Etihad Airways continues to perform robustly despite the difficulties the aviation industry is facing globally. The current study aims at studying and analyzing Etihad's financial performance and its competitive as well as its financial improvement. The study is done between theperiod of 2008-2013.
Etihad’s marketing strategy focuses on creating new innovative services in every corner with the customers. The company sponsored many local and international events such as sports events. In 2000, the company sponsored the Melbourne premiere and multipurpose sports venue ( Etihad Stadium).
In December 2007 it became the title sponsor of the Formula One Abu Dhabi Grand Prix .The deal was the F1 race in the UAE’s capital city named the Formula One Etihad Airways Abu Dhabi Grand Prix until 2011. In 2008, it also sponsored the Ferrari F1 Team , formula 1 world championship holders.
According to the CEO of Etihad Airways “Our next goal is full break-even in 2011, leading to sustainable profitability from 2012 onwards. All our indicators show that these targets are in our sights”, those goals were set after the last financial crisis losses in company revenues rather than affecting the quality of services has been provided in the last three years.
Etihad Airways on its fleet determined to Abu Dhabi Australia route, consists of, sevenA340-600 Airbus with 292 passenger capacity, and V Australia the international carrier of Virgin Blue with its three Boeing 777-300ER, considering the total costs for the flight, as the homogenous fleet will have lower operating costs that would have effect on the fare price.
However, it has to cover up the operational cost either by high or low fare prices for its profitability. Moreover, Etihad can change the penetration pricing strategy and increase the prices after achieving break-even, to avoid being perceived as a low value brand.
Etihad Airways is the fastest growing airline in commercial airline history, with new routes added to their network regularly. Immediately below is a list of all the destinations they fly to directly. Further down are all the destinations you can reach on Etihad in conjunction with one of the partner airlines.
Etihad uses a penetration pricing strategy, through offering lower prices compared to competitors, in order to gain more market share, at the same time providing services similar or even better than competitors. Many factors helped Etihad in offering lower prices, oil price is one of these factors, knowing that the government of Abu Dhabi owns a big share of Etihad; this gave the opportunity to get a preferential oil price.
Etihad Airways established many offices all over the world to serve its customers in the destinations it covers, in terms of selling tickets and providing customer support. It also built a strong network of agents to further reach customers, as well as providing services online.
Etihad recently unveiled new state-of-the-art first and business class cabins to once again raise the bar for in-flight experience. Recognizing the challenges ahead, Etihad is, through its investments and product innovation, establishing the foundations to be an undisputable market leader when the market recovers.
The International Air Transport Association (IATA) has recently revised its airline financial forecast for 2009 to a global loss of US $9 billion – nearly double the association’s March estimate of a US $4.7 billion loss, reflecting a rapidly deteriorating revenue environment. Despite the difficulties the industry is facing globally, the Middle East is expected to be the only region with demand growth in 2009 (+1.2 per cent). But this will be overshadowed by the impact of a 3.8 per cent increase in capacity. While this is significantly below the double-digit growth of previous years, the region continues to add capacity ahead of demand.
Etihad’s Future plan is to contribute in the Abu Dhabi 2030 vision:
Invested US$43 billion in expanding fleets
Expecting 205 aircraft from Airbus and Boeing
Including Airbus A380
Plans to have 25 million passengers per year
Increase to more than 120 destinations
Expects to have total workforce of 22,000 people
Etihad plans to invest over $255 million into Air Berlin over the next three to five years
Looking forward to do partnership with other airlines.
SWOT analysis aims at identifying the strategic position of Etihad Company. It helps in understanding of the resources and capabilities and how new opportunities can be exploited with minimizing the impact of external threats.
STRENGTHS:
National Airline of UAE: Etihad Airways is National Airline of UAE, being National Airline it has a competitive advantage among other carriers. This status and level of trust helps in attracting more loyal customers whether they are local citizens of UAE or expatriates.
Financial Requirements:Etihad Airways is wholly owned by the Government of Abu Dhabi, UAE. Hence financing for the carrier is mostly done in the course of subsidies of the government. Abu Dhabi being the highest oil exporting Emirate of UAE is financially secure with a Gross Domestic Product (GDP) of $361.9 million (Index Mundi).
Geographical Edge: Geographical location of UAE is identical for trading and business purposes, connecting Europe, Asia, and the Soviet states as well as Hong Kong and Japan. And ultimately all this helps in expansion of tourism and Airline industry.
Young fleet:Etihad Airways has an average fleet age of 60 months(AR 2012 page 31) and Emirates Airlines has an average fleet of 77 months. This helps Etihad Airways in more efficient operations less fuel consumption, less repairs and service costs. Further expansion in fleet is expected as fourteen new aircrafts are due to be delivered in 2013.
Low Cost management culture:Etihad Airways is a five star airline providing award winning on-board products and services. Airline was awarded World’s leading First Class award at Skytrax Awards 2012. Etihad serves full service product but they are doing all this with an administration philosophy of a low cost airline especially improving operational efficiencies
Sponsorship Collaborations’: Etihad is having collaboration with Manchester City Football Club and Harlequins Football Rugby Club and the winning performance of both teams in their individual leagues were moments of celebration for Etihad. In 2012, Multi-million dollar agreement was signed by Etihad to prolong its naming and promotion rights for Melbourne’s iconic Etihad Stadium.
WEAKNESSES:
Reliance on One Hub:Etihad Airways dominantly operates from capital of UAE i.e. Abu Dhabi, heavy reliance on one origin may not be feasible at all times as all flights of Etihad either initiate or lay off at their hub. Any natural catastrophe can lead to total obstruction in the flights, leaving the airline with high compensation costs and few alternative options.
