Emirates Airlines

STRATEGIC MANAGEMENT BA in Business Top-up Program ASSIGNMENT-OCT 2010

Table of Contents
..............................................................................................................................................................1 1. INTRODUCTION............................................................................................................................3 2. HOW TO PLAN AN EFFECTIVE STRATEGY?...........................................................................4 2.1 TYPES OF STRATEGIES....................................................................................................4 2.2 PLANNING AN EFFECTIVE CORPORATE STRATEGY................................................5 3. ASSESSING THE BUSINESS PORTFOLIO..................................................................................7 3.1 THE BCG MODEL...............................................................................................................7 3.2 PRODUCT/BUSINESS LIFE CYCLE................................................................................9 4. THE GLOBAL RECESSION.........................................................................................................11 5. INTENDED OR REALISED?.......................................................................................................12 6. REFERENCES...............................................................................................................................13 7. BIBLIOGRAPHY..........................................................................................................................14

1. INTRODUCTION

Emirates Airlines
The following report is a focused strategic study based on the internationally famous, Emirates Airlines from Dubai, UAE. The first part of this report gives an overview of the science behind effective strategic planning and the various ways in which it can be conducted. Then following is the description of a couple of business portfolio management models and brief details on strategic business units of Emirates Airlines. The next part states the airline's activities during the recession period 2007-2009, how the company dealt with it and used its resources sensibly to accelerate the growth of the business. It also gives an overview about the company's strategic management processes and its path to success until today. Recent studies have shown that Emirates Airlines has become one of the fifth most profitable airline in the world and is also the most successful company in Dubai. Latest annual reports state a profit of more than 600 million dollars with the growth rate increased to 20% per annum since past decades. (The Emirates Group, 2009)

2. HOW TO PLAN AN EFFECTIVE STRATEGY?

2.1 TYPES OF STRATEGIES
Intended Strategy
Mintzberg refers to intended strategy as being generated mainly by the top managers. It is also based on purpose. It consists of intentional acts and commands which have been imposed in order to assist the organisation in obtaining its goals and objectives. It is also known as 'deliberate strategy' (Power, 2010). The intended strategy as Johnson, Scholes and Whittington (2006) describe, is planned in consideration with the effective allocation of available resources, control systems like policies and regulations, structure of the organization, etc. This deliberate design of strtaegy has been characterised by Grant (2004) as a top-down process carried out by high level staff via formal procedures such as meetingsand discussions with the corporate division, etc.

BENEFITS

This type of planning is primarily concerned with the management so it saves the hassle and effort for the rest of divisions. They will just have to abide by the new rules at work. All internal and external factors of the business environment lokked at according to the manager's point of view. If it is a recent busuness it gets to discover a lot about corporate world as a result of this implementation.

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Yet in most cases, the intended strategy does not come about as the realised strategy. According to Mintzberg hardly 10 -30% of this intended strategy is actually realised. In fact he himself criticizes this form of implementation as a weak form of planning and an inappropriate formulation of strategy (Grant, 2004). The reasons being have been addressed as folllows: DRAWBACKS At times the stakeholders of the company do not show positive attitudes and encouragements toward the implementation of fresh corporate plans. Human errors while listing down all the priorities and assumptions that come into realisation after the implementation. Possibly missing out on significant external factors affecting the companys status (Johnson, Scholes and Whittington, 2006).
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Roozen and Steens (2006) provided an example of this type of strategy impementation,'A retail company wanted to focus on products with a high added value. To that end they had to discard several of their existing commodity products although the progress was not as expected, the management persisted. It took more time than foreseen to phase out their existing products as managers had to be careful to retain their negotiating power with retailers'.

REALISED STRATEGY
Realised strategy relates to the current policies and set of guidelines that are currently being considered and practised by the company. These strategies are not directly related to the intended strategies previously initiated by the company (Johnson, Scholes and Whittington, 2006). According to Minzberg this type of strategy is primarily determined by what he classifies as the 'emergent strategy'. Under this, various decisions are implemented generated by managers of individual departments who combat and improvise themselves as a result of change in various environmental factors (Grant, 2005) Although this form of strategy (or emergent strategy)is practised by most organisations, Grant (2005) states a very good example,'Walmart's incredibly successful strategy based upon large store formats, hub-andspoke distribution systems, small-town locations, and unique approach to employee motivation was not the result of grand design-it was the result of Sam Walton's hunches and intuition plus a series of historical accidents'.

