Arabic Airlines in the European Market. Strategies, Consequences and International Market Changes and Challenges

Master's Thesis, 2015

96 Pages, Grade: 1,7


Table of Contents

Executive summary

List of Abbreviations

List of Figures

List of Tables

1 Introduction
1.1 Problem Definition
1.2 Objectives
1.3 Structure of the paper
1.4 Research Methodology

2 Porter’s five forces and Globalisation Drivers from George Yip
2.1 Porter’s five forces
2.1.1 Five Forces model
2.1.2 Analysis
2.1.3 Advantages and Disadvantages
2.2 Globalisation drivers of George Yip
2.2.1 Globalisation drivers model
2.2.2 Analysis
2.2.3 Advantages

3 Information of European and Arabic airlines
3.1 Arabic Airline Market
3.1.1 Qatar Airways
3.1.2 Emirates
3.1.3 Etihad Airways
3.1.4 Oman Air
3.1.5 Saudi Arabic airlines
3.1.6 Gulf Air
3.1.7 Royal Jordanian Airlines
3.1.8 FlyDubai
3.1.9 Air Arabia
3.1.10 Middle East Airlines
3.2 European Airline Market
3.2.1 Turkish Airlines
3.2.2 Lufthansa
3.2.3 Swiss Int’l Air Lines
3.2.4 British Airways
3.2.5 Austrian Airlines
3.2.6 Air France
3.2.7 Aegean Airlines
3.2.8 KLM
3.2.9 Virgin Atlantic
3.2.10 Finnair

4 The Influence of Arabic airlines on the European Market Global Strategy of Arabic Airlines
4.1 Development of the airline market
4.2 Analysis of the Arabic Airlines by Porters five forces
4.2.1 Threat of new entrants
4.2.2 Threat of substitute products or services
4.2.3 Bargaining power of customers
4.2.4 Bargaining power of suppliers
4.2.5 Intensity of competitive rivalry
4.3 Analysis of the European market by George Yip’s Globalisation drivers
4.3.1 Market globalisation drivers
4.3.2 Cost globalisation drivers
4.3.3 Competitive globalisation drivers
4.3.4 Government globalisation drivers
4.4 Market entry Strategies
4.4.1 Sprinkler Strategy
4.4.2 Waterfall Strategy
4.5 Empirical Study
4.6 Strategic globalisation forecast planning
4.6.1 Boeing
4.6.2 Airbus

5 Results, Critical Analysis and Recommendations
5.1 Results
5.1.1 Porters five forces Analysis
5.1.2 Yip’s Globalisation drivers Analysis
5.1.3 Empirical Study
5.1.4 Market entry Strategies
5.2 Critical Analysis
5.2.1 Porter’s five forces Analysis
5.2.2 Yip’s Globalisation drivers Analysis
5.2.3 Empirical Study
5.2.4 Market entry Strategies
5.3 Recommendations
5.3.1 Porter’s five forces Analysis
5.3.2 Yip’s Globalisation drivers Analysis
5.3.3 Market entry Strategies

6 Conclusion and Outlook
6.1 Conclusion
6.2 Outlook

List of References

ITM Checklist

Appendix 1 Top 100 Airlines 2014 International, European, Arabic (Middle East)

Appendix 2 Top 10 First, Business, Premium Economy, Economy Class

Appendix 3 Ordered Aircrafts

Appendix 4 Empirical Study Questions

Executive summary

In this master thesis, the subject "Arabic Airlines in the European Market - Strategies, Consequences and International Market Changes and Challenges" is accurately represented and analyzed by the author, whereby different methods are used.

The aim of this work is to show the extent to which Arab companies have changed the European airline market in recent years, including what opportunities, possibilities and risks that arise for European and Arab companies. For this purpose, the ten largest com- panies in the European and Arab market are briefly presented and compared with all key business data. In the Arab market, this includes Qatar Airways, Emirates, Etihad Air- ways, Oman Air, and Saudi Arabic airlines, Gulf Air, Royal Jordanian Airlines, Fly Dubai, Air Arabia and Middle East Airlines. In the European market, the following companies are considered in more detail: Turkish Airlines, Lufthansa, Swiss Int'l Air Lines, British Airways, Austrian Airlines, Air France, Aegean Airlines, KLM, Virgin Atlantic and Finnair. With the help of Porter’s five forces, first the Arabic airlines are analyzed, being closely examined in the following areas: threat of new entrants, threat of substitute products or services, bargaining power of customers, bargaining power of suppliers and intensity of competitive rivalry. Subsequently, the European market is analyzed based upon globalization drivers developed by George Yip. The distinction is made based upon the following points: market drivers, cost drivers, government drivers and competitive drivers.

