As a new airline company with high development in the China civil aviation, Hainan Airlines (HNA) group is facing both internal and international competition in the economic globalism. It is thus very vital for HNA group to assess its environment so as to draw up a development strategic plan that will enable it to strengthen its competitive ability.
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In this paper I will: discuss one factor from the general environment that is relevant to the case; make an assessment of HNA group competitive environment using Porter’s five forces model; discuss the strategy of the firm; explore HNA group competitive advantages over its main competitors; assess the company core competency; identify the main alternatives for HNA group and give the pros and cons of each alternative; and conclude with an opinionated recommendation.
One factor from the general environment that is relevant to the case of HNA group is political influence. China’s State Council, in 2008, approved that the domestic civil aviation industry was among the most strategic corporations in the state and that it would retain a more sheer control over nation-owned industries.
Some of the impacts that this regulation may have on HNA group being a privately administered venture include: restrictions in terms of flight rates, routes of entry and pricing; ability to form alliances; and strong rivalry with home carriers.
An Assessment of HNA Group Competitive Environment
Porter’s five forces model of competition enlarges the ground for competitive analysis and takes in the threat of novel entrants, the negotiating power of buyers, the negotiating power of suppliers, the risk of alternate products and the power of competition among rivals.
The key rivals of HNA group are: Air China, China Southern Airline and China Eastern Airline. Some substitutes for HNA group include: Shenzhen Airline and Shanghai Airline. Shanghai Airline was the earliest limited liability airline in China which was instituted in 1985.
Originally, it functioned out of both Shanghai Hongqiao and Shanghai Pudong, before extending its routes to incorporate cities in South East Asia, Northeast Asia and Europe.
Conversely, Shenzhen Airline was instituted in 1995 and its airline focused chiefly on home passengers’ routes with a number of flights to Southeast Asia and North East Asia together with a few global freight operations. Furthermore, there are new entrants who joined the market in 2005, after the liberalization of the industry.
United Eagle, located in Chengdu, Okay Airways, located in Tianjin, and Spring Air located in Shanghai were the earliest to enter the market in this group. These have further hardened the rivalry. There is also a threat of entry by increased foreign careers, especially with the signing of the open skies agreement which is projected to come into effect by 2020.
The bargaining power of suppliers is temperate as HNA group is a vertically incorporated corporation. Alternate products are commodities from exterior industries that carries out analogous or the same function with products from the company.
Also, in the air travel business, the bargaining power of buyers is a vital feature. HNA group subsidizes its prices by offering discounts to its customers. To create its own competitive advantage, the group has efficiently extended its business value chain.
The Strategy of the Firm
The key Strategies of HNA group include: the low cost strategy, expansion and formation of alliances. China did not have low cost carriers pending 2005. Nevertheless, Hainan Airlines was instituted in January 1993 and commenced its activities on 2nd May 1993. Its surfacing is thought to have had the outcome of lowering air transport.
With the intention of becoming a public stalk airline, Hainan has taken each chance since then to enlarge. After attaining Shanxi Airline in Taiyuan and Chang‘an Airline in Xian ten years ago, Hainan was in a position to expand bases in northwestern towns, which were components of China Northwest‘s and afterwards China Eastern regions after the two airlines surfaced.
All at once, Hainan obtained the Tianjin-based Xinhua and Beijing airlines, enabling it to get admission to Tianjing Airport and the neighbouring Beijing Airport. In 1990s, Hainan organized a number of aircrafts at Ningbo, an adjacent city to Shanghai, to create a home center in the East China region.
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Therefore, a sequence of takeovers has enabled Hainan to have freights move to and from Xian and Taiyuan in the northwest, Hainan Island in the South, Ningbo in the east and Beijing and Tianjing in the north, which granted it the status of the fourth leading airline in China by the last part of 2002, in regard to routes travelled and destinations serviced.
In the course of the execution of its expansion strategy, price rivalry was an efficient and regularly-used means of obtaining market share, and as a result the existence of Hainan on a path may have had an analogous result to that of a low cost carrier by building pressure on the key carriers, and hence a model variable representing the existence of Hainan Airlines is integrated as a sign of price rivalry whenever a city- duo is supplied by this airline.
