Air China SWOT Analysis and Strategic Advantages

6019 words (24 pages) Essay in Business

15/04/19 Business Reference this

Disclaimer: This work has been submitted by a student. This is not an example of the work produced by our Essay Writing Service. You can view samples of our professional work here.

Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.

Air China’s SWOT Analysis and Strategic advantages in the Chinese market

Abstract

Air China Ltd. is one of the largest carriers in the People’s Republic of China. They are a very well-known airline. In the airline industry, there is a lot of rivalry among different carriers. Air China Ltd. was a recipient of the 2017 “Most Popular Chinese Airline.”  (Air China Ltd, 2017) Air China has been increasing routes domestically and internationally connecting China to the rest of the world. This study is to analyze Air China Ltd.’s business and strategic position in the airline industry. Air China strives to become a world-class airline and has created strategies such as expanding routes due to the growing number of Chinese travelers, joining the Star Alliance to better serve its loyal customers as well as subsidiary divisions of smaller airlines to boost revenue. The study will conduct a SWOT analysis, strengths such as its massive route expansion, and the Star Alliance, and financial ratios. Weaknesses are negative reviews from passengers, as well as racial profiling will be covered along with financial ratios of the company. Opportunities such as growing Chinese travelers will create an opportunity for Air China to target them and create more routes, as well as bilateral trades with the United States. Threats such as flight delays and unruly passengers negatively affect the airline, lastly, terrorist attacks have been a problem causing fewer people to travel due to the sense of security. The Chinese market is very competitive as Air China faces competition with local Chinese carriers China Eastern Airlines and China Southern. The airline has the better market share in its own hub airport of Beijing, but other airports and international destinations other airlines have the higher market share. Although it is tough, a huge carrier well known to the world will strive to become one of the best Chinese carriers in the world.

Introduction

Traveling outside of China for Chinese citizens twenty years ago were limited to the wealthy elite, and government officials, as today the Chinese airline market is growing tremendously. According to the Civil Aviation Administration of China, there is a total of 487 million domestic and international flights made in 2016. (Pham, 2017) China has a large population of 1.4 billion, and China is expected to surpass the U.S. in the airline market by 2030. (Pham, 2017) Air China is one of the main carriers in the People’s Republic of China. Air China has successfully expanded their market to connect to the rest of the world and maximizing their profit by taking advantage of China’s growing population of travelers. This is a strategic advantage in the Chinese market, and internationally. It is crucial for Air China to maximize its opportunities and minimize its threats in the airline industry, and finally, understand the strengths and weaknesses of Air China. Understanding these factors will not only make Air China one of the best airlines in the world, it will improve their strategic management.

Air China Ltd was founded in 1988. The company was known as Air China International Corporation. In October 2002, China’s central government implemented a reform plan, which caused the airlines at that time to merge. Air China International and China Southwest Airlines merged. On September 30, 2004, the company was rebranded as Air China Limited. (Air China Ltd., 2017) Soon the airline company became a publicly traded stock in Hong Kong’s Stock Exchange as well as London’s. (Air China Ltd., 2017) Air China is in the People’s Republic of China (PRC) and its major hub is in Beijing Capital International Airport. On December 15, 2004, Air China signed an agreement to become part of the Star Alliance, one of the largest airline network in the world. Air China is “China’s only national carrier.” They are the only carrier in China designated to transport the President and high-level government officials to visit other countries. (Air China Ltd., 2017) Air China currently provides its air transportation services to 39 countries and regions, with 66 international cities, 3 regional cities, and 115 domestic cities. With the help of Star Alliance, Air China expands to 1,307 destinations in 191 countries. (Air China Ltd., 2017)

Purpose

The purpose of this study is to conduct a SWOT analysis of Air China Ltd. This will determine the strategic advantages the airline has in the airline industry and provide suggestions to improve the company.

Specific Objectives

This study will go over these specific objectives.

