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Strategic Direction

Emirates, American and Embraer: why are these three air industry companies beating the odds?: How two majors and
one minor put culture at heart of success
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, (2006),"Emirates, American and Embraer: why are these three air industry companies beating the odds?", Strategic Direction, Vol. 22
Iss 6 pp. 29 - 32
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(2012),"The remarkable record of Emirate Airlines: Product differentiation and cost control deliver exceptional performance", Strategic
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Sundaram Nataraja, Abdulrahman Al-Aali, (2011),"The exceptional performance strategies of Emirate Airlines", Competitiveness Review,
Vol. 21 Iss 5 pp. 471-486 http://dx.doi.org/10.1108/10595421111171966
Abdel Moneim M.B. Ahmed, (2008),"Create superior customer values: new direction for Middle Eastern airlines", Education, Business and
Society: Contemporary Middle Eastern Issues, Vol. 1 Iss 4 pp. 287-299 http://dx.doi.org/10.1108/17537980810930009

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Emirates, American and Embraer: why are
these three air industry companies beating
the odds?
How two majors and one minor put culture at heart of success

magine taking a long haul flight from Los Angeles to Dubai, via a short stopover in Brazil

I for trips to Sao Paulo and Brasilia. Who would you fly with? What airplanes would you
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travel in? What could you learn from the carriers and manufacturers from their business
strategies? Given the well-publicized problems of the global air industry in the first five years
of the new millennium, not much you might think. However despite the massive challenges
that have daunted many in that business, some have not only overcome them, but have
flourished in this period thanks to a mix of effective management styles and the harnessing
cultural and geographical benefits.

American adventure
Let us say that we begin our trip from LA with American Airlines the worlds biggest
operator with 80,000 employees and a turnover of over $17bn, it has weathered the storms of
high oil prices, SARS, 9/11 and the Iraq conflict over the past few years much better than
most. It has also been at the forefront of air industry innovations such as frequent flyer miles
and airline alliances; however, more recently American Airlines found itself having to
innovate in the area of employee relations.
Recent well publicized cost cutting with staff was followed by well publicized raises and
bonuses for senior management. According to Tahmincioglu, a potentially explosive
confrontation between staff and management was averted thanks to a change of CEO, and a
change of culture that Gerard Arpey brought with him. A new openness and inclusivity was
allied to the removal of the more ostentatious symbols of management, even including the
bosss annual rise. More meetings with union reps and regional offices and fewer
adornments at company HQ led to a new culture of involvement and trust at all levels, thus
heading off the potential turbulence caused by the big bonus headlines.
Innovations such as pro-actively inviting its vast pool of employees to contribute money
saving ideas has kept the bottom line stable, while its use of a third party facilitator to enable
full, frank and frequent contact between management, unions and other employee
representatives has according to Tahmincioglu proved remarkably successful.
While competitors such as US Airways and Delta have seen near disastrous results,
American has managed to hold on to its Number One status, steering a particularly skilful
course in troubled times for the air industry.

Carnival atmosphere
After arriving in Rio de Janeiro on our fantastical flight of fancy, we take a short hop to Sao
Paulo. We remark at the comfort and space in our small plane, and wonder what number
Boeing it might be. Of course we would be wrong, as small planes are somewhere where

DOI 10.1108/02580540610665507 VOL. 22 NO. 6 2006, pp. 29-32, Q Emerald Group Publishing Limited, ISSN 0258-0543 j STRATEGIC DIRECTION j PAGE 29
It has also been at the forefront of air industry innovations
such as frequent flyer miles and airline alliances; however,
more recently American Airlines found itself having to
innovate in the area of employee relations.

even the Boeings of this world fear to tread (so far). No, we would be flying in a plane
manufactured right there in Brazil by one of the fastest growing airplane manufacturers in the
world Embraer.
The chief rival to Bombardier in the 50-120 seat class of commercial airplane, Embraer (short
for Empresa Brasilia de Aeronautica) was, according to Mitchell, a manufacturer in serious
trouble a decade ago. Then, following the appointment of charismatic CEO Mauricio
Botelho, a new management style was employed which was far more open and transparent
than before openness and transparency akin to the successful strategy utilized years later
at American Airlines.
Added to this new style was what Mitchell describes as a massive bet on one single
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business strategy to put all the companys efforts into smaller sized 50-seater plane.
Seeing an opportunity in a troubled market, the company developed the small plane that
would benefit hugely from the yet unforeseen rocketing of the so-called cheap thrills or
budget airlines. It would also benefit from growth in the regional flights market and would
see its fortunes grow so that it challenged its previously dominant competitor.

Such a strategy goes against established theory, and the put all your eggs in one basket
approach could have proved disastrous for Embraer. However, other changes made within
the company have inured it to potential crises. Pay deals have been agreed across the whole
company and not management and employees separately, and its openness with its
employees has engendered a much more productive atmosphere, with both sides of the
management divide interacting on a more frequent basis. This is typified by the CEO, who
according to Mitchell had humble beginnings himself, working as a baggage handler at the
start of his career in the air industry.