The results of these investigations highlight that the Arab companies are still very young on the market, only existing on the market for a maximum of a few decades. By contrast, European companies have already been present on the market for much longer. However, the Arabian airlines have very quickly gained enormous market power and large market shares, backed by the vast financial reserves of state-owned enterprises. These companies not only have the financial background that reflects a great advantage over all other international airlines, but also other important advantages that favor a growth in the market. The airlines no dot have to pay any taxes or other charges in their home countries and they face no restrictions regarding air traffic; moreover, there are no bans on night flights or similar, while the airlines’ aircraft are located on the newest and best state of the art technology and have the newest, largest and most modern hubs worldwide.

Strategically seen, the European companies are focusing more on price and have suc- ceeded in winning customers in the past few years in a major price war. By contrast, the Arabian airlines rely upon good service and luxury above the clouds at an acceptable yet not excessive price. Many European companies operate with the service department continuing to build more seats in the aircraft, whereby the lowest class passengers can fly with few personnel at low prices. Here, the Arabian airlines behave the exact oppo- site and thus gain many new customers. It should be emphasized that these airlines have specialized in long-haul flights and they usually handle short-haul flights with their own subsidiaries.

Overall, it can be said that the Arabian companies will retain exactly the same strategy that they are carrying out at present. Furthermore, the company's strategy should also affect new markets to gain market share. Here, some typical changes should - if necessary - be introduced to the strategy, whereby the basic idea should be pursued further due to past successes. By contrast, European companies need to back up their existing market share in the international long-distance business, change their current price war strategy and adopt a different approach.

Here, the companies should be based upon the strategy of the Arabic airlines and it will find a Confirmation Code to the company middle. Only recovered in this way in the past, lost market share could be won back once more. Admission and thereby incurred market changes in the international airline market can be seen as an opportunity for European companies to change and thus win old and new customers.

List of Abbreviations

illustration not visible in this excerpt

List of Figures

Figure 1: Porters five Forces

Figure 2: George Yip's Globalisation drivers

Figure 3: Market development and Crisis

Figure 4: Sprinkler Strategy

Figure 5: Waterfall Strategy

Figure 6: Ordered A380 Aircrafts

Figure 7: Ordered Boeing 787 Dreamliner

List of Tables

Table 1: Ansoff Matrix

Table 2: Most important international Airlines Top

Table 3: Most important airlines in the Arabic Market Top

Table 4: Most important airlines in the European Market Top

Table 5: Top 100 Airlines (worldwide)

Table 6: Top 10 Airlines (European)

Table 7: Top 10 Airlines (Arabic / Middle East)

Table 8: Top 20 First Class Airlines

Table 9: Top 10 Business Class Airlines

Table 10: Top 10 Business Economy Class Airlines

Table 11: Top 10 Economy Class Airlines

1 Introduction

The Master of Business Administration is an international management Master and thus it a very complex but interesting subject to study, especially part time combined with a full-time job. This Master Thesis provides an introduction in one of the MBA’s modules, with a detailed practical part. The theme decided by the author for this thesis is “Arabic Airlines in the European market - Strategies, Consequences and international Market Changes and Challenges”. To gain an idea about the complexity of this issue, the author will start off with this thesis:

“ It is not possible for a young company or especially a regional group of these young companies to enter a new international market, completely change it and replace the old and traditional companies on the international top ten lists. ” 1

The work at hand is a classical management analysis that should be undertaken by every company seeking to enter a new market to get to know the competitors and the conditions in the new market.

1.1 Problem Definition

In recent years, a dramatic change has been observed in the international airline market, whereby Arabic airlines have entered the European market and changed it completely. The thesis will show their market entry strategies, connected to an analysis with Porter’s five forces and subsequently a market analysis of the European market with the globalisation drivers. All this should provide a detailed overview and a market and company analysis of the current situation in the airline market, including the effects and influences of the drastic change in the last few years.

1.2 Objectives

The objectives of this thesis are to explain and analyse in detail the following important and interesting questions:

1. Which marketing strategies have been used by Arabian airlines? Are these the same (in the Arabic market) or different when entering the European market?
2. In what ways does the strategic planning of Arabic airlines different from Euro- pean ones? In what way does this depend on market changes?
3. Why have Arabic airlines grown so fast and built up the Arabic market with such a power to enter the European market? What are the significant reasons here?
4. To what extent has the international financial crisis damaged regional markets? How could this crisis be justified?

An additional important point is the questionnaire, which asked questions to customers of Arabian airlines to learn more about the service and their customer satisfaction.

All this should provide a thorough overview of the different airlines, their strategies and effects in the European market.

1.3 Structure of the paper

The structure of the paper is written like an assignment and thus the second chapter will include the theoretical part of Porter’s five forces, with an explanation of the model and the analysis, as well as the advantages and disadvantages of using this analysing tool. Following this, the theory of George Yip’s globalisation drivers will be explained, in- cluding the model, analysis, advantages and disadvantages. Subsequently, in chapter three, the practical part is prepared with information about the market participants of the Arabian and European airline markets. All airlines are briefly introduced and their strengths and weaknesses are shown. In chapter four, the Arabian airline market is ana- lysed with the help of Porter’s five forces to gain an insight into the structure, strategies and their strategic planning in the coming years. In this chapter, the European airline market is also analysed with the help of Yip’s globalisation drivers. Chapter five will show the results of the analysis and critically analyse them. Following this, the results of the empirical study are shown and integrated into the entire analysis, before the au- thor provides some recommendations. Finally, the conclusion and a brief outlook is provided in chapter six.

