Etihad Airways: Strategies Analysis

Table of Contents

Introduction

The major differences between the organizations that are successful and those that are not is the degree of the effectiveness of their strategies. Any organization hoping to succeed in the market must ensure that its strategies conform to the prevailing conditions in the environment which could have negative impacts on its operations. Even after the strategies have been formulated, they must still be monitored and improved as future environmental fluctuations could affect them. As a relatively new company in the air industry, Etihad Airways has recorded significant growth due to its well formulated and implemented strategies. This paper aims at analyzing the strategies at Etihad Airways as well as their levels of effectiveness in terms of the prevailing conditions, market competition, and social responsibility and ethics.

Etihad Airways

Etihad Airways, the Abu Dhabi national carrier, was founded in 2003 and has grown to be among the leading airlines in the world. So massive are its operations that on a weekly basis it operates 1000 flights across 44 different countries from its hub at Abu Dhabi International Airport. Its headquarters are located at Khalifa City in Abu Dhabi with plans underway to set up an ultra modern facility as its new headquarters. The company’s workforce is composed of 8,000 employees that also include crews and pilots.

The company has diversified its investments owning several other investments. Etihad Crystal Cargo is one of them and has been dedicated to strictly handle cargo. It is also an aggressive sponsor of sports clubs and events around the globe which are all in efforts to increase the brand awareness level among the consumers. Some of the key sponsorships include the Abu Dhabi Grand Prix and Harlequins Rugby Club in London.

Despite having not attained the break even point, Jim Hogan, who is also the current CEO projects that this would be realized in 2011 should the current level of operations be maintained. In 2010 alone, the company transported 7.1 million passengers up from a mere 340,000 in its first year of operation. This shows how the company is fast making impacts in the global market and has so far received 30 awards with the most notable among them being the 2009 World’s Leading Airline Award.

Abu Dhabi is among one of the fastest grow cities in the world implying that there was a need to create an airline capable of complementing the developments that are being undertaken. Etihad has been formulated with the world class status in mind as it would provide transport to and fro the city that has recently been experiencing high number of traffic.

Implementing and Executing Etihad airways Strategy

Every company desiring to attain success in the market should be able to formulate strategies capable of guiding the accomplishment of goals and missions. Etihad is well aware of this and has formulated a number of strategies that are discussed below. They are all based on the Porter segmentation strategy that the company has chosen to utilize in mainly targeting the prestigious market segment.

There is the product strategy where the company has differentiated its service into three; Diamond class, Business class, and Coral economy class in the order of most expensive to the least expensive. These categories are sensitive to the financial capabilities of their passengers and strive to provide the best at every class. The other type of differentiation is in the form recipient of the service. The company has two division that each either transport goods or passengers mainly. It has recognized the inconveniences that are caused in combining the two and has therefore opted to undertake their transportations separately.

The price strategy that has been adopted is aimed at penetrating the market and increasing its market share. The company has a comparatively lower price strategy to those of competing operators and is capable of attracting more customers to complement its efforts in recording high growth and breaking even. This however should not be misinterpreted that the company is a low cost carrier. It still is a premium airline only that it has discounted the prices to attract more consumers that prefer the seasoned operators. The reason behind such a move could be that the discount could attract much more customers that could possibly offset the price reduction therefore higher revenues.

The place strategy deals with how Etihad handles the ticketing. There are official outlets from where the customers can get their tickets and can be found in major traveling hubs around the globe. Etihad also relies on its sales force to provide consumers in regions that are not served with the above ticket outlets. Furthermore the company has also initiated online bookings through its company website and any consumer with access to internet can utilize the service.

As a service industry, the quality of service is what differentiates between the successful organizations from the rest. Etihad understands this and has therefore hired only the highly qualified and motivated employees to increase the chances of providing superior services to the consumers. Employees are the most important resources in an organization and only the highly qualified should be allowed into the organization as they influence its success by their individual contributions. The extent to which the company goes to acquire employees is manifested by its decision to hire the former CEO of Gulf Air, James Hogan, as its leader.