The bigger pressure on China Southern pricing may have originated from the verity that Hainan Airline‘s early base, Hainan county, is as well a center for China Southern Hainan division, and Hainan county is next to China Southern main hubbing airstrip, Guangzhou. While Hainan is not a low cost hauler, it seems to have forced prices in the areas in which it functioned.
Formation of alliances is another strategy of HNA Group.The Company formed an alliance with H&Q Asia Pacific. In accordance with HNA group CEO, Mr. Chen Feng, the rationale of collaborating with H&Q Asia Pacific was to instigate huge and well-directed private equity funds and to make an esteemed global asset managing group.
Grand China Logistics and HNA Group gave full backing to the joint venture in regard to investment running project resources. H&Q Asia Pacific was expected to back the private equity fund by sharing its profound investment skills from its fund administration team in addition to its major international resources.
HNA Group’s Competitive Advantages over its Main Competitors
In duration of 18 years, HNA group has changed from a chaste air transportation services corporation to a new expanded service group with air voyage, financial and logistics services as its chief ventures. T
o set up its personal competitive advantage, the group has efficiently expanded its business value chain to encourage transformation in utilization notions for the Chinese citizens and to add to the growth of the nation. Other competitive advantages include: good management, low pricing and an enhanced corporate culture.
The Core Competencies of the Firm
The core competencies of the firm are: an enhanced corporate culture, good governance, financial control and capital planning, and business management and customer service.
An Enhanced Corporate Culture
Based on combining traditional Chinese philosophy with advanced western technology and management, Chen, with profound accomplishments of Chinese traditional cultural, created a corporate culture of which he was especially proud. The idea was that in order to succeed at HNA, every manager should have a combination of western and eastern culture, experience and a concentration in business and leadership.
Following its first listings, HNA stirred toward an explicit and clear governance structure. It updated to meet the needs of the listing organizations and separated the tasks of the supervisory board, shareholders, the board of directors and the administration group to form a more competent operation and balanced executive system.
Financial Control and Capital Planning
In the course of guidance in financial control and planning, HNA directors were able to organize the corporation to more capital intensification. From 2004 to 2005, the corporation sought to get more alien investors. To attain this, it concentrated on reimbursing debts, enhancing its administration and obtaining advice from the peak consulting companies and investment banks on how to function more efficiently.
Business Management and Customer Service
Instruction in the latest business premises in addition to instruction in the basics of business practice was a main hub for HNA. The procedure helped condense the lifecycle of research and progress, lessened costs and augmented efficiency of the personnel.
Main Alternatives for HNA Group and their Pros and Cons
The main alternatives to HNA group include: Shenzhen Airline, Shanghai Airline, Okay Airways and Spring Air. Shanghai Airline was the earliest limited liability airline in China which was instituted in 1985.
Originally, it functioned out of both Shanghai Hongqiao and Shanghai Pudong, before extending its routes to incorporate cities in South East Asia, Northeast Asia and Europe. Shanghai Airlines encountered a loss of RMB 435.12 million in 2007 due to high fuel costs. It also faces limitations due to high costs of landing.
Shenzhen Airline was instituted in 1995 and its airline focuses chiefly on home passengers’ routes with a number of flights to Southeast Asia and North East Asia together with a few global freight operations. It was billed 28 A320 planes in a latest order from Airbus, the largest single allocation for any occasion.
Its then objective was to wait out the market to arrange for an IPO. Shenzhen Airlines made revenues of RMB10 billion in 2007, placing it in the fifth position after the Hainan Airlines and the big three. However, it is much challenged by the high prices of fuel and low cost pricing.
Okay Airways was instituted in 2005. It was centered in Tianjin. Although it is a low cost carrier, it faces intricacies chiefly due to prices of fuel and lofty airport landing costs. As a low cost carrier, it is regularly challenged to raise prices to cover cost deficits. Besides, it faces rivalry from usual fare carriers who were in a position to offer regular discounts.
Spring Air was well situated to be the escaping new entrant. Even though it had its share cost afflictions, it established innovations that have enabled it to better manage costs and as a result, it has emerged a good corporation for investors. It centers on selling most of its services online and in 2007, it obtained a profit of RMB 70 million.