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Executive Summary
The foundation of Etihad Airways in 2003 resulted in intensified competition in the airline industry as the company emerged as one of the fastest-growing players in the industry. With its headquarters situated in Abu Dhabi, which is the capital of the United Arab Emirates, Etihad Airways benefits from the governments financial support since it is the national flag carrier. In this case, carrying out a strategic analysis using various techniques is relevant to identify the underlying factors, which are responsible for the performance of the organization. Additionally, an evaluation of the strategic choices is considered to deduce the aspects that are accountable for Etihad Airways fast growth in the industry. Recommendations based on the strategic issues that pose a threat to its competitive edge are identified to facilitate its planning for continued success.
Introduction
Conducting a strategic analysis of a particular business organization is essential for the assessment of its environment. Conducting a strategic analysis for Etihad Airways would facilitate planning towards the acquisition of a substantial market share, fostering the companys image, creating a competitive advantage, and streamlining its operational activities. The analysis can employ a range of analytical methods that include the SWOT analysis, the PESTEL analysis, Porters Five Forces analysis, TOWS Matrix, and Stakeholder Analysis for the evaluation of strategic choices for the case of Etihad Airways.
Etihad Airways Overview
Etihad Airways was incorporated in July 2003 as a national carrier. It started its operations in November 2003. Headquartered in Khalifa City, Abu Dhabi, the companys principal operations are situated at the Abu Dhabi International Airport (Etihad Airways, 2015a). The giant airline has expanded its network services from the Middle East to North America, Europe, Africa, Asia, Australia, and Canada. Etihad Airways has 24,347 employees that are based in various regions (Etihad Airways, 2015a). Etihad Airways is one of the key players in the aviation industry. In the 2014 Global Traveler Awards, Etihad Airways was awarded in the Airline of the Year , the Best Airline in the Middle East , and the Best Airline Staff/ Gate Agents categories.
Etihad Airways has maintained considerable growth in its revenue since its incorporation in 2003. In 2007, the total revenues were $1.6 billion that increased to $ 2.5 billion in 2008. In 2009, the revenue dropped to $2.3 billion before hiking to $3 billion in the following year. The year 2011 witnessed an impressive record of $4.1 billion, which saw an increase to $4.8 billion in 2012. The positive trend was also recorded in 2013 whereby the revenue gains amounted to $ 6.1billion. In 2014, the revenue totaled to $7.6 billion accounting for a 26.7% rise. The 2014 financial results were the strongest achieved by Etihad Airways to date as it was a 52.1% increase in profits from the previous year (Etihad Airways, 2015b).
Etihad Airways Vision, Mission, and Values
The mission of Etihad Airways is to maximize its profitability through the implementation of operational methods that enhance its yield, minimize its transit periods, maximum load factors, continuous and instant communication flow to the stakeholders, administration, and improved customer service.
Etihad Airways vision depicts its efforts towards promoting the Arabian culture. According to the vision statement, The airline seeks to reflect the best of Arabian hospitality cultured, considerate, warm, and generous as well as enhance the prestige of Abu Dhabi as a center of hospitality between East and West. Our goal is to be a truly 21st century, global airline, challenging and changing the established conventions of airline hospitality (Etihad Airways, 2015a, para. 4).
Etihad Airways upholds values that have facilitated the companys success and accreditation with awards over the years. The values include the delivery of best practices in its operations, inspiring customers, paying attention to details, a positive attitude, and taking responsibility.
Corporate Social Responsibility
Etihad Airways is committed to enhancing the sustainability of the environment in which it operates. The company came up with a Together CSR strategy, which focuses on the growing, working, giving, and working towards a greener environment collectively. The Etihads leadership led by the CEO emphasizes the need for collective economic growth, especially concerning the UAE economy. With a 27% growth in its workforce, the company seeks to improve the well-being of its workers by facilitating training programs for professional growth. In 2013, the Etihad Guest loyalty generated a total of $317,000 that was meant for charitable initiatives in various communities. The company acknowledges the essence of biofuels in its operations in a bid to curtail the emission of CO2 to the environment. The figure below shows the CSR strategy that Etihad Airways implemented in 2013.