  • Examine the strengths and weaknesses of Air China
  • Identify the opportunities and threats of Air China
  • Contributions Air China made to improve the Chinese airline market
  • Comparison of Air China and its competitors in China

SWOT Analysis – (S)trengths

Air China’s massive route expansion

 Air China is an international airline, it must open routes to get its name out to the outside world. Air China has done a great job at expanding routes to the United States, Europe, Oceania, and many parts of the world. As stated on the Air China website, the airline provides services to 1,330 airports in 193 countries (Air China Ltd., 2017) The mission of Air China is to connect China to the world. The hub is Air China is Beijing International Airport. Air China has created routes from bigger Chinese cities such as Shenzhen, Chengdu, and Shanghai. On December 11th, 2017 Air China announced its first transpacific route from the Southern city of Shenzhen to the U.S city of Seattle-Tacoma. (Air China Expands, 2017) Another flight mentioned Air China will start service from Chengdu International airport to London in May 2018. These are ways Air China is striving to bring more Chinese passengers to more international countries, as well as foreigners to visit China from the comfort of their own airport.  (Cantle, 2018) According to La Croix and Wolff (1995), the expansion of air transportation is extremely important and will benefit Asia’s export economy. In the case of Air China, not only bringing passengers to international countries, the expansion of routes will also help the transport of goods for sale to another country. This had really changed the Chinese airline market as goods are traded through the Chinese market with other countries.

Airline Alliance

Air China is part of the well-known Star Alliance. The Star Alliance is a partnership between the 28 airlines. The Star Alliance serves 191 countries, with 1,300 airports served. (Star Alliance, 2018) The total combined total for current Star Alliance member airlines is a grand total of 164.04 billion U.S dollars, with annual passengers of 725.51 million. (Star Alliance, 2018) Air China uses Phoenix Miles. Being a part of the Star Alliance passengers from Air China can earn mileage points from flying their partner airlines such as United Airlines, Air Canada. Passengers can utilize priority boarding, exclusive lounge access and other amenities offered. (Air China, 2018) The advantage of having the Star Alliance is to expand routes to more destinations. Some benefits Air China can get out of this is sharing other airlines check-in and ticketing counters, and sharing lounges, and baggage facilities. (Star Alliance, 2018) According to Casanueva, Gallego, Castro, & Sancho (2013), the mobilization of destinations among partner airlines within an alliance has positive as well as significant influence on the performance of each airline company. As stated above, having an airline alliance the airline can use their partner airline’s resources. According to Zou, and Chen (2016) Code sharing is another strength of alliances. Airlines can use other partners major hub-and-spoke. With the benefit of taking advantage of hub-and-spokes airlines can expand globally without using its own resources. Airlines feed traffic throughout spoke cities to its hub cities, using hub-and-spoke networks airlines are profiting through connections. An example would be Beijing to Los Angeles, the passenger will need to transfer to Las Vegas. As United Airlines is part of the Star Alliance, they can pick up Air China’s passenger and transfer their bags over to the next flight and utilize that codeshare agreement. That way both airlines benefit.           

Higher profitability ratios than the competition

Air China has higher profitability ratios than its competition China Eastern Airlines and China Southern Airlines. According to Mergent Online Air China has been improving in ROA% where it started off at 1.84% in 2014, and later increased to 3.34% in 2015. Although in 2016 it dropped by 0.24% they came a long way from 1.84% in 2014. In general ROE, and ROI has been increasing over the past 3 years. Air China is one of the largest airline companies in Mainland China, from looking at their financial ratios Air China is a profitable airline. 

Higher Asset Management than the competition

According to Mergent Online, Air China is doing well managing its assets than its competition, from examining China Eastern Airlines and China Southern Airlines their asset management is a bit low. Air China is the dominant carrier in Mainland China. An example would be their Cash & Equivalents Turnover, in the year 2014 Air China started off at 8.3, in 2015 at 12.43 then at 2016 it increased to 15.49. It increased a lot. This shows that Air China can quickly turn its cash and equivalents quickly.

