January 10th, 2018
Case study on Emirates – Expected response from Qantas and Air New Zealand following Emirates’ Entry
The porter’s five forces indicate that there was a high competitive rivalry in New Zealand market at the time of entry of Emirates. Accordingly, Qantas and Air New Zealand are expected to implement strategies that aim to lock out Emirates from their core market (trans-Tasman) or accentuate their differences with Emirates (Dagmar Recklies, 2001). One of the strategies for the two entities would be to offer competitive pricing, by setting their fares below those set by Emirates. Since price is a core determinant of customer decisions in the short haul (Stanik, Smith & Erakovic, n.d.), the entities (Qantas and Air New Zealand) can prevent their customers from switching to Emirates by lowering their fares.
To enhance their pricing strategy, Qantas and Air New Zealand could enter into an alliance that would avoid overcapacity and allow them to compete more effectively (Goetz & Graham, 2004). Since both Airlines have significant government support (Stanik, Smith & Erakovic, n.d.), they could lobby for restrictions of flights to certain destinations within their respective countries, for instance, in exchange for job security of the citizens (Dagmar Recklies, 2001)
Such combined actions are possible because Qantas and Air New Zealand are in the same strategic group. For instance, the entities have similar cost structure with their fleet being comparable (Stanik, Smith & Erakovic, n.d.). Their relationship with their respective governments is also similar (Stanik, Smith & Erakovic, n.d.) and they have specialized mainly on the short-haul (e.g. trans-Tasman) distances. Through such similarities, Qantas and Air New Zealand are thus able to work in collusion to deter any new entrant.
Emirates, on the contrary, operates in a different strategic group. For instance, the entity focuses on the long haul (Europe-Dubai-Australia-New Zealand) distances with the short haul aimed at augmenting the marginal revenues (Stanik, Smith & Erakovic, n.d.). Emirates also does not compete principally on price as evident from its branding activities seeking to entrench the quality it offers (Stanik, Smith & Erakovic, n.d.). Unlike Air New Zealand and Qantas which are affiliated to alliances i.e. Star and One World respectively (Goetz & Graham, 2004), Emirates does not join alliances, instead focusing on smaller relationships such as code share agreements (Stanik, Smith & Erakovic, n.d.). Accordingly, by introducing a new strategic group, Emirates heightened the competitive rivalry existing in the New Zealand industry.
Limitations of Chosen analyses
Porter’s five forces model helps evaluate the competitiveness in the market but faces various limitations. For instance, the model disregards market dynamics, hence the situation at the time of entry may differ from that existing when the analysis was conducted (Dagmar Recklies, 2001). In the Emirates case, for instance, other players entered the New Zealand Market as Emirates was entering the market hence could have reduced the overall attractiveness of the market (Stanik, Smith & Erakovic, n.d.).
Another limitation of porter’s five forces is the assumption of a perfect-market condition. In this case, the five forces’ model envisages a market where the forces will be allowed to have their effect without inhibition. However, in current markets, factors such as government regulation affects the extent to which the effect of any force is exhibited (Dagmar Recklies, 2008). The five forces model also assumes that the industry is homogeneous, thus may fail to capture inter-firm differences in resources and capacity, which may be the source of competitive advantage, rather than the industry structure.
The second model employed, the SWOT analysis, also bears various limitations. Primarily, SWOT also fails to capture the dynamic nature of business environment, which could change between the date of analysis and entry. Unlike Porters’ five forces, SWOT however considers the resources and capabilities (Strengths) of an organization that may help it realize the opportunities arising in the environment.
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