Jet Fuel accounts for 40% of Emirates operating costs. Few companies supply jet fuel, with BP and Chevron being Emirates main energy suppliers.
Although this is not the case with Emirates, other airlines form alliances such as Skyteam and Star Alliance, not only to achieve network size economies, but also bargaining power when purchasing fuel or even aircraft.
Intensity of competitive rivalry
The global airline industry consists 2000 airlines, 23,000 aircraft and 3700 airports. With negligible switching costs, budget airlines pose a threat. However, airlines defend themselves by differentiating their services or forming strategic code sharing alliances with other airlines
A strategic partnership that Emirates stroke with Qantas airlines in 2013 gives the airline a distinct advantage over other Middle Eastern airlines. The partnership will see Emirates passenger load factor increase, with 200 destinations in six continents offered to its customers.
What keeps the competition high are the low switching costs from one service provider to another.
Emirates Airlines prices its services slightly above its competitors. This is due to the large costs that the company incurs to differentiate its product from other offerings. High ticket prices coupled with its differentiated travelling services results in an average flight occupancy of 80%.
Its premium pricing strategy targets customers who demand better services over price. Direct flights from Dubai international airport, allows for customer to have less travelling time. Moreover, it offers customers a more comfortable travelling experience with its young fleet. Lastly, Emirates operates to 200 destinations, some of which lack competition. These uncommon routes are less cross price elastic. Emirates business strategy of focusing on direct long haul flights have proven to be successful. Indeed, longer haul flights have proven to be less price elastic as compared to shorter haul flights.
Production Possibility Frontier
Emirates Airlines operates nearer to the PPF of the aviation industry compared to the majority of its competitors. Its asset utilization policy has indeed let the airline benefit from economies of scale. With Dubai’s airport open 24/7, unlike most destination cities which are limited due to noise restrictions, Dubai hosts landing and takeoffs every hour. Emirates Airlines is able to keep its 212 aircraft in the air for an average of 14 hours a day, compared to 11 hours average for its competitors. Asset utilization allows the airline to save millions of dollars annually, with the average cost of resting an aircraft on the ground translating into $150,000 per hour.
Moreover, its modern fleet allows technological advancements to extend its PPF curve outwards. The average age of Emirates fleet is 6 years as compared to the global average of 13 years....