The Etihads CSR initiatives are outstanding since the company was recently recognized at the UAE Sustainability Awards. The awards included the Sustainability Manager of the Year and the Best Sustainability Communication Program . The Sustainability Manager of the Year was accredited to Linden Coppell, who is the companys sustainability manager. The other award was an acknowledgment of the organizations commitment to environmental conservation through the BIOjet: Flight Path to Sustainability initiative.
Purpose of the Study
The aim of conducting this study is to analyze the internal and external environmental factors that are accountable for the status of Etihad Airways. The assessment would facilitate strategic planning for its future endeavors towards the attainment of continued success. This paper will dwell on the strategic analysis of Etihad Airways through the application of various analytical methods that would facilitate its evaluation and recommendations for improved performance in the airline industry.
Organization Analysis
This analysis highlights the different attributes, which are accountable for the performance of Etihad Airways. In this respect, various analytical tools would be employed for the examination of the internal and external factors, which are accountable for the organizations strengths and weaknesses.
PESTEL Analysis
Political
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Etihad Airways receives backing from HH Sheikh Hamed bin Zayed Al Nahyan, who forms part of the board that facilitates the management of the company to become the best in the world.
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The UAEs government is liberal towards Etihad Airways as a national flag bearer based in the Abu Dhabi emirate (CAPA, 2015). This assertion implies that the airlines services get support from the UAE government as a major player in its economic growth, especially in the aviation and tourism sectors.
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Abu Dhabi as the UAEs capital city plays a significant role in the growth and development of the country due to the streamlined operations in the prime location.
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Political instability in the Middle East region over the years has posed challenges and threats to the business operations in the region.
Economic
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The highly developing city has facilitated economic growth in various sectors of the UAE economy resulting in enhanced structures that favor the aviation industry.
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The cost of domestic airline services in the UAE is affordable (Truxal, 2013). The cheap airfares and cargo rates have enabled the airline player to gain a substantial market share of the local population.
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The operating costs are high for Etihad Airways due to the strong Dirham against the USD. Although the USD is stronger compared to the Dirham, currency fluctuations imply that operational costs are dependent on the international currency trends since it is a global organization. Additionally, the lower currency exchanges facilitate competitiveness over the European Union rivals (Truxal, 2013).
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The formulation and implementation of free trade agreements with countries in Asia have provided opportunities for growth due to business growth and cost-cutting.
Social
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The company is popular amongst an extensive number of individuals in the upper social class, thus implying that its corporate image has been acknowledged by the wealthy.
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The Abu Dhabi cosmopolitan population provides a huge workforce and culturally diversified customer base, thus fostering economic growth and strong organizational culture.
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Etihad Airways has shown interest in the social conditions of its environment. The company has demonstrated its commitment to CSR programs that aim at fostering positive social change in various communities. This aspect has enhanced the brand image of Etihad Airways.
Technological
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Etihad Airways has enhanced its IT sector by signing agreements with companies like SITA to enhance its computing operations and facilitation of the global online presence (George & OConnell, 2012).
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The adoption of Intelligent Operations technology facilitates the monitoring of the Airbus and Boeing aircraft through fault prediction and the mitigation of flight delays, thus improving its overall efficiency.
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Cyber threats in the airline industry have necessitated the need for IT and Internet security measures. Speculations suggest that the missing Malaysia Airlines Flight MH37 might have been hacked into and controlled from another center. Therefore, Etihad Airways ought to consider new technologies that enhance data management and security.
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The airlines fleet has been increased with record-breaking orders that seek to upsurge the number of flights domestically and internationally hence facilitating competitiveness. Technological advancements have brought new methods of enhancing efficiency through applications like the Ramco Aviation Software. The software facilitates efficiency in operational costs, inventory management, and automated operations for better customer experiences.
Ecological
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Aircraft noise restrictions challenge the airlines operations since it is impossible for the industry to be noise-free.
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New trends in the airline industry portray a shift towards environment-conscious strategies that aim at sustainability. In this case, competitors are concerned with environmental conservation to create an impressive image that grants them a competitive edge. Etihad Airways has been at the forefront regarding this aspect by initiating the Green Together campaign.
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Fuel-saving and emissions have also been regarded as important considerations in the airline industry. In this view, Etihad Airways has initiated light-weighting strategies, especially in its cargo department. In 2013, aircraft light-weighting strategies reduced the weight of the plane by 200kgs, thus implying a reduction of 5000 tonnes of CO2 annually.
Legal
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The organization suffers from the limited qualified labor force in the country.