1.4 Research Methodology

All the information provided in this assignment was researched in various books, as well as the internet. All information is combined with footnotes regarding their sources and have been clearly identified as quotations. In the “airline” theme of this Master Thesis, there was so much information that the important ones have to be picked out to secure the best fundament for the analysis and thus develop a perfect thesis. The infor- mation concerning the airlines is sourced from the internet to derive the most up-to-date data.

The author will now proceed with the theoretical part of Porter’s five forces, followed by George Yip’s globalisation drivers.

2 Porter’s five forces and Globalisation Drivers from George Yip

In the following chapter, the model of Porter’s five forces as well as the globalisation drivers from George Yip are explained. The five forces model was created to analyse companies with different influencing factors, which will be undertaken for the Arabic airlines. The globalisation drivers are designed to analyse markets, which will be conducted for the European airline market. Both of them are analysed in chapter four, whereby first the theoretical part will be explained.

2.1 Porter’s five forces

One of the most important tasks of management is the formulation of a corporate strate- gy. In order to develop this purposefully, it is necessary to know and analyze the rele- vant environment of the company. For Michael E. Porter, the industry is a core factor and based upon this, he designed in 1979 the "Five Forces" model. Here, the five forces of competition that he developed are presented and analyzed. In the following sections, these will be illustrated and explained in greater detail, while a critical consideration of the advantages and disadvantages of the model will also be discussed.2

2.1.1 Five Forces model

In the following figure, the five forces of Porter are shown and the different correlations are visible.

Figure 1: Porters five Forces3

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Subsequently, these five forces will be explained to the reader and shown in detail in terms of how they are formulated.

2.1.2 Analysis

In the following, the five forces are explained in detail to show how they work together and have to be combined by analysing the branch and competitors.

Threat of new entrants

New entrants create additional capacity in an industry, including for each industry and their customers. Through the pursuit of profit and the high capital equipment of the new entrants, declining market prices and thus the profitability in the industry occur. Porter explains that the reasons for the market entry of new and additional competitors depend on the expected reactions of existing competitors, as well as the existing entry barriers (particularly important). Michael E. Porter distinguishes the following seven reasons for differences and barriers to entry:4

-Operation of scale
-Product differentiation
-Capital requirements
-Government policy
-Cost advantages
-Distribution channels

An important point that must always be considered in this context is that the various barriers to market entry have different properties, which can be changed continuously. Companies cannot always influence these changes, although the strategic decisions can continue to exercise a great influence on them. Depending on the size or resources and skills of the company, they are able to make entrance barriers heavier or lighter than others. Indeed, the age and experience of companies in certain areas such as marketing certainly holds great importance.5

Intensity of competitive rivalry

Competition exists on the current market between companies for market positions and shares, as so-called position battles. To improve its position and shares, a company fol- lows different tactics like price competition, the introduction of new products, the use of new sales channels, aggressive advertising and improved service and warranty. Howev- er, such tactics are often used as a countermeasure and response to competitive action, creating an interdependence that can lead to a downward spiral of action and reaction, thus worsening the profitability of the entire industry. In particular, price competition carries this risk, whereas aggressive advertising of individual enterprises may well bene- fit the entire industry.6

Porter explains the intensity of the rivalry of different interacting factors, which will only be briefly mentioned here. The rivalry can be viewed as high in the following cases: the number of competitors is high and their equipment and products are the same, slow growth in the industry, high storage and fixed costs, lack of switching costs and differentiation, large capacity expansions, competition is very heterogeneous, high market exit barriers and when strategic stakes are very high.7

With respect to these five competitive forces, competition among companies on the market poses the most serious threat to individual companies. Thus, the danger of "forced" or voluntary market withdrawal is given. In the following figure, the barriers and rivalry - according to Porter - can be seen.8

illustration not visible in this excerpt

Table 1: Ansoff Matrix9

Here, it can be seen that there is competition in all markets and the strategy of the different companies can be ascertained and selected to predict their future behavior. Everything is only considered externally, whereas the internal strengths and weaknesses cannot be taken into account.

Bargaining Power of suppliers

According to Porter, suppliers - similar to customers - try the change both prices and quality. Therefore, suppliers strive towards higher prices to expand their profit margins - which in turn can affect the profitability of the entire industry - while also seeking to lower the quality and the associated cost savings, as well as the targeted reduction in supply, reflecting strategic action parameters of the supplier.