SWOT Analysis – (W)eakness

Low rating scores

One of the weaknesses of Air China is the low rated consumer scores. According to SkyTrax (n,d), Air China is given a 3-star rating out of 5. The scores were weighted from categories such as Airport services, Lounge, Onboard product, and Cabin Crew service. From reviewing the scores on SkyTrax, the airline seems to fail on the following categories: Staff assistance on arrival given, transfer service assistance, washroom amenities, selection of wine and beverages, service and service hospitality, interaction with customers, lastly language skills. A lot of the issues were related to customer service, a passenger had posted reviews describing their unpleasant experience inflight regarding the cabin crew had little to no service on board, and lack of English speaking skills. According to Chow (2014), customer expectations of the service provider is a huge factor that will affect customer satisfaction.  Customers will often state their dissatisfaction and share it with the public with social media such as Yelp, TripAdvisor. And SkyTrax. Having negative reviews will affect prospective customers that may not fly with the airline due to the poor customer service. According to Wang, Fu, Zhou (2013), North American airlines strongly rely on passenger service as 90% of their revenue. The Americans value customer service, airlines such as Delta, American, Southwest are so successful today. Customer service is a must in any business if customers are dissatisfied with their experience they will not return. Air China will need to improve their customer service.

Racism Issue

On September 2016, on a London bound flight, an in-flight magazine was given out to passenger’s onboard showcasing information about London and its attractions, cuisines, culture, and tips while traveling abroad. A CNBC reporter was onboard that flight, reading a magazine and she stumbled into a very racist tip regarding areas with large populations of ethnic minorities. (Mullen, Jiang, 2016) The statement was stated that London was a safe place to travel, but visitors must take extra precautions when visiting areas that are filled with minorities such as Indians, Pakistanis, and Black people. The airline suggested visitors not to venture outside alone and suggested females be accompanied by another person as these ethnic groups are dangerous. According to Diebelius, Davis, and Newling (2016), the racist statement was interpreted by citizens of London that their city was a bad place to visit, locations such as London are very popular destinations among tourists but having a negative statement towards minorities is unacceptable. This also puts negative tensions against Air China because this is what they believe in. Citizens of London expressed thoughts of hate to the Chinese carrier and did not want the carrier to fly to London. Citizens also vouched to welcome Chinese tourists to areas where there are a lot of diverse communities with open arms. (Diebelius et Al. 2016) The article was then posted on the social media platform of Twitter, where a lot of users expressed hate among the Chinese airline. Air China, apologized to the public due to an editorial error made by its publishing company and withdrew all its in-flight magazines. The United Kingdom is a major market area for the Chinese, as in the year 2015, the increasing number of Chinese visitors rose by 46% to a total number of 270,000 arrivals. (Air China Under Fire, 2016) Editorial mistakes like this can cause tensions with the United Kingdom and may want to prevent Chinese tourists from entering their country. This is a major weakness of Air China, as passengers that rode the airline which was from those ethnic backgrounds may want to avoid the airline due to the fact they were identified as “bad people”.

Low-Interest Coverage

Out of all airlines, Air China has the least in the category interest coverage. China Eastern Airlines started off in 2014 at 2.41 and then gradually increased to 956.19 in 2016. That is a substantial increase. China Southern Airlines had the most among the three from the year 2014 at 2.47 and increasing to 1,216.18 in 2016. That is a huge increase from its competitors, as Air China will need to work harder on its low-interest coverage.

SWOT Analysis – (O)pportunities

More Chinese travelers

According to Peck (2017), The growing number of Chinese travelers are increasing every year. Nationals of Mainland China went on 136.8 trips in 2017. Chinese tourists have spent about $292 billion dollars abroad. They have spent more than the Americans and Europeans while traveling abroad. (Peck, 2017) As more Chinese travelers are willing to travel abroad, according to Zhang, Yang, Wang. & Zhang (2013) the Chinese airline industry experienced tremendous growth. Air Passenger traffic in China has grown more than 17% during the past 30 years. China is now the second largest in air transport market since 2005. It is expected within the next 20 years the rate will slowly increase. (Zhang, et al. 2013) China indeed becomes a major economic powerhouse with large middle-class people that can travel overseas. (Pan et al. 2016) Since the growing number of Chinese nationals are increasing Air China will always be in business, as there are customers willing to travel outside of their country.

