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HNA- Hainan Airlines strategy report

Text of HNA - PPT-2

Moving Chinas Air Transport Industry in a New DirectionGroup COctober 1, 2015

INDUSTRY & HNA | Timeline

CAAC was formed under the direction of National Air Force

19491. CAAC was transferred to State Council 2. CAAC emerged as an international airline operator 3. Emergence of few private airlines Shenzhen & Shanghai Airlines

1980-19851. CAAC reorganization2. Consolidation of airline companies.3. Air China, CSA & CEA

20021. CAAC labialized the industry allowing for more privately funded airline to enter the market 2. Okay Airways & Spring Air20051. CAAC tighten the control over the approval of new airlines2. High fuel prices impact the world airline industry

2007-2008Open skies agreement with U.S20080nwards1988 - 20021. Hainan Provincial airline Company2. Listing on Shanghai Stock Exchange3. Acquisition of Changan, China Xinhua, Shanxi Airline

2004Establishment of Grand China Air

20061.Acquisition of Hong Kong Airlines & Hong Kong Express Airways 2. Launched Lucky Air

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

INDUSTRY | Overview SegmentNumber of AircraftRevenue(2007)Service OfferedNational Flagship CarrierHub in BeijingBest position to grow its international routes220US$7.3 billion Low QualityHub in Guangzhou Domestic route: Served most of the economically developing cities in Southern China International route: major metropolitan and commercial centers of the world from Amsterdam to Los Angeles to Sydney 332US$7.9 billion

Low Quality

Hub in ShanghaiDomestic route: Business connection between Shanghai with Beijing and the major commercial cities of Guangzhou, Shenzhen and Hong KongInternational routes : East and Southeast Asia and key cities in Europe, U.S., and Australia 208US$6.07 billionLow QualityDomestic route: Serve underdeveloped area and avoid competition with Big three. e.g.) Haikou, Beijing, Xian, Taiyuan, Guangzhou, Ningbo, International route: spoke cities, From Beijing to Brssels, Berlin, Dubai, Seattle etc..80US1.9 billionHigh Quality

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Industry | Ecosystem MappingsuppliersCustomerscompetitorsIntermediariesPublics

ANALYSIS | Internal Environment

Objective

Management

Human Resource

Brand Equity

Financial factorsTechnological Capabilities

Yes YESYESNOYESNOYESNOYes (Not very high)Yes (Low)Yes (Not very high)NoLOCALGLOBAL

ANALYSIS | External Environment-Porters 5 ForcesCAAC has strong controlPrivate airlines emerge- Shenzhen and Shanghai AirlinesThe government has gradually liberalized industry

New Entrant -HighLow to Medium for domestic route. Substitutes - cars, bus, trainsLow for international route

Substitute - LowHigh Price and Service SensitivityLow Switching Cost

Customers -HighThe government monopolizes CNAF and controls fuel price Boeing and Airbus form almost duopoly Suppliers - High

Competitors1) Highly regulated market2) Few players but most of them are state owned3) Few private players4) In future market competitiveness will increase

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ANALYSIS | External Environment-PEST AnalysisChinas GDP is growing at 8-10%FDI inflow is huge around USD 50 billionPurchasing power in urban areas including tier 2 and tier 3 cities is growingEconomicPoliticalHighly Regulated Aviation sectorBig 3 airlines dominating the industry are state ownedProvincial governments are eager to help private playersGovernment is opening up market slowlySocio-culturalCompanies need to take social steps to strengthen their statusTourism is going up and international crowd is coming in., while airline companies are not upgraded to suit different tastesDemographic Population is around 2 billion and growing at a fast rate High urban migrant population Expat population in tier 1 & tier 2 citiesTechnologicalThe sector is still dominated by two main players Boeing & AirbusWTO agreementOpen SkiesPressure from international community to open up the economyInfluence in South-East Asia

International

ANALYSIS | Competitive AdvantageHNA provided better quality airline service that was renowned internationally, and which made it a world class airline

HNA developed airports and travel servicesSERVICE LEADERHNA 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 servicesSTRATEGIC EXPANSIONHNA worked closely with central and local government officials and demonstrated positive results and growth

HNA improved Chinas economy by depending solely on private and public investmentRELATIONSHIP WITH GOVERNMENTHNA had a unique corporate culture that combined both Chinese heritage and western management

CORPORATE CULTUREHNA focused on modern management practices

HNA committed to training its staff in global management, strategy, and serviceTRAINING PROGRAMS

ANALYSIS | The Issue

International Competition

Rising Cost

Government

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.

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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