Air Transport Company Profile (Etihad Airways)
The Aviation industry has gone through a series of negative performances majorly in 2001 and 2008. Subsequently this has led to the presumption that the industry is unable to maintain high economic profits. Nonetheless, in 2015 the industry like in the last five years has discredited this notion not only by generating high global profits but by also reporting high customer satisfaction and increased investment throughout the year. The trend of a strong economic down turn has not only been witnessed in 2015 as earlier suggested, but this has been a growth pattern that has existed for five years; however, there are a number of airlines that have been liquidated and in some cases reported significantly low profits thus the assumption of poor performance. On the other hand, other companies in the same industry are making high profits leading to the underlying question as to why this phenomenon exists. In finding answering this question, this paper uses Etihad airlines a relatively new company that is performing well despite the notion of a turbulent time in the aviation industry.
Over the last decade and a half the performances of the aviation industry has had three major effects namely, the 2001 terror attack, the 2008/2009 financial crisis and the 2011 and 2012 Asian crisis; however, the industry has performed highly. After the financial crisis of 2008, the aviation industry entered an age of increased profitability though this was not the case with public perception, as the increase in oil prices was highly notable and a cause of high pricing all over the globe. According to a report by Goetz and Lucy (112), between 2009 and 2014, the global revenue in the aviation industry grew at a rate of 9.5% reaching 751 million USD. According to Conventz, and Alain (42), the sector positive performance has been driven by the increase in customer satisfaction standards making flying a more desirable mode of transport. However, it should be noted that the positive number s stated above does not suggest that airlines are having a good profitability patch, but the most aggressive and better strategically placed companies are the ones having a good run as the world through air transport becomes more affluent and interconnected.
Company Profile
Etihad Airways was developed as a second flagship airline representing the United Arab Emirates region after the famous ‘Emirates’ brand back in 2003. The company was a brainchild of Sheikh Khalifa bin Zayed Al Nahyan who highlighted the significance of introducing another competitive but also complementary airline company, which would allow more trips to the UAE. Later that year the company made its first to Al Ain and began its first commercial flight to Beirut and later serving a variety of global destinations seen today (United Arab Emirates yearbook 2005 P.np). Though it can be argued that the company is not a new entry in the aviation business as it earlier existed as Gulf Air based in Abu Dhabi, the Etihad brand is new and has a different objective from its parent company.
Company Motto and vision
The Airlines mission is to be the most profitable airline in the region by applying the most effective business practices in the industry such as concentrated load dynamics, minimum transit periods, seamless as well as prompt information to the flying public, management plus increase client’s service. This consequently replicating the culture of the “modern Emirates” experience, which is based on being the center of world-class hospitality between the East and West (Etihad Airlines 2013, P.np).
Etihad Financial Position
On 27th April, the company announced its best financial results since its inception over a decade ago when it reported a profit of 103 million USD from a total revenue of 9.02 billion USD. According to Cole (45), the aviation industry the increase in profitability has been dedicated on increased passenger and cargo volumes coming into the UAE region far outpacing global expectations; the company’s equity strategy driver allowing the organization enjoy significant economy of scale advantages. Additionally, there has been increased revenues from partnership delivering approximately five million more passengers to the Etihad Airways network than the previous year. The increase in customer satisfaction has been related to better-quality cargo freight handling, MRO, catering as well as ground handling, plus frequent flier program. The 2015 performance marked the fifth successive year of the company having profitable fiscal results.