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As a national flag carrier, Etihad Airways is subjected to a low tax regime resulting in improved operational costs. Additionally, low airport costs further enhance its functional management mechanisms that strengthen its rapid growth.
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Government agencies in various regions that Etihad carries out its operations have been formulating policies to safeguard the interests of the passengers. This aspect includes provisions on the aspects of safety, quality customer experiences, and timely flights.
Five Forces Analysis
The Threat of Entry
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With the advanced growth in the Middle East and Asia, new airline service providers are likely to emerge, and thus pose threats to Etihad Airways in terms of increased options for customers (-).
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Etihad Airways has faced threats from new entrants who have emulated the services provided by the company. However, they have failed due to their competitiveness and the industrys market share. The failure of its competitors is based on the value of services, customer satisfaction, and demand that could not be matched by the new entrants (+). Therefore, the threat of entry is low.
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Venturing into the airline industry requires massive capital injections that may discourage new players to join the industry. The situation is attributed to the costly aircraft, airport facilities, and other infrastructure and resources required for operations. The capital intensiveness of the industry favors Etihad Airways, thus reducing the threats of new entrants (+).
Overall Moderate.
The Threat of Substitutes
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Long-distance travelers have limited options that would facilitate the arrival to their destinations faster and in a short time. Therefore, air travel remains as the fastest means of transport for long distances (+).
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Technological development in the telecommunications and IT sector has reduced the necessity for individuals to travel regularly for meetings and other functions. For instance, teleconferencing has made it easy for geographically scattered parties to communicate without meeting physically. Therefore, this substitute poses a threat to airline players like Etihad Airways (-).
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Individuals that travel domestically may opt for a car, bus, or high-speed trains. This aspect is common in Europe and the Middle East where other means apart from air transport are preferred for regional travels (-).
Overall Moderate.
The Bargaining Power of Buyers
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Budget travelers tend to find no attractiveness in the seasonal prices as compared to business travelers and pleasure travelers due to the seasonal fluctuation of fares. Customer loyalty would be facilitated through innovative strategies like online purchasing services, which are duty-free (-).
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In the airline industry, prices change seasonally meaning that different categories of travelers are affected. During the high season (December January), business customers usually have low bargaining power since airline providers concentrate on other categories (+).
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The periods characterized by new entrants resulted in a competition that created acceptable customers bargaining power. Price reduction strategies employed by Etihad facilitated market penetration, thus enhancing competitiveness since the customers preferred the lower fares (+).
Overall High
The Bargaining Power of Suppliers
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Considerable dividend gains attained by the companys stockholders due to increased public stock and remarkable discounts have facilitated the growth of Etihads capital injections. Therefore, the profits earned are also accountable to the stockholders as the airlines suppliers (+).
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Two suppliers, viz. Airbus and Boeing, dominate the bargaining power since Etihad Airways is limited to its options for quality aircraft suppliers. This aspect could be mitigated by the expansion of Etihads operations necessitating the purchase of more aircraft that would lead to the reduced bargaining power of the suppliers (-).
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In the airline industry, supplies contract agreements are usually on a long-term basis, which limits the players ease of shifting to alternative suppliers. In this case, companies like Etihad Airways have limited bargaining power (-).
Overall Low
The Extent of Rivalry between Competitors
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On the aspects of market share, Emirates Airlines, Qatar Airlines, and Saudi Arabia Airlines provide stiff rivalry to Etihad Airways. The rivals pose threats to the companys increased market penetration since they have increased their number of flights, thus necessitating the Etihads strategic planning to counter the competition (+).
Overall High
Strategic Capabilities
The competitive capabilities of Etihad Airways are depicted in the managements strategies towards sustainability and improved value over time. This analytical aspect focuses on Etihads resources and competencies, VRIO framework, Benchmarking, and the Value Chain analysis.
Resources and Competencies
The resource base aspect of Etihad Airways analysis focuses on the unique conditions and resources that are managed by the organization towards the attainment of its competitive advantage.
Physical Facilities
Etihad Airways has an extensive range of tangible assets that facilitate its operation. Its fleet of 117 Boeing and Airbus aircraft, the headquarter offices at Khalifa City, and structures at the Abu Dhabi International Airport constitute its valuable physical facilities and assets (Cole, 2013).
