Introduction
The United Arab Emirates (UAE) is among the most dynamic aviation markets globally. The country has three global class airports, the busiest internationally, multiple exceedingly competitive international and local airlines, and millions of passengers passing through the airports. One of the leaders among the airlines is Etihad Airways. The strong rivalry among the airlines in UAE has forced them to become innovative continually and have the finest in-service delivery (Wardana & Yasa, 2022). Etihad has faced various challenges since its initiation, despite which it has still arisen as one of the fastest and most profitable airlines worldwide.
This paper has selected UAE as the country of choice and analyses its aviation sector by exploring Etihad’s current business strategies, growth strategies, and methods. This is done by assessing the external environment of Etihad through PESTLE and porters five porters and the internal environments through VRIO and SWOT analysis (Jonsson & Hillesoy, 2020). A Generic Porter’s strategies model and Ansoff’s matrix are also utilized in evaluating the business strategies of the airline. Methods adopted for growth, regulating agencies, a national regulatory authority, contribution, and impact of ASAs are also deliberated. Freedoms of the air and Covid-19 trends that shaped the industry and general global affairs in the strategies of the airlines are examined.
Etihad’s External and Internal Analysis
Pestel Analysis
Political
The general UAE government and Abu Dhabi have made efforts to ensure the establishment of good political links globally. This is essential in ensuring full maximization of the potential for business growth, including the UAE’s aviation industry (Chutiphongdech, 2022). The UAE government has entered into business agreements with American, Asian, and European countries. These pacts have had the effects of thriving prospects for all the Emirates to ensure the maintenance of favorable trade exchange and strengthening of political incorporation between the countries with the aim of improving the aviation industry (Black sea trade and development bank, 2019). With these robust agreements, the United Arab Emirates airlines, including Etihad, have been strengthened to ensure their global network is expanded.
Economic
With the support of the Abu Dhabi government, Etihad Airlines has started various initiatives. The government improves the airline’s infrastructure to ensure the transport sector is favorable for passengers. This facilitates Etihad airways’ growth and development: the carrier has already set up for all its haulers an exclusive terminal in Abu Dhabi and Dubai airports. It also ensures that it offers its services to passengers at low rates compared to its competitors. Other opportunities that have helped advance Etihad Airways’ growth include the no- taxation policy (Chadhiq, et al., 2022). The easy-to-issue visa policy, the Abu Dhabi government employment obligation, and the expatriate’s work permit to fulfill the demands of the labor market. Nonetheless, the neglect of such prospects and the political revolts in the middle east region continually threaten the company’s operation in countries including Yemen, Syria, and other Middle East and North African countries. This has the effect of limiting Etihad’s expected growth in the future.
Social
Socially, Etihad airways is widespread among many upper social class persons, which implies that it has a corporate image that is recognized by the affluent. The cosmopolitan population in Abu Dhabi offers a culturally diverse customer base and an enormous workforce. This fosters a robust organizational culture as well as economic growth. The company cares for its environment’s social conditions through its commitment to corporate social responsibility programs that aim to promote positive social change in several communities. The effect of this is enhancing Etihad’s airways brand image.
Technological
Technologically, Etihad Airways has endeavored to ensure competitiveness by entering pacts with companies such as Société Internationale de Télécommunications Aéronautiques (SITA). This has helped boost its IT sector by augmenting its computation activities and facilitating its online presence globally. Adopting intelligent operation technology enables the monitoring of Boeing and Airbus aircrafts via fault forecast and also helps alleviate flight delays, improving the airline’s general efficacy. Etihad has also sought internet and IT security measures following cyber threats that pose great danger to the airline industry.
Speculations have proposed that Malaysia missing Airlines Flight MH37 could have been hacked and controlled from another area. Thus, Etihad airways must contemplate new technologies that will help improve security and data management. The airline fleet has been augmented to record-breaking orders that aim to increase international and domestic flights, thus enabling competitiveness. By employing applications such as the Ramco Aviation Software, such technological advancements have brought new methods of improving efficacy. The software simplifies operational cost efficiency, automated operation, and inventory management for enhanced client experiences.
Legal
As the United Arab Emirates national flag carrier, the airline is subject to the country’s regime’s low tax, which leads to improved operational costs. Moreover, the low cost of airports additionally heightens its mechanisms of functional management, making rapid growth more robust. Etihad airline struggles with UAE’s limited skilled labor workforce. The country’s government, in conjunction with other states where Etihad operates, has been formulating policies to safeguard passengers’ interests. The policies have focused on aspects of timely flights, quality client experiences, and safety aspects.
