainable fuels in order to help to de-carbonize the airline industry. If the concerns of supply, refining capability and cost parity can be addressed, bio-fuel usage has the prospective to have a substantial affect on de-carbonizing the industry.
At Etihad, ground staff is also trained about environmental awareness in their induction program and days like World Environment Day and Paperless day are participated at all levels in order to make sure that message in conveyed to all employees as well as external world. Legal factors: Abu Dhabi having a busy airport, aircrafts noise tends to have an effect on communities around them and global regulations on noise control are imposed through ICAO. As part of certification, noise restrictions are set on aircraft engines and all aircrafts are required to comply with rigorous Chapter 4 noise standards.
Each of these forces is critically analyzed as following: Threats of new entrants: New entrants bring further capacity and enhance contest between competitors. This depends on the potential of the barriers to entry and the reaction given to new entrants by present competitors (P3 Book BPP text page 47). In Etihad’s airline industry the new entry is challenging because aircrafts are the main assets of any airline and they are pricey to purchase, due to intense air traffic the flying rights and cost for staying at airports are also enormous now a days. Choices available to Etihad for threats reduction.
Barriers to entry: Economies of scale In airline industry fixed costs are high, hence have an enormous breakeven point and this is the fact that took Etihad Airways Eight years to be profitable (Annual Report 2010-2011). If there are no growing prospects then new entrants are required to work more hard in order to gain market share from its competitors. Customer Loyalty Airline industry has few loyal customers who are willing to remain loyal rather than going to a new competitor because of variety of available options. Etihad Guest loyalty program is a step towards enhancement of loyalty of its customers.
Capital Requirements Airlines being such an industry that it needs extensive capital investment and involves high risk therefore, the engines for major airliners in the world are manufactured by three corporations namely General Electric, Rolls Royce and Pratt & Whitney (P3 Book BPP text page 47), hence enhancing difficult of new entrants. Flying Rights It would be difficult for a new entrant to have right to fly for destinations that are already being served especially if there is any potential effect on network or revenues of National Airline i. e.
Etihad Airways. The threat from substitute products: Substitute products satisfy the same needs of customer but are produced by different industry and if there is intense of substitute products then the profitability of whole industry deteriorates (BPP Book page 47or 48). For Etihad, threat is mainly from automobile and Ferry boats industry because customers can switch from airline if there are routes to travel via personal car or other transport services. The road network in UAE is decent and ferry boats may be preferred by customers because of its leisure nature.
Assessing the feasibility, this might be cost-beneficial in many of the cases with negligible switching cost (Page 49 bpp text). The Bargaining Power of Customers: It depends upon the factors such as options available within the industry and outside the industry, switching cost, standardization or customization of product or service, customer attitude of being price-sensitive. There are over 90 established carriers operating in the region, expanding the customer choice (Oxbridge Affect Business Venture 22 April).
Dubai being 127 km away from Abu Dhabi, having with good transport system can be used if a customer finds a cost beneficial flight for the same destination. Customers may have lot of options with immaterial switching cost. Bargaining power of customer of Etihad Airways is higher unless they are convinced to pay any price for their services or being a loyal customer but number of expatriates being high in UAE has made Air travelling a necessity rather than a luxurious choice.
This necessity might go in favor of Low cost carriers rather full service airlines in some cases. Powerful customers can enforce price cuts, resulting in erosion of premium margins. The Bargaining Power of Suppliers: It depends upon the availability of suppliers, threat of new entrant suppliers, standardization or customization of suppliers product and switching cost. In Airline industry, there are three dominant aircraft engine manufacturers (Page 47 bpp), allowing the customer with very few options of selecting a supplier.
For Etihad, the main suppliers are Boeing and Airbus (V. P Corporate reporting). The switching cost from suppliers is high as it may take a long authorization process following Standard Operating Procedures (SOPs). Apart from this the Airline also might not frequently change their suppliers because of the specialized nature of aircrafts and risk of damages. This may enforce them to compromise and consequently result in high bargaining power of supplier.
