See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/235294485

The exceptional performance strategies of Emirate Airlines

Article  in  Competitiveness Review An International Business Journal incorporating Journal of Global Competitiveness · October 2011
DOI: 10.1108/10595421111171966

CITATIONS READS
19 24,263

2 authors, including:

Abdulrahman Al-Aali
King Saud University
61 PUBLICATIONS   1,426 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

Business Cases from Saudi Arabia View project

Research work View project

All content following this page was uploaded by Abdulrahman Al-Aali on 11 July 2014.

The user has requested enhancement of the downloaded file.

 The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1059-5422.htm

Performance
The exceptional performance strategies of
strategies of Emirate Airlines Emirate Airlines
Sundaram Nataraja
Department of Marketing, College of Business Administration, 471
King Saud University, Riyadh, Saudi Arabia, and
Abdulrahman Al-Aali
Department of Management, College of Business Administration,
King Saud University, Riyadh, Saudi Arabia

Abstract
Purpose – The purpose of this paper is to investigate the strategies and competitive advantages of
Emirate Airlines that have led to exceptional performance while the overall airline industry globally
has faced multibillion-dollar losses in 2009.
Design/methodology/approach – The authors’ professional experience, extensive literature
review, and personal communications with selected personnel of Emirate Airlines on the subject
provided the foundation for this research.
Findings – As the global business environment becomes increasingly competitive, the airline
industry has also had to respond to the current business scenario, while facing devastating falling
demands, shattered consumer confidence, and collapsing yields. However, in 2009, Emirate Airlines
reported phenomenal growth and astounding profits while their rivals faced agonizing losses. This
paper explores and examines the competitive advantage of Emirate Airlines. The major finding is that
the formulation and implementation of appropriate strategies has led to the exceptional performance,
profitability, and success of Emirate Airlines.
Practical implications – The competitive strategies – such as operational strategies, generic
strategies, intensive strategies, and diversification strategies – can be helpful for firms to gain a
competitive advantage over their rivals. Also, the ability to leverage, innovate, and pioneer new ideas,
as well as a visionary management team, are essential for exceptional performance of an organization.
Originality/value – The paper provides a model for strategically managing the performance of an
aspiring firm, even though the entire industry is facing distressing circumstances.
Keywords Airlines, Competitive strategy, Competitive advantage, Emirate Airlines,
Exceptional performance strategies, Focused product differentiation, PESTLE analysis
Paper type Case study

Introduction
In 2009, airline businesses globally faced disastrous situations leading to overall
industry-wide losses of $9.4 billion. Skyrocketing oil prices, long global recessions,
falling demands, fierce price-cutting, collapsing yields revenue per mile and shattering
consumer confidence contracted and confronted the airlines resulting in bankruptcies
and shrinkages in networks and service levels across the globe during this time.
Although Emirate Airlines (which is also known as “Emirates”) faced the same
challenges as other airlines, it held out remarkably well against prevailing industry Competitiveness Review: An
norms on increasing contraction. International Business Journal
Vol. 21 No. 5, 2011
In the year 2009, ending on 31 March 2010, Emirates carried 27.5 million passengers, pp. 471-486
which was an increase of 4.7 million over the previous year, and handled 1.6 million tons q Emerald Group Publishing Limited
1059-5422
of cargo which represented an increase in volume of 12.2 percent on the previous year. DOI 10.1108/10595421111171966
CR It publicly declared a net profit of $964 million through leveraging the brand equity
21,5 built-up over the years. Yet, Sheikh Ahmed bin Saeed Al-Maktoum, Emirates’ Chairman
and Chief Executive, described the last financial year as the airline’s “toughest”
(The Economist, 2010).
Currently, there are 5.72 million loyal customers using Emirates services under the
Skyward frequent flyer program. As the fleet expansion program of Emirates remains on
472 track, it continues to take delivery of new aircrafts, invest in brand and support, and
expand its network. Emirates recently deployed Airbus 380, the world’s largest passenger
aircraft, in its network and it captured the imagination of air passengers everywhere.
Based in Dubai in the United Arab Emirates (UAE), Emirates is the fastest growing
and largest airline in the Middle East. It is the most profitable airline business in the
world. The company also operates three of the ten world’s longest non-stop flights
from Dubai to Los Angeles, San Francisco, and Houston. With more than 400 awards
for excellence worldwide, Emirates is one of two key units in the Emirates Group. The
other is Dnata, one of the largest travel organizations in the Middle East with over
8,000 employees handling passengers, cargo, and ramp and technical services for
numerous airlines at Dubai International Airport. The airline unit provides commercial
air transportation including passenger, cargo, and postal carriage services. Emirates is
wholly owned by the Government of Dubai, but the airline is run on a commercial basis
and receives no financial support or protection from the government. This case study
focuses only on the airline business unit of the Emirates Group.

