Etihad PESTEL Analysis | Business Teacher
Etihad is an international airline located in Abu Dhabi, operating international routes only, hence the airline is mostly exposed to international political developments. The Trump administration’s ban to restrict travel for the citizens of six Muslim countries associated with an increased threat of terror attacks is a political decision that may limit airlines’ growth located in the affected region (Kamel and El-Din, 2017). Reportedly, due to the sudden drop in load factors on Gulf airlines’ flights to the US, airlines decided to reduce the frequency of US flights and to discontinue certain routes (Bhaskara, 2017). US and European airlines continue their strong lobbying activities to restrict middle eastern airlines’ access to their markets (Zhang, 2016).
International airlines are exposed to changes in the performance of the global economy, so any development in the macro environment changes the demand for air travel (IATA, 2017). Since the 2007/08 financial crisis, the global economy has recovered and was able to exhibit a continuous moderate growth (with positive repercussions for the airline industry), however, the unpredictability of emerging markets’ performance (such as Asia and Africa) poses an economic risks for Gulf airlines’ earnings (Walker, 2017). The drop in the price of crude oil, on one hand, helped many airlines to reduce their operational expenses, yet on the other, for Gulf airlines, this also meant that the demand for premium travel to oil rich regions declined (Reuters, 2016).
In addition to the economic recovery after the 2007/08 financial crisis, the growth of the middle class (and the rapid rate of population growth) in emerging regions of the world has also contributed to the positive change in the demand for air travel (Forbes, 2016). As more people are able to afford to travel in emerging regions (such as Africa and Asia) airlines are able to grow by focusing on these lucrative markets. Another social development worth considering is Generation Y travellers, carrying a high potential for airlines as past generations’ (e.g. baby boomers) inclination to travel is expected to decrease in the future (Machado, 2014). Generation Y customers place a strong importance on travelling so while generation Y customers are not yet the largest market for airlines, developing such services and business processes that are closely meeting this segment’s needs is going to be a critical success factor for international airlines (Bulldog Reporter, 2013).
The airline industry has witnessed rapid technological changes pertaining to the methods employed to reach out to their target audience and to discover business patterns to optimise service development and delivery (Accenture, 2017). As more customers are using online platforms to manage their bookings and to engage with (airline) brands, industry players have no alternative to embracing digital technology in order to follow changing customer expectations (e.g. mobile applications, customised services, flexibility… etc.) (Accenture, 2017). Regarding aircraft technology, for the foreseeable future, jet engine technology is not expected to witness substantial changes, although fuel efficiency improvements remain the top priority for manufacturers and airlines as well (Martin, 2016).
The airline industry’s carbon footprint has been gradually growing due to the increased demand for air travel (Vidal, 2016). Manufacturers are investing a significant amount of resources into R&D programmes to develop alternatives to fossil fuel engines; NASA (2017) claims that the use of biofuel could reduce the airline industry’s pollution by 50 to 70 percent in the near future, as the technology matures. Changes in the global climate could bring about unique challenges for airline operations (such as inclement weather) (Wichter, 2017).
The Trump’s administration decision to mitigate the escalating terror threat has brought about significant legal challenges for middle eastern airlines (Peters, 2017). The travel ban on certain Muslim countries’ citizens is a legal act that reduced middle eastern airlines’ access to US markets (Peters, 2017). Whether or not further actions will be pursued to covertly limit middle eastern airlines access to US and/or EU markets is uncertain. As an ongoing process, European and American airlines have been tirelessly lobbying their governments to reduce the reportedly state-subsidised middle eastern airlines access to their markets, so far with limited success (Ostrower, 2017).
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- NASA (2017). NASA study confirms biofuels reduce jet engine pollution. [online] Climate.nasa.gov. Available at: https://climate.nasa.gov/news/2580/nasa-study-confirms-biofuels-reduce-jet-engine-pollution/ [Accessed 25 Jul. 2017].
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- The National. (2016). Etihad launches legal action on airberlin codesharing. [online] Available at: https://www.thenational.ae/business/etihad-launches-legal-action-on-airberlin-codesharing-1.205209 [Accessed 25 Jul. 2017].
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- Vidal, J. (2016). Can the aviation industry finally clean up its emissions?. [online] the Guardian. Available at: https://www.theguardian.com/environment/2016/sep/27/can-the-aviation-industry-finally-clean-up-its-emissions [Accessed 25 Jul. 2017].
- Walker, K. (2017). Uncertain Times: The global airline industry’s 2017 watch points. [online] Atwonline.com. Available at: http://atwonline.com/blog/uncertain-times-global-airline-industry-s-2017-watch-points [Accessed 25 Jul. 2017].
- Wichter, Z. (2017). Too Hot to Fly? Climate Change May Take a Toll on Air Travel. [online] Nytimes.com. Available at: https://www.nytimes.com/2017/06/20/business/flying-climate-change.html?mcubz=2 [Accessed 25 Jul. 2017].
- Zhang, B. (2016). A nasty rivalry between US and Middle Eastern airlines has been all for naught. [online] Nordic.businessinsider.com. Available at: http://nordic.businessinsider.com/open-skies-american-delta-united-etihad-qatar-emirates-2016-6/ [Accessed 25 Jul. 2017].