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Decision Making Model For PESTEL

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Question:

Discuss about the Decision Making Model for PESTEL.
 
 

Answer:

Introduction

Emirates group was started in 1980s after the Gulf air was established. It started with 2 planes leased from Pakistan International Airlines. They differentiate themselves from the competitors by raising the bars for the services and glamour. It also raised the fares but people were ready to pay for the services. In double Decker Airbus, it introduced full bars services, showers services as well as free food and drinks in all the flights of emirates.  Soon with the investment flowing from UAE government, it started it operations in various countries. Soon, it becomes a formidable player in the International Airways. It has also become the world’s 8th largest airline in carrying the international passengers and 5th largest in terms of total kilometers travelled (Connell, 2011). Seeing the potential of airlines industry in the developing countries like India and impresses from the success of the other International Airlines like British Airways in India, it is considering the prospects of increasing its business in India. As per the report, India is the second largest market after US in terms of domestic travels. Also, India is one of the fastest country to re over its status after recession of 2008 due to huge domestic market. Its market is so large that it does not have very high dependency on exports (Armitage, Jasim, Marks, Parker, Usik, & Uerpmann, 2011). The purpose of this case study is to analyze the business model of the Emirates Airlines, potential of its increasing business in India and the suitable strategy for going to Indian markets as well as appropriate entry mode.

In Airline Industry, there is no dearth of players that provides services to their customers however what differentiate Emirates from competitors like British Airways is the supplementary services. For instance, High quality service and low cost is one o f the quality of Emirates that take it to one step ahead than its competitors.

  • Core service is the providing transportation to passengers from 1 city to another which is offered by all the airlines.
  • Supplementary services includes comfortable seats, comfortable environment, entertainment, free food and drink services, personalized cabins for people travelling in first class, recliner chairs having ability to open up to 6 feet, shower facilities
  • Delivery of services is done through highly professional matter through the highly trained staff. Emirates focus is on this aspect i.e. providing excellent delivery to its customers (Temiz, & Gokmen, 2014).

The porter five forces analysis is around 5 parameters that drive the industry. They are as follows:

 

Threat of new entrants is very less because entering into Airline industry needs huge capital, permits and licenses , patents. Also, there are distribution limitations in terms of terminals. Safety, compliance, investment are some of the things that deter new players into entering this industry (Karabarbounis, 2014).

Threat of substitutes is quite high as there are only 2 types of players in the market luxury and budget with huge price difference. With time for domestic flights not more than 2, 3 hours, it is highly probable that people will go for budget flights.

This is also high as the customers always have the numerous options and buyers are also price sensitive. With other similar players like British Airways, Lufthansa, Gulf air, Etihad, Qatar entering into India, Customer have excellent bargaining power (Krystofik & Babbitt, 2014).

There are only 2 companies in the world, American-based Boeing and the Airbus Group, that supplies the major aircraft to all the Airlines. In terms of engine, General electric and United Technologies Corporation are the only 2 major players for manufacturing engines and other body parts. Thus, although airline industry is highly competitive very few suppliers commands the most of the major market and thus has a higher bargaining power (Branner Piekkari, & Tietze, 2014).

It is high in this industry due to large number of players. However, in the segment of customers which demands services like reclined seat, spas, entertainments and better services, Emirates also have good competition with British Airways, Lufthansa, Gulf air, Etihad, Qatar entering into India.

PESTLE analysis is done for analyzing the state of particular industry in a particular country. It has nothing to do with a particular organization but concerns with complete industry. Therefore, Emirates considering expanding in India must be well versed with the PESTLE analysis of aviation industry in India. This analysis will help the company to make the decision about its expansion plans in India.

Political factors are quite important and have high influenced on any industry. Aviation industry is highly influenced by the political conditions because of rules and regulations that changes quite frequently.

As of now, political condition in India is stable from last 15 years. 15 years back, there were some tensions with Pakistan, Gujarat riots but now with a strong government, India is making its presence felt to the entire world. India, who is known as highly corrupt country and difficult to do business with, with its new government is working hard to change its status across the world and is also relaxing its rules for foreign players but still is has a long way to go because corruption is ingrained in the society. Still, bribes have to be paid for getting various permits and licenses but this is also getting reduced. Government owned airlines have very different rules and had free seats for ministers and officials, more perks, retirement benefits against private players and that is reflected in their balance sheets. For example, Air India is state owned company, which has very poor performance (Cantwell, 2014).