History
In 1974, the rulers of the UAE established a joint flag carrier called Gulf Air with a few
Gulf Cooperation Council (GCC) countries. However, a tense relationship between
Gulf Air and the Dubai Government had existed ever since its inception. The Dubai
Government refused to agree to Gulf Air’s demands to abandon its open skies policy. In
reaction, Gulf Air reduced frequencies and capacities to and from Dubai by more than
two-thirds between 1984 and 1985 without advance notice to the Dubai Government
Authorities. Since other foreign carriers operating to Dubai proved unable or unwilling
to fill the gap, Dubai’s then ruler, Sheik Maktoum bin Rashid Al-Maktoum, convened a
team of experts to devise an emergency plan to set up a home carrier for Dubai. The
group’s recommendation was accepted by the ruler, but he imposed two conditions: the
new airline should meet the highest quality standards and there would be no additional
capital injections from the government other than the agreed startup capital of
US$10 million. Emirates was incorporated, with limited liability, by an Emiri Decree
issued by the ruler on 26 June 1985 and is wholly owned by the Investment Corporation
of Dubai, a Government of Dubai entity. On 25 October 1985, Emirates’ first flight was
inaugurated and crossed the skies of the UAE.
Despite suffering the impact of the 9/11 attacks, which really shook the aviation
industry in the dawn of a new millennium, and strong influences from other external
factors, Emirates has declared a steady annual growth rate and has never reported a
loss since its naissance in 1985.

Vision and values

A strong and stable leadership team, ambitious yet calculated decision-making, and
ground-breaking ideas all contribute to the creation of great companies. Of course,
these have played a major part in the development and growth of Emirates and it is Performance
believed that business ethics and customer focus are the foundation on which the strategies of
success has been built. Strong brand awareness through sponsorship of sports and
games, caring for their employees and stakeholders, as well as the environment and the Emirate Airlines
communities Emirates serve, have played a huge part in its past and will continue to
signify its future.
473
The organizational chart of Emirates
Middle Economic Digest (Tomlinson, 2010) noted that Emirate Airlines, like most
state-owned enterprises in the region, maintains a narrow ownership structure. The
Airline President – Tim Clark – oversees the entire aviation business reports to the
executive Vice Chairman of the entire Group, Maurice Flanagan. He is also in charge of
the central carrier operation: the freight business, Emirates SkyCargo, the frequent flyer
business, Skywards, airport services. And the growing hotel and holidays business.
The unique organizational structure of the Emirates Group having a flat hierarchy
has been a great help for its growth and development and it is considered a major
strength for Emirates. This structure allows for clear communication and rapid
decision making at a senior level (Figure 1).

Scope of operations and uniqueness of Emirates

The city of Dubai is located at a center point in the world map connecting the east and
west. Consequently, the airline is capable of tapping resources from both sides. Since
the heavily populated and fastest growing economies of the world, namely China and
India, are at the closer reach of Emirates, the scope of operations to these countries and
the region has substantially increased for Emirates lately. In general, the Asian
continent is witnessing a recent economic boom and the airline has really benefited
from this opportunity.
In 2010, Emirates operated over 2,400 passenger flights per week to 105 cities in
62 countries across six continents. It employs over 28,000 employees including 13,000
cabin crew members of more than 120 nationalities capable of conversing in 60 different
languages. Emirates is renowned for market trends pioneering new ideas, often in
contrast to the conventional industry’s view, and several notable services including
personal entertainment systems in all seats, private first-class suites, use of mobile
phones on board, introduction of SmartLanding and SmartRunway safety solutions.
Emirates’ success is primarily because of the ambitious strategy formulated by the
ruling family of Al-Maktoum to transform Dubai into a regional hub of trade and
tourism in the Middle East. Emirates’ formula for success is mainly based on its
innovative and creative ideas to seize opportunities and solve problems as they arise.
Emirates believes in doing things that seem right and leaving things that functionally do
not quite fit. Since the big picture of an organization is made out of small details,
Emirates is focusing on details instead of holistically looking at the big picture. In other
words, the success of Emirates has emerged from waylaying of non-traditional
management approaches rather than relying on the industry’s conventional business
acumen. Emirates’ success is the outcome of the blend based on a hard to emulate mix of
an excellent geographic location and outstanding management, embedded in an
ambitious and visionary master plan. This success can be directly linked to the success
of the city – Dubai. As the city grows with the best in everything from fine dining
CR
HH Sheikh Ahmed bin Saeed
21,5 Al-Maktoum
Chairman & Chief Executive
Emirate Airlines & Group

474
Maurice Flanagan
Executive
Vice-Chairman
Emirate Airlines & Group

Tim Clark
President
Emirate Airlines

Ali Mubarak Al-Soori

Adel Ahmad Al-
Executive
Redha Nigel Hopkins Abdul Aziz Al-Ali
Vice-President
Executive Executive Executive
Chairman’s Office,
Vice-President Vice-President Vice-President
Facilities / Project
Engineering & Services Department Human Resources
Management and
Operations
Profit & Loss

