Competitive Airline China

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Enhancing Competitive Abilities for Airline Companies in China

Case of Air China

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Abstract

This study examines the strategic, performance and learning issues confronting the Air China, in the aftermath of the Open Skies agreement between China and the United States. It uses a comparative perspective of United Airlines to examine Air China and the Chinese airline industry in context of ‘open skies’, and in contrast to the wider global airlines industry. This is a questionnaire based study that uses both qualitative and quantitative data but relies more on the latter. The study is limited in its scope and implications primarily due to a small sample size, and the resulting inability to use inferential statistics. The study provides some focused recommendations on strategic thrusts and choices that could augment Air China’s growth and performance as an international player.

Chapter 1: Introduction

1.1 Background

In the year 2008 the aviation industry forecasts show that Air China is the only Chinese airline that is likely to make a profit. Even Air China – the Chinese flagship airline has been underperforming on international routes for some time now. While air travel is increasing on the backs of economic growth and the Olympic Games, fuel prices and competition under the ambits of international agreements like the ‘open skies’ between the US and China seem to have found Chinese airlines on the back foot for the moment. The fast expansion of the Chinese aviation market has seen investment flow in and international parties becoming interested as partners, investors and competitors in the sector. Chinese Airlines have responded with forays such as exploring alliancing, and strategic restructuring to respond to this duality of opportunity and threat.

The open skies agreement in general implies “unrestricted access by any carrier into the sovereign territory of a country without any written agreement specifying capacity, ports of call or schedule of services” (Murali, 2005). Thus, theoretically, when the skies are open, any foreign airline can land any aircraft at any airport, with no restrictions on frequency and seat capacity. The frame of reference for the US China open skies agreement is the central provinces of Anhui, Hunan, Hubei, Jiangxi, Henan, and Shanxi. As per the terms of the agreement they are completely open to US airlines. Being open to the American enterprise means generous funds flow but harnessing this implies capturing the air routes and the passenger traffic. Major US airlines including the United maneuver to do this with their greater experience, resources and air traffic exposure alongside Chinese airlines. The latter have the advantage of being domestic players and thus have the local advantages that come with the same (Ahmed et al, 2006). Coordination and configuration issues also affect highly transnational international airlines in both positive and negative ways (Porter,

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