January 10th, 2018
Case study on Emirates – Assessment of trans-Tasman Flights’ industry
Strategic planning involves assessment of the opportunities and threats that an external environment presents to develop effective ways to realize such opportunities while reducing susceptibility to threats. Emirates evaluation of the trans-Tasman market, may, for instance be conducted through the porter’s five forces that access the competitiveness in the market. The external environment portion of SWOT analysis also helps in delineating the opportunities and threats the proposed expansion poses. The porter’s five forces assesses the bargaining power of buyers, the bargaining power of suppliers, the threat posed by substitutes, the threat of new entrants and the competitive rivalry in the market (Dagmar Recklies, 2001).
The threat posed by new entrants for the trans-Tasman (New Zealand to Australia) industry is low. This arises from aspects such as the high capital investment that a new entrant would be required to make to compete effectively with the dominant players (Qantas and Air New Zealand) in the market. Due to such high capital investment, the new entrant may not offer competitive prices, which are a core characteristic ensuring success in short-haul routes (Stanik, Smith & Erakovic, n.d.). The threat of a new entrant is also lowered by strategies of existing players to lock out such new entrants. For instance, in the notes on the events that occurred following the entry of Emirates, Qantas and Air New Zealand sought to form an alliance to avoid overcapacity in the route (Stanik, Smith & Erakovic, n.d.). Such alliances present a heightened challenge for any new entrant since they enhance the capability of member airlines to provide services in diverse regions where the alliance exists thus lowering the cost for any particular entity (Goetz & Graham, 2004).
The bargaining power of buyers in the trans-Tasman route is moderate. This arises since the buyers are not organised into unions that would lead to lowering of prices in the market (Dagmar Recklies, 2001). However, since buyers have the access to information about prices offered by each player (e.g. from the Internet), and the switching costs from one provider to another are low, buyers bargaining power increases in respect to forcing the players in the market to compete based on price. The threat posed by substitutes is very low since alternative means of transport (e.g. rail, road and sea) between Australia and New Zealand do not offer benefits associated with air transportation.
Since Airlines are dependent on a minimal number of suppliers for supplies such as aircraft and fuel, the bargaining power of suppliers is considerably high. For instance, oil cartels such as OPEC may hoard their produce to push for higher prices thus necessitating airlines to enter into forward contracts, which may be unfavourable in the event of low global prices for oil. Additionally, labour unions bear a considerable power in bargaining for remuneration of their members hence heighten the bargaining power of suppliers. The competitive rivalry in the trans-Tasman route is also high with Air New Zealand and Qantas controlling over 80 per cent of the market share (Stanik, Smith & Erakovic, n.d.). Such competitor rivalry over the short-haul distance is the core consideration for passengers, and may thus lead to entities adopting a low price strategy, which may not be sustainable in the long term.
Trans-Tasman industry may also be analysed according to the opportunities and threats it presented for Emirates. The core opportunity that Emirates could gain from the route was that of using its airplanes, which would otherwise remain unutilised in Australia as the crew rested, to increase its marginal revenues. A threat posed by this industry was a potential alliance between Qantas and Air New Zealand that would enable them offer more competitive pricing thus locking out other players from the market. Since Emirates would have continued to incur other costs such as airport taxes crew rested in Australia, the trans-Tasman industry offered a reasonable opportunity for it to pursue.
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