But overall, government is working hard to improve its status and reputation around the world and has climbing in ranking of ease of doing in business in last few years. This clearly shows the efforts of the government have been recognized. There is no major political issue so far in aviation industry (Salunke & Weerawardena, 2011).

This includes the growth of the country, inflation rate, exchange rate, taxation policy and income of the people. India is going through a major change and is on the verge of change. As it is the country having the maximum population of young people who can work, its people are going all over the world to contribute to various economies. Realizing that and incentives from the government, many foreign companies are coming to India to tap the cheap resources, huge manpower talent as well as huge markets. Also, As the Income of the people is increasing; percentage of upper middle class and rich has also increased in the total population. People are now travelling more not just for business purposes but for vacation purposes. With rising income, their mode of transport is also changed and they prefer airlines which simply show the huge potential of airlines in India (Rangaarjan, & Prasad, 2014). However, there are many low cost airlines and people in India prefer to fly with them and Emirates is luxurious airline. Emirates is known for redefining the standard of luxury and its expansion will give the tough competition to luxury airlines in India which are very few. Overall, the prospect of Aviation industry in India looks good from economic perspective.

Changing travel habits of the people have huge implications for the aviation industry. As of now, Jobs are concentrated in few of the metropolitan cities where people from all over India come and lives. These people often have requirement to travel back to their house and they also sometime travel to and fro between home and work. As a result, these changing habits have wide implications and scope for aviation industry. India is a very diverse country with huge variations in caste, creed, religion and each passengers expects the airlines to customize its offerings for instance, some people like to have Hindu food and like that (Yuksel, 2012). These requirements will be fulfilled only with the entry of more seasoned players like Emirates.

 


India is developing at a rapid pace with full usage of technology. All the airlines are using the latest technology like check in advance, QR codes for boarding, auctioning of unoccupied seats before 1 week at attractive prices to cut their costs. Also, Major airports like Bangalore, Mumbai, Delhi have been upgraded in last few years and become much more big in size with facilities comparable to International Airports. All this is possible as the Airport authority of India has started recognizing the huge potential of the airline industry especially in this world of Globalization where companies are expanding their bases to India and which increases the travelers and travel habits. Technological factors are very favorable and once the Emirates with best in class technology expands to India, it will further fuels up the competition in India.

Though there are many legal conditions like timings about the traveling of planes, rules like maximum cancellation charges, types of Airbus used in domestic routes and other acts like Air corporation act 1953, International Airport authority act 19716, Carriage by Air act 19727 Anti – hijacking act, Tokyo international act and any players has to abide by such acts. Apart from this, there are no major challenges considering the legal prospects.

India is one of the fastest growing markets with huge potential in the World. Though most of the traffic is concentrate in 6 cities like Delhi, Mumbai, Bangalore, Hyderabad, Pune, and Kolkata but in last few years, as the income is growing, there is also increase in the number of airports. As of current date, there are total of 134 airports in India. Out of 134, 48 are reserved for Defense activities and private activities, 64 airports have domestic statuses and 22 have international status. These increasing numbers of airports and conversion of domestic airport to international airports simply shows the potential of growth of Air travelers.

 

International marketing strategy

Emirates have to decide the international marketing strategy like whether it has to provide the global standard services or it should localized itself. Given the vast diversity of India where Language changes in every 200 miles and differences in caste, creed, believes, it has to customize its services to a huge extent for Indians. Not only this, as per the government of India, Liquor is not allowed in Domestic services. Thus, Food will be one of the main things. Now, it has to customize its food for different states, religions for the people however the other global things like entertainment, comfortable seating can be the same (Patel, 2013).

 There are various options for Emirates to enter in India. Emirates can make a direct entry into the Indian market but that will be bit complicated given the difficulty of business in India. At every level, there are much bureaucracy involved besides corruption and bribe. Lack of external market may cause too much time for Emirates to enter the market directly and also company will find it difficult to manage cultural and social differences. Licensing and Franchising will also not be suitable in this business model and also due to the brand name of emirates, these entry modes have the higher probability of impacting the brand name of the company because not everyone can keep such higher standards of service and delivery (Joshi, & Bhatia, 2014).

