Organizations are said to be successful if they are able to achieve their objectives. In the current business environment, competition has continued to be so stiff that some organizations fail to meet their objectives (Kotler & Amstrong, 2012). Therefore, Etihad Airways is compared to some of its competitors that successfully operate in the industry.
General Information about Etihad Airways
Etihad Airways is the United Emirates' national airline that offers international passenger as well as cargo services to more than 75 destinations in North Africa, Indian Subcontinent, North America, Europe, Middle East, the Far East, the Middle East, Southeast Asia and Australasia (Abu Dhabi International Airport, 2014). The airways established through Royal Decree about twelve years ago have become one of the world's leading airlines in commercial aviation.
The airline's misssion is to show Arabian hospitality and promote the prestige of Abu Dhabi as a center of hospitality between East and West. The objective of the airline is to become a global airline of the 21st century that is able to challenge and change the principles of airline hospitality (Etihad Airways, 2015). The airline has continually received awards that reflect its position as one of world's premium brands. For instance, the airline has received the award of the World's Leading Airline for five consecutive years at the World Travel Awards (Etihad Airways, 2015). The airline has committed to a strategy of collaborative growth, which it hopes to enable to gain the scale that is required to remain competitive in the global air transport. Along with its organic growth, the airline is partnering with other key players in areas of codesharing and strategic investments (Etihad Airways, 2015).
Working together with equity partner airlines has enabled Etihad airlines to enjoy a wider network of destinations as well as greater convenience in regard to booking and fare. Basically, there are in-flight benefits, lounge benefits as well as loyalty programs. Some of the equity partners include Air Serbia, Air Seychelles, Air Berlin, Alitalia, Jet Airways, and Virgin Australia, among others (Etihad Airways, 2015).
Analysis of the Industry Structure
Even though competing with established market leaders in the airlines industry can prove to be very difficult, Etihad Airways ought to be confident that it can gain the market share and make good profits in the end. Apparently, being aware of both direct and indirect competitors is an essential strategy that the airways must consider. The direct competitors of Etihad Airways include Air Arabia, Emirates Airlines, Qatar Airways, Fly Dubai, Gulf Air as well as Oman Airlines in the United Arab Emirates and other regions in the Middle East.
Among the Middle East's big three (MEB3) airways of Emirates, Etihad and Qatar, Etihad remains the smallest one. For instance, Emirates Airways transported more than 39 million passengers during the 2012/2013 financial year while Qatar Airways transported around 18 million passengers during the same period. However, Etihad Airways managed 10.2 million during the period. However, figures have been in stuck favor of Etihad Airways. For instance, while Emirates carried 16 percent more passengers in 2012 than in 2011, Etihad carried 23 percent more. Therefore, Etihad Airways may not achieve the numbers that the other two competitors have, but it certainly appears to be on the right track of growth. In fact, Singapore Airlines is the biggest competitor from the Asian region.
Emirates Airlines remains the biggest competitor of all mentioned above. The reason for this is the fact that for more than twenty five years, it has managed to create value for customers. Specifically, its cost leadership strategy has been very effective. Thus, Etihad Airways needs to introduce more innovative strategies to wrestle the market from Etihad Airways. Indirect competitors include telecom industries as well as holiday cruise companies. Notably, telecom companies have made communication simpler through video calling technology. Therefore, there is no need to go to other places for conferences and meetings. Similarly, cruise companies are not only providing transportation but are also ensuring that customers get hotel facilities as well as other amusement facilities that Etihad Airlines has not been offering to its customers.
Qatar Airways has been able to achieve a level of differentiation due to its ability to manage and operate both wide bodies and narrow bodies. For instance, the airline has 40 percent of its passenger aircrafts made up of Airbus 320. This has allowed it to venture into small markets that the Emirates Airways consider too small. Similarly, Etihad has 28 percent of its passenger aircrafts made of the A320 airbus family. In contrast, both Qatar Airways and Etihad Airways that have joined global alliances, Emirates remains disinterested in such alliances arguing that there could be possible negative impacts on its brand.
The Company Specifics of Internal Environment Components
The airline's marketing department plays an essential role in ensuring that Etihad Airways reaches the world. For instance, in 2011, the airline was awarded as the World's Leading Airline for the third year in a row enabling it to inspire its audiences through campaigns such as 'fly with the best.' Creating brand awareness in Etihad's key markets coupled with online marketing campaigns have been key success factors. Since 2012, the airline has been focusing on driving its business forward commercially using timely tactical support at critical periods through booking patterns as well as route launches. In addition, the management of the airline has committed to investing more in digital media to accurately target commercial messages and build sales further.