Senior Senior Senior Senior

Vice-President Vice-President Vice-President Vice-President

Figure 1.
The organizational
chart of Emirates Functional / Operational Areas

and nightlife to sightseeing and from sports to world class boutiques and businesses,
overflowing malls, and as an international oasis that attracts entrepreneurs,
adventurers, and pleasure seekers, the opportunity for Emirates to grow as the flag
carrier of Dubai has evolved with an overwhelming market demand. In 2004, Emirates
changed its slogan to Fly Emirates. In 2008, Emirates launched a slogan mainly
revolving around their route network of 100 destinations in 59þ countries across six
continents – Keep Discovering and Fly Emirates. Most recently Emirates launched a
campaign to promote Dubai as a destination using the slogan Fly Emirates and
Meet Dubai.
Emirates fleet Performance
Since 1995, Emirates has operated an all wide-body fleet, and in the past ten years it strategies of
has placed some of the largest aircraft orders ever in aviation industry. Emirates’ fleet
is one of the youngest in the skies with an average age of 69 months compared with the Emirate Airlines
industry average of 190 months as of March 2010. The fleet size in 2010 included
142 aircrafts with different carrying capacities deployed in the carriage of both
passengers and cargo. Emirates has 146 aircrafts, which are worth of $60 billion, 475
on firm orders and takes delivery of new aircraft at an average of one aircraft per
month. It operates the world’s largest A380 and B777 fleets and has become the single
most important customer for Boeing and Airbus aircraft manufacturers. Emirates
operates a mixed fleet of Airbus and Boeing wide-body aircraft and is one of only nine
airlines to operate an all wide-body aircraft fleet. The centerpiece of the airline’s fleet is
the Boeing 777. Emirates also has orders for 90 Airbus A380s of which 12 of them have
been delivered and put in service already. The introduction of A380 has helped to
ease airport congestion problems and given Emirates an opportunity to build on its
on-time departure record. Emirates has won numerous awards and is an industry
bellwether for aircraft purchases having purchased over 130 aircraft in 2007 alone
(Table I).
The introduction of A380 aircrafts in its fleet has generated great excitement.
A380 with the best cabin in the sky is offering unparalleled comfort for all resulting in
higher load factors, a higher market share, and higher profit margins for Emirates.
It has planned to phase out 68 older wide bodies – A330-200s, A340-300/500s,
and B777 Classics in 2011. Emirates plans to have over 320 aircraft by 2018 and
some reports suggest that the airline will have more than 400 aircraft in its fleet
by 2020.

Of which on Of which Of which Change On

In operating on finance owned by from 31 firm Additional
Aircraft type operation lease lease Emirates March 2009 order options

A330-200 29 27 2
A340-300 8 8
A340-500 10 8 2
A350-900 / 70 50
1000 XWB
A380-800 8 2 6 þ4 50
B777-200 3 2 1
B777-200ER 6 1 5
B777-200LR 10 4 6
B777-300 12 12
B777-300ER 52 34 18 þ 10 19
Total in 138 97 35 6 þ 14 139 50
passenger
operation
B777-200LRF 2 2 þ1 2
B747-400F 2 2
B747-8F 5
Total in cargo Table I.
operation 4 4 þ1 7 Fleet of Emirates
CR Safety record of Emirates
21,5 Except for a few incidents, Emirates flights are generally very safe. On 9 April 2004,
Emirates night flight 764 heading back to Dubai was cleared to takeoff from
Johannesburg’s 4,420 m (14,500 feet) runway 21R. The crew used “reduced flexible
thrust” for takeoff. Following the call to rotate, the pilot pulled back on the stick.
However, the aircraft did not become airborne and the pilot released the stick to avoid a
476 tail-strike. The airplane rumbled off the end of the runway, smashed through a row of
runway end/approach lights, and went about 650 feet before finally getting airborne
after the pilot reapplied back-stick and also applied takeoff go-around power. The
manoeuvre resulted in three blown tires during takeoff, which damaged the flaps and
made them impossible to retract. After a fuel dump, the aircraft then returned back to
the airport. On landing, at a speed of approximately 70 kts (130 km/h), the brakes
failed. Flight 764 came to a halt just before the end of the runway. It was the first time
both pilots were flying the A340 and the pilot flying at the time had received
ambiguous instructions regarding rotation technique during his transition training
that resulted in the incident.
Another incident occurred on 20 March 2009; an Emirates Airbus A340-500,
registration A6-ERG, operating as EK 407, bound for Dubai International Airport with
225 passengers on board made an emergency landing in Melbourne after suffering a
tail-strike takeoff. There were no injuries amongst the passengers or crew. The jet was
known to have experienced at least one but possibly three or more tail-strikes during
its takeoff roll. The jet was severely damaged, broken down to the underlying ribs or
stringers in one area, in a part of the structure where the critical rear pressure bulkhead
may also have been damaged. An early Australian Transport Safety Bureau report
suggested that incorrect aircraft weight entered to calculate takeoff power may have
contributed to the incident. On 25 April 2010, Emirates Flight EK 530, a Boeing
777-200, from Dubai to Kochi/Cochin in India, dropped 200 feet (61 m) during heavy
turbulence, as the aircraft entered into a thick cumulonimbus cloud while the aircraft
was on descent to Kochi, over Goa on the coast. There were 350 passengers and 14 crew
members onboard. At this time, 20 passengers were injured and damage caused
internally to the plane. Lately, Emirates reported that, on 29 October 2010, Emirates
was escorted by fighter jets into New York airport because of a suspicion of explosives
aboard the flight which originated from Yemen. The flight was later cleared.

