Strategic Management For Fly Dubai

Strategic Management For Fly Dubai This paper explores the existing aviation company Fly Dubai in a manner that analyzes and evaluates their current operations and efforts in a manner relative to strategic management. Further to this, the paper suggests that Fly Dubai is still relatively young in the market and requires a significantly more amount of experience before it can be labelled as competitive with other companies in the industry- namely, Emirates Airlines, Etihad Airlines and Air Arabia, SAMA, NAS in Saudi Arabia. The first part of the paper comprehensively analyzes the aviation industry at the present, and this serves purpose to gain knowledge about the competition and the market before a constructive and logical analysis can be made about Fly Dubai. Therefore, important factors such as the external environment, internal environment and Porters Five Forces are discussed. The second part of the paper is directly relative to Fly Dubai as well as their chief competitors in the industry. Here, certain Generic strategies are analyzed and proposed to indefinitely help the company gain a competitive advantage. Another important framework we used is the Product Growth Matrix, which analyzes the situation that they are facing, and we have proposed that they use Market Development. Ultimately, the paper ends with a conclusion and recommendations, which we believe would best, support Fly Dubai. Part 1- Industry Analysis Introduction This paper is focused on developing Strategic Management for a major public aviation company and their expansion into the industry with a new strategy to give them a competitive advantage against their competition. Unlike a business plan, a strategic management focuses on the two major factors that surround scheme of business development for the related industry, and the company. Since the core value of a business is generating acceptable returns, this paper concentrates on the methods that they particularly went through in order to achieve it. Although strategic management is increasingly important for the success of products, it is also important to establish that the industry is swiftly ascending with fresh ideas continually making a consumers life relatively easier and more pleasurable. A service-based business is extensively labour-intensive, and to sell the service requires an excellent business development team and therefore, it is also necessary to productively market your employees and their skills in order to gain more business. Therefore, in this paper, we will be studying the public aviation business based in Dubai that only concentrates on chartering passengers through the use of their Low cost carriers. This company is known as Fly Dubai. Our Strategic Management analysis will conclude theories and frameworks commonly used in the corporate world today such as PEST Analysis, Competitor Analysis, SWOT Analysis, Porters Five Forces, Porters Generic Strategies and many more. Ultimately, we will establish a number of results and based on it we will provide several recommendations and a conclusion. Industry Trends The Aviation industry in the UAE developed in 1985 when Emirates Airlines was founded after Gulf Air reduced their flight services to Dubai. This is when Sheikh Ahmed bin Saeed Al Maktoum took action and started the company in order for citizens in the UAE to be able to travel more frequently. In October 1985, the company flew their first routes from two leased planes. Nowadays, many other airlines have emerged in the UAE to compete with Emirates including Etihad Airways, Air Arabia and Fly Dubai. (AFP, 2009). Not with standing the increased success in commercial airlines appearing in the UAE, Fly Dubai differs largely due to the fact that it is a cost effective airline. According to Saif Mohammed Al Suwaidi, Director General of GCAA said: Air operations in UAE so significant growth in the first quarter of 2010 (n/a, 2010). The Middle East Business Aviation Association (MEBAA) has confirmed that the number of business jets in Middle East region have grown to about 500 aircraft in the past few years showing a growth of approximately 30-40%. Further to this report, the Aviation industry is expected to grow at 15-20% annually over the next four years to become a multi-billion dollar industry. It also assumes that from the year 2012-2018 the MENA region will receive 20-25% of the new business amounting to about  £300 billion. (n/a, 2009). PEST Analysis The first general method, which is commonly used in the analysis of the external environment, is through the PEST Analysis. It is increasingly important to understand the nature of external surroundings as they inevitably play a major role in effecting the companys operations. Fly Dubais PEST projections can be seen on the next page. Factor Description Implications on the Aviation Industry Political Low government intervention Supports foreign direct investments which leads to political stability In regards to locally owned companies, the government does not intervene and actually supports their operations Investments help increase the countrys GDP which is favorable for the government Economic Inflation over the past few years has led to more costs Stable interest rates and no taxes Rise in GDP and disposable income GCC unemployment rate had decreased from 12.4% to 10.5% (McGinley, 2010) Inflation has led to higher labor and operating costs, but also shows the expansion in the UAE This has led the business being able to borrow more without the fret of taxation and increased cost The countrys growth in GDP and disposable income mean that consumers have more money to spend on Aviation services This gives a positive sign to increase liquidity in the market. Socio-cultural Growing social trend in the Aviation industry Young workforce Low cost appeal (n/a, 2010). Increased number of tourism More people are using chartered services which indicates an overall industry growth A younger workforce will reduce costs for pensions Because of the