If the following market conditions prevail, the supplier group is considered powerful:10

-A few suppliers are confronted by many customers (supply monopoly or oligop- oly).
-For the suppliers, the relevant sector is just one of many and thus it has no existential value.
-For the products of the suppliers, there is no danger of substitution; for example, because they are standardized or due to high switching costs on the customer site and because they are difficult to replace at short notice.
-The buyers are faced with the realistic danger of falling through a forward integration (by suppliers) of the value chain.11

An example of prevailing high supplier power is evident in the armaments industry, whereby there are only a few large defense companies supplying national governments. The products are difficult to substitute among other, since the appropriate armaments programs are long planned and irreversible due to high investment costs, involving a kind of dependence of governments to the corresponding arms suppliers. Therefore, frequent breaches or rising production costs have to be accepted.

In addition, workers can be represented as a supplier because for many companies se- curing or poaching highly qualified staff is difficult and this is often associated with considerable costs. The workers know about their market value and can increase their salary, thus significantly reducing the profit of companies. Here, the power of the labor force can be very high.

The state can also be considered as a supplier and independently influence the market through legal restrictions. Accordingly, the state could impose hard restrictions to ensure that they are the only market participants, making it too difficult for the other companies to enter the market.12

Threat of substitute products or services

Every business is not only competing with competitors in their own industry, but also with those of the industries that produce alternative products. A substitution product is a replacement product from another industry, which performs the same function as the original product but in a different manner or by other means. In this case, the price- performance ratio is crucial, rather than the absolute power. Thus, a price ceiling arises for the product, as this would otherwise be preferred by the substitute of the customers. Accordingly, the margins are reduced with increasing substitution pressure and the in- dustry's profitability decreases. The analysis of the threat of substitute products is there- by much more complex than the model can initially imagine. Given that the price- performance ratio is crucial and the preferences of the end user are different, there is a substitute for almost any product, even if it is not immediately apparent or comes from wasteland, which cannot be the suspect.13 Thus, a motorcycle could replace an automo- bile, although a bicycle could also do this. Chocolate could replace flowers as a gift, as might a book or a DVD.14

The pressure of substitution is thus very difficult to measure and even to find out and analyze. Furthermore, the model neglects social values and norms or economic con- straints, given that substitution threat not only depends on the price. Thus, nuclear pow- er can theoretically replace solar energy, while gas power plants or coal power plants could also do this: the final product stream is the same. However, the extent to which the type of energy is socially desirable strongly differentiates, whereby the theoretically unlimited substitutability among themselves is not the case in practice.15

The above two examples suggest that Porter's competitive strength "pressure by substi- tuting" appear to be very theoretical. Nevertheless, the substitution products should not be neglected, especially if the developers gain high profits and the value for money rais- es compared to the improvement of the industry. Here, the decision must be made by the company concerning whether the substitute can be incorporated into its strategy.16

Bargaining Power of buyers

Customers are characterized as demanding lower prices as well as increased perfor- mance and quality standards. This leads to a decrease in profitability of the industry, as well as declining margins. According to Porter, the strength of the influence of custom- ers or groups of customers depends on certain factors concerning the market situation and the percentage of purchases of the corresponding group of customers among all sales in the industry.17

The bargaining power of buyers may be considered as large in the following situations:

-Many providers having only few customers (limited monopoly).
-The removed products represent a significant share of the purchasing budget of customers, meaning that they are more sensitive to prices.
-The products are standardized and easily - i.e. without large switching costs - substitutable with others.
-The suppliers are faced with the danger of falling through backward integration out of the value chain of customers.
-There is a high market transparency.
-The profits of customers are small, whereby they are sensitive to prices.
-The product of the industry is irrelevant to the quality or performance of the product of the buyer.
-Buyers are very knowledgeable about the products and prices of all companies.18

A good example of prevailing high buyer power is the automotive industry, whereby the few manufacturers of vehicles preclude many suppliers. The purchased components thereby represent a high cost factor for the automotive manufacturers, which are always looking for ways to make savings and quality improvements. Due to the similarity of the products of different suppliers and the high capital equipment by the vehicle manu- facturer, it can be credibly threatened with both substitution and backward integration to press the prices.19 The model measures the buyer’s power concerning objectively visible factors (such as the number of customers and suppliers) and theoretical capabilities of the customer (such as the theoretical risk of backward integration). However, it does not include "softer factors" such as the images of things that could worsen if suppliers would be dropped after years of collaboration or if a cheaper priced supplier would be preferred at the expense of environmental protection. Moreover, the model cannot di- rectly map the presence of long-term binding contracts, collaborations across multiple industries or even unofficial agreements - including a backward integration - because it assumes constant competition. Companies can prevent these problems by undertaking a customer selection as far as this is possible, looking for buyers who do not have too much power to press the prices too hard.20

2.1.3 Advantages and Disadvantages

In the following paragraph, the pros and cons of the strategy analysis of companies with the tool methods of Porter's five forces analysis will be presented. Accordingly, the advantages of the method are described as follows:

