Etihad Airways: The Five Forces Effect

Executive Summary

Remarkably, contemporary organizations meet numerous challenges, irrespective of the industry in which they operate. Some of the most perceptible organizations that are at greater risk of facing operational difficulties are airline companies. Airline firms face many difficulties which can impact their performance. Investors and other individuals interested in analyzing whether a company can make a good potential investment must first conduct prior analysis. This helps them get a clear picture of the financial position of the company that they wish to invest in. This paper features an analysis of Etihad Airways as one of the popular airline carriers in the world. It also leverages a special analysis tool known as the Porter’s Five Forces framework to analyze the case of Etihad Airways.

Introduction

The Porter’s five forces is an analytical model that was developed in 1979 by Michael Porter, who was a professor at Harvard’s business school. Porter’s intention was to develop a framework for evaluating an organization’s position within its industry by considering the prospective threats that the company may face. Therefore, this model explicates the forces that shape competition in contemporary firms. In essence, the Porters five forces model evaluates a total of five threats (Rotondo et al., 2019). Apparently, this model is critical to guiding businesses to increase their competitive advantage based on industry forces. The five forces featured in the model comprise competition in the industry, the potential of new entrants into the market, the pressure of substitute products, the power to bargain by the suppliers and the customers. This paper elucidates how the five forces affect the operations of Etihad Airways.

Industry Background

Etihad Airways is one of the most popular airline companies. It connects the United Arab Emirates (UAE) with large cities in the world and is also the second largest airline in the UAE (Rotondo et al., 2019). Remarkably, the airline carrier has its headquarters in Abu Dhabi. It operates in approximately 85 destinations throughout Middle East, Asia, and Europe (O’Connell & Bueno, 2018). Etihad Airways began operating in November 2003 and currently, it has a fleet of 104 Boeing aircrafts and Airbuses. It operates over 1000 flights weekly to approximately 120 passenger and cargo destinations across the world (O’Connell & Bueno, 2018). This makes Etihad Airlines one of the busiest in the world.

The Porter’s Five Forces Model

Competition in the Industry

Admittedly, the competition level in the airline industry is perceptible. Nearly all the operational airline companies fly to the common destinations. Additionally, most of the large airline companies charge almost similar prices for the air transport services that they offer. The amenities that the different airline carriers provide are also congruous. Since the experience of air travel for customers is the same irrespective of the airline carrier they use, Etihad Airways faces a constant threat of losing customers to its competitors. Although the airline has for long dominated the United Arab Emirates airline market, this trend has changed in the recent past (Rotondo et al., 2019). Currently, Etihad Airways faces stiff competition from other airline giants such as Delta Airlines, Air China, Emirates, and Republic Airways.

For instance, if a customer wants to travel from Brussels to Jakarta on Etihad Airways but a third party aggregator offers a better price alternative from Emirates Airlines; the traveler can opt to change their mind by a simple click of the mouse. This reveals the extent of competition that Etihad Airways is facing. The rivalry between the existing airline carriers is extremely high (O’Connell & Bueno, 2018). It can expel any company that does not have enough capital or resources to remain in the market. However, Etihad Airways makes attempts to deal with these competitive threats by applying certain measures. For instance, the airline carrier conducts extensive marketing campaigns that are implicit in creating brand awareness.

Bargaining Power of Buyers

Principally, it is imperative to note that airline carriers are implicit two types of buyers. These comprise individual travelers and third party travel agencies or online portals. Individual travelers can book plane tickets for various reasons that range from personal travel to business oriented flights. The second group of buyers made up of intermediaries between the airline companies and the travelers. They work in liaison with airline carriers so as to give travelers the best travel options possible. Remarkably, individual buyers, who are the real customers in this case, have a relatively high bargaining power over airline carriers (O’Connell & Bueno, 2018). Apparently, this is because the effort and time required to shift from one airline carrier to the other is quite minimal.

The costs of switching between airline carriers are minimal because customers choose their flight based on their destination and the current cost of tickets at the time of traveling. Apparently, every customer needs a lot of information so as to make the right decision. On the underscore, technological advancements have propagated a surge in airline booking sites and smartphone applications that make it easier for customers to switch from one airline to another. Today, most travelers do not liaise with airlines such as Etihad Airways to book their flight (O’Connell & Bueno, 2018). Rather they go to trip booking websites and relevant applications on their smartphones and compare the flight rates across all airline carriers.

Consequently, the travelers settle for the least costly travel deals that are congruent with their schedules and preferences. Undoubtedly, this market force affects the operations of Etihad Airways. Generally, the bargaining power of buyers poses a relatively high threat for Etihad Airways. This is because the availability of several airlines gives customers a wide range to choose from. Consequently, the latter gain the power to bargain and go for airline carriers that have relatively lower prices.

