Etihad Airways’ Strategic Survival Mechanism

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Table of Contents

Introduction
Literature Review
Analysis
Conclusion and Recommendations
References

Introduction

Strategic management entails implementing and developing an airline or company’s goals and initiatives, which will foresee it, possesses a competitive advantage over its perceived competitors within the same field. The aviation industry has recorded a tremendously faster growth over the decade due to the demand for cargo and tourism worldwide (Dube, Nhamo, & Chikodzi, 2021). The analysis is likely to use methods such as Porter’s Five Force, strategic capabilities entailing the VRIO framework, competence, and resources, benchmarking, technology advancement, and value chain analyses.

Purpose of the research

This research report aims to provide strategies that are considered generic, orientational, and appropriate for making decisions that are deemed to contain a global impact on Etihad Airlines. This is necessary since it seeks to offer a competitive advantage to the airline while extrapolating its capabilities for survival. Furthermore, it seeks to analyze and assess the airline during this COVID-19 pandemic period. An alternative that is pertinent to assist Etihad Airlines in overcoming the significant decline in passenger numbers during this period will also be outlined. This uses essential concepts and periods coupled with different businesses that will significantly facilitate the realization of Etihad Airline to be competitive and remain relevant.

Literature Review

The changing business environment, externally and internally, has prompted organizations to design methods essential for their survival. These shifting demand components tend to impact a firm’s market size and value position, prompting an organization to apply architecture to link these elements together within the appropriate timeframe (Saebi, Lien, & Foss, 2017). Similarly, this issue will be solved if a company employs strategic planning to improve its performance toward meeting its long-term obligations (George, Walker, & Monster, 2019). Designing strategies will assist airlines to effectively be in positions in which they cannot be disadvantaged by the changing market needs likely to lock them out of business.

The needs of people require services they perceive as efficient and affordable concerning time costs and usage. The demand for a full-service airline is diminishing among the users, while a witnessed trend is the rise in the need for a carrier providing low-cost services (Simarmata et al., 2017). The introduction of a newer baggage policy by Etihad Airways, setting an allowance in all markets except for the United States and Canada, was aimed at targeting passengers’ attention towards using their services. Furthermore, Etihad Airways has entered into partnerships with leading airlines worldwide by buying shares (The Huffington Post, 2018). These seem to be a strategic move aimed at exploiting the aviation market segment in all dimensions and attracting more passengers to the airline.

People utilize the airlines for their movement as well as transportation of goods across the globe. Therefore, the industry is sensitive to certain factors such as economic turbulence, natural phenomena, pandemics, and political instability (Dube, Nhamo, & Chikodzi, 2021). The nature by which COVID-19 is transmitted from one person to the other coupled with associated challenges prompted the government to lock its airspace as a restrictive and closure measure (Organisation for Economic Co-operation and Development, 2019). The pandemic has led to the disruption of airline activities globally, resulting in a shrinking market value for this business (Maneenop & Kotcharin, 2020). For instance, Etihad Airways has registered a reduction in total passengers by about 64% in 2020 to 37.5 billion of available seat mileage (Etihad Airways, 2021). The occurrence of COVID-19 has significantly impacted airlines globally since the number of passengers has reduced dramatically.

Analysis

Strategic Capabilities

The availing of competitive abilities by Etihad Airways is incorporated in its management’s designs skewed towards a sustainable and improved overtime value. The analytic technique looks at the airline’s competence and resources, benchmarking, value chain analysis, and VRIO framework.

Competence and Resources

Etihad Airways has a variety of tangible assets which are essential in the accomplishment of its operations. By June 2004, the airline placed an order worth $8 billion for new planes with a direct flight to Geneva (The Huffington Post, 2018). These newly acquired assets are vital in providing the airway with a competitive advantage. Similarly, the airway offers employment to a variety of people. The COVID-19 pandemic has seen the airline reduce its workforce by 33%, from 20,369 in 2019 to 13,587 by 2020 (Etihad Airways, 2021). The airline seeks to increase its market access and is anticipated to boost employees’ and customers’ satisfaction through commercial and product development activities (Wade et al., 2020). This category is vital in assisting Etihad in fulfilling the set goals and targets.