- The method takes all the possible influence factors of market developments in the internal and external environment into account.21
- It provides an opportunity to investigate complex interactions between competitors in an industry in a clearly structured format, evaluating and considering the competition permanently.
- In the initial phase of a strategic analysis, it allows a convenient understanding of the industry.
- The model ensures and guarantees a systematic and comprehensive consideration of the relevant factors in competition.
- It allows a precise and better estimate of opportunities and risks of the proposed strat- egy.22

By contrast, there are naturally also some disadvantages of the method, which are explained in the following points:

- Assessing the threats is always subjective (depends on the person), e.g. a replacement product is not recognized or its importance is underestimated.
- Confusion of forces with individual factors (e.g. governmental regulation) changed the result.23
- The analysis is only a snapshot, whereby the competitive dynamic is difficult to detect. Regular and frequent observation of forces is thus essential.
- It only considers the basic structure and should thus always include the resources of the companies in the analysis.24
- Collaborations or strategic alliances are disregarded because the focus is solely on the consideration of direct competitors. These are not considered as possible partners.
- Differentiating it from other sectors is sometimes not really possible, because it only considers the own industry.

Due to the highly changing and growing markets as well as the wide dynamic within different markets, the model is now rarely used because it can rarely represent a struc- tured procedure following the presentation of a snapshot and it rather provides an over- view of the situation arising in the sector. However, the tool can also be used today in parallel with other models in the strategic consideration of an industry and competi- tors.25

In the following chapter, the globalization drivers of George Yip should be explained to the reader.

2.2 Globalisation drivers of George Yip

The globalisation drivers of George Yip were developed to analyse an industry and its potential for globalisation. With this tool, every company can find out for themselves how the new global market is structured and organized to get to know the changes. For developing global strategies, it is important to get to know the different opportunities and characteristics of the market.26

In this chapter, the globalisation drivers will be explained and how they should be analysed, as well as the advantages and disadvantages of this model.

2.2.1 Globalisation drivers model

The globalisation model can be seen in the following figure. In the middle, it is evident that the globalisation potential of the industry is due to the four factors of market drivers, cost drivers, government drivers and competitive drivers.

Figure 2: George Yip's Globalisation drivers27

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The four factors will be explained in detail in the next chapter. They comprise the following most important points:

“Market drivers: Common customer needs, Global customers, Global channels, Transferable marketing, Lead countries

Cost drivers: Global economies of scale, Steep experience effects, global sourcing efficiencies, favorable logistics, significant differences in country costs, rising product development, fast-changing technology Government drivers: favorable trade policies, compatible standards, common marketing, government-owned competitors Competitive drivers: competitors from different countries, interdependence of countries, globalized competition”28

2.2.2 Analysis

In this chapter, the four aforementioned globalisation drivers will be explained in detail. Market drivers29

The market drivers can be divided into the aforementioned five points, which will be explained in this paragraph. They are important for the speed of the globalization of an industry, as well as for customer behaviour and the distribution channels.

Common customer needs and tastes define the extent to which customers in different countries want to get the same product. Here, it can be found out which small changes are necessary to make the product successful in many different markets, as well as whether the company will address the consumers’ fundamental needs or individual tastes (e.g. do they only want to drink something (Cola) or do they want different tastes (Coca Cola, Light, Zero, Life, Fanta, …)?).30

Global customers are customers who are searching their products worldwide, buying them in their home country as well as buying the product no matter where it comes from. A good example here is searching for a car on the internet on a global scale but buying it in the customer’s home market or importing it, e.g. from America.31

Global channels most prominently include TV and the internet. In only a few seconds, a new marketing campaign for a product or service could be widespread all over the world on all important markets. This information could also be sent via email directly to the customer’s home screen, whereby he could order it as soon as possible from all over the world.

Transferable marketing means that the marketing for the product is built up globally to fit every country and market, because every change will cost the company resources and money. Global companies such as Coca Cola or Red Bull are using global marketing: there is one brand name and claim and it is known worldwide.32 This creates a large market entry barrier for new participants. The internet helps the companies to disseminate their campaigns in a very short time.

Lead countries are very important in the area of innovations. In many of these countries, most innovations are made and the global company should also be part of the market in the country to avoid losing important innovations. In all sectors, the lead countries are different, such as the USA for technology, Japan for electronics or Germany for perfect industrial equipment. In these markets strong competition prevails due to the large suc- cess.

Cost drivers33

Global Economies of Scale: “In many cases it seems to be economies of scope (the gains from spreading activities across multiple product lines or businesses) rather than economies of scale (the gains from increasing the volume of an activity) that push businesses to internationalize or to globalize.”34

Steep experience effects mean that if scale and scope economies are overwrought, there is the possibility to improve the product through the company’s experience, as well as the past learning effects and product standardisation.

Global sourcing efficiencies are used to create cost efficiencies by using low-cost coun- tries, e.g. for production or services (by phone). Many companies are sourcing parts of their company out to other countries to benefit from lower costs. It is important to bear in mind here that the people in the other counties have to be instructed by some teachers or mentors for such a time and this will double the costs. However, the internet makes it very easy to communicate with other international locations and solve problems in this short way.

