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Advance Strategi ManagementProfesso Adria Freire

Trimeste 20 2015

Strategic Markets applied to Emirates Case

a n aSar Hoga Silv 152114036

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IntroductionIn this report we will cover the following topics:• What are strategic markets

and which are the key indicators of an attractive market;

• Analyze Emirates’ global hub-and-spoke strategy;

• Why is Dubai considered a strategic

market for airline industry;• The importance of BRIC countries as

strategic markets.

Emirates AirlinesEmirates is an airline based in Dubai, UAE, and its foundation in 1984 was related to a crisis in Dubai when Gulf Air refused to increase flights from and to Dubai unless the government protected the carrier for its long-haul services.Soon Emirates started growing and doubling its size every three years. In 2014, the airlines company is considered the largest airline in the Middle East, operating nearly3400 flights per week to more than 142 cities in 78 countries across all continents.

What are strategic markets?A market is considered strategic when it can strongly influence, in a positive way, the ability of acompany to achieve its goals.In 2005, Emirates had the goal of becoming a global hub-and-spoke system with passengerstravelling between cities with a stop at Dubai. Therefore, as we will show below, this city isconsidered a strategic market not only for Emirates but also to other airline companies.

The GE-Mckinsey Matrix is used to determine where the best for a company to invest its money. Instead of focusing on the projections of future prospects of the business unit (BU), the company can measure its future performance according to two factors: the industry attractiveness and the competitive strength of the business unit within that industry. According to the graph below:1. For BU’s above the

diagonal, the company can apply strategies of investment and growth;

2. For the ones in the diagonal,

they are candidates forselective inves

tment;

3. However, for the ones below

the diagonal, the companyshould consider

sell or

and comp

aring it

to thecompetitive

strengt

of thebusiness.

BuildSelectively

Expand orHarvest

Divest

Invest to Build

Selectivity/

Manage

for e

arnings

Manage

for

Earnings

Protect

Position

BuildS

electively

Protect Position

and refocus

liquidate it.In the case of airlines industry, wecan apply this framework byanalyzing country attractiveness

Competitive Strength of the Business

High

Moderate

Low

Advantages- Encourage the

rapid growth inthe airlinebusiness;

- Efficient use of

transportationresources;

Disadvantages- Congestion and

delay at hubairports;

- Airportdependency;

- Discontinuous use

of

A company can evaluate the attractiveness of a country by comparing it with another nations regarding market, operational and risk factors. In the table below, there are some key elements that can evaluate each of the factor. Bear in mind that each factor can have different weight in the overall relative attractiveness of the country.After analyzing the attractiveness of the market, it is also necessary to evaluate the competitive strength of the company. There are typical factors that can affect the competitive strength such as: market share, market share growth, customer loyalty, strength of assets, distribution, production capacity and competencies, and relative brand strength.

Country Attractiveness

Market Factors

Operational

Risk Factors

•Market Value•Market Growth

Factors•Minimum Local

•Exchange Risk•Political Risk

Rate•Pricing Trends

Wage•Operating Costs

•Industry Risk•Other

•Opportunity to differentiate

•LegalRequirements

Emirates Global Strategy in 2005“Emirates has placed some big bets—on Dubai, the A380 and its global hub-and-spoke strategy and its ability to scale operations. And no one would confuse the airline industry with an easy sector to make money”

Hub-and-Spoke StrategyNowadays, in 2014, Emirates operates around3400 flights per week, with a stop at Dubai, tomore than 142 cities in 78 countries across allcontinents.

Why Dubai?

“The success is Dubai’s location – it’s Europe’smost easterly hub and Asia’s most westerly hub”

“According to IATA, the UAE is the most connected country in the world, in no small part due to Dubai’s thriving aviation sector.”

Market Factors:• Decision making is typically

collaborative and decisions can betaken quickly;

• Open sky policy;• Strategic investments in top-flight

aviation infrastructure;• Geocentric location.

Operational Factors:• Tax-free environment;• Economical cost structure of

airports;• Competitive wages.

Risk factors:• Dependency on airlines industry;• Negative image of Middle-East.

“ The past 50 years have been nothing short of remarkable and the future holds even greater promise as we build our infrastructure to support the impressive expansion of Emirates, flydubai and other airlines and ascend the ranks of global aviation hubs.”

