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HNA - PPT-2

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HNA- Hainan Airlines strategy report
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Moving China’s Air Transport Industry in a New Direction Group C October 1, 2015
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Page 1: HNA - PPT-2

Moving China’s Air Transport Industry in a New Direction

Group COctober 1, 2015

Page 2: HNA - PPT-2

INDUSTRY & HNA | Timeline

CAAC was formed under the direction of National Air Force

1949

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

1980-

1985

1. CAAC reorganization2. Consolidation of airline companies.3. Air China, CSA & CEA

2002

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

2005

1. CAAC tighten the control over the approval of new airlines2. High fuel prices impact the world airline industry

2007-

2008

Open skies agreement with U.S

20080nwards

1988 - 2002

1. Hainan Provincial airline Company2. Listing on Shanghai Stock Exchange3. Acquisition of Chang’an, China Xinhua, Shanxi Airline

2004

Establishment of Grand China Air

2006

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

Page 3: HNA - PPT-2

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

Page 4: HNA - PPT-2

INDUSTRY | Overview

Segment Number of Aircraft

Revenue

(2007)

Service Offered

(1) National Flagship Carrier(2) Hub in Beijing(3) Best position to grow its international

routes

220 US$7.3 billion

Low Quality

(1)Hub in Guangzhou(2) Domestic route: Served most of the economically developing cities in Southern China

(3) International route: major metropolitan and commercial centers of the world from Amsterdam to Los Angeles to Sydney

332 US$7.9 billion

Low Quality

(1)Hub in Shanghai(2)Domestic route: Business connection between Shanghai with Beijing and the major commercial cities of Guangzhou, Shenzhen and Hong Kong

(3)International routes : East and Southeast Asia and key cities in Europe, U.S., and Australia

208 US$6.07 billion

Low Quality

(1)Domestic route: Serve underdeveloped area and avoid competition with Big three. e.g.) Haikou, Beijing, Xi’an, Taiyuan, Guangzhou, Ningbo,

(2) International route: “spoke” cities, From Beijing to Brüssels, Berlin, Dubai, Seattle etc..

80 US1.9 billion

High Quality

Page 5: HNA - PPT-2

Industry | Ecosystem Mapping

• suppliers• Customers• competitors• Intermediaries• Publics

Page 6: HNA - PPT-2

ANALYSIS | Internal Environment

Objective

Management

Human Resource

Brand Equity

Financial factors

Technological Capabilities

Yes YES

YES NO

YES NO

YES NO

Yes (Not very high) Yes (Low)

Yes (Not very high) No

LOCAL GLOBAL

Page 7: HNA - PPT-2

ANALYSIS | External Environment-Porter’s 5 Forces

(1) CAAC has strong control

(2) Private airlines emerge- Shenzhen and Shanghai Airlines

(3) The government has gradually liberalized industry

New Entrant -High

(1)Low to Medium for domestic route. Substitutes - cars, bus, trains

(2)Low for international route

Substitute - Low

(1)High Price and Service Sensitivity

(2)Low Switching Cost

Customers -High

(1)The government monopolizes CNAF and controls fuel price

(2) Boeing and Airbus form almost duopoly

Suppliers - High

Competitors

1) Highly regulated market2) Few players but most of them are state owned3) Few private players4) In future market competitiveness will increase

Page 8: HNA - PPT-2

ANALYSIS | External Environment-PEST Analysis

• China’s 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

Economic

Political• 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

Socio-cultural• 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

Demographic• Population is around 2 billion and

growing at a fast rate• High urban migrant population• Expat population in tier 1 & tier 2

cities

Technological• The sector is still dominated

by two main players Boeing & Airbus

• WTO agreement• Open Skies• Pressure from international

community to open up the economy

• Influence in South-East Asia

International

Page 9: HNA - PPT-2

ANALYSIS | Competitive Advantage

• HNA provided better quality airline service that was renowned internationally, and which made it a world class airline

• HNA developed airports and travel services

SERVICE LEADER

• 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

STRATEGIC EXPANSION

• HNA worked closely with central and local government officials and demonstrated positive results and growth

• HNA improved China’s economy by depending solely on private and public investment

RELATIONSHIP WITH GOVERNMENT

• HNA had a unique corporate culture that combined both Chinese heritage and western management

CORPORATE CULTURE

• HNA focused on modern management practices

• HNA committed to training its staff in global management, strategy, and service

TRAINING PROGRAMS

Page 10: HNA - PPT-2

ANALYSIS | The Issue

International Competition Rising Cost Government

Page 11: HNA - PPT-2

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.

Page 12: HNA - PPT-2

❏ 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.

ANALYSIS | Recommendation


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