2.2 PLANNING AN EFFECTIVE CORPORATE STRATEGY

Strategic planning is an essential part of developing effective strategies. It is usually in the form of step by step as well as systematic guidelines which may relate to various sectors of the organisation. The following is a brief overview of the steps followed by organisations in order to plan effective strategies: To start with, various instructions and assumptions are listed relating to the external environment; these include the influencing conditions of demand and supply of the company's products, price levels, and other factors determining its risks and opportunities. In addition to this, other obligations and commitments that rise from the corporate department also need to be considered. Based on the above data, other departments and businesses draft a
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few plans on strategy. These plans are then discussed with officials of the corporate department in the form of face to face meetings, presentations discussing newly implemented budgets, etc. following such discussions , the various sectors of the company revise these plans in order to obtain the final approval. The corporate plan is mainly the compilation and absorption from other business plans. Approving the corporate plan is supposedly carried out by the corporate planning department and furthermore this department sets out to approve the strategic plan. To sum up, a number of objectives and goals need to be drawn up on the basis of the newly implied strategic plan. This is done in order to assist with issues relating to performance management and effective policies applied into practice. (Johnson, Scholes and Whittington, 2006) In my opinion the intended strategy may not be able to accomplish itself completely because its planning does not involve the views and data from all the divisions of the company. It is purely based on the understanding and knowledge extent of top-level employees. Discussions about plans must be conducted in the presence of the managers of all departments, lower hierarchy levels, customer service and marketing sections emphasized. Information must be derived from those dealing in these sections so that product movement and demand patterns can be assessed. After determining the areas requiring attention and enhancement, the budgets can be mutually allocated based on available finance. Gradually deriving updated reports on operations and customer behaviour might assist in overcoming competition. Hence i would recommend any company looking forward to groom on strategy to absorb the result from constant emergent strategy (in a period of time) and then imply the changes to the company accordingly.

3. ASSESSING THE BUSINESS PORTFOLIO

3.1 THE BCG MODEL

The BCG model, often known as the BCG Matrix. helps to maintain a record of the various strategic business units of the company, with information based on their market share and growth rate. This is done in order to ascertain the growth of the company's value over time. It was determined by the Boston Consulting Group (Stalk and Stern, 1998). These elements can be categorised in the BCG matrix in four main areas: (Johnson, Scholes and Whittington, 2006) Stars Elements in the star category possess high market share along with being in a growing market. Cash Cows These elements earn higher market share and also have the plus point of being in an established market. Such elements generate a lot of finance for the company. Dogs Are those areas where market share is considerably low and also fall under inactive and diminishing markets. They are considered as a waste of company's resources. Question marks Also known as the 'problem child'. Such elements are found under growing markets yet they do not reach higher market share. It might also be costly for companies to spend on them in order to increase their market share (Johnson, Scholes and Whittington, 2006). The following information relates to the key strategic business units under the Emirates Airlines: Emirates Holidays is the branch of Emirates airlines managing tour operations. In specialises in custom made travel packages, covering each
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aspect of a holiday from hotel bookings to sightseeing trips to enlightening heritage expeditions. It is the largest airline tour dealer in the Middle East with a client network equally segmented among Arab nationals, expatriates in the area as well as customers from outside the Gulf. (The Emirates Group, 2010) Arabian Adventures Arabian Adventures is the most successful destination management company in the Middle East. It provides high quality services to many leading tour operators in the world, cruise lines and motivator houses. It has a record of more than 300 professional staff and provides a wide range of exclusive custom-made services. Moreover, it manages a network of travel outlets in a number of major hotels in UAE and also has foreign representatives like in the UK, USA, Germany, Italy, Russia, France and Japan. (The Emirates Group, 2010) Congress Solutions Internationals primary aim is to organise events that target audiences of particular significance to the Middle East. It is a complete service, Professional Congress Organiser (PCO), that has assisted in the establishment of UAE on the global congress map by investing on its rapidly expanding function as a link between Asia and Europe. (The Emirates Group, 2010) Wolgan Valley Resort & Spa is a conservation-based resort, among the first in Australia. It is situated between two national parks, making a boundary of the Blue Mountains World Heritage Area. The resort combines a memory of tranquil experiences and perceptions on Australias history wildlife and heritage. Despite occupying only two per cent of the 4,000 acres of the reserve, its architecture is evocative of traditional Australian dwellings. A central focus of the resort is its farmhouse, the Heritage Homestead, and has been precisely restored to its original state. (The Emirates Group, 2010) BENEFITS It helps to effectively allocate the overall financial resources. After the matrix is ready the company is able to easily analyse where to increase investment and where to decrease budgets. (Alkhafaji, 2003) DRAWBACKS It is difficult to obtain perfectly accurate data for the units in order to properly classify them into the categories. By the time the officials are able to prepare the matrix accurately, they might possibly become outdated to make the decisions. (Joyce and Woods, 2001)

