Moving Chinas Air Transport Industry in a New

Direction

Group C
2015

October 1,

INDUSTRY & HNA | Timeline

1. Hainan Provincial
airline Company
2. Listing on Shanghai
Stock Exchange
3. Acquisition of
Changan, China Xinhua,
Shanxi Airline

CAAC was
formed
under the
direction of
National Air
Force

194
9

1988 - 2002

198
0198
5
1. CAAC was
transferred to
State Council
2. CAAC emerged
as an international
airline operator
3. Emergence of
few private airlines
Shenzhen &
Shanghai Airlines

1. CAAC
reorganization
2.
Consolidation
of airline
companies.
3. Air China,
CSA & CEA

200
2

1.Acquisition of
Hong Kong Airlines
& Hong Kong
Express Airways
2. Launched Lucky
Air

2006

2004

Establishment
of Grand China
Air

200
5
1. CAAC
labialized the
industry
allowing for
more privately
funded airline
to enter the
market
2. Okay
Airways &
Spring Air

1. CAAC tighten
the control over
the approval of
new airlines
2. High fuel prices
impact the world
airline industry

200
7200
8
200
8
0nw
ard
s
Open skies
agreement
with U.S

INDUSTRY | Overview

The Structures in Chinese Aviation Industry

in 2008

Highly regulated by the government

Big Three was dominant in domestic market

China was going to be the world's most desired

destination for international tourists

China was going to be the fourth biggest source of

international tourists by 2020

INDUSTRY | Overview
Segment

National
Flagship
Carrier
(2) Hub in
Beijing
(3) Best position
to grow its
international
routes
(1)Hub in
Guangzhou
(2) Domestic
route: Served
most of the
economically
developing
cities in
Southern
China
(1)

(3)

Nu
mbe
r of
Airc
raft

R
ev
e
n
u
e
(2
0
0
7)

Se
rvi
ce
Of
er
ed

220

US
$7
.3
bil
lio
n

Low
Qu
alit
y

332

US
$7
.9
bill
ion

Low
Qu
alit
y

Industry | Ecosystem Mapping

suppliers
Customers
competitors
Intermediar
ies
Publics

ANALYSIS | Internal Environment

Objecti
ve

Yes

LOC
ALYES

YES

NO

YES

NO

Managem
ent

YES

NO

Yes (Not
very high)

Yes (Low)

Human
Resource

Yes (Not
very high)

No

Brand
Equity
Financial
factors
Technologi
cal
Capabilitie

GLOB
AL

ANALYSIS |
Forces

External Environment-Porters

CAAC has strong

control
(2) Private airlines
emerge- Shenzhen
and Shanghai Airlines
(3) The government has
gradually liberalized
industry
(1)

Substitute Low

New Entrant
-High

(1) Low

to Medium for
domestic route.
Substitutes - cars, bus,
trains
(2) Low for international
route
Competito
rs

Customers
-High

Suppliers High

(1) The

(1) High

Price and Service

Sensitivity
(2) Low Switching Cost
1) Highly
regulated market
2) Few players
but most of them
are state owned
3) Few private
players
4) In future
market
competitiveness
will increase

government
monopolizes CNAF and
controls fuel price
(2) Boeing and Airbus
form almost duopoly

ANALYSIS |
Analysis

External Environment-PEST

Highly Regulated Aviation

sector
Big 3 airlines dominating the
industry are state owned
Provincial governments are
eager to help private players
Government is opening up
market slowly
Companies need to take
social steps
to strengthen their status
Tourism is going up and
international crowd is
coming in., while airline
companies are not
upgraded to suit different
tastes
The sector is still
dominated by two
main players Boeing &
Airbus

Politic
al
Econo
mic
Sociocultural
Demograp
hic

Chinas GDP is growing at

8-10%
FDI inflow is huge around
USD 50 billion
Purchasing power in
urban areas including tier
2 and tier 3 cities is
growing

Technologi
cal
Internatio
nal

Population is around 2
billion and growing at a fast
rate
High urban migrant
population
Expat population in tier 1
& tier 2 cities
WTO agreement
Open Skies
Pressure from
international community
to open up the economy
Influence in South-East
Asia

ANALYSIS | Competitive Advantage

STRATEGIC EXPANSION

SERVICE LEADER

HNA provided better quality airline

service
that
was
renowned
internationally, and which made it a
world class airline
HNA developed
services

airports

and

travel

CORPORATE
CULTURE

HNA had a unique

corporate culture that
combined both Chinese
heritage and western
management

HNA was not competing with Big Three

domestically and internationally

HNA was expanding in 2nd and 3rd tier

counties and spoke cities developing
airports and travel services

RELATIONSHIP
WITH
HNA worked closely with
GOVERNMENT
central
and
local
government officials and
demonstrated
positive
results and growth

HNA improved Chinas

economy by depending
solely on private and
public investment

TRAINING
PROGRAMS

HNA focused on modern

management practices

HNA committed to training

its
staff
in
global
management,
strategy,
and service

ANALYSIS | The Issue

International
Competition

Rising
Cost

Governm
ent

ANALYSIS | Recommendation

Develop connectivity of more provinces, tier 2 and tier 3, avoiding big 3, by

getting government support and increase new routes
Keep the social aspect going
The HNA group companies are complementing each other. Only aircraft
maintenance and catering are not a part of it and these can be considered
to keep HNA Group even more vertically integrated.

ANALYSIS | Recommendation
Focus on differentiating from Big Three through quality and capture the incoming international
population. Upgrade the service quality to fight the competition that will come after Open
skies and other liberalization agreements.
Expand charter flights division. number of MNCs and epats increasing.
Alliance with international carriers for domestic transfers in china and vice versa for
International strategy
Brand equity is medium in Southeast Asia. Try to increase the dominance by increasing more
routes. Acquisition of small players can be an option.