recession, people have decreased their spending by allocating cheaper airlines Tourism will increase by 40% in next 3 years. (n/a, 2008) Technological New plane models available in the market Better operational technology Online booking These models which companies have ordered make them more competitive as their service is more desirable by having modern technology Business operations can run smoother as technology helps them reduce costs and improve quality of the service LCC dont focus on sales offices for lowering their costs ,so they focus on their website and make it more efficient for them and clinets. Strategic Group Map As we can see from the graph above, the two measurements we have chosen for our strategic group map is product quality and price. The graph above shows us that Emirates airlines and Ettihad airways have the biggest market share and they are competing against each other. As Emirates Airlines announced in their website, that they aim to increase their market share to 70% by 2010 without compromising their reputation for quality. (Emirates, 2010). Although they dont start from the same point, but Ettihad Airlines are trying their best to compete with Emirates by giving better offers and prices to same destinations, so people got attracted and didnt mind the 45 minutes drive to Abu Dhabi for the same kind of quality and cheaper prices. Now these two companies are indirect competitors for Fly Dubai. The major competitor for Fly Dubai is Air Arabia, where they launched in Sharjah Int. Airport before Fly Dubai was established. So, people were aware of Air Arabia and tried the experience of flying on a low cost carrier. Thats their major competitor, and they have other competitors but from different countries such as, Al jazeera airlines where they are based in Kuwait, and Fly Nas and Sama airlines where they are based in Kingdom of Saudi Arabia. Five Forces Analysis Michael Porter, the man behind the theory of differentiation states that a business needs to spend more money on creating these values added products or services in order to make it relatively obvious that the product or service is different. (Cordle, 2008). Michael Porter developed the Five Forces Analysis, which primarily helps companies in dealing with internal and external competition from customers and suppliers as well as from other competitors. It also establishes the risk of the current product or service offered. This is all incorporated into a diagram, which is illustrated below: Threat of new entrants Product differentiation: Medium as the aviation industry has been quite innovative on product development and has used all the ideas available- however; they have also proven to be strong competition and adapted similar features as well as their own unique features. Capital requirements: High as the technology used is constantly changing, developing and growing which would justify the need for high capital technological assets and new aircraft models Cost advantages independent of size: High as costs generally vary depending on how large the establishment is, how many staff members are employed, and the amount of customers that use the services or buy the products Access to distribution channels: High as the airline companies can acquire customers through different means such as the internet, travel agencies, sales calls and from their own offices After this analysis we can see that the threat of new entrants is low because the industry is hard to enter. Bargaining power of buyers Concentration of purchases: High as the amount of purchases is decided by the buyer and ultimately determines sales revenue Alternatives and substitutes: High as there are a large amount of carriers that consumers can choose from and all have access to Price or cost sensitivity: High as consumers would generally select a business that offers a fair otherwise cheaper price for the same products Importance of quality: High as consumers have adapted to a certain taste and they constantly assess product quality and customer service to determine their buy Amount of money saved by consumer: High especially during the financial crisis where savings and survival is has grown to be extremely important. (n/a, 2009). Here the bargaining power of buyers is high. Threat of substitute products Price limitations: Medium as this affects the highest amount they are able to charge to consumers and ultimately demonstrates the amount of revenue they will make Ability to upgrade: High due to the rapid advancement of technology and the introduction to newer models of aircrafts from different companies Costs in production: Medium as technology can enable cheaper production but they still employ a large amount of staff in the region Price of substitute: High as this can negatively affect each companies sales growth if another company gains customers due to cheaper prices- this ultimately seems to benefit Fly Dubai more due to their cheaper prices Performance and quality: Low as Low cost carriers are new companies that only started up a few years ago and their scope in the business is low. That is, they do not fly to many destinations and they do not have a wide customer base at the moment. It is high for companies such as Emirates as they have experience, and their high quality brand name and services is difficult to match Here the threat of substitute products is Moderate. Bargaining power of suppliers Low cost carriers purchase their complete air fleet from suppliers such as Boeing and Airbus. They then hand this to third party companies to input entertainment systems and furnish the interior for the different classes, which ultimately create value-added amenities by using this method. Here we can see that the bargaining power of suppliers is Moderate Rivalry among competing firms Numerous competitors: High rivalry as each company is trying to capture the same target market and therefore use their advertising, marketing and promotion techniques Industry growth: High-the market has shown that this industry has grown