3.2 PRODUCT/BUSINESS LIFE CYCLE

The life cycle model consists of five forces that affect competition in the industrial market. This model is designed by Michael Porter. The function of this model is to assist the organisations in order to analyse their positions in the industrial market as well as in planning effective strategies. This model is also known as 'Porter's five forces' (Alkhafaji, 2003). BENEFITS It is a significant part of the strategic planning process and is also very convenient, supple and complete. This model helps firms to discover possible strategic opportunities and threats precisely. The five forces model helps define the company's position in the market and the industry. (Alkahafaji, 2003) DRAWBACKS Some products just directly happen to exit the market without entering this life cycle. Strategic decisions taken at a single phase of the cycle might result in negative predictions being made for the company. The time duration of the cycle might vary from weeks to months to years which eventually affects the forecasting decisions. (Hussey, 1998) Following is a detailed analysis of these five forces with regard to the Emirates Airlines. Threat of New Entrants Be it any industry, any new company trying to enter, will be a threat to existing companies. These are a matter of concern as such companies are likely to offer better products, facilities and prices. The airline industry possess lesser amount of these threats because of the presence of high entry barriers. This industry has high entry barriers owing to: Capital Requirements In order to initiate a new airline company, an immense budget is needed to buy air-crafts and offer services to customers. For instance a Boeing costs around two billion dollars. (Emirates, 2010) Brand name & Customer loyalty: Airline entities have been successful in constructing a strong position in the market, successfully overcoming such threats of new entrants. The existing firms benefit from being highly experienced as a result of their existence in the market for such a long time For e.g. American
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Airlines. Moreover, alliance forming among firms within the industry strengthen the barrier for new firms to establish. Bargaining Power of Suppliers Suppliers have the capacity to affect the industry with their control over increasing prices and altering the quality of products and services. Two of the most common suppliers of the airline industry are the Airbus and Boeing. Therefore these suppliers get more powerful as the demand for air crafts is so high and gradually get increased control over the market. Bargaining Power of Buyers Buyers have the capability to bring about reduction in prices and demand for better services and quality. As of Emirates Airlines having a large number of passengers, they are in a powerful position. They have lots of choices available in the market and the switching costs are also very low (IATA, 2010). The latest e-ticketing facility gives people the ease and convenience to search and compare prices from a huge list of airlines companies that offer cheaper or better packages. Moreover, it also saves them the hassle of shifting from one to another company. Hence, a lot of companies have the frequent flyer reward programs (like the Skywards miles from Emirates Airlines) in order to attract more customers and keep them loyal to the company. Threat of substitute products or services Substitutes as a threat vary from international and local airlines. Those in the local area are more prone to threats as the people have other convenient options available as well which are also faster and less costly like, city to city metro or or they might use their own cars to travel in the same area. Yet people prefer to use air transport on the international level as it is more convenient and faster within countries wide apart. In Europe, trains are commonly used to travel from one country to another, for instance the 'Eurostar train' starts from the UK and reaches France in just one hour and forty-five minutes. Rivalry among existing firms Firms in the airline industry have great rivalry amongst themselves because there are many firms offering the best of technology, air crafts and services to their customers. For example, a large number of companies try to increase their market share by offering exclusive packages at lower prices, highly cooperative customer services and lucrative promotions as well as creating the most acceptable and convincing advertising campaigns. For example Air Arabia primarily targets those in the Middle class-range with very affordable and
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convenient facilities. (Thompson & Strickland, 1995)

4. THE GLOBAL RECESSION

The Emirates airlines achieved great financial results during the global financial crisis even though other established airline companies and financial corporations experienced a huge loss of profits. Its annual profits rose by 3.67 billion dirhams (AED 3.67 billion) increasing the economies' overall GDP. Its annual profits rose by 3.67 billion Dirhams (AED 3.67 billion) increasing the economies' overall GDP. In spite of the financial crisis, the prime leaders of the UAE aviation industry namely, the Emirates and Etihad Airways have been able to serve huge populations worldwide. Following the emergence of the recession in the country, Emirates Airlines has recently made bulk purchases on the occasion of international air shows worldwide, example; thirty two Airbus A380's purchased in the Berlin Show 2010. (Asoomi, 2010) The Emirates Airlines has been growing rapidly since it was first established and ever since, it has been very strong in the market. Even
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after the recession entered the Middle East, it mainly affected the UAE's real estate sector with most lay-offs occurring here. On the contrary, Emirates Airlines had very little or no effects. The tourism has just seemed to rapidly grow since Dubai constructed the world's most luxurious Burj Al Arab hotel. Hence Emirates always had increased regional and international demand which sustained it from varying aspects of the external environment. Even during the recession, it made immense enhancements to the running of the business. For example, introduction of the Wavetech eQueuing system in Feb 2008, new RFID (Radio Frequency Identification) to track customer luggage and the in-flight call service for passengers, etc. (Stensgaard, 2008) Despite a slight reduction in sales there was a great increase in profits overall. When other companies in the city could not help issuing pay cuts and cutting down on staff or even closing down, Emirates took the advantage of its strong position and utilised its resources and brand power to attract more customers. Offers increased during this period, daily flights commenced to many new places like Houston and San Francisco, E-ticketing facility and virtual self check-in commenced launched during the period. (Lanka Business Online, 2009) Possibly its position in the local as well as world market has increased after the recession because of many broad-scale projects being signed in the period, gaining more attention from abroad and boosting tourism by facilitating flights from most destinations, example Emirates is the highest purchaser of the Airbus A380.