Environmental
Etihad Airways endeavors to ensure that all the operations it performs are eco-friendly. A key challenge is aircraft noise restrictions, which makes it impossible to have a noise-free industry. Novel trends in the airline industry depict a move to strategies whose main objectives are sustainability-oriented. Thus, competitors have most of their focus on conserving the environment to generate an image that is impressive and which leaves them competitive. On this aspect, Etihad Airways has been at the forefront and initiated a campaign called “Green together.”
Porter’s Five Forces Analysis
Competitive Rivalry
Etihad airline operates in a region with some of the best airlines globally. Some regional competitors to Etihad include Qatar Airways and the Dubai Emirates. Etihad has endeavored to overcome competition by partnering with big airlines, including Serbia’s national carrier, Air Berlin, and India’s Jet Airways. Such partnerships ensure that the company maintains a competitive edge in the market. Consequently, the airlines get access to partner-controlled markets, which increases its business and opportunities. The strategy has helped increase the organization’s cargo volumes and passengers in the last two years by 42% (Jonsson & Hillesoy, 2020). Thus, this is a strategy that is beneficial to Etihad airlines.
Threat of Substitutes
Regarding the threat of substitutes, there are limited options among long-distance travelers that would ensure they arrive at their destinations timely and fast. Thus, when it comes to long distances, air travel remains the fastest means of transport. On the other hand, IT and telecommunications technological advancements have lessened individuals’ necessity to travel for functions, including meetings. This is a substitute that poses a threat to airlines, including Etihad. Domestic travelers may choose a high-speed train, a bus, or a car. This is common in the middle east and Europe, where regional travelers prefer other transport means to air travel.
Threat of Entry
Asia and the Middle East regions are continually growing, and new service provider airlines are expected to arise, posing a threat to Etihad Airways as far as increased client option is concerned. There have been new entrants that pose a threat to Etihad Airways, matching the company’s services. Nonetheless, Etihad industry market share and competitiveness have dealt a blow to new entrants. The new entrants are unable to match Etihad’s value of services, demand, and client satisfaction.
The Bargaining Power of Buyers
Pleasure and business travelers tend to be favored by seasonal fare fluctuations of Etihad Airlines as compared to budget travelers. A key characteristic of the airline industry is the seasonal change of prices, which affects diverse traveler categories. The high season, running from December to January, is characterized by a low bargaining power among business clients. This is because during the time the airline does not focuses on this specific category. Innovative strategies such as online buying duty-free services will facilitate client loyalty and increase client bargaining power.
Suppliers Bargaining Power
Etihad’s capital injections have experienced increased growth, this has been enabled by the substantial dividend gains that the firm’s shareholders achieved as a result of remarkable discounts and public stocks. Thus, the received profits are also answerable to the shareholders as Etihad supplies. The fact that Etihad has limited choices for suppliers of quality aircraft: two suppliers, Boeing and Airbus, govern the bargaining power. A mitigation to this can be Etihad’s increase of its processes requiring buying additional aircraft that would reduce the bargaining power of the suppliers.
VRIO Analysis
This VRIO analytical technique application will help improve Etihad Airways; organization’s assessment and those of its competitors. This aspect will emphasize the scope of value, rareness, imitability, and organizations. The table 1 below helps in Etihad’s airways VRIO analysis.
Table 1: Etihad’s airways VRIO analysis
Through the VRIO framework analysis, it is possible to assess Etihad’s competitive advantage, bearing in mind its strategies’ comparative implications. Thus, it is possible to perceive Etihad as a sustainable player in the airline industry, as its fast growth rate indicates (Rudolf & Udovˇc, 2022). Effectual leadership has promoted an organizational culture that has boosted the company’s drive to sustainable growth, leaving it at a competitive edge. Overall, Etihad Airways has sustainable strategy management, which means it will have enhanced performance, permitting its vision realization.
SWOT Analysis
Michael Porter’s three generic strategies model emphasize that an organization’s business should pursue at least one of the generic strategies, including differentiation, focus, and cost leadership. As far as Etihad airways is concerned, it commenced retailing new residence suite cabins on its London to Abu Dhabi flights. This will cost £12,500 on the seven-hour flight on a single trip (IATA, 2022). It is an example of Etihad’s application of differentiation business strategy. It entails a private butler, a gourmet chef, an ensuite bathroom, a living room, and a double bedroom. In addition, the airline guarantees the utilization of premium lounges and a fast airport service.
As far as Ansoff Matrix is concerned, Etihad is focused on product development and diversification by its substantial investments in infrastructure and fleet in airports. As well as pursuing an inexpensive strategy by offering lower or identical rates with competitors. The airline follows the market development strategy by advancing new markets and identical products, including flights from Abu Dhabi to Dublin and Brussels. It also adopts the market penetration strategy by entering present markets with identical products and competitive prices.