Human Resources at Etihad Airways are also suppiers of customer services and in a short term, will be having high bargaining power because it’s very essential for airline customers to be dealt courteously and a lot of induction and training processes are held to enhance their expertise and skills which are difficult to replace at an instant. The Rivalry amongst current competitors in the Industry: The rivalry amongst airline industry is multifarious as every airline is pursuing to grasp most of the market share in UAE.
Customer bargaining power being high is a reflection for the sector as well as for Etihad Airways to have attractive packages in order to be the customer’s first travelling choice. Apart from Etihad there are more than 90 and well-known carriers in the region like British Airways, Singapore Airlines, Air France, KLM, Swiss Air, Qatar Airways, Emirates Airline, Gulf Air alongwith numerous others flying scheduled flights to over 120 major cities daily.
However, Abu Dhabi being largest exporter of oil in UAE has a lot of potential for economic growth, enhancing customer loyalty programs, excellent customer care and luxurious travelling experience can take Etihad Airways a way ahead of its competitors. Etihad is strategically a full service airline with differentiation strategy but they can cope up with low cost airlines competition by creating a Sub brand low cost airline with Cost strategy having thorough different strategy and different people as done by Toyota – Lexus, Fiat – Ferrari and many others.
Critical Success Factors (CSFs): Safety: Safety is utmost main concern of Etihad Airways and this concept is embedded across all processes. IOSA Operational Safety Audit ensures that an Airline is compliant with International Standards in parts of organization & management, flight operations, cargo & cabin operations, security and safety management system. IOSA audit was conducted in 2010 & 2012 with zero findings (AR 2012 page 34). An external audit was conducted in 2012 to ensure compliance with Abu Dhabi’s new environmental health & safety management systems and Etihad Airways was totally compliant with that.
Etihad is awarded with ISO/OHSAS 18001:2007 Certification for Occupational Safety i. e. globally recognized occupational health and safety management systems (AR 2012 page 34). People: People and Performance department plays a critical role and along with the backing of other divisions efficient and effective operations are ensured (Key success factors,product offerings… Slideshare ). At Etihad, labor force represents more than 125 nationalities that are remarkably diverse and experienced (AR 2012 page 52).
In 2012 inductions were done for management of eight new stations and almost 40 per cent administrative roles were recruited within the organization personnels (AR 2012 page 52). ‘iachieve’ performance initiative for employees completed its three years in 2012. 100 per cent accomplishments of set objectives and bi-annual appraisals for all employees were made (AR 2012 page 52) IATA’s accredited Etihad Academy offers IATA Diploma programs in subjects namely Airport operations, reservations, cargo and IATA Harvard leadership & Management diploma.
Enrolments in employee diploma programs had reached to 150 in the end of 2012 (AR 2012 page 54). Etihad allows its pilots and other crew staff to officially visit their endpoints enhancing their comfort level (Key success factors,product offerings… Slideshare ). Better induction and training programs of inflight cabin crew leads to the marvelous customer service. Etihad Airways staffs were awarded ‘Middle East’s Leading Cabin Staff’ at World Travel Awards 2012 and ‘Airline with the best Cabin Crew’ at Business Traveller Middle East Awards (Page 62 AR 2012).
Products and Services: Like every service organization, products and services play an important role in providing competitive edge to Etihad. Inflight developments, air craft developments and ground product offerings. In the few past years, Etihad focused on inflight developments especially in the far eastern market. Now few destinations namely Bangkok, Seoul & Beijing being longer routes are served with multiple course meals, hot desserts and hot drinks. Etihad also introduced Japanese inflight service method with traditional Kaiseki menu. This menu had bespoke utensils and beverages.
Inflight entertainment was also enhanced with new visuals. Live news availability, E mail, accessibility to Microsoft office (Key success factors, critical issues, mission and strategy Slideshare). It has been successful in delivering distinct onboard products and services and World leading guest satisfaction scores helped Etihad to be awarded World’s Leading Airline award for the fourth consecutive year, and World’s Leading First Class (AR 2012 page 46). At Etihad, premier considerations are made to offer best-in-class products and remarkable customer service (AR 2012 page 6).
