Swot Air China

The airline industry has undergone significant restructuring in recent years. Airlines, formerly rivals in a highly regulated industry, have become opportunistic seekers of co-operation. In today's world, mega-carriers and small airlines are working together rather than competing with one another.

Forms of co-operation include sub-contracting, code sharing, franchising and the formation of global marketing networks. Such alliances allow firms to focus on their respective core competencies, while drawing the benefits of scale economies. In essence, co-operation among rivals has led to increased competitiveness. This has accelerated the trend of joint marketing, and the airline industry has become characterized by the desire to belong to a global network. The tendency has been to strive for a global presence.

The case of Air China

Air China was founded on the 1st of July 1955. Its headquarters is based in Beijing. It engages in international and domestic passenger and cargo flight services. To unify its facility image and simplify its repairs and maintenances, its fleet of 118 aircraft exclusively consists of Boeing models. It has established hub-spoke style passenger and cargo transport network. The hub of this network is Beijing International Airport.

The company is operating 339 routes, which consists of 53 international and 286 domestic, operating more than 1,000 scheduled flights on weekly basis, serving 29 cities in 19 countries. About 66 per cent of its revenue was sourced from the domestic market. Since 2004, Air China has experienced dramatic changes in both the international and domestic market.

Growing domestic market

Fierce competition and sluggish market demand has forced the company to turn its business focus on the fast growing domestic market, where it enjoys the protections from the Civil Aviation Administration of China (CAAC). Chinese Government adopted an aggressive fiscal policy by lowering the interest rate to 2 per cent, aiming to boost Gross Domestic Product growth (GDP).

In 2001, China's GDP reached 7.3 per cent, which is considered to be the fastest growing economy compared with both the main developed and developing economies worldwide. Other factors also contribute to the growing demand of the domestic market for air service in China, such as the opening up and reform of the country's development strategy, boosting the tourism industry and attracting more people to invest or visit China.

In April 2001 and under the regulations of the CAAC, 56 national and local airlines were categorized into three groups; Air China, Eastern Airline and Western Airlines. Air China operated in developed areas such as America, Japan, Western Europe and Austria, and the other two groups aggressively expanded into international markets while mainly focused on domestic business.

While the factors like price and schedule arrangement are well below the average level and the choices based on brand image and service largely exceed the other two, Air China positions itself with quality service while the other two groups compete with lower prices and schedule arrangements. Recently, all three groups have experienced deteriorating performances due to other global factors, and under these pressures, revenue maximizing and cost efficiency are becoming the first considerations when stipulating business strategies.

International market

The demand for air travel has grown every year since the Second World War with the exceptions of the Gulf War in 1991 and 2001. Since 2001, emergent factors have curbed and added to the uncertainty of the airlines industry growth, such as the September 11 attacks being a heavy blow to the world economy and dragging down the international airline industry, and USA military actions against Iraq posing additional threats to the airline industry.

Though these events have hindered growth, the speedy pace of economic globalization and increasing demand of leisure travel by prosperous consumers has kept the air traffic growth at approximately 3.5 per cent per annum. But main players in the global market took pessimistic stances by cutting down the capacity, furiously seeking consolidation within the industry, and lobbying the regulatory authorities for opening up the skies.

Air China SWOT analysis

To identify best practice and critical success factors of total quality management implementation, SWOT analysis was selected to analyze the case of Air China. The SWOT analysis is the process of analyzing organizations and their environments based on their strengths, weaknesses, opportunities and threats.

Strengths

Air China is the largest air carrier in China in terms of traffic volume and company assets. Over 20,000 employees are working for Air China, including more than 2,300 pilots and 4,520 flight attendants. It enjoys well-trained flight crew who are experienced in international operations and services. It owns the most updated fleet and competent repairs and maintenance expertise.

Its information systems are the most advanced among Chinese airlines and compatible with its operation and service. It has a good reputation in both international and domestic markets, quality service and the number of loyal frequent flyers continues to increase rapidly.

Weaknesses

Air China is operating across broad international and domestic markets competing with world leading giant airlines as well as local small operators. This lack of clarity on the strategic direction largely dilutes its capabilities and confuses its brand within markets. This has been reflected on its low profitability and utilization of capacity. Many quality services initiatives and practices are easily copied by the competitors.

Opportunities

China airline industry is growing faster than GDP increases, and the trend is predicted to continue to at least 2010. Worldwide deregulations make the skies more accessible; the route agreement is easier to be achieved. The number of foreign visitors and investors to China is increasing rapidly. Complementary industry like tourism will increase demand for airline service. CAAC strong regulation and protection provides opportunities for consolidation and optimization. Customers are getting wealthier, tend to be less price conscious and prefer to choose quality service.

Threats

Air China faces imminent aggressive competition from world leading airlines and price wars triggered by domestic players. Foreign airlines will access the Chinese computerized seat ordering system, providing Chinese passengers with more choices. Trains and buses