Service quality in Emirates

In 2010, a comprehensive survey was conducted among frequent flyers of seven major
airlines operating longer haul flights out of the UAE, namely Air France, British
Airways, Emirates, Etihad Airways, Qatar Airways, Swiss Air, and Virgin Atlantic
Airways to measure the level of service quality in terms of the customer experience
from flight booking all the way through to check-in, baggage drop, boarding, plane
conditions, in flight services such as food and beverage, entertainment and shopping,
right through to disembarkation and final baggage claim. The survey results indicated
that Emirates has outperformed its rivals and ranka at the top in the list as the best
service provider (Ethos Consultancy, 2010).
Moreover, Emirates has received more than 400 international awards in recognition
of its continuous efforts in providing unsurpassed world class customer service, using
advanced technology, and offering excellent in-flight comfort for its passengers.
However, at the same time, there are sources indicating inconsistencies in service Performance
quality in some flight segments, which is a weakness for Emirates. strategies of
Cathay Pacific’s CEO Tony Tyler said that he believed Gulf carriers would take at
least a “generation” to catch up with the levels of in flight service offered by the Emirate Airlines
Hong Kong-based carrier. Maurice Flanagan, Founding Managing Director of
Emirates and currently Executive Vice Chairman responded to this by saying:
We are ahead of Cathay. There is no way in which Cathay is ahead. It is nonsense [. . .] We are 477
totally different from Etihad, totally different from Qatar Airways and totally different from
Gulf Air. What’s he talking about? (McGinley, 2010).
However, Flanagan was not specific about how Emirates is different from its rivals.

Financial analysis
The business climate at the commencement of the financial year 2009-2010 was
pessimistic but gradually turned to cautious optimism during the course of the third
quarter with results boosted by an extremely strong performance in the second half of
the financial year. Transport revenue which was down 15.4 percent in the first half
over the same period in the previous year recovered sharply on the back of strong
revenues, improved yields, and higher load factors (Table II and III).

Segment-based financial information of Emirates

Emirates management monitors the operating results of its business units for the
purpose of making decisions about resource allocation and performance assessment.
The main activities of Emirates comprise:
.
commercial air transportation which includes passenger, cargo, and postal
carriage services;
.
wholesale and retail of consumer goods;
.
in-flight and institutional catering; and
.
hotel operations.

2010 2009

Revenue 42,477 42,459

Other operating expenses 978 807
Operating cost 2 39,890 2 40,988
Operating profit 3,565 2,278
Other gains and loses 48 2 1,572
Finance income 330 431
Finance cost 2355 2 535
Share of results in associated companies and JVs 77 63
Profit before income tax 3,665 665
Income tax (expenses) credit 250 85
Profit for the year 3,615 750
Profit attributable to minority interest 77 64 Table II.
Profit attributable to Emirates’ owner 3,538 686 Emirate Airlines
consolidated income
Note: Year ending 31 March 2010, million AED statement
CR
Assets 2010 2009
21,5
Non-current assets
Property, plant, and equipments 33,753 29,086
Intangible assets 927 923
Investments in associated companies and JVs 461 441
478 Advance lease rentals 233 192
Available-for-sale financial assets – 113
Loans and other receivables 1,432 1,039
Derivate financial instruments 64 125
Subtotal 36,870 31,919
Current assets
Inventories 1,084 1,053
Trade and other receivable 7,008 7,109
Held-to-maturity financial assets – 200
Derivate financial instruments 74 –
Short-term bank deposits 1,176 2,619
Cash and cash equivalents 9,335 4,549
Subtotal 18,677 15,530
Total assets 55,547 47,449
Equities and liabilities
Capital and reserve
Capital 801 801
Retained earning 16,794 14,812
Other reserve 2321 2201
Attributable to Emirates’ owner 17,274 15,412
Minority interest 201 159
Total equity 17,475 15,571
Non-current liabilities
Borrowing and lease liabilities 16,753 15,140
Provisions 364 367
Deferred revenue 1,483 1,178
Deferred credits 460 492
Deferred income tax liability 4 13
Trade and other payables 21 25
Derivate financial instruments 467 538
Subtotal 19,552 17,753
Current liabilities
Trade and other payables 15,475 12,530
Income tax liabilities 19 23
Borrowing and lease liabilities 2,852 1,372
Deferred credits 162 169
Derivate financial instruments 12 31
Subtotal 18,520 14,125
Table III. Total liabilities 38,072 31,878
Emirate Airlines Total equity and liabilities 55,547 47,449
consolidated balance
sheet Note: Year ending 31 March 2010, million AED