significantly over the years and more people are gaining access to travelling Differentiation: Medium as there is only a limit to the innovation that can be done on an airplane. However, Low cost carriers have incorporated many other components on their plane such as entertainment, shopping and many more. Amount of fixed costs: This can be determined by factors such as rent, wages and capital expenditure. From this, we can say that it is high. Height of exit barriers: Low for Low cost carriers as they control a relatively small market share, but it is high for Emirates and Etihad who have a vast number of customers which they cater to. Here we can see that the Rivalry among competing firms is Moderate/high. In conclusion, we see after analyzing the five forces, we can say that the market is moderate to high, which is hard to get in because of the difficulties, high starting cost and the experience needed to enter to airline industry. Core Competencies/Key Success Factors A core competency is defined as a companys basic business and area of greatest expertise that provides consumer benefits, not easy for competitors to imitate and can be leveraged widely too many products and markets. (Campbell Luchs, 1997) Essentially, a core competency should accomplish three things: Concrete on the popular destinations to expanded their market. Significantly improve the following attributes. Availability / Scheduling Terminal / Ground Services Price Reputation Prove to be challenging for competitors to imitate their cost leadership strategy. Based on this, airlines would have three major competencies to gain a competitive advantage over each other in the region. The first core competency that low cost carriers will have is related to their prices, which is significantly cheaper compared to other airlines in the region. To accomplish this, they will need to identify and analyze their operations and costs thoroughly to see where they can minimize their costs so that their low fares will not disrupt their ability to generate profit. This will give them a competitive advantage, as customers would prefer low cost airlines, and retain their loyalty to the brand. The second core competency they will offering additional services to customers. Generally, people associate a low-cost airline with no service- but Low cost carriers will differentiate them here and offer a special service by adding additional costs for the service. The last core competency will be the vast variety of destinations they travel to. Although the companies are still relatively small now- they will eventually expand and fly to a large number of countries in the different regions which will attract more people to use their service for less cheaper price from the other airlines. Industry Environmental Scan External Opportunities and Threats Opportunities Lack of price competition in the UAE market: Since most of the airline carriers are relatively high in costs compared to others in the world, local air carriers do not engage as actively in price competition. Fly Dubai however has started with this. Potential to attract clients from the entire region: Since the other airline companies in the GCC do not often fly internationally to popular destinations, the local air carriers in the UAE can attract them as they do fly to these areas. Expansion into international markets: Due to their value added services and state of the art planes, they appeal more to customers and therefore if airline companies in the UAE situate themselves more internationally, they can gain more customers. Contract to corporations and executives: The airline companies can further increase the amount of frequent flyers and gain more revenue by targeting companies that are situated around the GCC. In particular, multinational companies are ones that have executives that need to constantly travel, and therefore they can take advantage of this situation. Threats Increasing costs in the aviation industry: Due to the increase in technology and the value added services they provide, costs have become increasingly expensive for the aviation industry. Furthermore, the costs of labor are also quite high which adds to their total expenses. Shortage of skilled labor: In some areas, the aviation companies here lack skilled labor to perform certain tasks such as aircraft engineering and maintenance, marketing and other activities. Emirates is the only company who has skilled employees in these departments whereas others are not as efficient. Damaging impacts on the environment: The emission of carbon and greenhouse gases from the aircraft fuel has proven to be detrimental to the environment and therefore companies need to be aware of this and somehow prevent it. Falling prices: In certain industries such as real estate, prices have fallen drastically, and this leaves corporations with less money to spend on services. As a result, companies have cut back their traveling costs. Competitors increasing: Due to the increasing amount of free zones in the UAE, multinational companies have found it convenient to start their developments in the region as it is low in cost. As a result, there is an increase in competition from other airlines internationally. Industry Internal Scan Internal Strengths and Weaknesses Strengths Support and patronage from government: The UAE government owns and controls all of their airlines and therefore they all gain financial support. Diversified and state of the art planes: The planes, which they own, are newer and significantly better than many other airline companies around the world. Popular and growing companies: The aviation industry consists of the few primary companies offering flights and since their services are relatively good, this improves their brand image to the population. Value added services provided to all customers: The service incorporated in the UAE airline companies are significantly better than others around the world Memberships: They all have memberships in prominent establishments such as Middle East Business Aviation