asm - emirates case
DESCRIPTION
Strategic Management - EmiratesTRANSCRIPT
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1st r 14/
Advance Strategi ManagementProfesso Adria Freire
Trimeste 20 2015
Strategic Markets applied to Emirates Case
a n aSar Hoga Silv 152114036
Indu
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IntroductionIn this report we will cover the following topics:• What are strategic markets
and which are the key indicators of an attractive market;
• Analyze Emirates’ global hub-and-spoke strategy;
• Why is Dubai considered a strategic
market for airline industry;• The importance of BRIC countries as
strategic markets.
Emirates AirlinesEmirates is an airline based in Dubai, UAE, and its foundation in 1984 was related to a crisis in Dubai when Gulf Air refused to increase flights from and to Dubai unless the government protected the carrier for its long-haul services.Soon Emirates started growing and doubling its size every three years. In 2014, the airlines company is considered the largest airline in the Middle East, operating nearly3400 flights per week to more than 142 cities in 78 countries across all continents.
What are strategic markets?A market is considered strategic when it can strongly influence, in a positive way, the ability of acompany to achieve its goals.In 2005, Emirates had the goal of becoming a global hub-and-spoke system with passengerstravelling between cities with a stop at Dubai. Therefore, as we will show below, this city isconsidered a strategic market not only for Emirates but also to other airline companies.
The GE-Mckinsey Matrix is used to determine where the best for a company to invest its money. Instead of focusing on the projections of future prospects of the business unit (BU), the company can measure its future performance according to two factors: the industry attractiveness and the competitive strength of the business unit within that industry. According to the graph below:1. For BU’s above the
diagonal, the company can apply strategies of investment and growth;
2. For the ones in the diagonal,
they are candidates forselective inves
tment;
3. However, for the ones below
the diagonal, the companyshould consider
sell or
and comp
aring it
to thecompetitive
strengt
of thebusiness.
BuildSelectively
Expand orHarvest
Divest
Invest to Build
Selectivity/
Manage
for e
arnings
Manage
for
Earnings
Protect
Position
BuildS
electively
Protect Position
and refocus
liquidate it.In the case of airlines industry, wecan apply this framework byanalyzing country attractiveness
Competitive Strength of the Business
High
Moderate
Low
Advantages- Encourage the
rapid growth inthe airlinebusiness;
- Efficient use of
transportationresources;
Disadvantages- Congestion and
delay at hubairports;
- Airportdependency;
- Discontinuous use
of
A company can evaluate the attractiveness of a country by comparing it with another nations regarding market, operational and risk factors. In the table below, there are some key elements that can evaluate each of the factor. Bear in mind that each factor can have different weight in the overall relative attractiveness of the country.After analyzing the attractiveness of the market, it is also necessary to evaluate the competitive strength of the company. There are typical factors that can affect the competitive strength such as: market share, market share growth, customer loyalty, strength of assets, distribution, production capacity and competencies, and relative brand strength.
Country Attractiveness
Market Factors
Operational
Risk Factors
•Market Value•Market Growth
Factors•Minimum Local
•Exchange Risk•Political Risk
Rate•Pricing Trends
Wage•Operating Costs
•Industry Risk•Other
•Opportunity to differentiate
•LegalRequirements
Emirates Global Strategy in 2005“Emirates has placed some big bets—on Dubai, the A380 and its global hub-and-spoke strategy and its ability to scale operations. And no one would confuse the airline industry with an easy sector to make money”
Hub-and-Spoke StrategyNowadays, in 2014, Emirates operates around3400 flights per week, with a stop at Dubai, tomore than 142 cities in 78 countries across allcontinents.
Why Dubai?
“The success is Dubai’s location – it’s Europe’smost easterly hub and Asia’s most westerly hub”
“According to IATA, the UAE is the most connected country in the world, in no small part due to Dubai’s thriving aviation sector.”
Market Factors:• Decision making is typically
collaborative and decisions can betaken quickly;
• Open sky policy;• Strategic investments in top-flight
aviation infrastructure;• Geocentric location.
Operational Factors:• Tax-free environment;• Economical cost structure of
airports;• Competitive wages.
Risk factors:• Dependency on airlines industry;• Negative image of Middle-East.
“ The past 50 years have been nothing short of remarkable and the future holds even greater promise as we build our infrastructure to support the impressive expansion of Emirates, flydubai and other airlines and ascend the ranks of global aviation hubs.”
