Etihad Airways

Etihad Airway Company is an airway industry company dedicated to providing air travel services to its esteemed customers. Etihad is located in the Middle East on the Asian continent. Airway industry is the fastest growing industry in the Middle East and they are offering serious competition to other countries providing the same services.

Etihad Airways is dedicated to providing the best air travel services to its customers who in the recent past have enabled the company to stand out as compared to its competitors. To stand out in this tough economic global, Etihad Company must have kept in place policies that help it to develop and thrive. Understanding the strategies employed by the Etihad Airways will assist in appreciating the economic success of the company (Business Monitor International, 2015).

This project will analyze macroeconomic implications of Etihad Company. Under this, the report will examine the airways industry at large in the current status and why it is important for Etihad to have an efficient operation to stand out in the Airway industry. Some of the strategies employed by Etihad Company to maintain significant operation competitiveness in the airway industry will be analyzed (Kilani, 2010). The market structure within which Etihad operates will be discussed as well.

 

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Although people have had many airline services in the past, still it is possible to compete in the industry. For instance, many airplane users feel unsatisfied after using some company. Lack of satisfaction in the industry is due to many reasons, including insecurities, high fare charges, unreliability, and poor customer services among them. As the results of this, users of airline services are on the look out to identify what companies in the industry will provide the best services to meet their demands. Understanding this market gap has unabled Etihad Airways to thrive despite existing competitive companies in the industry (Leon, 2011). Etihad Airways merely provides the best services to its customers in terms of their requirements.

Many clients using airways are serious businessmen, tourists, and high professionals (Business Monitor International, 2009). These are people operating on a fixed-time schedule and need efficiency and other services that will facilitate their travel and day-to-day business. Irritating cancelation of bookings and delays often experienced when using other airlines have made Etihad stand out. Etihad also provides port accommodation services, which best suits the interest of its customers.

Etihad Company was started in 2003 and since then it has operated as a flag carrier among other companies in the United Arab Emirates. It is the second arrest flying industry company in the United Arab Emirates after Emirates operating business. Etihad was established through a decree issued by authority of Sheikh Khalifa bin Zayed Al Nahyan (Hazime, 2011).

 The initial capital of Etihad Airways was approximately five hundred million dollars. The very first time when planes from Etihad flied, they did so for ceremonies purposes. Etihad Airways was launched as a profit making business in November of 2003 (Kilani, 2010). Since then, Etihad Airways has been into the business of airline and cargo transportation services. The airline has been experiencing increasing profits from the business and, compared to other air transportation services, Etihad has had a tremendous record of profit making.

In 2011, the CEO of Etihad Airways announced a big net profit of the company. The company made a profit of about 14 million US dollars. Due to this big profit, the company had plans to expand its air routes and compete favorably with other established businesses in the world. The company has been transporting people and cargo to many other countries other than the United Arab Emirates. Many countries that the company is now operating in include Italy and Spain, which were initially served by Europe Airlines. Etihad Company records indicate that the company’s net profits have been on the rise since the year 2011 and till today.

Etihad Airways Customers

Etihad Airlines has two types of customers. There are local customers and international customers. International customers are increasing in number as the company opens its markets to other nations. These international customers initially disregarded the company that was operating mostly within the Asian continent. With many businesses around the world obtaining goods from the Middle East, most international customers of Etihad Airway benefit from the cargo transportation services offered by the company. To negotiate with their manufacturers and other businesses, many businessmen around the world travel to the Middle East using Etihad Airways (Madichie, 2013). In this case, therefore, the majority of international customers of Etihad Airways are dedicated businesspersons.

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In turn, local customers use small flights to travel within the United Arab Emirates or to other nations. Local people in the United Arab Emirates are the ones that do business with people from other nations; this facilitates their movements throughout that country and outside the country. Small planes owned by Etihad Airways best suit movement of local customers within the country. To do business with other businesspeople from around the world, these local customers travel outside the United Arab Emirates (Hazime, 2011). They therefore have a significant impact on the profit making of Etihad Airways.

Apart from businesspeople from both the United Arab Emirates and other nations around the world, tourists and other professionals serve as customers of the company. Seminars and trainings take place both in the United Arab Emirates and other parts of the world and these professionals go there with the help of Etihad Airways’ services. Many activities and hotel facilities available in the United Arab Emirates serve to attract tourists to the region. These tourists arrive in the area by use of Etihad Airway Company (Buyck, 2014). Therefore, a vast variety of customers of Etihad Airways comes both from within the country and from other nations.

