Harvard Case - Etihad Airways: Rethinking Internationalization and Growth
"Etihad Airways: Rethinking Internationalization and Growth" Harvard business case study is written by Mukund R. Dixit, Sanjay Kumar Jena. It deals with the challenges in the field of Strategy. The case study is 18 page(s) long and it was first published on : Jul 13, 2020
At Fern Fort University, we recommend Etihad Airways adopt a multi-pronged strategy focused on strategic alliances, targeted market expansion, and digital transformation to achieve sustainable growth and enhance its competitive advantage in the global aviation industry. This strategy will leverage Etihad's existing strengths, address emerging market trends, and mitigate potential risks.
2. Background
Etihad Airways, the national airline of the United Arab Emirates, faced a challenging environment marked by intense competition, fluctuating fuel prices, and evolving passenger preferences. Despite initial success through a hub-and-spoke model and strategic acquisitions, Etihad struggled to maintain profitability. The case study highlights the airline's need to reassess its internationalization strategy and explore new avenues for growth.
3. Analysis of the Case Study
SWOT Analysis:
Strengths:
- Strong brand reputation and brand equity
- Extensive network and global reach
- Strong financial backing from the UAE government
- Focus on premium service and customer experience
- Innovative partnerships and collaborations
Weaknesses:
- High operating costs and fuel dependence
- Limited market share in key regions
- Over-reliance on a hub-and-spoke model
- Lack of a robust digital strategy
- Complex organizational structure
Opportunities:
- Growing demand for air travel in emerging markets
- Increasing focus on sustainability and environmental responsibility
- Advancements in technology and digitalization
- Potential for strategic alliances and joint ventures
- Expansion into new market segments
Threats:
- Intense competition from established airlines
- Fluctuating fuel prices and economic uncertainty
- Security risks and geopolitical instability
- Regulatory changes and environmental regulations
- Disruptive technologies and new business models
Porter's Five Forces Analysis:
- Threat of New Entrants: High - Low barriers to entry, especially with the rise of low-cost carriers.
- Bargaining Power of Buyers: High - Passengers have numerous choices and are price-sensitive.
- Bargaining Power of Suppliers: Moderate - Dependence on aircraft manufacturers, fuel suppliers, and airport infrastructure.
- Threat of Substitute Products: High - Alternatives like high-speed rail and video conferencing.
- Rivalry Among Existing Competitors: Very High - Intense competition from established airlines and low-cost carriers.
Value Chain Analysis:
Etihad's value chain can be analyzed through its core activities:
- Inbound Logistics: Procurement of aircraft, fuel, and other resources.
- Operations: Flight operations, maintenance, and ground handling.
- Outbound Logistics: Delivery of passengers and cargo to destinations.
- Marketing and Sales: Branding, advertising, and distribution channels.
- Service: Customer service, in-flight experience, and loyalty programs.
Business Model Innovation:
Etihad needs to explore business model innovation to address the changing market landscape. This could include:
- Hybrid Business Model: Combining premium services with cost-effective offerings to cater to diverse passenger needs.
- Digital Transformation: Leveraging technology to enhance customer experience, optimize operations, and reduce costs.
- Value-Based Pricing: Shifting from traditional pricing models to value-based pricing based on customer preferences and willingness to pay.
4. Recommendations
Strategic Alliances:
- Joint Ventures: Form strategic alliances with airlines in key regions to expand reach, share resources, and reduce costs.
- Code-Sharing Agreements: Partner with airlines to offer seamless connections and access to wider networks.
- Loyalty Program Integration: Collaborate with other airlines to offer reciprocal benefits to frequent flyers.
Targeted Market Expansion:
- Emerging Markets: Focus on expanding into high-growth markets in Asia, Africa, and Latin America.
- Market Segmentation: Identify specific market segments with high growth potential and tailor services accordingly.
- Product Differentiation: Offer unique products and services to attract niche markets and premium passengers.
Digital Transformation:
- Digital Platforms: Develop a robust digital platform for booking, check-in, and customer service.
- Data Analytics: Utilize data analytics to understand customer preferences, optimize operations, and personalize services.
- Mobile App Integration: Enhance the mobile app experience to provide seamless and convenient services.
5. Basis of Recommendations
These recommendations consider:
- Core Competencies: Leverages Etihad's existing strengths in brand reputation, network, and customer service.
- External Customers and Internal Clients: Addresses evolving customer preferences and empowers employees through digital tools.
- Competitors: Positions Etihad to compete effectively in a dynamic and competitive market.
- Attractiveness: Expected to improve profitability, enhance market share, and drive long-term growth.
6. Conclusion
By adopting a multi-pronged strategy focused on strategic alliances, targeted market expansion, and digital transformation, Etihad Airways can navigate the challenges of the global aviation industry and achieve sustainable growth. This approach will leverage the airline's existing strengths, address emerging market trends, and position Etihad for long-term success.
7. Discussion
Alternatives:
- Cost Leadership: Focusing solely on cost reduction could lead to a decline in service quality and brand reputation.
- Mergers and Acquisitions: While acquisitions could provide immediate market share gains, they come with significant risks and integration challenges.
Risks and Key Assumptions:
- Economic Uncertainty: Fluctuations in fuel prices and global economic conditions could impact demand and profitability.
- Competition: Intense competition from established airlines and low-cost carriers could limit market share gains.
- Regulatory Changes: Changes in aviation regulations could impact operations and profitability.
8. Next Steps
- Strategic Planning: Develop a comprehensive strategic plan outlining the implementation of the recommended strategy.
- Resource Allocation: Allocate resources to support strategic alliances, market expansion, and digital transformation initiatives.
- Performance Monitoring: Establish key performance indicators (KPIs) to track progress and measure the effectiveness of the strategy.
- Continuous Improvement: Regularly review and adapt the strategy based on market dynamics and performance feedback.
By taking these steps, Etihad Airways can successfully navigate the challenges of the global aviation industry and achieve its strategic goals.
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Case Description
This case presents a situation faced by Tony Douglas, CEO of Etihad Airways, a government-owned, full-service airline. It is February 6, 2020, and Douglas is reviewing the progress he has made in turning Etihad around and charting a direction for its future. The key strategic options are: 1) Contracting and turning Etihad into a regional airline, 2) reshaping Etihad as a low-cost carrier (LCC), or 3) continuing to operate Etihad as a full-service, internationally-focused airline. Additionally, the company could form an alliance with its closest competitor, Emirates Airline. Created in 2003 with a mandate to operate "safely, commercially, and profitably," Etihad positioned itself as a luxurious airline and pursued aggressive internationalization and growth. It was the second national airline in United Arab Emirates (UAE) after Dubai's Emirates Airline. Etihad's initial strategy was directed by CEO James Hogan, and while the company was profitable for many years, it began incurring losses in 2016. The case provides quantitative and qualitative information to enable students to evaluate Etihad's strategy and performance and make recommendations for its future. This case was the third place winner in WDI Publishing's MENA Case Writing Competition "Doing Business in the Middle East North Africa Region," sponsored by Michigan Ross Executive Education.
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