The airline business unit is the main reportable segment. Since other operations under
the subsidiary units are not meeting the quantitative thresholds for determining
reportable segments under International Financial Reporting Standards, they are
categorized as “all other segments” in Table IV.
 Performance
All other
Airline segments Reconciliation Total strategies of
Total segment revenue 40,815 2,522 2116 43,221
Emirate Airlines
Inter segment revenue – 744 – 744
Revenue from external customers 40,815 1,778 2116 42,477
Segment profit 3,313 302 – 3,615 479
Finance income 323 7 – 330
Finance costs 2340 215 – 2 355
Income tax expenses 249 21 – 250
Depreciation and amortization 22,811 2151 – 2 2,962
Share of results in associated companies and JVs – 77 – 77
Impairment of available-for-sale investments – 2109 – 2 109
Segment assets 51,107 5,094 2654 55,547
Investments in associated companies and JVs – 461 – 461
Additions to property, plant, and equipment 7,213 768 – 7,981
Additions to intangible assets 70 2 – 72
Additions to advance lease rentals 93 – – 93 Table IV.
Emirate Airlines segment
Note: Year ending 31 March 2010, million AED information

Performance of the airline and other segments is evaluated based on net profit or loss and
is measured consistently with profit for the year in the consolidated financial statements.
Segment revenue is measured in a manner consistent with that in the consolidated
income statement, with the exception of national revenues from staff leave passage and
duty travel which are included in total segment revenue under airline segment but
adjusted against operating costs. This adjustment is presented in reconciliation.
Segment assets include inter-segment loans and receivables, which are eliminated on
consolidation. This consolidation adjustment is represented in reconciliation.
Revenue from inbound and outbound airline operations between the UAE and the
overseas point are attributed to the geographical area in which the respective overseas
points are located. Revenue from other segments is reported based upon the
geographical area in which the sales are made or services are rendered. The major
revenue earning asset is the aircraft fleet, which is registered in the UAE. Since the
aircraft fleet is deployed flexibly across Emirates’ route network, providing
information on non-current assets (other than financial instruments and deferred tax
assets) by geographical areas in not considered meaningful. No single external
customer contributes 105 or more of Emirates’ revenues (Table V and VI).

External customers 2010 2009

Europe 11,612 12,185

Americas 4,003 3,702
East Asia and Australasia 11,843 12,097
West Asia and India Ocean 5,322 4,938
Africa 4,756 4,695 Table V.
Gulf, middle east, and Iran 4,941 4,842 Emirate Airlines
42,477 42,459 geographical information:
revenue from external
Note: Year ending 31 March 2010, million AED customers
CR
Assets 2010 2009
21,5
Operating activities 3,665 665
Profit before income tax
Adjustments for: 2,962 2,211
Depreciation and amortization 25 104
480 Finance costs – net 2 258 214
Profit on sale of property, plant, and equipment – 144
Loss on sale of available-for-sale investments 2 77 263
Share of results in associated companies and JVs 14 7
Net provision for impairment of trade receivables 109 73
Impairment of available-for-sale financial assets 301 236
Provision for employee benefits 2 48 1,572
Change in fair value of derivate financial 2 299 295
instruments at fair value trough profit or loss
Net movement on derivative financial instruments 2 304 2315
Employee benefit payments 2 63 261
Income tax paid 2 32 2301
Change in inventories 2 316 415
Change in receivables and advance lease rentals 2,649 48
Change in payables, deferred credits, and deferred 8,328 5,016
revenue
Net cash generated from operating activities
Investing activities 883 117
Proceeds from sale of property, plant, and equipment 2 72 282
Additions to intangible assets 23,416 2 5,573
Additions to property, plant, and equipment 2 18 271
Investments in associated companies and JVs 252
Acquisition of subsidiary – 21
Disposal of minority interest – 1,837
Proceeds from sale of available-for-sale investments 1,443 5,026
Movements in short-term bank deposits 200 216
Net movement in held-to-maturity financial assets 308 379
Interest income 95 100
Dividends from associated companies and JVs 2 577 1,896
Net cash (used in)/generated from investing activities
Financing activities 2 122 2383
Net loan repayment 2 319 2273
Aircraft financing costs 2 103 2295
Other finance charges 21,447 2 1,161
Net leases liabilities 2 956 2 2,913
Dividend paid 2 35 260
Dividend paid to minority shareholder 22,982 2 5,085
Net cash used in financing activities
4,769 1,827
Net increase in cash and cash equivalents
4,547 2,715
Cash and cash equivalents at beginning of year 6 5
Table VI. Effects of exchange rate changes 9,322 4,547
Emirate Airlines Cash and cash equivalents at end of year
consolidated statement
of cash flows Note: Year ending 31 March 2010, million AED
Human resources strength Performance
The workforce at Emirates increased to a total of 28,686 in 2010. The employee strategies of
categories and the corresponding numbers are given in Table VII.
The Vice Chairman of Emirates, Flanagan considers high labor costs for pilots and Emirate Airlines
other employees to be an impediment to the growth of any airline. He cited the situation
at employee-owned United Airlines where pilots received 40 percent raises in a
four-year contract in 2000. This triggered a rise in labor costs across the industry. 481
“That is simply not sustainable,” said Flanagan, who noted that the high salaries in
American commercial aviation also translate into larger pension costs – two problems
that Emirates does not share. Emirates has lower human resource costs compared to
the industry. This is partially due to attracting workers from nearby low-wage nations
(Kowledge.wharton.upenn.edu, 2007).

