Air transport plays an extremely important role in todays society, with the industry having a history of over 100 years. The industry is traced back after the First World War in 1919; however, its major expansion began after the Second World War (Arif, Gupta, and Williams, 2013).. The aviation industry has had an enormous impact on the global economy, social and cultural development (Mueller, 2009). The industry employs approximately 58 million people worldwide and about 8.7 million People of these works directly in the aviation industry. In the year of 2013, over 3 billion passengers were carried from one place to another by the worlds airlines (ATAG, 2014).The aviation industry has benefited in several ways including international communication, offering numerous jobs and at the same time, it has founded the technological lives we take part in today.
The world without aviation would be difficult to imagine (Mueller, 2009). The first paid flight took place in 1994, which departed from St. Petersburg, Florida to Tampa, Florida (Soto, 2013). In 1978, the Civil Aeronautics Board took control over the airline industry. Giant companies also took control of the air travel; however, these controls were eliminated by the Airline Deregulation Act of 1978 to increase competition in the industry (Mueller, 2009). During this period, the airline industry faced a messy period in which several airlines collapsed whereas others were able to merge and new ones came into the market. Ticket fees were reduced for the longer and more frequently flown destinations and prices for short destinations rose dramatically. This still did not stop the huge number of passengers from flying every year (Vault.com, 2014).
A hub-and spoke system was created in the 1990s (Davies, 1964). This enabled airlines to operate in one or more cities. Airlines were affected by an economic downtown. When the Cold War ended, support from the government stopped which caused a crisis among the aircraft manufacturers. This led to job losses and a cut in job creations. By the end of the recession, a new success for the airlines was seen and the number of travelers increased. Airlines concentrated on new and better services like electronic ticketing, frequent flyer programs, in flight telephones and video players. Partnerships were formed between U.S. and foreign companies. These details attracted customers even more and gave them further routes to discover (Vault.com, 2014).
Two oil crises, first in 1973 and again in 1979 had a huge impact on the commercial aviation industry (Belobaba, Odoni, and Barnhart, 2015), which was not easy to deal with. The airline industry faced additional hard times when the economy fell into recession in 2001 and the terrorist attacks of September 11, 2001 appeared (Belobaba, Odoni, and Barnhart, 2015). This was when the industry fell into real crisis. Air transport was blocked and new security measures and regulations had to be implemented. Nonetheless, Airlines had to reduce flight capacity and cut schedules and offer low fares to make passengers fly. At the end of 2001, a loss of nearly $ 10 billion was stated and 100,000 of jobs were cut (Belobaba, Odoni, and Barnhart, 2015). With financial help from the Air Transportation Safety and System Stabilization Act, the industry was slowly recovering. Another big issue the industry faced was the increase of fuel prices in 2011 and 2012 making ticket prices rise again and profits down (. In 2013, American Airlines and US Airways merged to put control of passenger into one group (Vault.com, 2014).
1.1.2: The Aggressive Expansion of Emirates, and its Competition with Lufthansa in the German Market.
Air transport has expanded to be a key element of transport, making it the biggest industry in the Middle East. The growth among the German airlines may differ with fastest growth experience in the airline industry. In Germany, airlines like Lufthansa cannot compete with Emirates airline under the same system. Emirates airline competes aggressively with large airlines; Etihad, Lufthansa and Qatar because of its rapid expansion, new aircraft purchases and plush accommodation that has led to their profitability (Banerjee, A., 2013).
Lufthansa Airlines trace their origin from the year 1926 (Redpath, O'Connell, and Warnock-Smith, 2016). Since then, it grew and became the biggest airline in Germany. It has so many subsidiaries and when all these are joined together, it becomes the largest and biggest airline in Europe, that is, in regards to the number of passengers it carries and the size of its fleet.
Unlike Lufthansa, Emirates started small and has dreamed big. It traces its origin back in 1985 and despite it being one of the youngest airlines in the industry; it has grown to become the biggest airline in the Middle East. It operates more than three thousand six hundred (3600) flights weekly and it is currently the fourth biggest airline in regards to the total number of international customers it carries and second biggest airline in regards to freight ton kilometers that it flies (Airlines, 2012).
Lufthansa, as a major competitor of Emirates Airline is competing back because of the fear of Emirates Airline success. There are strong reactions from Lufthansa Airline that calls for the government to limit the strategies that Emirates Airline that are aggressive, for example, accessing the German and French airports that siphons of all passengers from other carrier companies (Chen, Kazman, and Matthes, 2016). It has taken Lufthansa 40 years to build up a 32 Boeing 746s in Germany while emirates already fly 15 A381s, the largest passenger airliners globally. Lufthansa Airline therefore express grudging admiration for Emirates Airline, a global hub as it has not proved to be resilient enough to the financial shocks that have stalled its grand plans.