Finally there is the promotional strategy which is relied upon by market challengers such as Etihad. Such organizations aim at acquiring market shares in their targeted segments at the expense of the leaders. Etihad is an aggressive marketer and has spent sizeable portions of its resources in increasing the visibility of its brand. Adverts, sales promotions, direct marketing, and event sponsorships are main forms of promotion that the company employs in marketing its services in the market. As a relatively new company in the air industry the strategy best complements its efforts to attain high growth rates. Consumers, especially those of premium services, insist on the operators they are used and by the company increasing its market presence it is on its way to the consumers’ memory that could influence their purchase decisions.

These are the strategies that have been relied upon by the company in efforts to attain higher market shares. They are well suited to the prevailing conditions and all that is needed is their continuous development. With this in place, the company would have little to worry about concerning the threats from experienced operators.

Strategy evaluation

Finalizing the strategy implementing process does not mark an end to the undertaking of organization functions; rather, it sets the stage for the other processes. After the strategies have been implemented, it is of utmost importance that they are followed upon so as to monitor the level of progress and to take any necessary corrective measures. Without this the strategies are as ineffective as the market fluctuations that will follow afterwards that have the effect of altering the assumptions that were relied on in the formulation of strategies.

Before the appraisal of strategies, organizations need to develop performance standards that will act as the gauges in measuring actual results. Comparisons have to be made between the standards and the actual results to determine either the degree of consistency or deviation. Etihad has done so and the following are the performance standards.

First and most important the company hopes to break even by the end of 2011. The costs have also been targeted for reduction by roughly 10% of their current levels. Plans are also underway to increase the returns in the market and hopefully from the luxurious segments of diamond and business classes. As a luxurious airline, Etihad aims at maintaining this perception among its targeted consumers and will stop at nothing in protecting this value. All the initiatives it undertakes will all be targeted at maintaining this brand perception in the market.

To evaluate performance in the organization, a number of tools are needed. First, performance appraisals need to be conducted continuously and after specific intervals say six months for Etihad case. Most preferably, a balanced score card could well aid in evaluating all the divisions in the organization so that effective measures are taken. The information from the appraisals can be used to determine the effectiveness of the strategies being implemented and whether the implementation is on schedule. The managers also have to provide feedback especially in the case of employees so that they can correct where they might be failing in. In some other cases, retraining courses might be needed to increase the effectiveness of employees.

Comparison between Etihad Airways and Air Arabia

Whereas Etihad relies on market segmentation to conduct operations, Air Arabia prefers cost leadership better. The former has identified the prestigious market segment which it has specialized in while the latter aims at attaining high numbers of consumers possible in order to enjoy the benefits of large scale economies.

In terms of price, the two rely on low strategies. But this should not be confused for the same absolute values as those of Etihad that has premium prices with discounts while Air Arabia absolute low costs. The discounted premium price does not augur well with the company’s quest to build a prestigious brand. Most of the passengers who prefer such airlines associate high prices with quality and would therefore misinterpret the discounts as a compromise on the quality which they seek at all costs. On the other hand the recently concluded global recession acts in favor of the move as its effects are still being witnessed, consumers are still cash strapped. This could turn out to be the strong point in the strategy in that it attracts the consumers who normally fly first and business classes but are unable to do so due to low financial resources.

Etihad offers customer experience as the main service by providing additional benefits on flights. Air Arabia on the other hand offers transportation as the major service; it does not issue goodies while on air and seems only to be concerned with ferrying customers. They are both aimed at attaining market shares considering they are new airlines both incorporated in 2003. The strategies well suits their current positions. The other strategies for the two firms are more or less similar paying attention to the people and promotion strategies.