Joint venture is another important strategy and will be more suitable for Emirates to expand in India as compared to direct entry. With the help of Joint venture, Emirates can get rid of problems like dealing with government, regulatory agencies and also to get the local market knowledge and experience before launching full fledge into foreign markets. Not only will this, having a joint venture with one of Indian Airways help the company faster to establish itself as brand in India. Also, there are many companies in India but most are low cost airlines like spicejet, Indigo, Vistara. Air India is a good premium fight but it owned by the government. Jet airways will be the most suitable and eligible for entering into a joint venture in India (Nataraja, & Al-Aali, 2011). In fact, they already have collaboration in some of the areas. For example, people having jet airways mile can redeem their miles in Emirates flights also. 

 

Recommendations

Bases on the pestle analysis of Aviation Industry and other requirements, there is no doubt that the decision of Emirates to expand into developing markets like India is not good. With Globalization and many other opportunities, most of the global players are setting big time in India. India also has witnessed great rise in income level and change in travel habits of the people which simply shows the huge potential of the country. Apart from this, Emirates also has the huge potential of tapping the aspirations of growing middle class by providing them better services. Although there are many international players and stiff competition but the market is so large that each player can have its own share of pie.

Conclusion

Emirates have been discusses in this case study along with its scope for expanding into India. India is a developing country with huge potential and there are various tools used for analysis and all of them are suggesting that Emirates should expand to India. Not only this, Its global competitors like Lufthansa, Qatar, Etihad, Silk Air, Gulf Air already have their presence in India. Though there are numerous players but the market is very high and each player can have its share. Also, Joint venture is suggested as a preferred mode of entry into Indian markets.

 

References

Armitage, S. J., Jasim, S. A., Marks, A. E., Parker, A. G., Usik, V. I., & Uerpmann, H. P. (2011). The southern route “out of Africa”: evidence for an early expansion of modern humans into Arabia. Science, 331(6016), 453-456.

Brannen, M.Y., Piekkari, R. and Tietze, S., 2014. The multifaceted role of language in international business: Unpacking the forms, functions and features of a critical challenge to MNC theory and performance. Journal of International Business Studies, 45(5), pp.495-507.

Cantwell, J., 2014. Revisiting international business theory: A capabilities-based theory of the MNE. Journal of International Business Studies, 45(1), p.1.

Joshi, M. C., & Bhatia, R. (2014). Russia: An Emerging Market for Indian Firms. Global Performance Challenges, 213.

Krystofik, M., Babbitt, C. W., & Gaustad, G. (2014). When consumer behavior dictates life cycle performance beyond the use phase: case study of inkjet cartridge end-of-life management. The International Journal of Life Cycle Assessment, 19(5), 1129-1145.

Karabarbounis, L., 2014. Home production, labor wedges, and international business cycles. Journal of Monetary Economics, 64, pp.68-84.

Nataraja, S., & Al-Aali, A. (2011). The exceptional performance strategies of Emirate Airlines. Competitiveness Review: An International Business Journal, 21(5), 471-486.

O’Connell, J. F. (2011). The rise of the Arabian Gulf carriers: An insight into the business model of Emirates Airline. Journal of Air Transport Management, 17(6), 339-346.

Patel, D. (2013). Study on Indian Airline Industry.

Rangarajan, S., & Prasad, V. A. (2014). The Indian airline industry–will the flight be smooth?. Emerald Emerging Markets Case Studies, 4(3), 1-18.

Salunke, S., Weerawardena, J., & McColl-Kennedy, J. R. (2011). Towards a model of dynamic capabilities in innovation-based competitive strategy: insights from project-oriented service firms. Industrial Marketing Management, 40(8), 1251-1263.

Temiz, D. and Gokmen, A., 2014. FDI inflow as an international business operation by MNCs and economic growth: An empirical study on Turkey. International Business Review, 23(1), pp.145-154.

Yuksel, I. (2012). Developing a Multi-Criteria Decision Making Model for PESTEL Analysis. International Journal of Business and Management, 7(24), 57-66.

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