5. INTENDED OR REALISED?
I'm personally living here in Dubai since early childhood and since then have been commuting to my home country annually through the Emirates Airlines. All these years I have seen the company progressing in different ways. In my opinion, they have implied both forms of strategy equally and Since its establishment, Emirates Airlines has always applied a blend of deliberate and emergent strategy and has certainly obtained the best of both methods. Most of the decisions in the initial years were solely taken based on the managers' forecasting abilities. Luckily all the decisions taken worked out for the company. Later on decision-making
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also took place in the form of mutual discussions and exchange of relevant information between various divisions prior to it. Performance got monitored more frequently and departments were assessed individually on performance, requirements and finance. To sum up, it has become one of the fifth largest airline in the world much faster than other successful airline companies. Its primary motto has been customer satisfaction and pleasure along with convenience throughout these years. The company has always struggled to abide by these rules also monitoring it as their business grew. According to me their discipline on rules, effective allocation of resources, humble customer support and quality emphasis in all these years have helped them reach the position where they are today.

TOTAL NO. OF WORDS: 3246

6. REFERENCES
Asoomi M., 2010. Emirates is rule changer. Gulfnews.com. [online] July 22 Available at <http://gulfnews.com/business/opinion/in-theory-emirates-isa-rule-changer-1.657433> Accessed on Nov 5, 2010 Emirates Airlines, 2010. The Emirates Story-About Emirates-Emirates UAE [online] Available at <http://www.emirates.com/ae/english/about/the_emirates_story.aspx >
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Accessed on Nov 6, 2010 IATA, 2005. International Air Travel Association [online] (Updated Dec 19, 2005) Available at <http://www.iata.org/index.htm> Accessed on Oct 31, 2010 Lanka Business Online, 2009. Emirates Airlines push travel to San Francisco and Dubai. Lanka Business Online [online] Jan 15 Available at <http://www.lankabusinessonline.com/f ullstory.php?nid=228511554> Accessed on Nov 5, 2010 Power D.(2010). Intended strategy [online] (Updated Oct 3, 2010) Available at: <http://planningskills.com/glossary/153.php> Accessed on Oct 28, 2010 Stensgaard A., 2008. Emirates Airline chooses Wavetech Electronic Queuing to facilitate walk-in customers. AMEinfo.com. [online] Feb 24 Available at <http://www.ameinfo.com/14 7845.html> Accessed on Nov 5, 2010 The Emirates Group, 2010. Emirates Holidays-The Emirates Group. [online] Available at <http://www.theemiratesgroup.com/english/ourbrands/travel/emirates-holidays.aspx> Accessed on Nov 6, 2010 The Emirates Group, 2010. Arabian Ventures-The Emirates Group. [online] Available at <http://www.theemiratesgroup.com/english/ourbrands/toem/arabian-adventures.aspx> Accessed on Nov 6, 2010 The Emirates Group, 2010. Congress Solutions International-The Emirates Group. [online] Available at <http://www.theemiratesgroup.com/english/our-brands/toem/csi.aspx> Accessed on Nov 6, 2010 The Emirates Group, 2010. Wolgan Valley Resort and Spa-The Emirates Group. [online] Available at <http://www.theemiratesgroup.com/english/our-brands/hotelresorts/Wolgan Valley-Resort-and-Spa.aspx> Accessed on Nov 6, 2010 The Emirates Group, 2009. The Annual Report 2008-2009-The Emirates Group. Dubai: The Emirates Group

7. BIBLIOGRAPHY
Alkhafaji A., 2003, Strategic Management: formulation, implementation
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and control in a dynamic environment, England: Routledge Grant R, 2005, Contemporary Strategy Analysis, 5th ed., Australia: Blackwell Publishing Hussey D., 1998, Strategic Management: from theory to implementation, England: Butterworth- Heinemann Johnson G. Scholes K. and Whittington R., 2006, Exploring Corporate Strategies, 7th ed., England: Pearson Education Joyce P. Woods A., 2001, Strategic Management: a fresh approach to developing skills, knowledge and creativity, England: Kogan Page Publishers Roozen F. Steens B., 2006, Reflections on the Future of Finance and Control, Netherlands: Kluwer Stern C. Stalk G., 1998, Perspectives on Strategy: from the Boston Consulting Group, USA: John Wiley Thompson A. Strickland A., 2003, Strategic Management: Concept and Case, USA: Richard D.Irwin

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