Favorable logistics: One more important point to bear in mind is favorable logistics due to the different countries of production and refining production costs playing a major role. Today, most machines are produced with all parts delivered just in time. In many instances, the end production is completed at the place of use or near water and only the parts are assembled in the company’s factories to reduce the costs as much as possible.

Significant differences in country costs are the low-cost countries for production and the high-cost countries where the high-skilled personnel is available. An important point to bear in mind in this context is the exchange rates and how they are changing, because this significantly influences the costs and could have a strong impact on the selling price.

Rising product development costs are becoming increasingly important because the product lifecycle is becoming shorter and the developments costs are rising, due to elec- tronic development and globalization. In this case, business globalization is an ad- vantage for every company because the development costs can be spread across all sell- ing countries and there is one development for all international areas of one company. It is important to bear in mind here the different needs of customers worldwide.

Fast-changing technology results in high product development costs, although this brings the company to a more individual product, which increases the potential for globalization. Fast globalization sets out no chance for imitators to copy the product and the product could be amortized across many countries and markets and can be better protected against competitors.

Government drivers35

These globalisation drivers depends on the governmental restrictions, which are determined on a national or local basis.

Favorable trade policies are set by governments to control the international trade through import or export charges or requirements, different currency restrictions or technological transfer requirements. A very important point in this respect is the media, which is controlled and sometimes prohibited on an international basis (only local media controlled by the government is allowed, e.g. in North Korea).

Compatible standards are important on the technical basis to standardize products (e.g. connection for power supply). Another point is the pharmaceutical area in which there are many different local restrictions, e.g. the maximum of different ingredients that are allowed to be sold directly or ethically (by doctors) or are otherwise forbidden36.

Common marketing is very often (depending on the country) governmentally regulated, meaning that some types of advertising are forbidden or restricted. Accordingly, differ- ent countries create a barrier to enter the local market with international strategies or campaigns and thus companies sometimes (depending on their current campaign) have to adapt it to the markets.

Government-owned competitors can increase the globalization potential for the whole industry because they are very often subsidized and the markets are protected among other (international) competitors, whereby the companies are able to perform with an aggressive strategy.

Competitive drivers37

Competitors from different countries also influence the globalization potential because all of them have a different background and thus their strategy and aims will differ.

The interdependence of countries is created by the market participants by using a global strategy because they are sharing their activities. A good example here is the automotive sector, whereby a German company builds up their cars in Poland to sell in Germany and China. Accordingly, if the Chinese market is increasing quickly and the market shares are growing, this influences the production in Poland, which in this case also influences the car prices in Germany.38 Here, it is very important to have a global man- agement to get the best out of this independence and to have an overview about all mar- kets and how the markets shares are developing. This is also a further market entry bar- rier for new participants.

Globalized competition means that the competitors are also thinking globally, e.g. global products and services, global strategy, global management or global marketing campaigns. This also means that when a competitor is planning to expand, they will also do so in a global way, which in parallel brings pressure into the market and the other competitors. This lowers the entry barriers for local participants but also makes it difficult for the local ones to globalize themselves.

2.2.3 Advantages

As with all analysing tools,39 there are always some advantages, which will be explained in the following paragraph.

The advantage of George Yip’s globalisation drivers is that this tool explains both the global and local drivers. The drivers can be used to analyse industries and the current market and it can be based upon Porter’s five forces analysis of the market. Further- more, it is an important tool to identify the critical success factors for both the industry and market.

In the next chapter, the author will provide some information about the European and Arabic airlines that were rated on the top ten lists of the respective regions.

3 Information of European and Arabic airlines

This chapter should provide the reader a brief overview of the top 10 most important airlines in the Arabic and European markets. The following table presents the most important airlines internationally.

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Table 2: Most important international Airlines - Top 20 40

3.1 Arabic Airline Market

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Table 3: Most important airlines in the Arabic Market - Top 10 41

3.1.1 Qatar Airways

Qatar Airways was founded in 1994 and is the national carrier of the State of Qatar. The home base is Hamad International Airport and Doha hub. It is a member of the one-world alliance, as well as the Arab Air Carriers Organization42. The company has a fleet of 156 aircrafts, including four Airbus A380 and 18 Boeing 787 Dreamliner, while 336 aircrafts are still ordered.43 The airline is 50 percent owned by the state and the other 50 per cent by private shareholders. The company has already been selected “Airline of the Year” twice (2011 and 2012) and has been awarded five stars by Skytrax for excellent service.