In 2011, a major campaign known as the Essential Abu Dhabi was introduced to create awareness of the capital city of the United Arab Emirates as one of the top tourist destinations in the world. The program has a dedicated website as well as branded brochure that feature a comprehensive directory of the Emirate's attractions as well as exclusive offers. In the same year, there was a specially branded plane A330 that took to the skies with the slogan 'Visit Abu Dhabi in 2011'.
Similarly, the marketing department of Etihad Airlines has been supporting the marketing requirements of the whole network of more than 70 passenger destinations that the airline flies. This has always been achieved through strategy and campaign development, media planning, tracking of results, as well as vendor or agency management. In addition, the department helps in managing the execution of essential brand communication strategy through the various Etihad divisions. Etihad has been offering various sponsorships as a strategy to market its brand. In addition, Manchester City Football Club signed a comprehensive 10-year partnership with Etihad. The partnership includes naming rights for the stadium as well as nearby grounds. There is also an existing shirt sponsorship. Other important sporting events that the airline sponsors to market itself include Abu Dhabi Golf Championship and Sport Australia Hall of Fame.
During the 2014 financial period, the airline's revenue grew steadily to US$ 7.6 billion following record number of passengers and cargo volumes transported. Passenger demand as well as revenue growth have continued to surpass capacity intake. Earnings before interest, tax, depreciation, amortization and rentals (EBITDAR) and earnings before interest and tax (EBIT) were up to 16.2 percent and 32.5 percent respectively (Etihad Airways, 2015). Its partnership strategy led a very strong performance during the financial period, with partnership revenues rising by 37.7 percent from US$ 820 million in 2013 to U.S$ 1.1 billion, which represented 24 percent of passenger revenues. Etihad Airways exceeded its cargo goal to become a billion dollar company, with its annual freight and mail volumes rising to 569,000 from 487,000 tons during the 2014 financial period (Etihad Airways, 2015). The airline has become one of the world's largest cargo operators. In fact, it was during the 2014 financial year that the airline posted the strongest financial results, with a net profit of US $ 73 million representing a 52.1 percent increase from the previous year. The airline's financial performance confirmed its position as the best in its category in terms of profitability and self-sustenance. Therefore, the airline is growing not only in size but also in repute and performance (Etihad Airways, 2015).
In 2014, Etihad Airways transported a total of 14.8 million passengers representing an increase of 24 percent from 2013 financial year. Similarly, revenue passenger kilometers increased by 23.6 percent to 68. 6 billion while the available seats per kilometer increased 86.6 billion representing a 21.8 percent increase (Etihad Airways, 2015). It is notable that during the twelve month period, the growth in passenger demand as well as revenue continued to outperform the airways' capacity increase. This was important because it highlighted the strength of the airline's long-term growth strategy. Passenger numbers continued to strengthen because of the launch of new destinations in countries such as Dallas, Los Angeles, San Francisco, Zurich, Rome, Yerevan, Medina, Jaipur, Perth and Phuket. In addition, there was increased capacity on the existing 23 routes. By the end of 2014 financial year, the average network-wide load factor was 79.2 percent as opposed to 78.0 percent in 2013 (Etihad Airways, 2015).
The airline's 2014 growth was largely driven by partnership strategy that based on various code shares as well as unique approach to equity investments. The strategy has enabled Etihad Airways to accelerate its network growth, which made the airline boast of commanding the largest network compared to the other Middle East carriers. The airways now reach over 500 destinations and have boosted its sales and marketing chances in the key markets. In 2014, Etihad Airways' bid to acquire a 49 percent stake in Air Serbia was approved (Etihad Airways, 2015). It also acquired a 49 percent stake in New Alitalia and a 75 percent interest in Alitalia Loyalty. The future purchase of five pair slots at Heathrow Airport and leasing back to Alitalia was approved by the European Commission merger clearance in 2014. Etihad Airways owns minority stakes in other airlines such as Airberlin, Air Seychelles, and Aer Lingus. Code share agreement has been launched with jetBlue, Air Europa, GOL, SAS, Philipines Airlines, Aerolineas Argentinas and Hong Kong Airlines. Similarly, the existing code share agreements with Alitalia, South African Airways as well as Jet Airways have been expanded (Etihad Airways, 2015).
To boost its operations, Etihad Airways launched a program known as Etihad Airways Partners. This cooperation model is significant because it offers customers a variety of choices through improved networks as well as schedules. Similarly, the cooperation promotes enhanced regular flyer benefits. The partnership has created greater synergies among the partners such as Etihad Aiways, Air Serbia, Airberlin, Alitalia, Air Seychelles, Etihad Regional, NIKI, and Jet Airways (Etihad Airways, 2015).
