Competitive Environment and Strategy risk - Myassignmenthelp.Com

Question: Discuss about the Competitive Environment and Strategy risk. Answer: Introduction Abu Dhabi National Hotels was founded for almost four decades ago and in recent years has evolved as largest hospitality sector whose prime focus was restaurants, hotels, catering and transportation services (Adnh.com 2017). It can be stated that Abu Dhabi National Hotels was founded with the investment of three other hotels which were acquired from the government policies. The financial statement has been prepared by complying with the provisions of UAE laws. It can be stated that by observing the financial statement of Abu Dhabi National Hotels between 2013 and 2017 there has been steady growth in the cash flow section however it can be observed that there is a decline in the profit margin. Figure: 1 [Financial Statement of Abu Dhabi National Hotels]. [Source: Adnh.com. 2017]. It can be observed that after evaluating the abovementioned financial statement, the annual financial statement of the Abu Dhabi National Hotels has been prepared by considering the key ratios. It can be observed that in 2017 there is a gradual decline in revenue rates and operating income. In this context it can be noticed that the working capital has also declined as compared to 2016. FINANCIALS 2017 2016 2015 2014 2013 Revenue 1,196 1,322 1,740 1,803 1,749 Gross-Margins 31.3 34.8 34.4 24.1 25.3 Operating Income 293 476 556 419 307 Operating Margin 24.5 36.0 31.9 23.2 17.6 Net Income 293 472 293 433 305 Dividends 0.20 0.20 0.25 Payroll Ratio --- --- --- --- 46.5 Shares 713 720 1,000 1,000 1,000 Operating cash flow 323 383 556 572 449 Free Cash Flow 222 170 556 -56 -1,700 Free Cash Flow Per Share --- --- --- --- -0.06 Working Capital 951 1,020 615 426 145 Figure: 2 [Current Financial Statements of Abu Dhabi National Hotels]. [Source: Created by the Author]. Competitive environment of Abu Dhabi National Hotels: The chain of hotels owned by the Abu Dhabi National Hotels from the very beginning has been attracting huge customers from Emirate and beyond. It can be stated that the company from time immemorial is focused on attracting white collar customers as well as customers from other parts of the world as well (El-Amrousi and Biln 2013). The companies providing tough competition to the Abu Dhabi National Hotels are Kimpton Hotels and Restaurants, Hamilton Island and Vantage Hospitality Group. It can be observed that several issues were faced by the Abu Dhabi National Hotels regarding its competition in the global economy due to the emergence of the number of competitors in the sector of business and leisure (Ahmad and Saber 2015). Figure: 3 [Customer segmentation of Abu Dhabi National Hotels]. [Source: Created by the Author]. Applying the concept of Strategy on the vision of Abu Dhabi National Hotels: The vision of Abu Dhabi National Hotels is: We have been the pioneers of the hospitality industry in the Emirate of Abu Dhabi and, for almost four decades, our endeavors have opened numerous avenues for others to follow. The companys strategy has undergone major changes due to recent issues on recession. The management has widely focused on the aggressive expansion strategy and is planning to venture new hotels in its portfolio. It can be stated that the management retained focus on the hospitality sector giving further importance to the promotion of tourism (Henderson 2014). The Abu Dhabi National Hotel in collaboration with the Abu Dhabi Tourism Authority would involve in the promotion of overseas tourism by offering special summer holidays packages in order to attract large number of tourists from the GCC countries (Kumar and Waheed 2014). It was observed that one of the most important tourists market for Abu Dhabi National Hotels are the GCC markets which is expected to expand in near future. Figure 4: [Strategic Plan of the Abu Dhabi National Hotels]. [Source: Created by the Author]. Applying Porters Five Forces to the competitive environment of Abu Dhabi National Hotels: Porters Five Forces Analysis Power 1) Threat of new entrants. The threat is definitely high for a new entrant in the hotel industry because of the presence of many other companies in the global markets. High. 2) Bargaining power of buyers. The customers of UAE do not possess buying power to that extent due to the presence of large number of hotels. Low. 3) Bargaining power of suppliers. The suppliers do not have significant bargaining power. Medium. 