| Key indicators | 2015 | 2014 |
| Revenue (USD billions) | 9.02 | 7.55 |
| EBIT (USD million) | 259 | 257 |
| EBITDAR (USD billion) | 1.4 | 1.1 |
| Net profit (USD million) | 103 | 73 |
| Total passengers (million) | 17.6 | 14.8 |
| Revenue passenger kilometers (billion) | 83.2 | 68.6 |
| Available seat kilometers (billion) | 104.8 | 86.6 |
| Seat factor | 79.4 | 79.2 |
| Number of aircraft | 121 | 110 |
| Partner revenue (US$ million) | 1,379 | 1,129 |
| Cargo tonnage (tones ‘000) | 591 | 569 |
| Number of employees | 26,566 | 24,206 |
Source: Etihad Airlines Fiscal year reports Retrieved form; 2014 report http://resources.etihadairways.com/etihadairways/images/E_Book/HTML/AnnualReport2014_English/assets/common/downloads/Annual%20Report%202014%20English.pdf. 2015 report http://resources.etihadairways.com/etihadairways/images/E_Book/HTML/AnnualReport2015_English/assets/common/downloads/Annual%20Report%202015%20English.pdf
Table 1. Etihad Airways Key Financial indicators
Airline Growth Stats
As earlier stated one of the reasons the carrier has had a good performance over the last decade has been due to an increase in passengers and cargo. According to the company’s report in 2015, the airline carried an estimated 17.6 million passengers, which was an 18.9% increase over the previous year. The growth volume over the last five years has continued to exceed the airlines capacity and is a consequence of the region’s growth (Cole, 46). The UAE is recorded as the fastest growing region over the same period with countries such as Qatar and Abu Dhabi have seen an increase in non-national investors bringing in an influx of staff. As a result, the Etihad Airways acquired a fleet of new and modern planes increasing the number of destinations out performing most international carriers. As a consequence the company’s Revenue Passenger Kilometers (RPKs), which is the measure of passenger journeys in reference to distance increased by 21.3% registering 82.2 billion USD in revenue as the Available Seat Kilometers (ASKs), which refers capacity grew by 21% increasing revenue to 104.8 billion USD. In summary, Etihad Airways flew 97,400 flights covering a distance of 467 million kilometers at an increased seat load factor by 21% compared to 2014 hence having an increased profitability.
Figure 1: Etihad’s number of destinations from FY 2006 to FY 2015 (in units)
Source: Statista.com retrieved from https://www.statista.com/statistics/529955/etihad-airways-number-of-destinations/
Source: Etihad Airlines Fiscal year reports Retrieved form; 2014 report http://resources.etihadairways.com/etihadairways/images/E_Book/HTML/AnnualReport2014_English/assets/common/downloads/Annual%20Report%202014%20English.pdf. 2015 report http://resources.etihadairways.com/etihadairways/images/E_Book/HTML/AnnualReport2015_English/assets/common/downloads/Annual%20Report%202015%20English.pdf
The above tables are a representation of the destination increase and the seat capacity over the last one year. From Figure 1 Etihad has been increasing its flight destinations shortly after its inception the strategy seeming to come from the demand regions growth attracting a variety of nationalities. This can consequently be seen from the seat capacity that has the highest change in the other category in figure 2.
Asset Management
In the aviation, industry assets are mostly placed on fleet and how they are managed. According to Aviation Asset Management Limited (AAM) airline companies such as Etihad have an asset valuation where the company’s fleet represents 90% of their total valuation. The company has a fleet of 125 with four bought in 2016 and an additional 62 planes expected by the end of 2020. Of all planes owned by the company six models based on passenger flights and three models based on freight services.
Etihad Airline Fleet Matrix
| Fleet type | Current fleet | Avg. Age of plane |
| Airbus A300 | ||
| Airbus A310 | ||
| Airbus A319 | 2 | 13.5 |
| Airbus A320 | 23 | 6.4 |
| Airbus A321 | 10 | 1.7 |
| Airbus A330 | 30 | 7.9 |
| Airbus A340 | 10 | 8.9 |
| Airbus A380 | 8 | 1.5 |
| Boeing 747 | 1 | 17.5 |
| Boeing 777 | 32 | 6.2 |
| Boeing 787 Dreamliner | 9 | 1.0 |
| Total | 125 | 6.0 |
Source: Planespotters.net retrieved from; http://www.etihadguest.com/pt/global/about-us/our-story/
Table 2. The table above shows the number of planes currently owned by the airline without the inclusion of the future placed orders of planes. Of the entire fleet, the company owns 115 passenger planes ad 10-cargo fright aircraft. The exact valuation of the fleet in terms of money is however, unknown since different planes have dissimilar depreciation rates with other planes bought from other airlines affiliated to the Gulf Air Company, which was the parent company that gave raise to Etihad Airlines.