The airline boasted of higher revenue returns before the pandemic impacted it negatively. A fall in revenue by 74%, from $4.8 billion in 2019 to $1.2 billion in 2020, was registered due to COVID-19 (Etihad Airways, 2021). This return would be realized to its average level since Etihad had already vaccinated more than 75% of its workforce as they set to resume their operations worldwide (Etihad Airways, 2021). Provided they engage in low-cost services, they are bound to earn excessive profits. The commitment of Etihad Airways to expansion and providing clients with the best services and experiences has resulted in receiving a variety of awards. The airline had received at least 30 awards coupled with Skytrax’s four-star rating since it launched operations in 2003 (The Huffington Post, 2018). This was realized since they utilized the competitive marketing strategy offering low-cost services.

VRIO Framework

The VRIO framework perceives the airline as an active participant in the aviation industry. As of October 2005, direct flights were accomplished for Toronto and Brussels, while over 30 destinations were registered by the end of June 2006 (The Huffington Post, 2018). This growth is attributed to Etihad airway’s new baggage policy, strategic management measures, culture, and committed human resources. These factors created a boost to the strategic management aspects being utilized by the company.

Benchmarking

Etihad Airways was established after a royal decree which required it to be the United Arab Emirates’ national airline. This was in February 2003, a period which saw the airline start its operations in November of the same year with a flight to Al Ain (The Huffington Post, 2018). As of October 2005, direct flights were accomplished for Toronto and Brussels, while over 30 destinations were registered by the end of June 2006 (The Huffington Post, 2018). The set target of 70 goals by the year 2010 saw the airline anticipate to be serving about 7 million guests by the year 2009 (The Huffington Post, 2018). This shows how the airline was growing steadily over the years ever since it first launched its operation from UAE to other destinations.

Value Chain Analysis

The COVID-19 pandemic sparked various challenges in the aviation sector. This industry is intertwined with other sectors, including plane manufacturing, leasing, rental services, biofuels blending, and supporting elements to air transportation (Organization for Economic Co-operation and Development, 2019). The incorporation of strategic planning is essential to enhancing Etihad Airways’ effectiveness towards its achievement of the set goals as it adheres to its objectives in the long run (George, Walker, & Monster, 2019). Therefore, failure by a single unit would halt the airline’s operations inconveniencing the users.

Five Force Analyses

The Entry Threat

The growing economies witnessed in Asia have increased the demand for air travel. This is expected to significantly increase across the region in the coming ten years since it is estimated that the air traffic growth stands at 85% (Wade et al., 2020). This advancement in development within Asia creates a likelihood of new airline providers such as Lufthansa, Air France-KLM, Wizz Air, and Ryanair, posing a threat to the arising customers’ options (Wade et al., 2020). The new market entrants are impeded by the requirement for adoption within the existing market gap. Therefore, the airlines will be finding it hard to create a threat initially (Saebi, Lien, & Foss, 2017). The capital injected by the government, coupled with the exemption of fees and payment deferment done in March 2020, was aimed at cushioning the airline’s financial capabilities and lessening the investors from COVID-19 effects (Maneenop & Kotcharin, 2020). These threats of entry by other airlines reduce the competitive advantage of Etihad Airways.

The Substitute Threat

The need to use transportation skewed towards saving time has made air traffic a better alternative. This is further coupled with the demand for affordable air services prompting the airline to adopt a low-cost strategy (Simarmata et al., 2017). The limited options for long-distance travelers who require transport utilizing a short period and faster movement make air transport suitable. Adopting relevant technology, which will foresee the quicker screening and processing of passengers, will ensure efficiency, reliability, urgency, and accurate operation flow in the airline (Dube, Nhamo, & Chikodzi, 2021). By 2018, shareholders became the most significant domestic air transport users within their travel zones (Organisation for Economic Co-operation and Development, 2019). This phenomenon is associated with travelers found in the Middle East and Europe.

The Buyers Bargaining Power

The shifts in pricing offer designing where airlines move away from the traditional methods towards the dynamic and continuous price evaluation techniques determine the airline use. The provision of offers deemed competent by the passengers, which entails the combination of ancillary and seat services matching the customers’ trip specifications, will attract clients (Wade et al., 2020). An airline seeking to provide low prices and reduce operating costs is hugely less likely to indulge in modeling its business adaptation features (Saebi, Lien, & Foss, 2017). Failure to adhere to the customers’ demand would make Etihad Airway lose the buyers’ bargaining power to other new market entrants.