External audit
The external audit focuses on identifying and evaluating trends and events beyond the
control of Emirates. The external audit reveals key opportunities and threats
confronting Emirates so that the management can formulate appropriate strategies to
take advantage of the opportunities and avoid or reduce the impact of threats.

Competition
The national airline of the UAE – Etihad Airways, the regional airline companies such
as Qatar Airways, Oman Air, Gulf Air and some of the airline companies in Europe
and in Australasia are the major competitors of Emirates. Rival global airlines such as
Air France-KLM, British Airways, Lufthansa, and Qantas perceive Emirates’ as a
major threat because it enables travelers to by-pass traditional airline hubs such as
London Heathrow, Paris-Charles de Gaulle Airport, and Frankfurt Airports during
their Europe/North America and Asia/Australia flights and use Dubai instead. These
airlines also find it difficult to deal with the growing competitive threat Emirates poses
to their businesses because of the much higher cost base in their nations. At the same
time, the competitors’ aggressive strategies to grow their home markets, especially the
growth strategies of Etihad Airways and Qatar Airways, are major concerns for
Emirates. All these carriers are so concerned about the detrimental effects of Emirates’
growth on their future ability to compete with it on a level playing field that they have
resorted to openly accusing Emirates of taking advantage of receiving hidden state
subsidies and of maintaining close relationships with Dubai’s Airport and Civil
Aviation Authorities which are also wholly state-owned entities that share the same
government owner with the airline.

UAE 2009-2010 2008-2009

Cabin crew 10,785 10,324

Flight deck crew 2,237 2,141
Engineering 1,904 1,849
Other 9,084 9,379
Subtotal 24,010 23,693 Table VII.
Overseas stations 4,676 4,344 Human resources
Total Emirates 28,686 28,037 strength of Emirates
CR In addition, they have also accused Emirates of taking unfair advantage of its
21,5 government shareholders’ sovereign borrower status. They claim that this masks the
true financial performance of Emirates and reduces its borrowing costs below market
rates. In May 2010, Emirate Airlines executives refuted claims that the carrier does not
pay taxes and receives substantial financial assistance from the Dubai Government.
They claimed that the airline has received $80 million in cash in kind since the start of
482 the airline 25 years ago and this was substantially lower than what other national
carries received. The Executive Vice Chairman Maurice Flanagan claimed that
Emirates incurred social costs of around $600 million in 2009 and this included
municipal taxes to the city of Dubai (McGinley, 2010). The airline also paid a dividend
of AED956 m ($260 million) in 2010, compared to AED2.9bn ($793 million) in 2009 and
each year the government has received at least $100 million in dividends.

PESTLE analysis of Emirates

Since a PESTLE analysis focuses on the external analysis when conducting a strategic
analysis and gives an overview of the different macro-environmental factors that the
company has to take into consideration, a PESTLE analysis has been made on
Emirates. It is a useful strategic tool for understanding market growth or decline,
business position, potential, and direction for operations.

Political forces
Emirates has been fortunate in the dawn of the new millennium as the political
scenario of the region has been quite favorable for the airline. Most of the countries in
the Asian continent have signed agreements among themselves and with several
countries in Asia-Pacific, Europe, and the USA which facilitate better political
cooperation and trade opportunities between countries, including the growth of the
aviation sector. These agreements have opened up several doors to the world for
Emirates and have provided ready-made markets to expand its network. The major
strengths of Emirates are the support of the Government of Dubai which ensures
infrastructure developments to meet the growth of Dubai and Emirates; the low
charges and fees levied at Dubai Airport; the open skies policy which provides equal
opportunities for all air carriers; low taxation policy of the government on companies
and businesses which boost the trade and commerce in Dubai; and the easy and
generous immigration laws of Dubai Government that enable organizations to secure
entry visas and work permits for foreign workers to fulfill their labor requirements. On
the other side of the coin, the total political instability in the Middle East region may be
a hindrance for the further growth of Emirates.

