Economics in Emirates Airlines

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Table of Contents

Introduction
Discussion
Conclusion
References

Introduction

In order for a country’s economy to grow and flourish, its transport sector, which consists of roads, seaports, air as well as railways, needs to be developed (Simonson 1960). The essay will discuss the Aviation industry in general, using Emirates Airlines as an example of the study.

Discussion

Background to the Industry

The Aviation industry is one sector that has been given full attention by governments of different countries, leading to improved economies, especially in developing countries (Sampson 1984).

Emirates airlines started as a small airline company based in Dubai.

It was launched in 1985 and rapidly established itself. Being a national airline in the Middle East and having over 100 destinations in 62 countries worldwide, it has since become the largest airline in the Middle East (Simonson 1960).

Modern technology has made it possible for efficiency as well as sufficiency to be applied in the Aviation industry.

Implementations such as the construction of low fuel consuming aircrafts and larger ones capable of carrying large quantities of cargo as well as passengers have also been applied (Sampson 1984).

Market Definition – What type of market the Aviation Industry is

Industries competing in the global market can either be Monopolistic or Oligopoly.

Oligopoly is that type of market whereby firms or companies merge so as to meet the demands of their consumers as well as improve their products or services (Sampson 1984). In such cases, the firms normally deal with the same type of product.

On the other hand, the Monopolistic type of market is that market structure in which different companies or firms sell products that appear to be similar but are not quite perfect (Simonson 1960).

The products are mainly substitutes of each other, for instance, in the case of restaurants and computer software companies.

The Aviation industry is mostly a Monopolistic type of market. In a Monopolistic competition, very few business entrants consider venturing into the Aviation industry. To begin with, since the industry comprises of different companies offering the same service but having different packages, enormous start up costs are incurred, and also large amounts of capital is required (Ibid 1960). This type of competition enables the parties concerned to set their own prices and consumers’ willingness to pay for their service determines the companies’ demand curve (Klein 1983).

Emirates Airlines, being the largest airline operating in the Middle East enjoys a 74% increase in its annual net profits despite having few close competitors. And unlike most national airlines, it has never and does not receive direct government handouts or subsidies (Simonson 1960).

Being monopolistic competitors, firms within the Aviation industry implement flexible organisational structures as well as non-traditional management approaches (Klein 1983). As a result, the majority of such firms come out successful and are recognised worldwide. For instance, since its launch in 1985, Emirates Airlines has not recorded any losses despite escalating fuel prices as well as experiencing two Gulf Wars (Sampson 1984). Its growth rate was also not affected after 9/11 attacks as compared to other airlines.

Market Concentration

In the Aviation industry, the market concentration can either be high or low depending on the strengths and abilities of the companies involved.

High market concentration is whereby one of the competing companies extends and expands its services and networks into the rival’s home market (Sampson 1984). On the other hand, low market concentration is a situation whereby competing companies do not possess enough resources necessary to expand their services as well as networks (Ibid 1984).

Emirates Airlines has not only managed to establish itself in the Middle East but is also currently recognised worldwide and has generally created a name for itself internationally.

Product Level – Demand and Supply Substitutability

Demand is the ability and willingness of consumers to purchase given products within specified time frames, while supply can be defined as the ability of producers or companies to meet consumer needs within given time frames (Klein 1983).

Products possessing the same characteristics as the original ones are referred to as substitutes (John & Yannis 1991).

In demand and supply substitutability an increased price rate in a substitute product leads to increased demand for the original product. On the other hand, a decreased price rate in a substitute product leads to decreased demand for the original one (Klein 1983).

Emirates Airlines and the Aviation industry as a whole have few close substitutes, despite there being numerous airline companies offering similar services. This can be attributed to factors such as location and distance from potential consumers, as this determines the product level (Klein 1983). For instance, Emirates Airlines is located in Dubai, which is an 8-hour distance from most of its surrounding countries (Sampson 1984). This means that it has the ability to attract many potential customers and thus is in a position to offer low prices for its services (Klein 1983).

The same case scenario applies to the majority of other international airlines.

