Business Strategy Case Study on China Airline

...

|top class services |reducing in profit. |

|•Codesharing agreements with reputable airlines on security knowledge |•Complicated fare structures |

|•Experienced pilots who had worked with renowned international airlines | |

|•Simple fleet with young age | |

|•Good e-services system | |

|External Factors |

|Opportunity |Threat |

|•Better cross-strait relation between Taiwan and mainland China increases |•Even though better cross-strait relation between Taiwan and mainland |

|business opportunities. Many Taiwanese business people do business on |China has its perks, it also presents a threat to CAL. This increases |

|mainland China, thus, the business people can travel more back and forth. |the competition between CAL and low cost mainland China airlines. |

|This will include increase in shipping cartons and freights between Taiwan| |

|and mainland China as well. | |

|•Better internet service and technology, hence, increase in communications|•Because of economic slowdown and money devaluation, customers become |

|and e-ticket purchases (high operational cost efficient) |more prices sensitive. As a result, demand of flights and cargo and |

| |freight decline. |

| |•Energy cost sky rocketed many times which resulted in the increase in|

| |operational cost. |

| |•Terrorist attacks on planes turned many customers away from |

| |travelling by air. |

Recommendation

• Simplify its fare structure: CAL could segment its customers into budget travelers, budget business people, high spender travelers, and high spender business people. Within these four segments, CAL could provide different services at different prices. It could also further segment its customers into long haul flights and short haul flights as to providing different quality of service and charging different price.

• Airline network model: As demand seemed to be increasing, CAL could start working on both hub-and-spoke networks and point-to-point services. It would help reducing costs and increase flight network as there were many secondary airports in many big cities.

• Safety: CAL should continue on training its staff and maybe even more rigorous than before. It also should continue keeping its staff up-to-date on safety information and technology. It should also launch campaigns inconsistent with its image on “safety” to build trust on its customers.

• Focus on core business: While it is good that CAL has diverse portfolio, however, it should put its effort more on its core business; airline (exhibition 2). CAL should also start to focus on cargo as well as it is a compliment business to airline. For other types of business, CAL should partner up with alliances within that field of expertise to help out with the businesses as well as to expand network and maybe even to gain mutual gain (with better and large capital at hands).

• Add more benefits to the Dynasty Flyer Program: In order to attract more customer, benefits is DFP play a big part in gaining and retaining customers. One explicit way to do so is to form more alliances and maybe form the benefit package within the alliances.

• Cost control: CAL should continue to do so with high regard to safety of the passengers and its employees. It should keep this on high priority because aviation industry is becoming more competitive as many airlines are growing with limited pool of customers.

• Organizational structure: CAL should try to simplify its organization structure to be more linear and short (short pyramid) so it can move fast in the fast moving industry. However, it should set a rigorous job description to prevent any problems in work.

Appendix

Factor of Change (PESTEL)

Political: 1. UN accepted People’s Republic of China

2. Taiwan government and membership’s of the International Civil Aviation Organization (ICAO) was revoked

3. Collapse of the South Vietnam government

4. Cross-strait relations between China and Taiwan due to the disagreement regarding to political status of Taiwan valid government. Thus, resulting in the limited expansion opportunities for CAL due to their diplomatic ties with PRC. (they formed a joint venture)

Economy: 1. Oil crisis

2. Growing economy between Taiwan and America

3. Financial crises 1997-98

4. Global economy downturn (recession)

5. Terrorist attacks

Social: 1. Safety and Ethical concern

Technology: 1. Aviation technology

2. Communication technology

3. Transportation technology

Environment: 1. Energy crisis

The Five Forces Model for Aviation Industry

The market attractiveness is ‘competitively unattractive’ because four out of five forces are producing strong competitive pressures and one is producing low.

• Potential New Entrants: The aviation industry has a high barrier (low threat) for potential new entrants because to start up an airline business (even for Low Cost Carrier), high capital investment, large base of user, and high experience in the business, in the effective cost saving, in the know-how, and in the effective competency creation are required. Moreover, many players are already in the game which means that they probably have low fixed cost because their facilities are likely to have been mostly depreciated. Furthermore, there are certain restrictive government policies in many places, hence,