They launched scheme in 2012 to enhance the guest experience and some of them include; Inflight Chefs on all first class routes, enhancement in meal services and content, In-flight entertainment services included Wi-Fly Panasonic connectivity in December 2012 on an Airbus A330-200 (AR 2012 page 47). Ground product offerings include Wi-fi access at home airport, luggage storage, family lounges & prayer rooms at Abu Dhabi airport Etihad terminal. Recent commencement of promotion i. e. ‘leading the World with a smile’ is helping to boost affection to delivery of guest services (AR 2012 page 48).
In 2012, 96 per cent of guest comments illustrated the satisfaction of Etihad Guests (AR 2012 page 48) and new campaign with slogan of ‘Guest First’ is planned to begin in 2013 (AR 2012 page 48). Partnerships & Network: Etihad has direct network of 86 destinations and 70 per cent of those destinations are served on daily basis (AR 2012 page 6). Etihad Airways has four Equity partners i. e. Air Seychelles, Airberlin, Virgin Australia and Aer lingus (AR 2012 page 6). This partnership helps in providing Economies of scale, more purchasing power and improving synergies among the airlines (AR 2012 page 6).
Etihad has 41 code share partners and this distinguishes them to deliver a shared network larger than any Middle East Airline with 338 destinations on 6 continents (Etihad Inflight March 2013 Issue, Page 80-81). In 2012 revenue generated from Equity and code-share partners exceeded US$600 million (AR 2012 page 12). 1. Etihad Airways Product offerings, Key success factors, critical issues, mission and strategy.
SWOT analysis can be done to identify the strategic position of an organization. It helps in understanding of the resources and capabilities and how new opportunities can be exploited with minimizing the impact of external threats (P3 Kaplan study text page 88). Strengths: National Airline of UAE: Etihad Airways is National Airline of UAE, being National Airline it has a competitive advantage among other carriers. This status and level of trust helps in attracting more loyal customers whether they are local citizens of UAE or expatriates. Financial Requirements: Etihad Airways is wholly owned by the Government of Abu Dhabi, UAE.
Hence financing for the carrier is mostly done in the course of subsidies of the government. Abu Dhabi being the highest oil exporting Emirate of UAE is financially secure with a Gross Domestic Product (GDP) of $361. 9 million (Index Mundi). Geographical Edge: Geographical location of UAE is identical for trading and business purposes, connecting Europe, Asia, and the Soviet states as well as Hong Kong & Japan . And ultimately all this helps in expansion of tourism and Airline industry.
Young fleet: Etihad Airways has an average fleet age of 60 months(AR 2012 page 31) and Emirates Airlines has an average fleet of 77 months (Emirates Annual Report 2011-2012 page ). This helps Etihad Airways in more efficient operations less fuel consumption, less repairs and service costs. Further expansion in fleet is expected as fourteen new aircrafts are due to be delivered in 2013. Low Cost management culture: Etihad Airways is a five star airline (V. P Corporate Reporting) providing award winning on-board products and services. Airline was awarded World’s leading First Class award at Skytrax Awards 2012 (AR 2012 page 46).
Etihad serves full service product but they are doing all this with an administration philosophy of a low cost airline especially improving operational efficiencies (AR 2011 page 11). Sponsorship Collaboratrions: Etihad is having collaboration with Manchester City Football Club and Harlequins Football Rugby Club and the winning performance of both teams in their individual leagues were moments of celebration for Etihad (AR 2012 page 44). In 2012, Multi-million dollar agreement was signed by Etihad to prolong its naming and promotion rights for Melbourne’s iconic Etihad Stadium (AR 2012 Page 45).