Intangible Assets
Etihad Airways has built a brand name, which has enhanced its reputation, and thus it acts as a valuable intangible asset. Other intangible assets include customer relations, online resources, lease agreements, franchise agreements, employment contracts, computer software, and trade secrets.
Human Resources
The human resource factor at Etihad Airways is managed under the leadership of the Sheikh Hamed bin Zayed Al Nahyan, the chairman, and Sheikh Khaled bin Zayed Al Nahyan, who acts as the deputy chairman of the board of directors. The company boasts of a globally situated workforce of over 24,000 employees (Etihad Airways, 2015c).
Financial
Etihad Airways boasts of revenues of over $7.6 billion adding up to its financial resources. These resources are accountable for its remarkable profits gained in 2014 that recorded a 52% increase from the previous year. Additionally, stakeholders are pleased with the improved dividend returns owing to the exceptional performance attained (Arabian Aerospace, 2015).
Marketing and CSR
The companys marketing strategies major on competitiveness through low prices and the provision of quality services. The airline service provider has engaged in various CSR initiatives globally resulting in various CSR awards including the recent UAE Sustainability Award.
Etihad Airways has the following competencies
Product Diversity
Through the Etihad Pearl Business Class and Etihad Diamond First Class, Etihad Airways has been in a position to segregate its customers in business and first-class respectively, thus covering different customer needs (Etihad Airways, 2015c, para. 6).
Product Quality
The maintenance of high-quality services throughout its operations ensures customer satisfaction. The services entail in-flight and on-ground activities.
Pricing
A consistent pricing policy is maintained to ensure competitiveness through affordable fares. For instance, when comparing the average pricing for the second baggage between Etihad Airlines and Etihad Airways, the prices were $135 and $130 respectively. This aspect implies that Etihad Airways maintains a lower price that seeks to attract more customers. Compared to the lower budget Air Arabia, the pricing was $30 for the second luggage. Despite the pricing competition from Air Arabia and Fly Dubai, Etihad Airways concentrates on edging out its biggest competitor, viz. Emirates Airlines (Cole, 2013).
Culture
The organizational culture acknowledges diversity and hospitality to staff and customers, thus enhancing its sustainability.
VRIO Analysis
The application of the VRIO analytical technique would enhance the assessment of Etihad Airways organization and its competitors. This aspect would focus on the dimensions of value, rareness, imitability, and the organization. The following table aids the VRIO analysis of Etihad Airways.
Table 1: Etihad Airlines VRIO framework and analysis
Based on the VRIO framework, the Etihads competitive advantage can be evaluated considering the comparative implications of its strategies. In this regard, Etihad can be perceived as a sustainable player in the airline industry as depicted by its fast-growing rate. The organizational culture promoted by effective leadership has enhanced the organizations drive towards sustainable growth as a competitive player in the industry. The strong human resource base cannot be underestimated given its cultural diversity and the upholding of the airlines corporate values. Therefore, the strategic management of Etihad Airways is sustainable, which implies improved performance in the future, thus enhancing the realization of its vision.
Benchmarking
The airline industry has been characterized by stiff competition, low margins, and increased customer expectations. In this essence, Etihad Airways needs to implement new strategies that would facilitate its competitiveness in the ever-growing industry. Considering the techniques employed by the leading competitors is essential to enhance the Etihads financial performance, customer satisfaction, innovation, and other operational endeavors. The following table shows the general performance of the top airline services providers during the 2009/2010 peak season (December-January).
Etihad Airlines emerged as the top airline company that portrayed efficiency in its check-in/bag drop department. However, there is a room for developing the online check-in system since only 34% of the passengers used the online platform. The remarkable boarding experience at a score of 94% ranked Etihad Airways as the top in this category followed by British Airways at 88%. There is an opportunity for improvement since only 7% of the customers in the study experienced the timely opening of the boarding gates. On the aspects of plane conditions and in-flight host/hostess services, Etihad Airlines was ranked lower as compared to Emirates Airlines, Swiss Air, and British Airways.
In-flight services about food and beverage, entertainment, and shopping experiences indicated satisfactory performance. Areas that ought to be considered include the quality of food and beverage and entertainment equipment for the improvement of the Etihads competitiveness. The overall performance for all the competitors indicated that only 21% of the passengers picked up their luggage in less than five minutes. Etihad ought to improve its performance in this category in a bid to facilitate customer satisfaction. The overall performance depicted the Etihads impressive score totaling to 92.5% at position two just behind Emirates Airlines, which garnered 93.2% as the total average score. The benchmarking analysis portrays the competitiveness in the industry whereby small marginal differences separate the key players (Ethos Consultancy, 2010).