4) Threat of substitutes. The threat of substitute products and services are relatively low. Low. 5) Degree of rivalry. Strong competition exists among the established rivals in the market which can prove to be serious threat. High Figure: 5 [Porters Five Forces]. [Source: Created by the Author]. The Abu Dhabi National Hotels is an established industry in United Arab Emirates however such established sector may face threats from new entrants (Ahmad and Saber 2015). It can be stated that on the other hand it becomes quite challenging for the new entrant to enter into the market structure and keep pace with the globally established sectors. In order to survive in the competitive market it is important that new entrants should emerge through merger or acquisition (Henderson 2014). There exists strong completion among different rivals however the most important among them is Burj Al Arab. The threat of substitutes is low in case of hotel industry however Abu Dhabi National Hotels has been providing its customers with various alternatives from time to time (El-Amrousi and Biln 2013). The customer loyalty is high and therefore the threat of substitutes is relatively low. The customers do not have the bargaining power due to the presence of large number of hotel industry in United A rab Emirates (Jasra et al. 2012). The bargaining power of suppliers can be defined in the presence of large number of buyers for any product. In case of Abu Dhabi National Hotels the suppliers can be raw material suppliers or real decorators (Kumar and Waheed 2014). These are the basic requirements and therefore the suppliers do not have significant role in bargaining. Emirates Airlines The Emirates Airlines is based in Dubai and is a subsidiary of the Emirates Group, which is wholly owned by the Government of Dubais Investment Corporation. The Emirates Airlines was founded in 1985, when the Gulf-Air began to cut back its services to Dubai and it is the largest Airlines in the Middle-East (Emirates, 2018). The airline has a route up to 102 countries worldwide and owns 142 fleets at present and provides great and exceptional services (Daft and Albers 2013). In the last 17 years it has earned huge profit and as a result the revenue increased considerable which can be observed in the diagram presented below. The diagram shows the financial performance of the Emirates Airlines since last two years quarterly. Financial Highlights 2016-2017 2014-2015 Change in Percentage Revenue and other operating income 67,394 57,224 17.8 Operating profit 2,606 Operating margin 3.9 3.9 10.9 Profit attributable to the Owner 2,310 2,310 5,951 Profit margin 3.4 3.4 10.4 Return on shareholder funds 7.2 28.4 21.2(pts) Total assets 84,127 17,402 17.8 Cash assets 17,586 16,056 9.5 Employee data ----- ----- ---- Average employee strength 42,422 38,797 9.3 Other results 3.9 10.4 61.2 Figure: 1 [Financial Statement of Emirates Airlines]. [Source: Cdn.ek.aero. 2017]. However, the airline relies heavily on International Onward Moving Traffic and remains under intense pressure, which can be stated as one of the major issues of competition. Moreover, the increasing fuel costs and changing Government policies poses as a major threat to the Emirates Airlines (Uddin, Halbouni and Raj 2014). In recent trends the addition of new and popular destinations and joint venture alliances with International players can improve customer confidence and create new opportunities for this Airline. Competitive Environment The Emirates Airline belongs to a highly competitive environment with other fast growing airlines like Qatar Airways and Etihad Airways. These two airways are rapidly growing and giving high competition to the Emirates Airline (Adler and Gellman 2012). The two airlines provide air tickets for various destinations at a low cost, which are currently attracting many customers. However, the Emirates Airlines has been adopting various cost policy as well to compete with these airlines. Figure: 2 [Revenue rates of Emirates Airline]. [Source: Cdn.ek.aero. 2017]. Applying the Mergers and Acquisition approach in the business strategy of Emirates There are various approaches to strategic business management and one of them is the Mergers and Acquisition approach. The merger and acquisition approach is a business strategy adopted by organizations to increase its revenue. When two organizations enter a merger, they provide their services as one, which results in benefits of both the organizations. The Emirates Airlines, in order to hold its market and profit margins, adopts mergers with other airlines. One of them is the merger with Qantas Airlines. Qantas, in one hand, has been struggling to compete with the other airlines and suffered a loss of $450 million and the merger is likely to increase its earnings by $90 million. For Emirates, the merger with Qantas will help in further expansion of its resources and business and result in increasing the profit margins (Uddin, Halbouni and Raj 2014). Moreover, it will help Emirates in covering various new and popular destinations and access to more customer altogether. This is an effective business strategy as it widens the scope of business and helps in facing the increasing competition worldwide (Daft and Albers 2013). The merger will result in more choices to the