Before reading this research, it is strongly recommended to read the individual memo to the team since it provides key ideas about the history of China Southern Airlines (CSA). This research will dwell upon the more profound analysis of the company’s history. In the following sections, I will investigate the questions related to (1) the origins of CSA; (2) the company’s rapid growth associated with foreign investments; and (3) the review of air deregulation and competition between Chinese airlines.
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The Company’s Origins and Ways to Independence
First of all, it is essential to consider the path which the company had to take to become one of the most successful airlines in the Asian region and, later, throughout the whole world. The history of Chinese civil aviation began in 1949 when the China National Aviation Corporation (CNAC) was created with the help of the United States (Wang et al. 14). However, five years later, the Chinese Civil Aviation Bureau (CAB) emerged from the integration of CNAC with the Sino-Soviet Joint Stock Company (“History of China Southern Airlines Ltd.”).
Later, CAB served as the basis for the creation of Chinese Southern Airlines. However, in April 1962, CAB became the Civil Aviation Administration of China (CAAC) (“History of China Southern Airlines Ltd.”). The next twenty years were dedicated to gaining independence from Soviet influence along with a re-orientation to British and American jets instead of Soviet ones.
However, it was not until 1984 that the Chinese Government decided to reorganize CAAC into four regional divisions: Southern, Southern, Southwestern, and Northwestern (“History of China Southern Airlines Ltd.”). This reorganization aimed to create a more liberalized domestic flight market. The southern division of CAAC was cleared for international flights due to the commercial and political importance of Guangzhou. Therefore, in 1988 CAAC was granted autonomy for China Southern. Despite the fact that CAAC was partially in control of the company’s internal affairs (for example, purchasing of aircraft), China Southern began to grow as an independent business. By the beginning of the 90s, the company’s rapid growth had increased the demand for new investments.
Foreign Investments as the Driving Factor for Further Growth
By the mid-90s, the Chinese government realized the inevitability of the extension of international affairs due to the growing globalization process. Therefore, it granted foreign investors access to its airlines in 1994 (“History of China Southern Airlines Ltd.”). China Southern Airlines was among the first companies to begin negotiations with the United States. CSA needed additional capital to extend its business and distance itself from other less profitable Chinese airlines. The company succeeded since the sales doubled in 1994, but the expenditures related to the company’s growth brought the overall profit down.
Nevertheless, CSA continued to expand its business by purchasing new aircraft and adding international and domestic routes to its schedule (“History of China Southern Airlines Ltd.”). Even though the company took a significant loss for the first time since its establishment (approximately 775 million dollars) in 1998, the company continued to grow and improve. During its history, CSA has shown an immense ability to balance between the requirements of the socialist regime and the competitive demands of the international market.
Air Deregulation, Domestic Competition, and Current State of the Company
Further, it is essential to touch upon the question of air deregulation and domestic competition in China. During 1997-1999, the restructuring of the Chinese domestic economy and the Asian Financial Crisis caused an overall downturn for Chinese airlines (Wang et al. 14). Demand was in decline, the competition was intense, and debt-to-asset ratios were significantly higher (Wang et al. 14). Therefore, the Chinese government decided to implement the policy of consolidation, and thus the “Big Three” state-owned airline group was created in 2002 (Wang et al. 14).
It is possible to note that this decision was beneficial for the Chinese economy and the growth of the competitive market. China Southern Airlines was included in the “Big Three” group, and since then has only strengthened its position as one of the most prominent competitors in the market. As Wang et al. observe, the “Big Three” companies are “the most competitive airlines and they dominate the aviation market on trunk air routes and at core airports” (22). Also, it is worth mentioning that CSA is in the top-3 of Chinese companies according to the index of civil aviation safety efficiency (Cui and Li 58).
First of all, it is evident that the China Southern Airlines company has a significantly long history, from its formation through to its success. Secondly, CSA was one of the first Chinese airlines to seek investment from foreign parties, most notably the United States. This policy enabled the company to grow and extend its influence. Despite some economic downturns in the late 90s, the company continued to be competitive in the market. Thirdly, the role of the government in supporting CSA is immense because the Chinese government has helped to consolidate the domestic airline market. Finally, according to the latest studies, the company is among the “most technically and environmentally efficient airlines in the industry” (Arjomandi and Seufert 143).
Arjomandi, Amir, and Juergen Heinz Seufert. “An evaluation of the world’s major airlines’ technical and environmental performance.” Economic Modelling, vol. 41, 2014, pp. 133-144.
Cui, Qiang, and Ye Li. “The change trend and influencing factors of civil aviation safety efficiency: the case of Chinese airline companies.” Safety science, vol. 75, 2015, pp. 56-63.
“Company Profile.” China Southern Airlines Co. Ltd., 2018. Web.
“History of China Southern Airlines Ltd.” Funding Universe, 2018. Web.
Wang, Jiaoe, David Bonilla, and David Banister. “Air deregulation in China and its impact on airline competition 1994–2012.” Journal of Transport Geography, vol. 50, 2016, pp. 12-23.