Qatar Airways followed the "five pillar" strategy, which “is designed to limit the airline's impact on global climate change, noise, local air quality, non-renewable resources and waste.”44 Most important here is not to have first class in all planes, but to guarantee the best service everywhere.45

3.1.2 Emirates

Emirates is a fully national airline of the United Arab Emirates, with the base in Dubai International Airport. Moreover, the company is a member of the Arab Air Carriers Or- ganization. The airline was founded in 1985 and currently has a fleet of 230 aircraft and a further 280 have already been ordered.46 The company is growing significantly every year, reporting a turnover of AED 80.7 billion in 2013/2014.47 There are currently around 75,000 employees48 in Emirates and the company work plans to hire more than 11,000 further employees by 2016.49

The strategy of Emirates is short and simple; namely, the company should continue to grow rapidly, yet the customer should be given the maximum good service possible. Furthermore, the important part here is that the company is only flying with large aircraft over large distances.50

3.1.3 Etihad Airways

Etihad was founded in 2003 and is headquartered in Abu Dhabi. The company has a fleet of 110 aircrafts and 202 further orders.51 Etihad achieved a turnover of 6.1 billion dollars in 2013.52 The company employs 24,347 people and received over 15 interna- tional awards alone in 2014. It is not part of any alliance but works with its own net- work.

The strategy of this airline lies in the purchase of or investment in many other airlines - such as Air Berlin - to expand its route network and thus extend the maximum competitiveness.53 Etihad tries with to solve problems with a lot of money, as well as more recently by consulting experts.54

3.1.4 Oman Air

Oman Air was founded in 1993 and has its headquarters and home base in Muscat. It is also a member of the Arab Air Carriers Organization.55 The company belongs by 41 percent to private shareholders, 34 percent to the Omani government and 25 percent to private enterprises. The company has 4,082 employees and makes an annual turnover of approximately 718 million Euros. Oman Air has a fleet of 30 aircrafts and an order of six Boeing 787 Dreamliner and 20 other aircrafts in 2015.56

After the joint venture on 16 April 2015 57 together with the Luxembourg airline Cargolux Airline, the company's current strategy plans new international destinations and a larger cargo area, as well as its own air freight services.58

3.1.5 Saudi Arabic airlines

Saudi Arabic airlines was founded in 1945 and is the oldest airline in the Arabian Pen- insula, with the home airport of Jeddah - King Abdulaziz International.59 The company has a fleet of 117 aircrafts and is part of the SkyTeam alliance.60 Since 2012, the company has reverted back to the original name Saudi.

The company's goal is "to expand the reputation of Saudi in the Kingdom of Saudi Arabia and the world."61

3.1.6 Gulf Air

Gulf Air was founded in 1950 and it is the national airline of the kingdom Bahrain, which is also the hub.62 The company has a fleet of 34 aircrafts and a further 51 orders with Airbus and Boeing.63 Gulf Air is not integrated in an airline alliance but it is in some parts committed with oneworld.64

The strategy is to integrate a “long-term developing career” for the staff as well as the management to focus on “an effective pool of human resources” and “become an employer of choice”.65

3.1.7 Royal Jordanian Airlines

Royal Jordanian Airlines was founded in 1963 by King Hussein Bin Talal, with the stra- tegic view of the founder: “I want our national carrier to be the ambassador of goodwill and the bridge across which we exchange culture, civilisation, trade, technology, friend- ship and better understanding with the rest of the world.”66 The company has a fleet of 27 airplanes, with its home base as Queen Alia International Airport in Amman. The company is a member of the oneworld alliance.67

Royal Jordanian Airlines reported an annual turnover in 2013 of 759.94 Million Jordanian Dollars, with 4,541 employees. 68

3.1.8 FlyDubai

Flydubai is a governmental airline of the state of Dubai. It was founded in 2008 and is a low-cost airline. The hub is Dubai International Airport and the airline is rapidly grow- ing. The annual turnover in 2012 was 756 million US dollars69 and 1 billion US dollars in 2013.70 The company is operating a fleet of 45 71 aircrafts and 20 more are ordered.72

The company is currently a low cost airline but not like those in Europe. Flydubai will give some luxury services to its customers like business class with own screens and films for everyone with this short-haul strategy. It is a partner of Emirates is perceived as being founded as an airline to diversify the Dubai hub.73

3.1.9 Air Arabia

Air Arabia was founded in 2003 and is another low cost carrier from the United Arab Emirates. The company has three main hubs: Sharjah International Airport, Mohamed V International Airport and Borg El Arab International Airport.74 The fleet comprises 31 aircrafts of type Airbus A320 and 44 more orders of the same.75 The company made an annual turnover of 3,728.79 billion Arab Dollars in 2014, with an equity ratio of 47.8 percent.76

The strategic view of the company is to be a low-cost carrier, but with “more than just low fares”.77

3.1.10 Middle East Airlines

Middle East Airlines (short MEA) is a Lebanese airline with its headquarters in Beirut and main hub in Beirut-Rafiq Hariri. The company is a member of the Arab Air Carriers Organization, as well as in the SkyTeam.78


1 Own creation

2 (Porter, Wettbewerbsstrategie: Methoden zur Analyse von Brachen und Konkurrenten, 2008)

3 Own Creation

4 (Porter, Die Wettbewerbskräfte neu betrachtet, 2008)

5 (Porter, Wettbewerbsstrategie: Methoden zur Analyse von Brachen und Konkurrenten, 2008)

