Strategic Management Accounting for Emirates Airlines
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Added on 2022/11/18
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This project report analyzes the impact of operational cost on Emirates Airlines' business performance and suggests accounting tools to revise its operational strategy. The tools include life-cycle costing, target costing, balanced scorecards, and theory of constraints.
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1 STRATEGIC MANAGEMENT ACCOUNTING Executive Summary: Emirates Airline has always been a very significant name in the Global Airlines industry. However the project report intends to analyze how the increase in operational cost is impacting its business performance. Moreover the project will also highlight on using certain accounting tools in revising the operational strategy of the firm to help it sustain its market growth and development.
2 STRATEGIC MANAGEMENT ACCOUNTING Table of Contents Introduction:....................................................................................................................................3 Discussion........................................................................................................................................4 Recommendation and Conclusion...................................................................................................8 References:....................................................................................................................................10
3 STRATEGIC MANAGEMENT ACCOUNTING Introduction: Emirates is basically an airline based in Dubai, United Arab Emirates and began its operation back in the year 1985. This airline is a subsidiary of the Emirates Group which is in turn owned and governed by the Government of Dubai and Investment Corporation of Dubai. Emirates airlines is proclaimed as the largest airline in the Middle East (Redpath, O'Connell & Warnock-Smith, 2017). This airline giant has over 3,600 flights operating every week from its hub which is the Dubai International Airport and has its network coverage stretched across 150 cities in 80 countries across six continents (Squalli, 2014). Emirates is ranked among few such aircraft which have an all-wide-body aircraft flee. Emirates has always maintained a certain brand position in the market be it in terms of its exclusive nature of service or the price strategy that it follows. The brand purposefully aims at being recognized as an airlines service which is superior to others and thus operates at a higher range. It intends to maintain a specific class and status and attribute the same to the passengers who intend to experience what it feels like travelling with Emirates.
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4 STRATEGIC MANAGEMENT ACCOUNTING Discussion Emirates airlines have been significantly facing a downfall in their business revenue due to its high pricing and thus intends to use varied cost control analysis strategies to minimize their revenue loss and gain back their position in the market. Airline Industry being a complete service oriented industryoften suffers huge operational cost as this industry is identified as a labor, capital and technology intensive industry along with varied internal and external factors affecting the business (Whyte & Lohmann, 2015). Emirates Airlines incurs excessive huge operating costs as it heavily invests in new aircrafts. Thus the business heads have identified certain key reasons behind such high operation cost borne by Emirates, that is: excessively huge fuel cost for operating the aircrafts, maintenance cost of the aircrafts, maintenance of huge on- ground and inflight crews ad staffs. Thus the cost analysis and reduction strategies require a very structured approach and calls for implication of various accounting models and tools. Thus the accounting tools and principles which can be employed by the business fir would include: 1.Life- Cycle Costing- In this process the total costs of all the assets that the organization will incur over its life span is take together and analyzed. This tool can be beneficially employed by Emirates in managing its assets which includes its non-physical property, such as patents, or the business’s brand, identity as well as substantial investment in manufacturing the aircraft body and overall reputation of the airline service (Cooper, 2017). Therefore Emirates can efficiently employee this accounting tool for determining which assets actually lends what benefit and then take a sound purchasing decision based on the return on investment (ROI) value (McNulty,De Cieri & Hutchings, 2013) which can also be analyzed through this tool. The most essential element is implementing a cost
5 STRATEGIC MANAGEMENT ACCOUNTING effective strategy is by initiating the process of creating a proper and accurate budget. Thus this accounting tool will help Emirates understanding how much should it spend in its fuel cost, maintenance cost, employee retention cost as well as overall advertising and promotional strategy to sustain the brands reputation along with balancing its revenue figures. 2. Target Costing- this system is used by business firms in analyzing in advance the price points, the product costs and margins that the business firm wants to achieve pertaining to certain product (Hilton & Platt, 2013). This strategy would help the business firm to keep a check on its expenditure so that there is no deficit in their budget. Emirates Airlines continuously experiments and redesigns its aircrafts, ensures top grade service to its customers in terms of the in-flight food and hospitality management which in turn stresses the budget level of the company and finally leads to overall increase in the fair price of the flights. Moreover target costing methods can also be beneficial for Emirates airlines in understanding how price strategy works differently for two different types of passengers. For instance there are two class of travelers who possess different level of price sensitivity.Business travelers and leisure passengers.While business travelers show more flexibility on price but greater compulsion on dates, leisure travelers possess a complete different approach.Leisure traveler are not flexible in their pricing approach but show greater flexibility of their dates. Thus Emirates airlines can target there customers and effectively strategies its costing strategy to draw in maximum revenue without affecting its ticket sales (Alshubaily, 2017). Therefore target costing methods would enable the firm to analyze the customer behavior pattern and strategies its cost accordingly