Association which improves their trustworthiness Weaknesses Based mostly in UAE which limits their intake of customers from abroad and around the region: Most of the aircraft companies focus solely on chartering customers in the UAE which limits the potential business they could be making High employee turnover due to low morale: Labor laws are constantly being refined in the UAE, as it is still a developing country. Further to this, they require more experience human resources staff in order to motivate employees to enjoy their job and stay at the company as well as performing highly Business opportunities such as cargo transporting are not always taken advantage of and are expensive: The UAE is a business hub and many companies around the world are establishing themselves. However, most of these companies have restrictions so they cannot produce many products and local companies only produce products for the UAE- the rest is imported. This greatly increases the amount of costs as exported goods are expensive, and they do not partake in exporting their own products, which could potentially earn them more revenue. Part 2- Company Strategy Analysis Mission Statement A mission statement may be identified as the purpose behind a companys existence. The aim is to create an internal image towards employees and an external image towards the public indicating their intentions of operating the business, as well as what they wish to accomplish. Fly Dubai does not have a mission statement on their websites, but from the words of the chairman (Sheikh Ahmed bin Saeed Al Maktoum), he mentioned the following: Our mission is to bring some two billion regional inhabitants affordable, efficient and flexible travel options to and from Dubai. Nine Essential Components of a Mission Statement Customers Services Markets Technology Concern for Survival, Growth and Profitability Philosophy Self-Concept Concern for Public Image Concern for Employees Judging by the various essential components of a mission statement, it is clear that Fly Dubai still needs to work on developing theirs more. (FARNBOROUGH, 2008). Fly Dubai Generic Strategy Essentially, a company that excels in the industry with exceptional performance that yield significantly larger profits than their rivals, they are said to possess a competitive advantage. There are two common strategies that allow a company to reach this goal, and this can be identified as: Cost Strategy Niche Differentiation Strategy (CAPA, 2009). Cost Strategy In order for a company such as Fly Dubai to implement a Cost Strategy, they need to be able to deliver the same benefits as competing airlines, but should operate under a lower cost. In the research studies on Strategic Management, the resource-based view is a well-established principal that helps a business gain competitive advantage by working on their Value Chain and implementing value-added principals. In the next section, I will describe Fly Dubais value chain, which will allow us to see how they gain a competitive advantage. The Value Chain The value chain comprises of a number of activities that are commonly found in business operations, and is identified as important in gaining a competitive advantage and developing and sustaining shareholder value. The diagram below best represents the value chain and the significant inputs that are analyzed: Primary Activities Inbound Logistics: This refers to how Fly Dubai receives their aviation products and services before distributing it. Operations: This refers to how Fly Dubai uses their resources and change it into a service. Their resources are primarily their fleet of planes, which are docked at several international terminals, and in this method they pick up and drop off passengers. Outbound Logistics: This refers to the channels of distribution Fly Dubai uses to effectively sell their flights to customers. They mostly use online booking, travel agencies, and contact customers directly, or customers can contact them via their office. Marketing and Sales: This refers to the identification of target markets, which bring Fly Dubai sales revenue. Fly Dubai carries out extensive market research to reach their customers who are interested in low fairs. Also, they have to create brand awareness among their customers since they just launched. This step is important to expand their market share. Also, through out their marketing research, they can develop new attractive packages as part of their promotions. It will be difficult to develop large marketing campaign because most of their money will be as operational expenses. Moreover, sales are more cost effective when they make it through Internet. However, consumers in Middle East region are not used to buy from Internet. Service: This refers to the post-purchase activities that ensure customer satisfaction. Fly Dubai issues a questionnaire, which they can follow up with customers on the quality of their products and customer service. Also, they added additional services to their customers such choosing seats when purchasing tickets. Those extra services will add more value to Fly Dubai image. In addition, those services will generate a good publicity for the company through word of mouth. Support Activities Firm infrastructure: Fly Dubais firm infrastructure ensures that certain policies and procedures are followed to support the primary activities. Fly Dubai operates from Dubai International Airport, Terminal 2. Dubai Government developed high infrastructure for Dubai Airport to provide excellent services to passengers. Since Fly Dubai fully owned by Dubai Government, they have all the necessary facilities under their control. Human resource management: Fly Dubai uses extensive human resources practices to recruit the best employees, and effectively trains them, develops them in certain company positions and finally gives them compensation for their hard work through salaries, benefits, bonuses and motivation. However, lack of experience is major issue in this new company. So, they supported by