Debt Management
The company started by a paid-up capital of 500 million ADE, which was used to set up the company’s network of planes. However, unlike other forms of debt management strategies of collecting capital from financial creditors Etihad management decided to enter into codeshare arrangements allowing the company to increase travelling distance without adding extra costs that are beyond the establishment resources. During the 2015 fiscal year, Etihad Airways secured financing transactions worth 700 million USD through its subsidiaries within the Etihad Airways Partners (EAP) (Etihad Airlines 2015).
COMPETITIVE POSITION IN THE INDUSTRY:
The UAE economy has gained greatly from the aviation industry. The reason for the aviation industry influence is the existence of the air liberalization policy stablish by The General Civil Aviation Authority (GCAA), which has its headquarters in Dubai (Vedder, 23). The policy allows a variety of up to 49% stake of the industry increasing competition among its players and consequently give the privilege of introducing regionally specific services as well as pricing of the said services to gain market share and earn high profitability.
COMPETITOR’S ANALYSIS
The aviation industry is highly competitive with consumer satisfaction being the greatest determinant of competition. Etihad Airways has made significant steps in becoming highly productive; however, what should be noted is that the microenvironment plays a major role in setting up the strategies that aid in being competitive. Below is a five-porter analysis that gives insight about the aviation industry as basis of the company setting up its strategies.
Threat of entry of new competitors. The aviation industry in the gulf is open to new investors making new competition high. The gulf region continuous to grow at an exponential rate and the influx of both investors as well as clients in the region seen the UAE become a global hub and consequently the more the flights into the region the better. Subsequently, the aviation environment is open to free entry and exit seeing a high number of both local and international investors examples of this new entrants are Easy Jet, Air Arabia that are playing a significant role in local flights in the region increasing competition.
The threat of substitute products: product substitution in the gulf region is high. The aviation industry in the UAE is going through a boom with increased fight s within and globally from a variety of destinations, subsequently increasing airline services in the region increasing substitution. In reference to Etihad Airlines, the product in question is in actuality as service and differentiation is low making it easy for clients to have low loyalty.
Competitive Rivalry. From the aforementioned information, it is clear that the rivalry in the UAE aviation industry is high. According to a report by Goetz and Lucy (25), there are currently over 110 airlines flying to and from over 160 destinations connecting with the UAE. All these companies are in a constant economic battle with each other to increase their market share in the region to consequently increase their Revenue Passenger Kilometers (RPKs) and Available Seat Kilometers (ASKs).
Supplier power. The UAE aviation like the global air travel industry is affected by three kinds of suppliers namely plane manufactures, fuel as well as workforce making their powers high. Globally there are two primary supplier of aircraft; Boeing and Airbus, with Airbus having a higher bargaining power than Boeing in reference to Etihad Airline. This is because the switch to boing is highly costly with a change in labor training from the pilots to the engineers. Fuel providers similarly have a high bargaining power, as they are great determinants of the amounts of profits enjoyed by the airline in retrospect to their price levels. The workforce union similarly represents highly trained individuals consequently making them have a high bargaining power.
Customer Power. Consumer bargaining power in the gulf aviation industry is high. Air travel is costly subsequently most travelers make their decisions on which airline to use based on value for money with airlines with the best services having an advantage. Furthermore, the passengers in the aviation industry are graded with business class and first class passengers who pay higher prices than their counterparts generating higher bargaining power.