Developing Airline: It’s been only 10 years since the incorporation of EtihadAirways, However Emirates Airline started its operations in Year 1985. Etihad will take time in coping up with the market conditions, dynamic environmental and technological developments, hence there is lot to consider in future being consistent and building a strong loyal clientele.
Multi-Cultural Staff: As at year end of 2012, Etihad Airways had 10656 employees representing more than 125 Nationalities (AR 2012 page 52). This may help in synergies however sometimes it would be challenging to communicate with them as they would be having diverse customs and values and would require expertise to address or communicate with them.
OPPORTUNITIES:
Global Events: In 2012, visitors of Abu Dhabi city exceeded 2.3 million people and this is not only because of latest fascinations like Ferrari World Abu Dhabi or Yas Water-world but the long standing repute of presenting global events and symposiums. Abu Dhabi hosted Future Energy Summit 2012, being host of such global events enables Etihad Airways to serve the participants as their distinguished guests and make their travelling experience memorable.
Dubai operations:Etihad does not provide its services from Dubai, which plays an important role in economic development of not only UAE but the whole region. The provision of flights from Dubai might help Etihad in further expansion of its network with the help of its codeshare partners. Strategic dialogues may result in Win-Win solution for Etihad and Emirates Airline (Dubai’s dominating airline).
Environmental friendly operations:Etihad Airways has a very young fleet, this helps them in efficient operations and minimize their carbon footprints. Further investment in advanced technological aircrafts can improve the goodwill and ecological conscious customers will be more likely to pay premium for cost of Etihad’s services.
Corporate Clients: Joint venture of Hala Travel Management provides travel management services, further incentives could be made available to attract and retain Corporate and Government customers (AR 2012 page 14). Enhancement in loyalty cards and their privileges for corporate clients can also be a feasible option to execute and retain those clients.
THREATS:
Fuel prices volatility: Etihad Airways has been very good in fuel hedging, however fuel costs for airlines are generous part of operating costs and prices are likely to remain volatile due to non-controllable events which may result in adverse financial consequences if they are not appropriately managed. Appropriate attention is needed at all times to minimize the risk of unfavorable fluctuation.
Low Cost Carriers:Etihad being a five star airline faces a threat from low cost airlines in the region, mainly Air Arabia and Fly Dubai. These airlines operate on ‘no-frills’ concept which helps them in minimization of their cost and ultimately they ask for fewer ticket prices. Undoubtedly the strategy of full service and low cost airline are entirely different but in today’s volatile economic environment there are many customers who prefer cost-beneficial airline rather than a luxurious one.
Switching to Competitors: As discussed earlier, Abu Dhabi is the hub of Etihad Airways and for customers switching cost to other airlines in negligible even if they decide to travel from Dubai i.e. at a distance of 127 km from Abu Dhabi and they may find an opportunity to travel with other competitors because there are more than 90 established Airline carriers in the region.
Instability in the Middle East region: Recent turmoil’s in the countries of Middle East region i.e. Syria, Bahrain, Yemen & Egypt are a significant threat to the stability and security of the whole region. These may result in serious disruptions to the whole economy if the sentiments of people are not appropriately addressed.
It is important to mention that the increasing popularity of Etihad allows it to enter new markets through strategic alliances. Also, the location in one of the most promising business districts in the Middle East will attract more and more business travelers. Moreover, a good chance to attract technology loving customers, due to innovations in cabins.
But I think that the company has to focus more on the following to boost its work and increase its revenues:
•Entry of new rivals in such a wealthy part of the world is relatively easy.
•Fuel cost might face an increase.
•Terrorist threats towards airlines in general.
•Natural environmental conditions that might affect the aviation industry as a whole, such as the 2010 ash cloud in Europe, which caused airlines huge loses.
•External changes (government, politics, taxes, etc)
•Outbreak of disease such as Swine Flu, H5N1 and Mad Cow Disease.
•A global economic downturn negatively affects leisure, optional travel, as well as business travel.
•Fewer destinations than major competitors, Emirates more than a hundred destinations, and Qatar Airlines more than ninety destinations.
•Weak support by customer service centers, as many customers complained that they did not get the help they needed.
•Delayed processing of compensations.
•Some customers complained about longer waiting time in connection flights.
If the Etihad is a successful company and working hard to cope with the big competitors in the Aviation sector it is surely thanks to:
Fast pace growing fleet, from 6 aircraft in 2003, to 57 modern aircraft in 2011, which needs less time for service and maintenance, hence more time in the air, and more profit.
Lower fares compared to main competitors in the region, such as Emirates Airlines, and Qatar Airways.
Globally recognized sponsorships with sports clubs and events.
One of the world’s leading airlines in 2009 and 2010, through the global awards received.
The great entertainment system on board (E-Box) with a USB plug and play feature to connect personal devices to the system.
The unique design of cabins, Diamond zone for first class, pearl zone for business class, and coral zone for economy class.
High service quality, more than 30 awards received for service by the World Travel Awards (WTA).
Successful partnerships to add new destinations, such as the partnership with Virgin Blue Australia.
Increased seating capacity every year.
Wise diversification through cargo and holidays services, in addition to air transportation, which resulted in total revenue of 2.3 billion dollars.
Creativity and innovations in both onboard and ground services, such as limousine pick-up service.
BIBLIOGRAPHY
Online Sources:
Emirates Annual report
Affect International Business feature
21 april 2013
Etihad confident of reaching its financial goals from
Etihad Media Center
The Emirates Story
Etihad Airways Review