Economic forces
The Arab states, in particular the UAE, have been nurturing their economies at a rapid
pace. The GCC countries especially are increasingly becoming more sophisticated in all
aspects. These economies are growing at a substantial rate, consequently affecting the
overall level of disposable income of the households at an increased level of per capita
income and therefore the affordability of the people to use air transportation. The
Dubai Government is negotiating with several governments for better economic
cooperation and free trade agreements and this act is expected to boost the growth of
trade and commerce in the Dubai as well the growth of Emirates. About 3.5 billion
people are living within the reach of an eight hours flight from Dubai; hence, the huge Performance
population generates ever-growing demand for air travel in the region. There is a strategies of
paradigm shift in the market demand, customer choices, and travel behavior that is
changing rapidly. Besides, the regional governments are streamlining their economic Emirate Airlines
policies so as to suit the growth of the airline industry. This is one of the reasons why
Emirates has seen phenomenal growth over the past few years.
483
Social forces
A well-designed strategic management system could fall short if necessary attention is
not given to personnel affairs in an organization. Personnel issues are adversely
affecting airline businesses globally. Employees are becoming increasingly aware of
their potential and most of them are demanding more. Emirates operates in a region
where there is an abundance of human capital, albeit “multicultural work force.” Most
of these workers rarely demand higher level of compensation. When comparing the
scenario of the UAE with other countries such as the USA and the UK, it can be found
that there is a significant difference in labor costs. Most of the organizations in the
UAE are using only 10 percent of their operating expenses to pay their employees and
so does Emirates; while the businesses in the latter countries use up to 40 percent for
the same purpose. Consequently, the Airline has benefited extensively and made good
profits on these grounds.
Many airline businesses are increasingly recruiting different types of employees in
order to meet their needs in handling numerous types of aircrafts. For example, an airline
company may operate different types of aircrafts and equipment such as regional jets,
four engine planes, wide body and narrow body aircrafts, and so on. The difference in
maneuvering these aircrafts and equipment is managed by employing a specially and
highly skilled workforce such as qualified pilots, engineers, and technicians. These
employees belong to different unions and they may require special attention by the
human resource department. Pay scales may also be difficult to maintain if some of these
workers operate in stable economies. Although no trade unions are legally permitted in
the UAE, Emirates has also been affected by the problems posed by highly skilled
employees but not to a large extent. Emirates has not bought too many varieties of
aircrafts. Consequently, there is room for the organization to grow without having spent
much on the human resources.

Technological forces
In response to the heavy boom of technology in the past two decades, Emirates has
been using technology extensively in its day-to-day operations. Since Emirates’
worldwide reach and diverse customer base requires a global technology platform,
it has invested more resources to localize each individual market. Emirates has control
over a single global system that is deployed in 14 languages and supports payment in
42 currencies. Additionally, Emirates maintains segment inventory with the use of
technology by geographic region and traveler type to optimize product and service
offers for the individual preferences of each market.

Legal forces
In the past, most governments within the Asian continent and in the Asia-Pacific
region used to operate under a paternal government policy and felt that they had
CR to protect airlines against external factors. The recent changes in the economic policies
21,5 of these governments have allowed the airline businesses to compete more openly;
to have their own economic model in order to sustain their competitive advantage
without worrying much about government hindrances; and to operate more freely with
less legal impediment in the region, which has resulted in a positive growth for
Emirates.
484
Environmental forces
Organizations have obligations to formulate and implement strategies from an
environmental perspective. Increasing numbers of firms are implementing tougher
environmental regulations as they make economic sense. Emirates is one of the prime
organizations that preserve and conserve natural resources and control pollution in the
region. Emirates has organized several environmental projects in the past 20 years.