Product Strategy
As earlier stated the consumers have a high bargaining power and majorly base their reason to choose an airline in respect to value for money. In order to gain an advantage Etihad airways has developed two products namely the Etihad Pearl Business Class and the Diamond First Class which offer high end service provision as well as multi-cuisine availability during flights giving the company maximum competitive advantage. The services go beyond on board services with the airline offering chauffeur service to a variety of destinations within the region. Additionally the company offers 24 hours departure facilities three hours earlier than other companies, which only provide these amenities for one-hour early arrivals. The above-mentioned services have allowed Etihad to increase their appeal to value sensitive passengers. For the future, the company has set up plans to develop a luxury lounge for its passengers as well as a new age baggage delivery system that would make the travelling experience more attractive.
Price Strategy
Currently the company has a market penetrating pricing strategy that allows Etihad to deliver the same services at the same prices as the major airlines such as British Airways and Emirates Airline. It is reported that the new strategy has caused a 5% fall on Emirates Airlines domination over the UAE region in 2015 (Abu Dhabi 2015, P.np).
Place Strategy
Etihad Airways has increased its fleet number to increase its reach through a variety of destinations, a strategy that has paid off greatly; nonetheless, the air carrier has also entered into agreement with other smaller airlines aiding in reaching further distances. For example, the current fleet serviced by Etihad is made up of 125 planes serving 120 destinations; however, its strategic partnership allows them to operate 159 aircrafts serving 134 destinations at low servicing costs. These low costs are then transferred or reflected on low cost servicing cost giving the company higher competitive advantage.
People Strategy
The aviation industry is a service based business with the frontline staff giving an impression of the company a fact that has been taken seriously by Etihad management increasing training to its staff helping in marketing of its product. A study by Ethos Consultancy on customer service benchmarking scoring an incredible 91.5% a score almost equal to Emirates Airlines suggesting minimal differentiation for the regions flagship airline consequently earning a high competitive share in the market. (Vedder, p.57) states that the increase in destination areas works best when the hospitality is similarly of a high level this is because most airlines are learning from each other and applying the same strategies leaving service provision as the single most used form of product differentiation.
Promotion
The aviation industry is greatly influenced by customer perception making promotion a highly significant in gaining competitive advantage. Etihad employs three major promotional campaigns namely;
Sales Promotion. By using price, place, people as well as product strategies in their promotional campaigns Etihad gains the advantage of sensitizing the flying public on the advantages they would potentially enjoy by flying with them.
Event Promotion. By taking in several travel and tourism events, Etihad has constantly been setting itself up as public opinionated company developing a relationship with the flying public.
Sponsorship. Etihad Airlines is an active brand in sports sponsorship taking part in a variety of sporting events such as motorsport notably the Abu Dhabi grand Prix and more predominantly football where teams such as Manchester City Fc, New York city FC, Melbron City FC and other teams enjoying support from the airline creating a positive relation with the public.
In summary, the aviation industry has gone through a variety of changes over the years giving the view of lack of profitability. However, statistics show that this is not the case with the industry performing highly. Nonetheless, these numbers do not suggest that most airlines are going through a similarly positive patch but only aggressive organizations. This paper through the use of Etihad Airlines as a case study shows that business strategies that are in relation to the environment are key in finding profitability.
Work Cited
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Conventz, Sven, and Alain Thierstein. Airports, Cities and Regions. London: Routledge, 2014. Print.
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Etihad Airways 2014. Annual Report 2014. Retrieved from: http://resources.etihadairways.com/etihadairways/images/E_Book/HTML/AnnualReport2014_English/assets/common/downloads/Annual%20Report%202014%20English.pdf
Etihad Airways 2015. Annual Report 2015. Retrieved from: http://resources.etihadairways.com/etihadairways/images/E_Book/HTML/AnnualReport2015_English/assets/common/downloads/Annual%20Report%202015%20English.pdf
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Vedder, Hendrik. “Strategic Alliances in the Aviation Industry.” Oxford. Oxford Press. 2008. Print.