In terms of Etihad strategies, they seem to make assumptions that the market will always be favorable as little has been done to reduced costs. The events leading to the last global recession and financial crisis proved beyond doubt that business organization need to be on the look out so that they are not caught unawares like was the case last time. A majority of the airlines had to reduce the number of flights while reducing the costs in those that they still maintained. It would be advisable that the company considers changing tact to incorporate aspects of the low cost strategy that has been implemented at Air Arabia. This however does not imply letting go of the prestigious brand they have built all this time. What they need to do is to have a low cost division within the company. Like they have dedicated one section of the company to the transportation of goods market they should also do so for the low cost strategy. Should this pose challenges in marketing one brand as having both low cost and premium prices then they should simply re-brand the low cost section to avoid diluting the premium brand. With such a move they would be shielded from negative economic effects that might result in future which could threaten the existence of a non diversified firm.

Ethics and Social Responsibility at Etihad Airways

Organizations are finding it necessary to act as responsible members in the societies in which they operate. This is stark contrast to the past situation where they were only concerned with making profits with little efforts channeled towards bettering the societies. With the massive environmental destructions that have been witnessed since the beginning industrialization, it has become necessary for business to take charge of the problems they cause to avert possible serious consequences in future. This would guarantee the future survival of not only the society but also the individual companies. The corporate world has therefore been actively embracing the concept and Etihad has not been left behind. The company’s strategies are not only in line with the ethical values of United Arab Emirates but also with those recognized globally.

Ethics demand that organization only undertake activities that are acceptable socially according to the standards that are in place. It would therefore be irresponsible for any organization to undertake ventures that only support the welfare of a few individuals in the society and worse still affect other negatively. Etihad is as good a model of an ethical company as it is responsible.

Corporate social responsibility involves all the stakeholders that are present in a company. They include both those in the inside as well as the outside environment and are as follows; the employees, consumers, shareholders, suppliers, debtors, creditors, government, competitor, and the society in general. Etihad bears responsibility to all these stakeholders and has been successful in fulfilling them.

It is important that organizations provide quality services to consumers and Etihad has undoubtedly fulfilled this obligation. The 2009 World’s Leading Airline Award that it received manifests this as other industry insiders agreed that indeed the company met the needs of the consumers. In addition to this, it also provides comfortable flights to the delight of passengers that continue choosing the airline as their most preferred carrier. It is no wonder that its passenger traffic has risen from roughly three hundred thousand to seven million in a period less than a decade.

The employees are also the other stakeholders present in Etihad internal environment. Employees are the most important resources in an organization and special attention should therefore be channeled towards them. Their welfares are well tended to by the organization as there are various initiatives aimed at making their stay at the company enjoyable and fulfilling. With the appropriate trainings and high-standard work environment provided to ensure they perform their duties effectively, the company has dutifully attended to the needs of its employees.

To the society, the company has fulfilled its obligations by providing services that increase its general welfare. Social responsibility demands that the welfare of the society overrides those of individuals and should never be compromised in any case. Etihad has embraced the green concept that has recently gained popularity in the corporate world. As an organization located in Abu Dhabi, it has done all to comply with the city’s initiative in reducing the levels of carbon emissions in agreeing to sign the Masdar Initiative that emphasizes economic use of energy resources. The levels of pollution have reached intoxicating levels and it is upon the organizations to act before it is too late. By opting to tackle the effects of pollution head on, the company has fulfilled its obligation to the society by ensuring any source of harm is removed without any delay.

Furthermore, the company is an aggressive supporter and sponsor of community initiatives and sports issues that boost the psychological health of the society.

To the government, the company has met its obligations by complying with the regulations governing air travel. It is no wonder that through its brief history it has not experienced any accidents and misfortunes which is all attributed to its heeding safety standards. It also pays taxes to the government as is required of any business organization.

Conclusion

The company seems to have done a good job in the formulation and implementation of its strategies. This is evidenced by the high success that it has recorded in the market in less than a decade. Some of the operators in the industry have been in the market much longer but still cannot be compared to Etihad that is hoping to break even in less than a decade. Despite the effectiveness of its strategies, a lot still needs to be done in ensuring that the high growth rate is maintained and it is only through continuous strategies improvement that this can be guaranteed.

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