Value Chain Analysis
An analysis focusing on Etihad Airways value chain management examines its operational activities towards the delivery of quality airline services in the highly competitive market. Etihads inbound logistics is boosted due to the internal movements in the logistics activities as carried out by suppliers as they forward their inventories (Cole, 2013, p. 89). The passenger and flight operations at the airports account for the major chain processes that require effective management at Etihad Airways. Outbound logistics endeavors are facilitated by the delivery of cargo and transportation of passengers to various regions including the Americas, Asia, Europe, and Australia. Promotions enhance the sales and marketing elements through newspaper and television advertisements (Cole, 2013).
Human Resource Management
Abilities, effort, and time possessed by the Etihad Airways workforce form part of its valuable intangible assets. The strategic capabilities of the company are highly contributed by the workers who ensure the efficient execution of tasks in various departments. Since the quality of services offered by Etihad Airways has enormous implications for the perceptions of the customers, the management team concentrates on effective training that builds its human resource management. The development of the workforce enhances the competitive advantage of Etihad Airways over rivals like Emirates Airlines, which has reported poor employees working conditions in the recent past. Etihad Airways also focusses on developing the talents of its employees in various forms that include regular performance reviews that acknowledge the employees commitment, hard work, and expertise development (Etihad Airways, 2015d).
Technology Development
The technologies introduced at Etihad Airways to improve its value chain and general performance include Online Check-in, In-flight e-mail system, and Airport lounges. The implementation of strategies that incorporate state-of-the-art technology in operations led to its recognition as the leading e-business airline in Asia (George & OConnell, 2012). In this regard, the e-business initiatives introduced in the cargo, passenger, procurement, and procurement sectors have been strategic in facilitating its competitive advantage in the modern society.
Other Services
Adding value to the existing services is essential for Etihad Airways to continue attaining impressive results that push it towards becoming the fastest growing airline company. The airlines goal is the delivery of superior quality services and value to its customers through subsidiary services (Etihad Airways, 2015b, par. 9). The organization acquired the Abu Dhabi Cargo Company (ADCC), Abu Dhabi In-Flight Catering (ADIFC), Catering, and Abu Dhabi Airport Services (ADAS) to foster the ground handling business (Etihad Airways, 2015d). These services acquired in 2013 have facilitated timely performance, maintenance of its growing international routes, and flight frequency upsurge.
SWOT Analysis
Strengths
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Etihad Airways has attained profitable results since its incorporation. In the 2014 financial statements, the company revealed net profits of $73 million, which saw the total revenue amounting to $7.6 billion. Additionally, Etihads EBITDAR and EBIT surged by 16.2 % and 32.5 % respectively.
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The sources of income for Etihad Airways are derived from investments from the Etihad Holidays initiative that invested in the hospitality industry in various cities of the world. The Etihad Crystal Cargo division is also a significant source of income as it provides cargo transportation. The companys revenues are based on the following portfolios, Airlines (60%), Crystal Cargo (20%), Holidays (10%), and Gaming (10%) (Etihad Airways, 2015b).
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Etihad Airways offers quality services in-flight and on the ground. In the air, Etihad offers a flexible class as it recently upgraded the number of aircraft in Business and Economy cabins and new suite first-class coupled with a friendly cabin crew in flight that assists the passenger. Moreover, an enhanced entertainment system allows the passengers to control the system easily coupled with entertainment during a flight without becoming bored. Moreover, it offers duty-free and dining. Finally, it provides medical care. Most flights are offering non-stop flights that lead to saving time and creating convenience for passengers.
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Etihad was awarded as the best Business & Firstly Class product and service in worldwide airline companies. The Etihads state-of-the-art E-BOX on-demand system won the Middle Easts Leading In-flight Entertainment. The E-BOX allows customers to enjoy more than 600 hours of the latest movies and TV shows, music, interactive game recharge laptops, and mobile devices.
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On the ground, Etihad Airways provides chauffeur pickup services in 27 destinations worldwide coupled with access to lounges for First and Business classes. Additionally, check-in for first class and business class is separated from the economy class.
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The location of Etihad Airways in Abu Dhabi
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