Despite the fact that Etihad Airways has both local customers and international customers, it mainly depends on international clients. It is because the United Arab Emirates is a booming business center and there are many opportunities. These opportunities primarily attract businesspeople from all over the world that make up regular customers of the enterprise. Without international clients, the total share of the market will substantially reduce. In essence, Etihad Airways largely depends on the foreign market. International customers majorly use cargo transportation services provided by Etihad Airways (Leon, 2011).

Determinants of Demand for the Etihad Airways’ Services

Etihad Airways Company as discussed above mainly depends on international customers who do business with citizens of the United Arab Emirates. These businesspeople engage in various forms of business, some of which are seasonal and some of which are constant throughout all seasons. International customers become significantly numerous during certain times of the year when there are many tourists visiting the country. At these times of the year, the hotel industry and accommodation companies also experience an increase in the supply of customers. Factors that increase the number of people moving in and out of the country include harsh climatic conditions in Europe and yearly festive seasons (Leon, 2011). At such times of the year, there is a significant increase in the number of international customers using planes. The increase in the number of international customers using air transport leads to the rise in profits made by the company.

In turn, the number of local customers using planes tends to remain constant throughout the year even though there is a slight increase during festive seasons when the number slightly increases. For example, in December of 2013, the number of international customers grew by 12%, while that of local customers rose by 5%. Therefore, this indicates that even during the festive season the number of international customers increases more than the number of local clients. As demand for other businesses rises within the country, the same happens with the airways. For example, in 2014, the demand for accommodation facilities in December increased by 13%. In that same month, the demand for services of Etihad Airways grew by 19% (Business Monitor International, 2015). From the above statistics, it is evident that festive seasons have a significant increase in demand for Etihad Airways’ facilities.

With the innovation of new business opportunities in the United Arab Emirates, the demand for Etihad Airways also increases. In 2010, the discovery of new oil field led to a significant increase in demand for airway services by 3% that did not go down since that time. It is attributed to the increased number of businesspeople who come from other countries to venture into this business. One year later, as the hospitable industry started booming in the United Arab Emirates, Etihad Airways’ demand increased by another 7% (Business Monitor International, 2009). Therefore, the demand for airway facilities largely depends on ongoing business activities in the United Arab Emirates, the season of the year, and prevailing weather conditions on the European continent.

Price Elasticity of Demand

The price elasticity of demand is the situation when responsiveness of price changes with changes in demand. To illustrate this, on the one hand, if prices increase as the result of a rise in demand for goods and services, the price of the good or service is said to be elastic. On the other hand, if the price remains constant regardless of changes in demand, the price is said to be inelastic. Several factors determine \ price elasticity of demand. These factors are availability of other substitutes, price level with respect to the customers’ budget, and durability of the product (Buyck, 2014).

Substitutes

A substitute is an alternate service or good delivered to the consumer apart from one in question. Substitute services and products customarily have the same contentment as the analyzed one. For instance, a variety of cooking fat is an auxiliary for each other in case of having two or more brands of cooking fats. Similarly, in the airline industry, there are several companies offering equivalent airline services. In the United Arab Emirates, there is Fly Emirates Company, which is bigger than Etihad Airways (Leon, 2011). In this case, one can say that Fly Emirates Company is a substitute to Etihad Airways. The implication of this alternative is that in case Etihad Airways decides to increase its price as a consequence of a rise in demand, customers will shift and start using Fly Emirates’ services. Therefore, availability of substitutes implies that the firm cannot increase the price due to the increase in demand.

The airline industry has many companies. Although they offer slightly different services, the end product is the same. Therefore, this means that there are many substitutes in the airline industry. Availability of alternatives makes the price inelastic, which means that increase in demand does not lead to a significant increase in price and vice versa.

Price Level and Customers’ Budget

Before any consumer can spend money on any good or service, he/she has a targeted amount of money he/she intends to pay. If the price of goods or service goes beyond the consumer’s expected budget, the buyer will contemplate some other good or service. If price of that good or service is much lower than the consumer’s budget, the consumer will tend to doubt the quality of services and goods provided (Kilani, 2010).

For the consumer to buy and be content with goods or services he/she has purchased, the price of the commodity should be approximately around the targeted price. Any cost beyond the budget will make the consumer obtain the same goods or services from elsewhere in case there exist substitutes. Products or services, prices of which are beyond the consumers’ budget, have an inelastic price and goods and services, prices of which are below the consumers’ budget, also have inelastic price elasticity (Buyck, 2014). Hence, this means that increase in demand will lead to no increase in price or a slight increase in price. Etihad Airways has customers who operate on a budget and, therefore, it is affected by this theory.