Etihad’s airline has mainly adopted partnerships as its growth strategies. Particularly in 2017, the company was engaged in 53 codeshare partnerships that permitted it to be marketed by the partners and significantly increase its passengers’ traffic. The airline additionally operates 118 interline relationships to offer booking facilities and check-in at airports it would otherwise not have managed. The airline has equity stakes in various airline companies, including Alitalia with a 49% stake, Air Seychelles with a 40% stake, and Air Serbia with a 48% stake (Lohmann & Spasojevic, n.d.). This shows that the airline also invests in partner alliances.
The Role of the International Civil Aviation Organization (ICAO), International Air Transport Association (IATA), and General Civil Aviation Authority (GCAA) of UAE to UAE’s Airline Industry
Directed and Funded by I93 national government, including the UAE, ICAO’s role is to support cooperation and diplomacy in air transport as stated in the Chicago convention 1944, to which UAE is a signatory. Its chief function is the maintenance of an expert and administrative bureaucracy that support diplomatic relations and explore novel policy’ (ICAO, 2023). That relates to air transport and innovations standardizations as directed via the ICAO council or the ICAO assembly. Through this, ICAO’S role, particularly ICAO annex 6, the GCAA, was established.
By ICAO annex 6 and nationally by the federal cabinet decree. The UGCAA was established in 1966 to offer selected aviation services while ensuring adherence to security and safety to guarantee UAE’s aviation industry is robustly sustained (IATA, 2022). Since its inception, the authority has made substantial progress and got on bold new initiatives to ensure its civil aviation stakeholders and clients get better services. Examples of such projects include air traffic control modernization, installation of radar equipment, and new facilities establishments to ensure UAE’S civil aviation growth is served adequately.
On the other hand, IATA’s role is to ensure innovation and value formation, running a profitable, secure, and safe air transport industry that enriches and sustainably connects the world. These regulatory bodies often offer recommendations that have implications for the business strategies of airlines and, in our case Etihad (IATA, 2022). For example, the bodies recommend the modernization of facilities, this causes the airlines to utilize their resources to ensure the demands of the modern facilities are met. This may be at the cost of affecting other plans in the airline’s strategies, for example, product diversification and penetrating new markets the airline may have planned.
Air Service Agreements (ASAs) and Freedoms of the Air enjoyed by Etihad and their relevance to its overall business strategy
The 1944 Chicago convention challenged civil aviation’s structure and started a new formal structure. This new structure set the common ground rules for mutual air service agreements (ASAs) between nations and a set of commercial aviation rights. That offers the airline of a country the privilege to land and enter another country’s space, referred to as freedom of the air (Teoli, et al., 2022). ASAs have played a significant positive role in the business strategy of Airlines. As far as Etihad airline is concerned, these structures have enabled it to form strategic partnerships and global alliance membership. Thus, increasing its market share, market penetration, product development, and diversification.
This has enabled it to enter the 53-code share partnerships that have been instrumental in its marketing strategy. Also, it has been able to form equity alliances, and though this can be thought of as a positive aspect, ironically, it has adversely affected the overall business strategy of Etihad airline (Taherdoost & Madanchian, 2022).. The airline spent billions of dollars acquiring the stakes and exploiting the codesharing partnerships to sell seats on the attained airlines to guarantee growth on its network hub in Abu Dhabi. The acquisition did not, however, progress smoothly, the airline has not been able to attain the post-acquisition target and needs more resources to attain the targets.
With the proper injection of more resources, the partnerships will succeed. These freedoms of air rights that have enabled Etihad to make such partnerships are identical in all region as the 1944 Chicago convention apply equally. The Covid -19 and the Russia-Ukraine conflict pose a great challenge to the airline (Kiraci, et al., 2022). However, the airline will be profitable with the resumption of flights after covid-19 lockdowns and implementation of the protocols (Olaganathan, 2021). The Russia-Ukraine conflict may affect some airline routes, including those of Etihad. The exact repercussions cannot yet be fully grasped, they are yet to be entirely realized.
Conclusion and recommendations
To address the noted areas, particularly in the PESTLE and SWOT analysis, the company must adopt measures to maximize profits. It should enter codeshare alliances with other airlines, the airline will reap more market benefits from its substantial partner’s network by opting for the strategic alliance choices. This will also reduce its operational costs, additionally, through strategic alliances, Etihad will be saved from the vast rivalry of duopolistic destinations.
An important aspect that Etihad airline needs to undertake is to strategize in price rivalry to ensure it can reach a wider market, particularly low-cost markets, clients are known to be price sensitive. Presently, the airline industry in the UAE is radically drifting. The company ought to include in its expansion strategy to establish new and unique destinations. Some of the most promising geographical destinations Etihad can try out include Africa, Asia, Europe, and the Pacific. The airline must continue research and development to ensure it comes up with attractive and unique luxurious services and ensure onboard clients are offered a better experience.
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