6 STRATEGIC MANAGEMENT ACCOUNTING 3. Balanced Score Cards-It is a strategic planning and management system which helps the organization is joining all the dots for connecting the bigger picture of the business firm which includes the organization’s mission, vision, and values with its goals and objectives taking into account the key performance indicator of Emirates Airlines. Thus for aligning the organizational goals with the revenue goals Emirates needs to focus on developing cost strategies would specifically address better versatility in addressing the needs of its various consumer base and not just responding to the needs of the luxury class o that the brand comes out relevant for the whole market Source: (Cooper, Ezzamel & Qu, 2017) Theory of Constraints- this theory helps in recognizing small number of pitfalls or constraints which generally prevents any management system in achieving their maximum objective or meeting third desired goals (O'Connor & Rice, 2013). This theory generally helps the firm identify three things also referred as throughput put accounting. The three things include- Throughput which is the actual rate at which money is brought in the business through sales,
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7 STRATEGIC MANAGEMENT ACCOUNTING operational expense is the money that needs to be spent to achieve the expected sales and the third factor is investment which includes all the money that is incorporated by the firm to achieve the business goals. Therefore Emirates Airlines can use this theory to address the problem of excessive hike in their operational pricing which is directly affecting their ticket prices and consecutively the sales. Thus Emirates must focus on adding greater flexibility in its pricing strategy that might include cheaper fares for shorter routes while incorporating premium price policy for its premium customers who demand luxurious and customized services at flights (Gustavo, 2013).
8 STRATEGIC MANAGEMENT ACCOUNTING Recommendation and Conclusion As a strategic advisor it is not sufficient to just understand the constraints that an organization is facing but also strategically address it and suggest useful recommendations to help the business firm overcome the same. Emirates Airlines is undoubtedly recognized as a brand with high consumer loyalty as well as a strong brand image. Specifically addressing the problem of increasing operational cost the best recommended strategy would suggest: Fuel cost reduction Policy- which would specifically focus on optimizing aircraft fleet dispatch, improving on aircraft fuel engines that would enable it to improve their fuel saving performance. Improvement in employee productivity- this would ensure less employee turnover and optimum utilization of resources Substantially reduce aircraft maintenance cost which would require Emirates Airlines to develop an effective supply chain policy and greater emphasize on resource sharing networks which would not only simplify the operating procedure but also significantly help in reducing operational cost. Greater flexibility in market operation will definitely help Emirates battle its high operational cost problem. Another significant problem which has been recognized by the marketers is that Emirates are not competing well on locations provided. Emirates to focus a larger proportion of their budget on flying to new places around the globe. This will take the development of new routes and a higher level of skill from staff to learn the new routes, and take
9 STRATEGIC MANAGEMENT ACCOUNTING negotiation to fly to new airports. However Emirate Airlines undoubtedly enjoys a strategic route advantage, as the company is based in Dubai which is in itself a very attractive tourist holiday destination it can achieve an edge over its competitors like Qatar Airways which is based in Doha or Etihad based in Abu Dhabi.
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10 STRATEGIC MANAGEMENT ACCOUNTING References: Alshubaily, A. (2017). Exploring the key success factors for young airlines. A focus on emirates airlines and its regional competitors' strategy for success. Saudi Journal of Business and Management Studies, 2(1), 30-37. Cooper, D. J., Ezzamel, M., & Qu, S. Q. (2017). Popularizing a management accounting idea: The case of the balanced scorecard. Contemporary Accounting Research, 34(2), 991- 1025. Cooper, R. (2017). Target costing and value engineering. Routledge. Gustavo, N. (2013). Marketing management trends in tourism and hospitality industry: facing the 21st century environment. International Journal of Marketing Studies, 5(3), 13. Hilton, R. W., & Platt, D. E. (2013). Managerial accounting: creating value in a dynamic business environment. McGraw-Hill Education. McNulty, Y., De Cieri, H., & Hutchings, K. (2013). Expatriate return on investment in the Asia Pacific: An empirical study of individual ROI versus corporate ROI. Journal of World Business, 48(2), 209-221. O'Connor, G. C., & Rice, M. P. (2013). New market creation for breakthrough innovations: Enabling and constraining mechanisms. Journal of Product Innovation Management, 30(2), 209-227.
11 STRATEGIC MANAGEMENT ACCOUNTING Redpath, N., O'Connell, J. F., & Warnock-Smith, D. (2017). The strategic impact of airline group diversification: The cases of Emirates and Lufthansa. Journal of Air Transport Management, 64, 121-138. Squalli, J. (2014). Airline passenger traffic openness and the performance of Emirates Airline. The Quarterly Review of Economics and Finance, 54(1), 138-145. Whyte, R., & Lohmann, G. (2015). Low-cost long-haul carriers: A hypothetical analysis of a ‘Kangaroo route’. Case Studies on Transport Policy, 3(2), 159-165.