China to boost more economic trade with the United States

The Chinese trading industry is growing incredibly. According to Geng, Sarkis, & Ulgiati (2016), China is the largest exporter and known as the second largest importer in the world. China produces a lot of industrial goods used for buildings, and mechanical and electrical goods as well as high-tech goods. The USA is known as the world’s largest economy, which is made up by foreign trades. The gross value of China’s foreign trade in 2001 had increased from 1.32 trillion USD to 8.23 trillion USD in the year 2012. (Geng et al, 2016) This is an increasing trend as China exports more items over to the USA than the import items. From the years 1993 to 2008, there was a 300% increase in trades as shown in the table below. Today, Beijing and the U.S has made an agreement for more American imports to China. President Xi Jinping and President Donald Trump created a $350 billion-dollar trade. The U.S will trade liquefied natural gas to China, which is highly demanded the improvement of China’s environment, and U.S beef will also be allowed into China thus creating an end to the 14-year ban of American beef. The U.S will also allow China to sell its poultry in the U.S. (Delaney, Lu, 2017) Air China has the opportunity as the largest and the official carrier of China to do these trades through its cargo company Air China Cargo.

Table 1: Chinese imports and exports to the U.S

Source: Geng, et al. (2016)

SWOT Analysis – (T)hreats

Flight Delays and Unruly Passengers

Chinese airports are known for the worse delays. According to Bergman (2016), there are numerous factors that airlines cannot control. First, the Chinese airspace is regulated by the military, which means there is little space for aircraft to use the runway to take off. About 30% of airspace can be used by airlines. Massimiliano, Seddik, & Zhu (2016) analyzed the delay of Chinese airports. The percentage was broken down as The Civil Aviation Administration of China counts estimated for 40% of the delays were airlines related due to maintenance issues or passenger problems, air traffic control counts for 20% as there is a lot of air carriers arriving and leaving Chinese airports daily. Weather is another factor which counts for another 20% due to heavy rain, snow, and fog, and lastly, military exercises count for 10%. The 4 categories listed above, count for 90% of delays in Chinese airports. (Massimiliano, et al, 2016) Flight delays hurt the airline’s reputation, it will cost them time, and money. This is not something they can get back so easily. Delays are uncontrollable as there are different factors that happen in the airline industry.

Figure 1: Comparison chart of delays Rest of the world Vs China

Another uncontrollable factor by the airline is unruly passengers. As the flight takes off, there can be a bunch of factors that case diversions. Passengers may throw fits on the aircraft, threatening other passengers on board and flight crew. According to IATA, in 2016 there was one incident for every 1,425 flights. Alcohol and drugs can also be the cause of these problems. According to the article “Stronger Laws for Unruly Passengers” (2014), Unruly passengers are known as a very small minority, and they can cause serious consequences that can put other passengers and the flight crew in danger. When a problem occurs in flight, if the crew feels the passenger is endangering everyone on board, a decision must be made and divert the plane back to its origin, or to the closest airport. China is known for its boisterous tourists, a common problem for Chinese and international airlines. Air China has experienced these problems with unruly passengers in the past. Flight diversions will cost the airline a lot of money. Issuing customers vouchers or coupons to use at airport restaurants, hotel housing, changing flight schedules, and refueling.  Table 2 refers to the amount of unruly passenger on board that affected the flights. As the title shows, according to IATA (2016), 9,837 incidents were reported. The year that had the most was in 2015, while 2016 it dropped by one.