customers to fly to destinations including Australia, New Zealand and UK with a choice of 3 hub options namely, Dubai, Perth and Singapore (Jasra et al. 2012). Furthermo re, the combined network offers over 2000 routes for Qantas flyers as well. Transformation Initiative Annual Benefits Improving fleet economics through Reconfiguration $70-90m Deepening and broadening Alliances $20-30m Extra-major loss routes $100-120m Streamlining heavy maintenance and Engineering $70-100m Modernizing catering practices and Airport operations $20-50m Figure: 4 [The objectives of the Emirates-Qantas merger]. [Source: Created by the Author]. Applying the Key Success factors approach on Emirates Airlines competition environment There are certain factors in the airline industry to ensure successful performance. Emirates has adopted this approach for successful business operation however it should ensure that the employees are well trained in order to manage customers and meet their expectations (Kumar and Waheed 2014). Airlines should focus on providing standard products and services to the customers by promoting new and attractive offers. The other factors are maximization of revenue by making new polices on prices, managing expenses, income and investment (Jasra et al. 2012). The Emirates Airlines has focused in all these areas and has been successful in emerging as one of the most popular airlines in the global market. The factors affecting the operational performance of the Emirates Airlines has been explained with the help of the table below. It can be observed that the operating statistics of Emirates have increased in recent years from 2014 to 2015. There has been considerable increase in the Aircraft numbers and the carrying capacity increased from last year to 33,981. Emirates Operating Statistics 2016-2017 2014-2015 Change in Percentage Passengers Carried 33,981 31,442 8.1 Cargo Carried 1,796 1,767 1.6 Passenger Seat Factor 80.0 80.0 --- Overall Capacity 35,467 32,057 10.6 Available Seat Kilometers 200,687 182,757 9.8 Aircraft (number) 169 148 14.2 Figure: 5 [Operational Performance of Emirates Airlines]. [Source: Created by the Author]. The Key Success approach is one of the approaches used for analyzing the competition of an organization. This approach aims at finding certain areas in which satisfactory will ensure and result in successful performance of an organization. In the context of the Airline industry, there are certain key success factors, which are described in the given diagram: People High-caliber staff is required for such service-oriented business. Training programs focusing on front-line, communicative skills with customers and internal employee management problem. Solving customer oriented problems while focusing on improvement objectives are the essential ingredients. Service Product/Promotions The actual product aircraft seating space, aircraft type and the class of service offerings must be competitive. Route System The airline route system is important in evaluating critical success factors. Revenue/Cost Control Maximizing revenue through innovative and competitive pricing schemes would prove to be beneficial in attracting customers. Financial Management In order to measure profitability it is essential to consider net-unit revenue. Figure: 6 [Key Success factors of Airline Industry]. [Source: Created by the Author]. References: Adler, N. and Gellman, A., 2012. Strategies for managing risk in a changing aviation environment.Journal of air transport management,21, pp.24-35. Adnh.com. (2017).Overview - Abu Dhabi National Hotels. Ahmad, S.Z. and Saber, H., 2015. Understanding marketing strategies with particular reference to small-and medium-sized hotel businesses in the United Arab Emirates.Tourism and Hospitality Research,15(2), pp.115-129. Daft, J. and Albers, S., 2013. A conceptual framework for measuring airline business model convergence.Journal of Air Transport Management,28, pp.47-54. El-Amrousi, M. and Biln, J., 2013. Abu Dhabi: Global Changes and Competing Visions of Modernity.GSTF Journal of Engineering Technology (JET),2(2), p.84. Emirates. (2018).Government affairs | About us | Emirates. [online] Available at: https://www.emirates.com/english/about-us/government-affairs.aspx [Accessed 1 Jan. 2018]. Henderson, J.C., 2014. Global Gulf cities and tourism: A review of Abu Dhabi, Doha and Dubai.Tourism Recreation Research,39(1), pp.107-114. Jasra, J.M., Hunjra, A.I., Rehman, A.U., Azam, R.I. and Khan, M.A., 2012. Determinants of business success of small and medium enterprises. Kumar, B.R. and Waheed, K.A., 2014. Determinants of dividend policy: Evidence from GCC market.Accounting and Finance Research,4(1), p.17. Uddin, M.H., Halbouni, S. and Raj, M., 2014. Performance of government-linked firms listed on two stock exchanges of the United Arab Emirates: An empirical study.Emerging Markets Finance and Trade,50(sup1), pp.212-236.