The Emirates airline is further pressing more with an ambition to expand further, despite the collapse of its financial situation in 2009 (Airlines, 2012). Besides, the Emirates Airline is fully owned by the government and essentially receives government subsidies like shiny new facilities and low tax rates, which has enabled it to develop into one of the worlds largest airline (Airlines, 2012). Its future represents a mass air travel and era when other airlines are struggling to sustain themselves. The company success has also resulted from the development of its routes in other countries that has been neglected by other airlines. The company has a mix of quality service, low cost and operation efficiency, that has brought more glamour in the air travel. Emirates offer cheap economy class tickets, which forced Lufthansa to cut some of it routes to the Middle East (Banerjee, 2013). The Emirates career is therefore referred to as a monster of the Middle East in the 21st Century. These are among the reasons Lufthansa Airline has not been able to compete favorably without jeopardizing its service and quality with Emirates Airline. Emirates Airline has therefore been a formidable player on the international travel and benefited from the weakness of other airlines like Lufthansa.
1.1.3: The Aim and Contribution of the Study
The significance of this research is to determine whether Lufthansa is able to compete with the growing expansion of Emirates Airline in German market. The airline industry will remain stable and new changes may be experience in the market condition through competition between different airline companies. The competition still remains severe and continues increasing. The rivalry between the Emirates airline and Lufthansa has led to particular promotions and price strategies that attract new customers and uphold the customers already existing. Lufthansa needs to change its strategy on the market in order to compete with its Emirates Airline in the long term. Therefore, the main aim of this research study is to assess and analyze the reasons behind the success of Emirates Airlines, and how this has implicated Lufthansa Airlines. The two companies will be analyzed and used as case studies, as they are both biggest and global Airlines in the world.
1.1.4: Thesis Structure
The thesis begins with a brief introduction of the research subject in Chapter I. The chapter looks into the history of aviation industry, the aggressive expansion of Emirates and its competition with Lufthansa in the German Market and the aim and contribution of the study is mentioned. The chapter ends with a short assessment of thesis structure. In Chapter II, the thesis will look into the theoretical background and literature review that will provide a foundational base for the current research study. It will look into the Airline industry, the two aforementioned airlines and some past studies conducted on the same research topic, what their findings have been and their opinions and view on the topic. A look into past works will enable the researcher know gaps that exist in past literatures. Chapter III will focus on the analysis of the Emirates and Lufthansa Airlines by looking into the two main case studies in this thesis, Emirates Airline and Lufthansa Airlines. Their history, models of business, passenger services, and other general information regarding the airlines will be provided. The visions and missions of both companies will be provided and then an analysis of the growth of Emirates Airlines will be presented and its implications for Lufthansa Airlines. The next Chapter will be Chapter IV, which will look into the methods and techniques that have been applied in the research process. It will also explain why the various techniques were selected, how the research process was conducted, and the limitations encountered while carrying out the research. Chapter V will include the findings and Analysis section. This chapter will focus on the analysis of the findings, derived from the questionnaires and other data collection methods. Finally, Chapter VI will make some conclusions founded on the empirical findings and some recommendations and policy inferences are proposed for the Airlines tangled in this sector.
CHAPTER 2.0: LITERATURE REVIEW2.1: Introduction
In this chapter, a review of different topics in the airline industry is represented. Primarily, the current state of the airline industry as stipulated in the IATA Vision 2050 will be provided. The main reason for looking into the report is that governments do play a vital role in the performance of their respective airlines. Finally, the competition between Lufthansa and the Emirates will be covered as well.
2.2: Current State of the Airline Industry
The level of profitability in the airline industry has been very low. Michael Porter, a professor at Harvard University, explains the reason for this situation using the Five Forces Model (Magretta, 2013). . Through this model, he attempts to explain how intense the competition of the airline market is. In his model, he points out to five determinants, which influence the overall performance of the airlines. These determinants are; the threat posed by the new competitors, threat posed by substitute goods and services, the competitive rivalry within the industry, the consumers/customers bargaining power and the suppliers/sellers bargaining power (Magretta, 2013).
The bargaining powers of consumers and those of suppliers are very high in the airline industry. These buyers and suppliers are all downstream and upstream channels in the value chain of the airline company, such as customers and travel agents (downstream) and labor unions, jet fuel suppliers and airports (upstream) (IATA, 2011). Because it is easy for passengers to compare ticket prices, know the cheapest...
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