Etihad Guest Loyalty program has continued to grow in membership. For instance, the number of members grew by 26.1 percent to 2.9 million in 2014 from 2.3 million in 2013. This strategy will help the airline develop as a leading customer loyalty and marketing service organization thus improving member engagement as well as return for the partners (Etihad Airways, 2015).
Etihad Airways has been able to facilitate its operation by investing in long-term infrastructure, diversification of activities to enhance control of service standards and delivery. The airline acquired various flight training schools from Mubadala to assist in training and ensuring constant supply of pilots, specialist maintenance and engineering capabilities of its human resources every year. The airways have also been able to support its equity partners through the facilities (Etihad Airways, 2015).
In 2014, Etihad Airways had a fleet of 110 aircraft representing a 23.6 percent increase as compared to the previous year. It is during the same period that the airline received its first Airbus A380 and Boeing 787-9. These aircrafts have been able to provide state-of-the-art facilities that most customers would want to have in their travels. The airline had planned to purchase more aircrafts in 2015 including Boeing 777-300ER, Boeing 787Dreamliners, Airbus A380 and narrow-body airbus A321 and A320 (Etihad Airways, 2015).
Etihad Airways has opened premium lounges in Abu Dhabi and Sydney besides the first arrivals lounge that can also be found in Abu Dhabi. In particular, there is a sleep program that is focused on enhancing customer sleep experience during the night. There are also on board nannies who support customers with children. The in-flight Wi-Fi, TV and mobile phone connectivity on the wide-body jets are the strategies that have been deployed to enhance customer experience. There has also been a program aimed at developing a sustainable and commercially viable biofuels industry in Abu Dhabi. This project is being conducted in partnership with Mas dar Institute, General Electric, Boeing, Takreer, among others. The airline's employee base of 24,206 people from 144 nationalities in 2014 makes it a truly global and diverse organization (Etihad Airways, 2015).
Organizational Structure of Etihad Airways
The airline has a board of directors, executive team and the president who is also the chief executive officer. The board of directors consists of seven members, and it is headed by the chairman. The board is responsible for formulating the policies that are used to run the airline. The executive team is made up of nine members, namely the chief executive officer, chief financial officer, chief commercial officer, chief operations officer, chief strategy and planning officer, chief people and people and performance officer, chief information technology officer, chief operating officer responsible for equity partners, and the airline's legal counsel. These individuals are charged with the responsibility of overseeing the daily running of the airlines. They implement the policies that have been formulated by the board of directors (Etihad Airways, 2015). Therefore, it is important to note that they drive the organization towards achieving short-term and long-term objectives.
External Environmental Forces
There has been relative political stability in the Emirates giving organizations such as Etihad Airways the advantage of uninterrupted flights from and to countries. However, the worsening political situation in countries such as Iraq may impact negatively on the airline. The airline may not fly through some of its traditional routes or create new routes in the troubled areas. This may affect the airline's expansion program.
Strengthening of the US dollar against the Local Currency
The strong US dollar against other major currencies is hitting the airline hard. The currency exchange situation combined with weak economic outlook in many parts of the world may dampen the positive impact that could have arisen from lower fuel prices. However, the decision of the airline management not to hedge fuel purchases is bound to pay off as fuel prices continue to fall. Importantly, the strong dollar is not unique to Etihad Airways only; the other competitors have had to go through the same problem (Etihad Airways, 2015).
The Airline's Competitive Forces
Most of the aircrafts being operated by Etihad Airways have been purchased from Boeing and Airbus. This creates dominance by the two main supplier companies to the airline. However, there is the possibility of acquiring low cost jets from other suppliers (Etihad Airways, 2015).
As the economic outlook continues in the United Arab Emirates and Asian countries continue to improve, there are possibilities that more commercial airlines could enter the routes that are currently dominated by Etihad Airways and its two main competitors. The increasing number of commercial airlines may lead to better services and price reductions for the customers (Etihad Airways, 2015).
The recent economic recession may have prompted airlines to opt for low cost jets. There are customers who are willing to forgo flights that provide fringe benefits. Therefore, providing low-cost flights will enable Etihad Airways to deal with the possibility of new entrants to the route providing substitute services (Etihad Airways, 2015).
Etihad Airways' main competitors, namely the Emirates Airlines and Qatar Airways, are powerful because they control more than 60 percent of the routes. However, it is important to note that Etihad Airways has continued to consolidate its position in the industry through consecutive positive financial results and numerous global awards.