Weaknesses: Reliance on One Hub: Etihad Airways dominantly operates from capital of UAE i. e. Abu Dhabi, heavy reliance on one origin may not be feasible at all times as all flights of Etihad either initiate or lay off at their hub. Any natural catastrophe can lead to total obstruction in the flights, leaving the airline with high compensation costs and few alternative options. Developing Airline: It’s been only 10 years since the incorporation of Etihad Airways, However Emirates Airline started its operations in Year 1985. Etihad will take time in coping up with the market conditions, dynamic environmental and technological developments, hence there is lot to consider in future being consistent and building a strong loyal clientele. Multi-Cultural Staff: As at year end of 2012, Etihad Airways had 10656 employees representing more than 125 Nationalities (AR 2012 page 52).
This may help in synergies however sometimes it would be challenging to communicate with them as they would be having diverse customs and values and ould require expertise to address or communicate with them. OPPORTUNITIES: Global Events: In 2012, visitors of Abu Dhabi city exceeded 2. 3 million people and this is not only because of latest fascinations like Ferrari World Abu Dhabi or Yas Water-world but the long standing repute of presenting global events and symposiums (Winning with CEO & President, Etihad News, March 2013 Issue 2013 18, Page 3). Abu Dhabi hosted Future Energy Summit 2012, being host of such global events enables Etihad Airways to serve the participants as their distinguished guests and make their travelling experience memorable.
Dubai operations: Etihad does not provides its services from Dubai, which plays an important role in economic development of not only UAE but the whole region. The provision of flights from Dubai might help Etihad in further expansion of its network with the help of its codeshare partners. Strategic dialogues may result in Win-Win solution for Etihad and Emirates Airline (Dubai’s dominating airline). Environmental friendly operations: Etihad Airways has a very young fleet, this helps them in efficient operations and minimize their carbon footprints.
Further investment in advanced technological aircrafts can improve the goodwill and ecological conscious customers will be more likely to pay premium for cost of Etihad’s services. Corporate Clients: Joint venture of Hala Travel Management provides travel management services, further incentives could be made available to attract and retain Corporate and Government customers (AR 2012 page 14). Enhancement in loyalty cards and their privileges for corporate clients can also be a feasible option to execute and retain those clients.
Threats: Fuel prices volatility: Etihad Airways has been very good in fuel hedging, however fuel costs for airlines are generous part of operating costs and prices are likely to remain volatile due to non-controllable events which may result in adverse financial consequences if they are not appropriately managed. Appropriate attention is needed at all times to minimize the risk of unfavorable fluctuation. Low Cost Carriers: Etihad being a five star airline (V. P Corp Reporting) faces a threat from low cost airlines in the region, mainly Air Arabia and Fly Dubai.
These airlines operate on ‘no-frills’ concept which helps them in minimization of their cost and ultimately they ask for fewer ticket prices. Undoubtedly the strategy of full service and low cost airline are entirely different but in today’s volatile economic environment there are many customers who prefer cost-beneficial airline rather than a luxurious one. Switching to Competitors: As discussed earlier, Abu Dhabi is the hub of Etihad Airways and for customers switching cost to other airlines in negligible even if they decide to travel from Dubai i. . at a distance of 127 km from Abu Dhabi and they may find an opportunity to travel with other competitors because there are more than 90 established Airline carriers in the region . Instability in the Middle East region: Recent turmoil’s in the countries of Middle East region i. e.
Its profits in 2012 grew by 200 per cent to US$ 42 million. This growth was mainly because of combination of organic growth and codeshare partnerships, robust cost control procedures & financial discipline. Etihad Airways hedging levels of Jet fuels were 82 per cent and 80 per cent for 2010 and 2011 (AR 2011 Page 22), However they are 76 per cent, 38 per cent and 16 per cent for 2013, 2014 and 2015 respectively (AR 2102 page 12) which seems to be a good way to minimize the risk of higher fuel costs.
Emirates Airlines Net profit margin had smooth growth since 2009 but was significantly dropped in 2012 from 9. 9 per cent to 2. 4 per cent. This was mainly because of the higher Jet fuel costs faced by the Airline, political unrest in the whole region and volatile exchange rates (Emirates AR 2011-2012 Page ). The reason for Emirates enormous downturn may be because of being largely unhedged as the fuel costs are highly volatile outside the organization’s control (Emirates AR 2011-12 page 52).