Paul GriffithsCEO Dubai Airports
Due to Emirates’ global hub-and-spoke strategy, Dubai International Airport constructed a new Terminal (adapted to the new Airbus A380 fleet) that would be exclusive for Emirates. It was inaugurated in 2008 and it is considered the largest terminal in the world with capacity of 43 million passengers.As we can see in Appendix 3, in 2010, just two years after the opening of Terminal 3, the annual number of passengers had increased by 10 millions. Nowadays, Emirates handles 64% of all passenger traffic and 50% of all flights at the airport. We can conclude that Emirates was successful achieving its goal and that it will be capable of continuing expanding their scale. Compared with other main hub airports, Dubai is the best one for growing as it still has a lot of space to expand, besides all the attractive factors mentioned before. Therefore, Dubai is considered a strategic market for the global hub-and-spoke strategy of Emirates.
Other strategic markets for EmiratesBRIC countries (Brazil, Russia, India and China) seem to be a potential strategic market for Emirates as well, because of their economic growth over the past decade. However, according to the graph on the right, there is low propensity to travel by citizens from these countries. Nevertheless, it is important to mention that BRIC countries represent approximately 40% of world’s population, so this can be translated in numerous flights for airline companies. Nowadays, Emirates has flights from Dubai to all these countries. In my opinion, it is crucial to maintain these destinations not only due to the large population, growing middle class and young population they have but also because of the increasing demand of these countries by tourists.
BRIC countries’ GDP per capita and propensity to travel by air (2009)
Strategic Alliance In 2013, Emirates and Qantas
airlines decided to make a strategic alliance. Qantas is the flag carrier airline of Australia and has a 65% share of its domestic market and carries 18,7% of all passengers travelling in and out Australia.
With this alliance, Qantas changed its strategic hub in Singapore for Dubai, which reduced flight times between continents (Australia to Europe). Emirates benefited from this because they would transport Qantas’ passengers from Dubai to their final destination.
BibliographyInternet
Enduring Ideas: The GE–McKinsey nine-box matrix:http://www.mckinsey.com/insights/strategy/enduring_ideas_the_ge_and_mckinsey_nine-box_matrix
Summary of GE Matrix: http://www.valuebasedmanagement.net/methods_ge_mckinsey.html
Qantas-Emirates alliance to begin April 2013: http://www.ausbt.com.au/qantas-emirates-alliance-to- begin-april-2013
Emirates, Qantas – Friends For Life?: http://gulfbusiness.com/2013/11/emirates-qantas-friends-for- life/#.VCWZNfldWCo
How Dubai Became One Of The Most Important Aviation Hubs In The World: http://www.forbes.com/sites/natalierobehmed/2014/06/04/how-dubai-became-one-of-the-most- important-aviation-hubs-in-the-world/
Brazil, Russia, India, China (BRIC): Emerging aviation markets performing well in 2010: http://centreforaviation.com/analysis/brazil-russia-india-china-bric-emerging-aviation-markets- performing-well-in-2010-26497
Reports
Emirates Annual Report 2013/2014Connecting the world today & tomorrow, Strategic Plan 2020, Dubai Airports
Mar
ket
Appendix 1
Build Selectively• Specialize around
limited strengths• Seek ways to overcome
weaknesses• Withdraw if indications
of sustainable growthare lacking
Expand or Harvest• Look for ways to
expand without highrisk; otherwiseminimizeinvestments andrationalizeoperations
Divest• Sell at time that will
maximize cash value
• Cut fixed costs and
avoid investmentmeanwhile
Invest to Build• Challenge for
leadership• Build selectively on
strengths• Reinforce vulnerable
areas
Selectivity/Manage for earnings• Protect
existing program• Concentrate
investments in segments where profitability is good & risks are relatively low
Manage for Earnings• Protect position in
most profitablesegments
• Upgrade product
line• Minimize
investment
Protect Position• Invest to grow at
max rate possible
• Concentrate onmaintaining strength
Build Selectively• Invest in most
attractive segments
• Build up ability tocounter
competition• Emphasize profitability
by increasedproductivity
Protect Position and refocus• Manage for
current earnings• Concentrate
on attractive segments
• Defend strengths
Competitive Strength of the BusinessSource: www.mckinsey.com
Appendix 2
Opening of Terminal 3
Appendix 3