The Suppliers Bargaining Power

The aviation industry is intertwined with other sectors of the economy. Airlines have utilized the public, which aims at providing coordination between the various suppliers in this field to ensure the safety of the airway (Organisation for Economic Co-operation and Development, 2019). The liquidation of Etihad Airways may be unavoidable if the government fails to boost its financial debt. This would, in turn, result in the disruption of the formed international supply chains relating to various ventures (Maneenop & Kotcharin, 2020). The government financial boosts and the coordinated supply chains would improve the bargaining power of Etihad Airways.

The Existing Extent of Rivalry Between Competitors

The competition between players in the aviation market is an issue of concern. The witnessed shifts in airline networks and fleets have led to the placing of constraints on capacity growth because of economic upheavals (Wade et al., 2020). Similarly, the competition by airlines for the provision of low-cost services for international flights poses a threat to Etihad Airways (Simarmata et al., 2017). This shift in capacity and availing of low-cost services by other market participants is a threat to the survival of Etihad Airways.

Technology Advancement

Improvement of Etihad Airway’s technological capabilities is essential. Etihad must digitalize its critical functions to reduce the over-reliance on the provided traditional technology to utilize the hybrid technique (Wade et al., 2020). The technological advancement in January 2020 by Etihad Airways targeted zero carbon emissions by the year 2050, reducing the 2019 levels of emission by 2035 (Etihad Airways, 2021). The possession of necessary technology will allow Etihad to deal with customers’ issues related to the company.

Strategic Alliances

The airline had taken up a partnership with the other aviation stakeholders. For instance, it signed a partnership agreement with Virgin Australia, Air Berlin, Republic of Seychelles national Airlines, Air Serbia, Dubai Airshow, and Alitalia (The Huffington Post, 2018). These partnerships were entered into to assist the airline in expanding its operations within these countries. A business strategy skewed towards achieving a competitive advantage over their likely competitors within the aviation industry.

Conclusion and Recommendations

The COVID-19 pandemic led to the disruption of Etihad Airways’ operations alongside other airlines in the aviation industry. The utilization of the outlined strategic capabilities will assist it in making good decisions. Similarly, the performed analysis such as the value chain, five forces, and technology advancement on Etihad Airways would be essential in surviving through this pandemic period. The airline’s performance is tied to the strategies to overcome the faced arisen situations resulting in losses. These analyses would provide the airline with a tremendous competitive advantage and assist it in extrapolating a mechanism vital for conducting operations within this market gap during the COVID-19 period.

References

Dube, K., Nhamo, G., & Chikodzi, D. (2021). COVID-19 pandemic and prospects for recovery of the global aviation industry. Journal of Air Transport Management, 92, 102022. Web.

Etihad Airways. (2021). Etihad airways accelerates transformation plan to mitigate impact of pandemic. Web.

George, B., Walker, R. M., & Monster, J. (2019). Does strategic planning improve organizational performance? A meta‐analysis. Public Administration Review, 79(6), 810-819. Web.

The Huffington Post. (2018). Etihad airways. Web.

Maneenop, S., & Kotcharin, S. (2020). The impacts of COVID-19 on the global airline industry: An event study approach. Journal of Air Transport Management, 89, 101920. Web.

Organisation for Economic Co-operation and Development. (2019). COVID-19 and the aviation industry: Impact and policy responses. Web.

Saebi, T., Lien, L., & Foss, N. (2017). What Drives Business Model Adaptation? The Impact of Opportunities, Threats and Strategic Orientation. Long Range Planning, 50(5), 567-581. Web.

Simarmata, J., Keke, Y., Silalahi, A. S., & Benkova, E. (2017). HOW TO ESTABLISH CUSTOMER TRUST AND RETENTION IN A HIGHLY COMPETITIVE AIRLINE BUSINESS. Polish Journal of Management Studies, 202-214. Web.

Wade, B., Topalova, Y., Boutin, N., Jhunjhunwala, P., Loh, H., Oertzen, T. V., & Ukon, M. (2020). Seven trends that will reshape the airline industry. Web.

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