6 (Porter, Die Wettbewerbskräfte neu betrachtet, 2008)

7 (Porter, Wettbewerbsvorteile - Spitzenleistungen erreichen und behaupten, 1990)

8 (Porter, Die Wettbewerbskräfte neu betrachtet, 2008)

9 Own Creation

10 (Porter, Wettbewerbsstrategie: Methoden zur Analyse von Brachen und Konkurrenten, 2008)

11 (Porter, Wettbewerbsvorteile - Spitzenleistungen erreichen und behaupten, 1990)

12 (Porter, Wettbewerbsstrategie: Methoden zur Analyse von Brachen und Konkurrenten, 2008)

13 (Porter, Die Wettbewerbskräfte neu betrachtet, 2008)

14 Own Example

15 (Porter, Wettbewerbsvorteile - Spitzenleistungen erreichen und behaupten, 1990)

16 (Porter, Die Wettbewerbskräfte neu betrachtet, 2008)

17 (Porter, Wettbewerbsvorteile - Spitzenleistungen erreichen und behaupten, 1990)

18 (Porter, Die Wettbewerbskräfte neu betrachtet, 2008)

19 Own Example

20 (Porter, Wettbewerbsstrategie: Methoden zur Analyse von Brachen und Konkurrenten, 2008)

21 (Porter, Wettbewerbsvorteile - Spitzenleistungen erreichen und behaupten, 1990)

22 (Porter, Die Wettbewerbskräfte neu betrachtet, 2008)

23 (Hermanns, Kiendl, & van Overloop, 2007)

24 (Porter, Wettbewerbsvorteile - Spitzenleistungen erreichen und behaupten, 1990)

25 (Porter, Wettbewerbsstrategie: Methoden zur Analyse von Brachen und Konkurrenten, 2008)

26 (Ungson & Wong, 2014)

27 Own Creation like (Yip, 2011)

28 (Yip, 2011)

29 (Yip, 2011)

30 Own Example

31 Example: Own creation

32 Example: Own creation

33 (Yip, 2011)

34 (Yip, 2011); p. 42

35 (Yip, 2011)

36 Example: Own creation

37 (Yip, 2011)

38 Example: Own creation

39 (Yip, 2011)

40 (Worldairlinesaward, World Airline Rating, 2015)

41 (Worldairlinesaward, Best Airlines by world Region, 2015)

42 (Focus, Airlinedatenbank - Flugsicherheit, 2015)

43 (Qatar_Airways, Qatar Airways - Our Fleet, 2015)

44 (Qatar_Airways, Qatar Airways - Strategy Press, 2015)

45 (Qatar_Airways, Qatar Airways - Ethihad, Emirates, Qatar Airways: Die gnadenlosen Airlines aus dem Osten, 2015)

46 (Airliners, Emirates peilt bis 2020 eine Flotte von 250 maschinen an, 2015)

47 (Emirates, Emirates - Umsatz der Gruppe, 2015)

48 (Emirates, Emirates - Story, 2015)

49 (Flugrevue, Emirates stellt 11.000 neue Mitarbeiter ein, 2015)

50 (Wiwo, 2015)

51 (Etihad, Etihad - Fast facts, 2015)

52 (Etihad, Etihad - Annual Report 2013, 2015)

53 (Etihad, Etihad - Corporate profile, 2015)

54 (Wiwo, 2015)

55 (Fluggesellschaft, 2015)

56 (Hoeveler, 2015)

57 (Gründer, 2015)

58 (Brandl, 2015)

59 (Planespotters, Planespotters - Saudi Arabian Airlines Fleet Details and History, 2015)

60 (Saudi, Saudi - Unsere Flotte, 2015)

61 (Saudi, 2015)

62 (Gulf_Air, Gulf Air - History, 2015)

63 (Flydeluxe, 2015)

64 (Focus, Focus - Gulf Air, 2015)

65 (Gulf_Air, 2015)

66 (Royal_Jordanian, 2015)

67 (Touristic_Concept_Lounge, 2015)

68 (Finanzen, 2015)

69 (flydubai, 2015)

70 (flydubai, flydubai - fyldubai announces 47 per cent proft increase over 2012 results, 2015)

71 (flydubai, flydubai - Company information, 2015)

72 (Dubai_City, 2015)

73 (CAPA_Centre_for_Aviation, 2015)

74 (Air_Arabia, 2015)

75 (Air_Arabia, Air Arabia - An Bord / Fleet, 2015)

76 (Finanzen, Finanzen - Air Arabia, 2015)

77 (Air_Arabia, Air Arabia - About us, 2015)

78 (Skyteam, 2015)

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Arabic Airlines in the European Market. Strategies, Consequences and International Market Changes and Challenges
University of Applied Sciences Essen
Business Administration
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arabic, airlines, european, market, strategies, consequences, international, changes, challenges
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Julia Teigeler (Author), 2015, Arabic Airlines in the European Market. Strategies, Consequences and International Market Changes and Challenges, Munich, GRIN Verlag,


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