Paul GriffithsCEO Dubai Airports

Due to Emirates’ global hub-and-spoke strategy, Dubai International Airport constructed a new Terminal (adapted to the new Airbus A380 fleet) that would be exclusive for Emirates. It was inaugurated in 2008 and it is considered the largest terminal in the world with capacity of 43 million passengers.As we can see in Appendix 3, in 2010, just two years after the opening of Terminal 3, the annual number of passengers had increased by 10 millions. Nowadays, Emirates handles 64% of all passenger traffic and 50% of all flights at the airport. We can conclude that Emirates was successful achieving its goal and that it will be capable of continuing expanding their scale. Compared with other main hub airports, Dubai is the best one for growing as it still has a lot of space to expand, besides all the attractive factors mentioned before. Therefore, Dubai is considered a strategic market for the global hub-and-spoke strategy of Emirates.

Other strategic markets for EmiratesBRIC countries (Brazil, Russia, India and China) seem to be a potential strategic market for Emirates as well, because of their economic growth over the past decade. However, according to the graph on the right, there is low propensity to travel by citizens from these countries. Nevertheless, it is important to mention that BRIC countries represent approximately 40% of world’s population, so this can be translated in numerous flights for airline companies. Nowadays, Emirates has flights from Dubai to all these countries. In my opinion, it is crucial to maintain these destinations not only due to the large population, growing middle class and young population they have but also because of the increasing demand of these countries by tourists.

BRIC countries’ GDP per capita and propensity to travel by air (2009)

Strategic Alliance In 2013, Emirates and Qantas

airlines decided to make a strategic alliance. Qantas is the flag carrier airline of Australia and has a 65% share of its domestic market and carries 18,7% of all passengers travelling in and out Australia.

With this alliance, Qantas changed its strategic hub in Singapore for Dubai, which reduced flight times between continents (Australia to Europe). Emirates benefited from this because they would transport Qantas’ passengers from Dubai to their final destination.

BibliographyInternet

Enduring Ideas: The GE–McKinsey nine-box matrix:http://www.mckinsey.com/insights/strategy/enduring_ideas_the_ge_and_mckinsey_nine-box_matrix

Summary of GE Matrix: http://www.valuebasedmanagement.net/methods_ge_mckinsey.html

Qantas-Emirates alliance to begin April 2013: http://www.ausbt.com.au/qantas-emirates-alliance-to- begin-april-2013

Emirates, Qantas – Friends For Life?: http://gulfbusiness.com/2013/11/emirates-qantas-friends-for- life/#.VCWZNfldWCo

How Dubai Became One Of The Most Important Aviation Hubs In The World: http://www.forbes.com/sites/natalierobehmed/2014/06/04/how-dubai-became-one-of-the-most- important-aviation-hubs-in-the-world/

Brazil, Russia, India, China (BRIC): Emerging aviation markets performing well in 2010: http://centreforaviation.com/analysis/brazil-russia-india-china-bric-emerging-aviation-markets- performing-well-in-2010-26497

Reports

Emirates Annual Report 2013/2014Connecting the world today & tomorrow, Strategic Plan 2020, Dubai Airports

Mar

ket

Appendix 1

Build Selectively• Specialize around

limited strengths• Seek ways to overcome

weaknesses• Withdraw if indications

of sustainable growthare lacking

Expand or Harvest• Look for ways to

expand without highrisk; otherwiseminimizeinvestments andrationalizeoperations

Divest• Sell at time that will

maximize cash value

• Cut fixed costs and

avoid investmentmeanwhile

Invest to Build• Challenge for

leadership• Build selectively on

strengths• Reinforce vulnerable

areas

Selectivity/Manage for earnings• Protect

existing program• Concentrate

investments in segments where profitability is good & risks are relatively low

Manage for Earnings• Protect position in

most profitablesegments

• Upgrade product

line• Minimize

investment

Protect Position• Invest to grow at

max rate possible

• Concentrate onmaintaining strength

Build Selectively• Invest in most

attractive segments

• Build up ability tocounter

competition• Emphasize profitability

by increasedproductivity

Protect Position and refocus• Manage for

current earnings• Concentrate

on attractive segments

• Defend strengths

Competitive Strength of the BusinessSource: www.mckinsey.com

Appendix 2

Opening of Terminal 3

Appendix 3