New firms considering entering the Aviation market cannot do so easily. Technical skills are the main requirements for new firms or companies to enter the market (Simonson 1960). These include imitation, standardisation, innovation and technological competition of the product (Klein 1983). The stages have to be passed through before a new firm can be recognised in the market.

Once the new companies or firms establish themselves in the market industry, it becomes possible for them to increase supply since it would be offering similar products, though of different quality to the existing as well as potential consumers (Klein 1983). As a result, demand and supply substitutability is created within the Aviation market industry.

Level and Types of Price and Non-Price Competition; Product Differentiation

Competition by industries in the global market can either be Price competition or Non-price competition.

Non-price competition is a situation in the market whereby competitors are afraid and opt not to lower their prices in case of price wars (Simonson 1960). Price competition, on the other hand, is that market situation whereby competitors are willing to lower their prices so as to beat the competition (Sampson 1984). This kind of competition is found in the Aviation industry.

Product differentiation is the process of being able to make a distinction between the differences of a product or service from other products or services (John & Yannis 1991). Monopolistic competition is as a result of successful product differentiation, as is in the case of Emirates Airlines and the Aviation industry as a whole.

Product differentiation is due to the buyers’ ability to perceive a difference, no matter how minor (John & Yannis 1991).

It might be a difference on how the product is advertised or packaged. This in turn affects the distribution as well as marketing of the product or service (Sampson 1984).

Product differentiation is as a result of various elements. These include differences in the product’s design or packaging, how the product or service is advertised, as well as how ignorant the buyers or purchasers are on the quality and characteristics of products or services being offered (John & Yannis 1991). Differences in quality which affect the differences in prices are also a key element of product differentiation. In the case of Emirates Airlines, differences in location as well as timing are a contributing factor (Simonson 1960). Due to its convenient location, Emirates Airlines is able to attract potential clientele and offer lower flight charges as compared to other international airlines (John & Yannis 1991).

The main aim of product differentiation is to create a situation which appears to be unique to potential customers, as compared to others (Klein 1983). This in turn makes the consumers in a given part have less sensitivity towards non-price features of the product (John & Yannis 1991).

Product differentiation can either be horizontal or vertical. Horizontal differentiation emerges from a situation where products differ according to features which cannot be ordered by potential consumers (Klein 1983).

Products in this case mainly differ in colour, tastes as well as style or designs. A good example of such products is the Ice-cream. In horizontal differentiation, the seller or supplier of the product (s) is in a position to decide on a unique price for the different versions (John & Yannis 1991). Another example is that of Fast foods whereby a customer can decide to have what he/she did not purchase previously. Here, variety is the key issue.

On the other hand, Vertical differentiation in the market emerges when several goods available are ordered according to their quality, that is, from those having the highest quality to those of the lowest quality (Simonson 1960). In this case, consumers perceive one product being better than the other. They also might have a perception about the features of the product that is biased due to either social pressures or how the product was advertised (John & Yannis 1991). Examples of goods or products in vertical differentiation are necessity and luxury goods, for instance, vehicles, foodstuffs, and houses/buildings.

Vertical differentiation operates by the rule that those products or services having better quality cost more than those which do not have better quality (Sampson 1984).

Product differentiation does not always involve designing the product differently from others but being more aggressive on advertisement and sales promotion of the product (John & Yannis 1991).

Companies or firms that focus and put emphasis on, as well as steadily improve the elements of product differentiation discussed earlier, will be in a better position to gain as well as keep a better position to gain and keep a competitive advantage over their rival competitors (Simonson 1960).

Conclusion

Emirates Airlines is gaining favour with potential clients worldwide due to the quality of service provided by the airline as compared to others. It is recognised globally as the best upcoming company in the Aviation industry and continues to extend its networks and services to developing countries.

References

John Beath and Yannis Katsoulacos (1991), The Economic Theory of Product Differentiation, Cambridge University Press.

Klein, L. (1983), The Economics of Supply and Demand, London: Oxford.

Sampson, A. (1984), Empires of the Sky, London: Hodder and Stoughton.

Simonson, G. R. (1960), The Demand of Aircraft and Aircraft Industry, The Journal of Economic History, Vol. 20, pp. 361 – 382.

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