However, the airline can mitigate this external force by carrying out extensive market research and offering more flights at lower price deals than their rivals. This way, Etihad Airways will be able to attract more customers. Moreover, the company can seek to strengthen its relationship with credit card firms so as to get attractive reward packages. Apparently, travelers will not like the idea of switching airlines if they accrue what they deem as “free miles” with Etihad Airways.

The Threat of New Entrants

Notably, new entrants into the airline industry pose an insignificant threat to Etihad Airways. For instance, it is quite challenging for a carrier to enter the airline industry for the first time. This is because the industry is implicit in high operational costs. Besides, the government requirements that an online carrier must meet are many and increasingly sophisticated. Recent statistics show that of all airlines pioneered during the 21st century, none has an attractive market share. As such, most of the airlines that exist today were founded many years ago. In essence, Etihad Airways faces a minimal threat with regard to the entry of new airlines.

Bargaining Power of Suppliers

Admittedly, there are very few airline suppliers. On the underscore, the number of airlines to whom a supplier can sell their products is relatively low. This incongruence shifts suppliers’ bargaining power to the airline companies. For instance, there are only two major suppliers of aircraft which comprise Boeing and Airbus. Apparently, this creates a conducive environment for monopolistic power to thrive. Being one of the largest airline carriers, Etihad Airways has a particularly strong bargaining power (Rotondo et al., 2019). The airline’s suppliers have a strong motivation to maintain a quality relationship with the company.

Apparently, Etihad Airways can easily find another supplier if their relationship with the current supplier goes bad. However, it is not easy for the airline carrier to change its supplier. Like many other airline companies, Etihad Airways has long term contracts with its suppliers. On the flip side, a supplier may find it quite difficult to get another buyer who can replace the sales volume accrued by Etihad Airways. It is imperative to note that airline entities are the only source of earnings for suppliers such as airplane manufacturers. The suppliers are therefore keen to maintain a good relationship with their customers, Etihad Airways being one of them. In essence, the suppliers’ bargaining power poses a relatively medium threat to the company.

Threat of Substitutes

According to the stipulations of the five forces model, a substitute is a product or service that can replace a company’s offerings. A point worth noting here is that a substitute is not a product that competes with an existing product (Rotondo et al., 2019). In this regard, a flight using another airline cannot be considered as a substitute for using Etihad Airways. An example of a substitute to an Etihad Airways flight is a trip by other means of travel such as a train, a car or a bus. Apparently substitutes for air travel can only apply where the trip is very short. For example, flying from India’s Delhi to Bengaluru using Etihad Airways can take two hours and forty five minutes duration.

The same trip takes much longer by either the means of a bus or even a train. As seen, the threats of substitutes in this case are very minimal. Apparently, air travel remains the fastest means way of traveling for both long and short distances (Rotondo et al., 2019). Airlines surpass all other modes of transport regarding, convenience, charges, and customer service. In this regard, Etihad Airways faces a negligible threat from substitutes.

Conclusion

In essence, Etihad Airways faces several challenges that predicate its competitiveness and overall performance in the airline industry. The Porter’s five forces model elicits a good analysis of all these factors. As noted in this paper, the most powerful external forces affecting Etihad Airways are competition from existing firms and the bargaining power of suppliers. The remaining forces pose a relatively week threat to the airline carrier. Notably, some of these forces are external and cannot be alleviated. Nonetheless, Etihad Airways has embraced several measures to cope with these challenges and achieve its performance goals.

References

O’Connell, J. F., & Bueno, O. E. (2018). A study into the hub performance Emirates, Etihad Airways and Qatar Airways and their competitive position against the major European hubbing airlines. Journal of Air Transport Management, 69, 257-268. Web.

Rotondo, F., Corsi, K., & Giovanelli, L. (2019). The social side of sustainable business models: An explorative analysis of the low-cost airline industry. Journal of Cleaner Production, 225, 806-819. Web.

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NerdyRoo. (2022, June 21). Etihad Airways: The Five Forces Effect. Retrieved from https://nerdyroo.com/etihad-airways-the-five-forces-effect/

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NerdyRoo. "Etihad Airways: The Five Forces Effect." June 21, 2022. https://nerdyroo.com/etihad-airways-the-five-forces-effect/.

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NerdyRoo. 2022. "Etihad Airways: The Five Forces Effect." June 21, 2022. https://nerdyroo.com/etihad-airways-the-five-forces-effect/.

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NerdyRoo. (2022) 'Etihad Airways: The Five Forces Effect'. 21 June.

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