Embraer has also benefited from the culture it has developed in Brazil is keen to throw off
the shackles of a poor reputation globally, and the company received much support from
central government. The country also offers manufacturers lower labor costs than many
competitors in North America or Europe, enabling it to often undercut other companies.
The future for the company also looks bright: as the budget airlines and regional flights grow,
it has also diversified into the military aircraft market and is looking to gatecrash the lucrative
arena of private jets. Unsurprisingly the Brazilian government, which has a significant share
in the business, is proud of Embraers achievements and should ensure a possible takeover
is unlikely, safeguarding what should be a soft landing when the incumbent CEO hangs up
his flying goggles.

Regal performance
For the final leg of our flight, we are taking one of the established leaders in the long haul
flight game: Emirates. Winner of numerous industry and consumer awards, Emirates has
gone from a couple of second hand planes in the mid-80s to a company that Sull, Ghoshal
and Monteiro report can sign off the single most expensive order of airplanes in history at a
cool $19 billion.
For a carrier that has been in the business just 20 years, its fast growth is perhaps not too
surprising, as it has quickly found a profitable niche among the true international jet set of
long haul carriers. However what is surprising it its recent growth against the backdrop of

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PAGE 30 STRATEGIC DIRECTION VOL. 22 NO. 6 2006
global crises such as high oil prices and 9/11 which have seriously knocked wind out of other
carriers sails. Detailed analysis such as that included in the Sull et al. report shows that it has
actively taken advantage of several key areas where it exerts an edge over its competitors at
just the time they are feeling weak:
B Geography Emirates base in Dubai is ideally placed for long haul traffic from Europe to
Asia and Australasia.
B Strategy unlike its competitors, Emirates has preferred to fly solo and not join in any of
the air alliances that other carriers belong to, such as Americans AAdvantage and
Singapore Airlines Star Alliance.
B Management the company says its multi-cultural staff roster enables it to draw on many
different attitudes and viewpoints through a transparent and open style of management.
B Costs it has been estimated that Emirates has the lowest cost per passenger mile than
any other major operator.
B Independence the family-owned business benefits from many of the aspects of such
enterprises such as quick decision-making and loyal staff.
B Honeypot effect Dubai is reckoned by some to be the fastest growing city in the
world, which will soon boast the worlds tallest building in the shape of the Burj Dubai. Not
only does Dubai benefit from its location for transit passengers, but increasingly it is
becoming a destination of choice in its won right for business and leisure travelers.
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The final point is perhaps the most instructive as it helps unearth the drive that has helped
Emirates grow so exceptionally. The culture that surrounds big business in Dubai enables a
fast-thinking, forward-looking company such as Emirates to put into action quickly what it
decides to do strategically, which may not be the case for carriers based elsewhere.

It is the culture, stupid


It is tempting to find some convenient link that brings these three examples of rare air
industry success together, however the real answer is far more complicated. What is certain
is that there are certain factors that have facilitated this success. The most evident candidate
is the background culture that surrounds these companies the strong work ethic,
management maturity and strong unions have helped American Airlines see their way out of
a potentially large crisis; the cheap labor and enterprising culture in Brazil helped Embraer
reach the top of its field; and strong governmental support in alliance with geographical
benefits assisted Emirates in its surge into the top echelon of global airline operators.
As we land in Dubai on our imaginary long haul flight, we can reflect that while these factors
may have little to do with successful management after all, it is a happy accident of
location in all cases managers have been self-aware enough to exploit this situation and
develop competitive advantages out of them.

Comment
This review is based on three articles looking at companies in the air industry. Back from the
brink by Eve Tahmincioglu looks at how American Airlines recovered from announcing large
pay bonuses after severe cost cutting measures against a backdrop of an ailing airline
industry.

Such a strategy goes against established theory, and the put


all your eggs in one basket approach could have proved
disastrous for Embraer. However, other changes made within
the company have inured it to potential crises.

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VOL. 22 NO. 6 2006 STRATEGIC DIRECTION PAGE 31
The little aircraft company that could by Russ Mitchell analyses how a small manufacturer
grew rapidly over a ten year period to challenge the establishment in its niche of the aircraft
industry.
The hub of the world by Donald N. Sull, Sumantra Ghoshal and Felipe Monteiro attempts to
Keywords: summarize the achievement of Emirates, and maps out its future on the back of a huge
Airlines, recent order for new planes.
Aircraft industry,
Manufacturing systems, These articles offer particularly good summaries of the human relations management behind
Management strategy, the companies success, and also deal with effecting cross-cultural management and
Cross-cultural management benchmarking issues.

References
Mitchell, R. (2005), The little aircraft company that could, Fortune, 11 July, pp. 64-9, ISSN: 0738-5587.

Sull, D.N., Ghoshal, S. and Monteiro, F. (2005), The hub of the world, Business Strategy Review,
Spring, pp. 35-40, ISSN: 0955-6419.

Tahmincioglu, E. (2004), Back from the brink, Workforce Management, December, pp. 33-7,
ISSN: 1092-8332.
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