Lessons in Product Mix Strategy from Two Leading Airlines
How was Qatar Airways better able to weather the pandemic with its highly diversified fleet, and what product mix strategies can your business learn from it
The Middle East, at least in terms of geopolitics, may be best known for its oil and gas reserves. However, it does have another massive competitive advantage hiding in plain sight - location. Being straddled between Europe, Africa, and Asia, the region is not far from any of the three continents and the massive economies and populations that they hold. This locational advantage has been captured best by airlines from the region, with Qatar Airways and Emirates leading the pack. Other major regional players include Etihad, Oman Air, Turkish Airlines, and Saudi Arabian Airlines, amongst others.
The two have risen the ranks from their founding to become some of the best airlines in the world, consistently ranking at the very top across tables, with Qatar ranked 1st overall, with Emirates following closely at 4th for 2022. Massive financial backing has allowed them to hire and buy the best talent and equipment, making them highly desirable gateways to their home cities/countries - Doha, Qatar, and Dubai, UAE, and a hub that connects passengers from Asia to Europe and Africa and vice-versa.
Becoming a logistical behemoth is an achievement both airlines can tout, but the approach they took to get there could not be more different.
Emirates - Large Capacity and Simple (Average fleet age - 8.7 years)
Emirates airline’s business strategy is all about dominating the skies by investing only in 2 large-bodied, long-hauled aircraft models - Airbus’ A380 and Boeing’s 777. Let us take a look at some of the pros and cons of this product mix strategy.
The simple, undiversified fleet can be seen in the table below:
By having only two aircraft models in its fleet, Emirates could save both in terms of training and maintenance costs and through discounts offered by Airbus/Boeing for placing bulk orders. Pilots and staff needed minimal training and could be shared across routes since the aircraft were largely the same.
High risk comes with high rewards. Larger aircraft could be filled up at scale, allowing them to better serve more customers and more routes, regardless of length. Being such a massive customer of both Airbus and Boeing's most premium products has given the airline massive sway in securing a competitive price and adding a clout factor as a customer.
Large aircraft allowed Emirates to craft the finest of airline luxury in terms of interiors, amenities, and service for its First and Business Class passengers, particularly on the A380. On conducting a deeper Airline industry analysis, we can see that this strategy has gone a long way in adding brand value to the airline as a go-to brand for luxury and fine service with near-perfect consistency across routes. In case of emergencies (if one aircraft has a major breakdown and cannot fly), it can just be replaced with another of the same type from its massive reserve fleet with minimal effort, and passengers would not even notice, limiting any tarnishing/questions on the brand.
Disadvantages to Emirates' large and simple strategy became apparent more during times of crisis, most notably the recent COVID-19 pandemic. Having only such large aircraft, the airline was not able to switch to more fuel-efficient models with smaller capacities to cope with lower demand. Losses for 2020-21 were at $5.5Billion, with revenues down 66% from the previous year with a profit of $288Million.
Getting rid of such a large fleet of wide-bodied, long-haul aircraft in favor of smaller, nimbler models due to changes in demand, market trends, or environmental regulations would be a long-drawn and costly affair.
Qatar Airways - Complex and Adaptable (Average fleet age - 7.8 years)
Qatar Airways has used the opposite product mix strategy to Emirates to stay competitive, keeping a highly diversified fleet of wide and narrow-body aircraft.
A breakdown of its fleet diversity can be seen below:
Having such a wide range of aircraft allows for better capacity utilization - routes needing more flights but low capacity can be better served with narrow-bodied, smaller aircraft while leaving longer routes to be served by larger, wide-bodied aircraft.
In times of crisis, as during the pandemic and the 2017 blockade of Qatar by its neighbors, Qatar Airways’ business strategy of having a wide range of aircraft paid off well as the airline was better able to switch to smaller aircraft and operate them at capacity in line with new market realities. It suffered a relatively smaller loss when compared to Emirates for 2020-21, at $ 4.1 billion. It also saw a much faster recovery than Emirates, with a record profit of $1.5 billion this year (highest ever for a state-owned carrier), although this could also, in part, be due to the upcoming FIFA World Cup in Qatar later this year.
As the world becomes increasingly volatile and environmentally conscious, Qatar Airways may benefit by having nimbler, more fuel-efficient aircraft that can be pushed over larger, fuel-guzzling models.
Having such a diverse fleet has meant added costs for maintenance, parts, and pilot/staff training since every aircraft would need a different set of skills and preparation.
The airline would not enjoy discounts on bulk orders of the same models from Airbus and Boeing as Emirates did since the order quantity of each model is relatively smaller.
Aircraft of the same type might be much harder to get on short notice - in case an A380 for a long-haul flight suffers a breakdown, it might not be as easy to switch out with an A320.
Simplicity works best for a more niche, targeted customer base - The airline industry analysis and especially that of Emirates, is a testament to this. One such example is Apple. It offers a limited number of smartphones to the top of the pyramid and thereby maintains its premium exclusivity while minimizing the cost of R&D and marketing on multiple SKUs. A similar strategy was employed by Kia Motors when it entered India with a very limited SKU range but so specifically targeted that the brand became an immediate bestseller.
Having a wider product mix can help a business reduce risk and scale faster, albeit at the higher cost of marketing, maintenance, and developing more products. It does, however, make the business less risky by spreading bets over a larger customer base. Samsung offers multiple smartphones right, from affordable to ultra-premium, a strategy that has allowed it to dominate across segments and remain the world’s largest smartphone seller. Lenovo offers a spectrum of laptops across customer segments, allowing it to become the world’s largest PC maker.
Keep track of what similar businesses that might not be your direct competitors are doing. Qatar has been able to take operational lessons from Singapore Airlines and Turkish Airlines, both being indirect competitors but operators of similarly large and diverse fleets of narrow and wide-bodied aircraft.
Regardless of whether you prefer a narrower or a wider range of offerings, focus on customer service and satisfaction to remain desirable both in good times and bad. Emirates may have taken a beating during the pandemic but has seen losses narrow rapidly as the pandemic has eased (down to a loss of $ 1.1 billion this year), largely due to its stellar reputation and brand name. A great product is the best buoyancy vest!
In conclusion, choosing to go wide or go niche must be a carefully thought out product mix strategy that should go hand-in-hand with the end goal of delighting customers. Regardless of which strategy you choose, your brand can be a winner as long as your product delights customers.