Strategy
The exceptional performance of Emirate Airlines lately is predominantly dependent
upon the strategies being formulated and implemented. The strategies include an array
of operational strategies, a generic strategy, few intensive strategies, and a
diversification strategy.
The most important operational (corporate) strategy of Emirates is “high quality
provider strategy.” Since Emirates is very concerned with the safety of the passengers,
it aims to have 120 Airbus A380s in its fleet when new airport space is available; it is
working with Boeing on the next generation of 777 jets and is interested in its
replacement. The target implies a future Emirates order for 30 of the world’s largest
airliner, worth $10 billion at list prices, at an unspecified date. If the airline goes ahead
with its growth plans it would have an A380 fleet worth over $40 billion.
One of the other operational (corporate) strategies of Emirates is called “be the first
to introduce new products.” Emirates is renowned for market trends pioneering new
ideas, often in contrast to the conventional industry’s view, and several notable
services including personal entertainment systems in all seats, private first-class
suites, use of mobile phones on board, introduction of SmartLanding, SmartRunway
safety solutions, and being the first airline to place huge aircraft orders. Emirates has
become the first airline in the world to introduce a personal entertainment system on a
commercial aircraft after introducing the world’s first seat-back screens in 1992.
Emirates has won the award for best in-flight entertainment from Skytrax for the
entertainment system every year since the systems’ inception in 2003. At present,
almost 70 percent of the fleet has in-flight entertainment, and by 2011 the entire
Emirates fleet is set to have the system.
Emirates has also implemented another operational strategy (corporate) called “best
customer service provider.” It provides the best ground services through early and
easy check-in, waiting lounges, and chauffeur driven airport transfers in selected cities
in the region. Another operational strategy of Emirates is to “become highly
automated.” The introduction of SmartLanding, SmartRunway safety solutions, auto
check-n system, and automated simulations in the cabin crew training programs are
good examples of the implementation of this strategy.
Moreover, Emirates has also formulated and implemented an unique growth
strategy to improve its products and services, continuing to expand from a focus
on the customers’ experience on board to a long-term program to improve their Performance
experience within the airport. The generic strategy of Emirates is focused product strategies of
differentiation. Along these lines it has opened 16 amazing and unbeatable lounges at
world leading airports for first class passengers. Emirates has also crafted and Emirate Airlines
executed several intensive strategies such as market penetration, market development,
and product development.
Finally, its diversification strategy called “related diversification” has enabled the 485
organization to invest in its subsidiaries. It has diversified into related industries and
sectors, including aircraft ground handling, aviation engineering, air catering, and tour
operator operations. It has over six subsidiaries, whilst its parent company – Emirates
Group – has over 50.

The future
Emirates is the seventh largest airline in the world in terms of international passengers
carried, and fourth largest in the world in terms of scheduled international
passenger-kilometers flown. In its first 11 years of operation, it has doubled its size
every 3.5 years.
In 2010, Emirates had to respond to competitors’ claim that it does not pay taxes
and receives substantial financial assistance from the Dubai Government.
Emirates is one of Dubai’s crown jewels and enjoys a strong reputation. However,
it may emerge as a potential pawn in the city-state’s scramble for financial stability.
Analysts fear that it might get caught in the Dubai debt crisis which may force the
carrier to moderate its expansion, which could hurt aircraft manufacturers like Boeing
and Airbus, as it has placed orders worth $55 billion with them. Also, its own future
growth might be at question. While Emirates so far has done well, one should not,
however, discount its government support and the heavy reliance on expatriates to run
and manage the operations. In the coming years, when competition in the industry
increases and resources become limited, one wonders how well Emirates will survive in
such an environment, especially without the presence of expatriates among its
employees. These and other issues are on the minds of senior executives who rethink
their strategic approaches and ponder world economic crisis and rapidly changing
business environments.

References
(The) Economist (2010), “Aviation in the Gulf: rulers of the new silk road”, 3 June, available at:
www.economist.com/node/16271573/print
Ethos Consultancy (2010), International Airline Benchmarking Study – Summary of Findings,
available at: www.ethos.ae/media/documents/Airline-Benchmarking-Report.pdf
Kowledge.wharton.upenn.edu (2007), “Maurice Flanagan’s Emirate Airlines: flying high and
treating customers like sheikhs”, available at: knowledge.wharton.upenn.edu/india/article.
cfm?articleid¼4241#
McGinley, S. (2010), “Interview: Maurice Flanagan, Emirate Airlines”, available at: www.
arabiansupplychain.com/article-4587-interview-maurice-flanagan-emirates-airline/1/print/
Tomlinson, H. (2010), “The Dubai carrier is gradually building market share and plans to double
its fleet by 2012”, Middle East Economic Digest, 2 February.
CR Further reading
21,5 Emirates Group (2009-2010), Annual Report, Emirates Group, Dubai.
General Review (2006), “Emirates, American and Embraer: why are these three air industry
companies beating the odds?”, Strategic Direction, Vol. 22 No. 6, pp. 29-32.
Knorr, A. and Eisenkopf, A. (2007), “How sustainable is Emirates’ business model?”, Aerlines
Magazine e-zine Edition, No. 38, pp. 1-4.
486 McKechnie, D.S., Grant, J. and Katsioloudes, M. (2008), “Positions and positioning: strategy
simply stated”, Business Strategy Series, Vol. 9 No. 5, pp. 224-30.

Web sites
www.emirates.com
www.meed.com/supplements/2009/engines-of-growth/emirates-group/3000222.article

Corresponding author
Abdulrahman Al-Aali can be contacted at: alaali@ksu.edu.sa

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

Or visit our web site for further details: www.emeraldinsight.com/reprints

View publication stats