Emirates Group to overcome this weakness. According to Arabian Business that Fly Dubai has received more than 11,500 applications from flight and cabin crew. (Sambidge, 2009). This shows the huge amount of applicants who want to work with this company because they believe that it has bright future because of the reputation gained from its mother company Emirates Group. Technology development: Fly Dubai uses technology to lower their cost by selling tickets through their website www.FlyDubai.com. Adding more features to help customers to print their boarding pass and to choose their seat location by extra fees. Analyzing customer surveys to help with the general support of the company. Their technology is also developed to monitor sales and create functional reports. Differentiation Strategy The differentiation strategy is when a company can successfully thrive in the market while charging premium prices to their consumers for products or services. Essentially, leveraging either a better standard of service quality towards consumers, or having a better product performance does this. Fly Dubai can be differentiated from other competitors by adding flights to popular destinations that have great demand from their target market. Since their market is fragmented, differentiation is important to attract more customers and to expand their market share. There are several different ways in which Fly Dubai gain a competitive advantage in this way. It is renowned that they offer a great airline service along with the most state-of-the-art amenities and technology for all classes, and people gather such information when a company expresses their differentiation. The company does this in a number of ways, and this includes: Brand Awareness Fly Dubai can use extensive advertising techniques in order to penetrate the aviation market and create a higher demand for their services. Firstly, it is important to note that Dubai is one of the fastest growing tourist destinations in the world. Their rapid expansion in major industries has led them to dominate the tourism market. Business Operations Another method, which Fly Dubai can use to gain a competitive advantage through differentiation, is by offering cargo services, freight and logistics, engineering services, and plenty of other subsidiaries which associate these services with the company. Therefore, this reflects positively on the brand name. Service Quality Fly Dubai has won recognition for their high service quality. They spend extensive amounts of their budget on the development of human resources, which ultimately leads to a better service quality, and this improves customer satisfaction. Value Added Features Fly Dubai has a number of value added features, which basically offers them more for the money they spend when flying with them. Firstly, they have a service staff, which is guaranteed to delight every customer they serve. These features contribute to customer satisfaction and improve loyalty in the long run. Marketing Mix One of the prime theories of analysis for a business includes analyzing the market in several terms that would help them identify ways in which they can improve, but more importantly creates a structure in which a company can base their product lines on. This is known as the marketing mix or the 4 Ps as it generally covers the following four factors- products, price, promotion and place. Product: The product entails analyzing the services that Fly Dubai currently offers to their customers and how it meets their demands. They are a public aviation charter service that flies a target market of consumers to a number of countries. Price: The type of services that Fly Dubai offers generally have a high cost margin as they are using modern technology along with the most knowledgeable staff to carry out their operations. Therefore, we can establish that Fly Dubai uses a cost-plus pricing approach where they charge the cost of the operation plus a mark-up for their services. Promotion: Currently, Fly Dubai uses many major forms of promotion, and they generally rely on loyal customers and repeat business to make their profits. They consider various forms of advertising through media sources such as television, radio, newspaper, magazines, cinemas, and Internet. Place: Their operations are run from their primary location, which is in Dubai, UAE. Although they are currently quite profitable and the industry has witnessed a large amount of growth, they have room for expansion in the UAE and other GCC countries as a start. Dubai is quickly being recognized as a business hub and Fly Dubai can exploit that market to be competitive and increase their overall profitability. Competitor Analysis When developing a Strategic Marketing strategy, it is always important to identify the main competitors and find out information about their services and how much of a threat they are to your company in the market. The most efficient way to do this is to compare their marketing mix with Fly Dubai, which is seen below: Emirates Airlines (Indirect) Etihad Airlines (indirect) Air Arabia (direct) Product They offer a range of flights to various different destinations and have a luxurious brand to speak of. They also have cargo transportation that is widely used by corporations. This company offers similar services to Emirates but they do not focus on luxury and are limited to flights. Etihad has cargo services but the division is relatively small They offer similar services to Fly Dubai in terms that it is cheaper- but they are still more expensive. Furthermore, Fly Dubai has better planes. Price Emirates has the most expensive prices in the region but they justify it due to the high value services that are offered They offer slightly lower prices than Emirates but their aircraft fleet is very limited and their services are less desirable Their prices are comparable to Fly Dubai, but their services are not as good Promotion Emirates advertises extensively and has many marketing promotions which is seen throughout the media They