Durability of the Product

Consumers are likely to spend a lot of money on durable products. The increase in demand for a lasting product will not have an effect on quantity demanded. Consumers can pay a significantly larger amount of money on durable products because they know it is like a one-time investment. On the other hand, perishable goods have elastic prices (Leon, 2011). The increase in demand for perishable goods leads to a rise in their price.

Etihad Airways provides highly perishable services. It is the factor that heavily affects quantity demanded by consumers of Etihad Airways. The increase in demand leads to a significant increase in price, yet consumers of goods and services do not decrease whatsoever.

Etihad Airways experiences seasons of high demands and reduced demands. During periods of high demand, the quantity of services demanded increases just like prices. From the above, it is seen that if the increase in demand leads to a rise in price, the price of the product is described as being elastic. In a nutshell, price elasticity of demand of Etihad Airways is elastic (Buyck, 2014). However, price elasticity is also defined by another factor apart from the factors mentioned above. Market structure is another important feature that determines price elasticity of a product.

Market Structure

There are many market structures that exist in the world. These market structures are determined by factors like the number of competitors, how easy or hard it is for a new market entrant to enter the market, and similarities or differences of products. These factors put businesses into several markets such as monopolistic competition, monopoly, perfect competition, and oligopoly (Buyck, 2014).

Perfect Competition

In this market structure, there are many buyers and many sellers. There is also free entry and exit of new businesses on the market. Free entry is facilitated by small capital required to enter and little bureaucracy associated with entry into or exit from the market. Consumers in this market have full knowledge of the product being sold. In this type of market, sellers sell similar goods and any seller has many competing businesses. Prices are entirely determined by the forces of demand and supply. At the point where the curve integrates on the graph, the supply curve displays the prevailing rate on the x-axis.

Monopoly

In this type of market, there is only one seller, but there are many buyers. Entry of new firms into this sort of market is not easy; one of the reasons may be the large amount of capital required for the entry of new companies into this business. The government typically owns such companies. There is no competition whatsoever to the seller or provider of goods and services respectively. In this type of market, the seller has full responsibility to determine prices of the commodity.

Monopolistic Competition

This type of market is the most common among many manufacturers. Sellers in this market sell differentiated goods. Differentiation of goods is done through branding and packaging. There are still many sellers and many buyers and, therefore, consumers have a choice. New firms can easily enter and leave the market because the starting capital is not huge. Sellers sell similar products that are slightly differentiated. Prices are determined by several forces beyond the business control (Kilani, 2010). In theory, it is integration of demand curve, marginal revenue curve, marginal curve, and supply curve all drawn on the same axis.

Oligopoly

In this category of market structure, there are few sellers of the product. It is because entry of new firms into the market is not easy due to enormous capital required to enter the market. Massive capital requirements for new businesses confine excessive entry of new companies. Companies operating in this type of market structure sell similar goods differentiated from other goods of the other seller. Prices are determined collectively by all vendors operating in this market. The demand curve of firms operating in this sort of market has a kink below which no company can reduce its price (Kilani, 2010). Winning customers in such companies requires extensive advertisement.

Etihad Airways operates in such type of market. The airline industry needs a huge capital to start operations. For any seller to get a substantial market share, extensive advertisement is required. Another thing that makes Etihad Airways qualify for this type of market is the fact that although there are many airline companies world-wide, they offer uniquely different services (Buyck, 2014).

Competitors also strive to remain on the market. They do this by providing incentives and other benefits to their customers. In this type of market, non-price competition is vital because the decrease in price below the kink leads to a tremendous loss (Kilani, 2010). Attracting customers by a reduction in price is called price competition. Etihad Airways uses non-price competition methods like offering distinctively best services as compared to its competitors. By providing efficient booking and extensive security measures, Etihad Airways proves quality of services rendered to its customers.

Economies of Scale

Economies of scale are the advantage that arises due to an increase in the size of the business. Many airline companies are big and, therefore, they enjoy economies of scale. As the firm grows, the cost of production per unit output significantly reduces. The initial capital to start an airline company is so vast that the company expands the total amount of production to decrease the per unit output cost (Madichie, 2013). The bigger the firm gets, the more benefits it enjoys because of economies of scale.