Objective Evaluation of the Airline's Top Management
The top management appreciates human capital and invests in them. The managers have formulated employee development strategy through effective training. The strategy has been critical in strengthening the airways' position in the marketplace. The top managers acknowledge that promoting employee development enhances competitive advantage. For instance, investing in education and training appears to have significantly contributed to the airline's positive results over the years. The managers also ensure that the employees are oriented to their workplaces, develop the employees to utilize advanced programs and build organizational ability for future success.
Through its top management, the airline has ambitious programs such as harnessing technology. To ensure that customers and business partners get value for their money and investments, the top managers of the airline have introduced innovative e-business platforms in areas of cargo handling, procurement, passenger experience as well as internal procedures. Some of the benefits that passengers currently enjoy include in-flight e-mail system, online check-in and airport lounges.
Financial Performance of Etihad Airways against its main Competitor, Emirates Airlines
Emirate airline's financial performance has continued to strengthen each financial year. For instance, operating profit increased from 1.8 AED billion during the 2011/2012 financial year to 4.3 AED billion during the 2013/2014 financial year to 5.9 AED billion during the 2014/2015 financial period (Emirates Group, 2015). The 2014/2015 financial year has been a year of successful growth marked by a drop in oil price. The year could have been even better had the runway of Dubai International Airport not been closed. Similarly, unfavorable exchange rates, Ebola outbreak as well as suspension of operations in areas that were experiencing geopolitical turmoil were other factors affected the business (Emirates Group, 2015). The airline was able to add 24 wide body aircrafts to its fleet thus increasing its destinations and carrying additional 4.8 million passengers during the period. There was additional 127,000 tons of cargo more than the previous year (Emirates Group, 2015).
Importantly, profit attributable to the owner increased by 40 percent to AED 4.6 billion from AED 3.3 billion in 2013, the increase being supported by a drop in fuel price (Emirates Group, 2015). Profit margin also increased by 1.2 percent compared to the previous financial year. The airline recorded the highest ever operating profit of AED 5.9 billion during the 2014/2015 financial year. The profit was 38 percent more than the previous year, which is an indication of a healthy growth. Return on shareholder's funds was 17.2 percent due to increased profitability. This was a significant increase from the previous year when it was recorded at 13.6 percent (Emirates Group, 2015).
Even though Emirates Airlines continues to be the market leader, it cannot ignore the Etihad Airways that has also recorded positive net profits during the past four financial periods. For instance, Etihad Airways' net profit rose by 52.1 percent during the 2014 financial year while the net profit of Emirates Airlines rose by 38 percent (Emirates Group, 2015). Though the financial figures vary, it is apparent that Etihad Airways is on the path to sustainability. Nevertheless, most of the challenges that the two competitors face are similar: for instance, outbreak of Ebola, political turmoil in some of the routes shared and the strong dollar against local currencies (Emirates Group, 2015).
Strategic Issues Facing Etihad Airways
The airline may have to reduce costs without compromising products and services offered to the customers (Blythe & Megicks, 2010). This is important particularly at this time when the US dollar has strengthened against other currencies. In addition, the global economic recession may lead to some passengers opting to travel using low-cost aircrafts.
The other strategic issue that the airline faces is getting slots to operate in foreign countries. After the economic recession, some government may institute strict regulations for foreign airlines so as to protect local carriers. The recent case is where Germany and Australia reduced the number of flights from Etihad Airways. Similarly, Etihad has not been able to get landing rights easily in Far East regions such as at Singapore Airport. These challenges are likely to affect the airline's strategies of serving Europe and Far East countries (Blythe & Megicks, 2010).
1. The airline should consider cutting prices in the current markets. In this way, it will become more attractive in new routes and engage more customers eventually. This is important because customers are always price sensitive.
2. Etihad Airways has to be more strategic in planning and reduce costs as well as operating expenses. This will be critical for survival during the financial crisis. As costs increase, profit margins reduce and the organization will eventually become less valuable.
3. The airline needs to continue investing more on its human capital. This is important, especially at this time when airlines are advancing the technology pursuits. It is notable that already, some strategies have been implemented, but that should not stop the management from continuing to focus on the future.
The airline is expected to continue posting positive results in the future because of its effective policies. However, external factors such as political strife and strengthening of the US dollar may impact the business negatively.
This research has helped recognize Etihad Airways as one of the fastest growing airlines in the world currently. Through effective management, Etihad Airways has been able to compete effectively with some of the established airlines, especially the ones that come from the Middle East such as Emirates Airline and Qatar Airways. The effectiveness of the strategies instituted by the management of the airline is evident through the four year consecutive profits. However, as the competition continues to stiffen, the top management will need to be more pragmatic in their policies so that the airline does not erode the benefits that it has gained so far.