Figure 2: Reports of unruly passengers

Source: IATA (2016)

Terrorist Attacks

Terrorism is one of the most concerning threats to all airlines in the industry. It is very difficult for airlines to prevent these threats. Terrorist has ways to by pass-through TSA screenings as well using fake identity’s. The enhancement of security at airports has been improving since the well-known terrorist attack on September 11th, 2001. This has shocked the entire world as a group of terrorists planned to hijack aircraft and suicide bombers for one purpose to destroy America. Air China had not experienced any terrorist attacks on board, but an airline in China named Tianjin Airlines experienced a hijacking in 2012. (Qiu, Liu, 2012) According to Hall (2002), the aftermath of terrorist attacks affects the public, this affects their decision if they would like to board a plane to travel or not. The psychologic effect is caused by streaming of media, as fewer people would travel out of their country with the fear of terrorist hijacking aircrafts and wreaking havoc. According to Oxly (2017), airline revenue can take a loss of 2.5 billion due to terrorist attacks. The airline industry cannot control these factors, they are not able to control the decision made by people. An important issue airline can work on is gathering intelligence through no-fly lists where passengers are blacklisted due to prior or past events that occurred in flight or at airports, as well as working together with TSA and customs officers to prevent shady passengers from entering the aircraft.  

Contributions to the Chinese airline market

One of the major contributions Air China made to the Chinese airline market was creating smaller subsidiary airlines to connect throughout the rest of China to counter its competition. Subsidiary airlines such Air China Cargo, Air Macau, Shenzhen Airlines, Dalian Airlines, and Beijing Airlines as well as owning shares with Cathay Pacific Airways and Shandong Airlines. (Air China, 2018) The goal of Air China is to cover more ground, which most of its business is from its domestic flights. Air China not only covered more ground in domestically, it has expanded to 193 countries with affordable tickets than their competitors. According to Fong (2005) Airfares have fallen since 2003, state-owned airlines such as Air China are able to discount fares as up to 40% without consent through the Chinese government. Air China tries to be competitive in their airline industry, as said earlier with the expansion of its subsidiary routes they can cover more ground in China, as well as relying on the Star Alliance to get more recognition through its code-share flights. Beijing Capital International airport is well-known as the second world’s busiest airport, Air China has that advantage in its favor due to the fact Beijing is its major hub where most of its flights take place. Strategic planning and pricing is a must for Air China.

Air China vs Other Chinese Carriers

Air China is the largest carrier in the People’s Republic of China. There are a lot of airlines in Mainland China but will only focus on two of its major competitors in China. China Eastern Airlines, in Shanghai and China Southern Airlines in Guangzhou. These are the top 3 carriers in Mainland China. Beijing, Shanghai, and Guangzhou are huge cities with a large population of people, and the cities have experienced economic growth. The chart below shows the market percentage each airline has in their hub city. Air China has the advantage in their hub at Beijing Capital. Other airlines are reaching 34.2%, Air China may need to step up to prevent other airlines from catching up to them. On the competition, China Eastern Airlines hub is in Shanghai which covers Shanghai Hongqiao and Shanghai Pudong, Air China is weak at 5.6%, and in the territory of China Southern in Guangzhou Baiyun international airport, Air China is weak at 6.8%. Other airlines have higher percentages in Shanghai vs Beijing and Guangzhou. Air China will need to step up and work on their customer service skills mentioned in the weakness section.

Figure 4: Market Share of each airline within their hubs

Source: Bloomberg, (2017)

In the next table below compares Air China, China Southern, China Eastern and other airlines in international markets outside of China. Air China prevails in the U.S, European market compared to its counterparts. China Eastern does better in the Japanese market and China Southern does extremely well in the Australian market. As shown below, the category “other airlines” in every market except Australia have higher market shares than the 3 leading Chinese airlines. According Airlines in China (2017) domestic flight accounted 91.2%, while international flights accounted for only 8.8% for Chinese airlines in the year 2016. A forecast was made for 2021 a forecast of 858.9 million passengers with an increase of 76.8%. China will continue to increase because of the growing number of passengers. Air China needs to work on perfecting its customer service, and market to more foreign destinations. The future for Chinese airlines will be strong.

Figure 5: Chinese airline market shares on international routes

Key Findings

Due to the intense competition in the airline industry, it is extremely important to analyze the strategic advantages of airlines when competing against competitors. From performing the SWOT analysis on Air China, we are able to access the strengths, weaknesses, opportunities, and threats for the airline. According to the strengths of Air China, the massive route expansion has benefited the Chinese citizens connecting to more cities, as well as connection to other countries. The Chinese economy is growing, and more Chinese nationals can afford to travel, as more routes are opened there are more doors to Chinese travelers. The Star Alliance is also the largest airline alliance in the world with 28 airlines.

As Air China is part of this massive airline alliance, passengers of Air China are able to fly on partner airlines and accumulate mileage and take advantage of priority check-in, boarding, lounge services, etc. Being an international airline, in certain countries where the airline has routes too, Air China can take advantage of partner airline’s check-in counters, lounges, and baggage facilities. The main benefit is to cut costs and utilize the hub-and-spoke system to gain more feedthrough airport transits from other airlines.

There are some weaknesses Air China will need to improve on such as customer service, by improving employee relations to customers, Air China will do much better than its competition. The airline industry is highly competitive, Air China needs to take advantage of its opportunities to minimize its threats to succeed. In order to become an even better airline, Air China needs to create and utilize its strategic advantages, to become the most profitable, successful airline in the world.

Contributions

The contributions of this study were to analyze and discuss the strengths, weaknesses of Air China, and to identify the opportunities and threats for the firm. By performing the SWOT analysis the airline can understand its strength and weaknesses, and opportunities and threats outside of the company. By understanding these factors, the airline can improve its company effectively and financially by maximizing its profits and provide the best service. The key findings of this study will be beneficial to Air China, which will help improve its strategic advantage, to help minimize its weakness and threats to become the best airline in the world.

Suggestions

Air China may not have the best reviews and customer satisfaction on SkyTrax and Tripadvisor, they will need to work on their customer service. Passengers are complaining about the lack of hospitality they are receiving from the cabin crew and their lack of English speaking skills. As this is a problem when traveling, some suggestions would be creating mandatory training classes for everybody, ground staff, cabin crew, and the employees that deal with the passengers. Occasionally, a training course should be implemented to refresh customer service skills. Being a flight attendant, it is important to know the English language, as it is a universal language of the world when traveling to international countries. English courses should be implemented for ground staff and cabin crew about airport operations and inflight.

When referring to the competition of the Chinese airlines, Air China faces two major competitors. China Eastern Airlines and China Southern Airlines. As shown in table 4, Air China is prevailing in its major hub at Beijing Capital International airport, China Eastern, and China Southern remains victorious at their own hubs, as well as other airlines are catching up. In table 6, shows the market share of Air China, China Eastern, and China Southern in areas outside of China. Air China must come back with a strong strategic plan to counter its rivals. Air China has intense competition between the 2 main carriers of China as well as other carriers in the market. A competitive profile matrix should be done to analyze the major strengths and weaknesses of the competition, and what Air China can do to take over the cities in China where the competition is victorious. Lowering airfares can help, as well as improving their customer service inflight for passengers, and improving technology on board such as Wi-Fi, movies, and aircraft design are one of the factors to success. Customer service is extremely important in the airline industry. If nothing is done about improving the customer experience of their passengers, everything will go downhill. Air China has the potential to do well in the airline industry as it is the largest carrier of the People’s Republic of China, the airline will continue to open new routes as well as ways to satisfy its passengers. 

References

Cite This Work

To export a reference to this article please select a referencing stye below:

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.

Related Services

View all

DMCA / Removal Request

If you are the original writer of this essay and no longer wish to have the essay published on the UK Essays website then please: