Yunnan Lucky Air

1.0 Background

Yunnan Lucky Air was established in July 2004 with an initial capitalization of USD 2.2 million(RMB15 million) where Hainan Airlines invested RMB 2.93 million and provided three Dornier aircraft to this new company. The airline was then owned by Hainan Airlines, Shanxi Airlines and Yunnan Shilin Tourism Aviation with 263 employees. It was based in Kunming, Yunnan China where Yunnan was one of the China's top tourist destinations famous for its beautiful landscape and multi-ethnic culture. Lucky Air was granted limited route license by the government which indirectly gives it a near monopoly status within Yunnan and these routes contributed most of the profits (HNAGROUP , 2009).

By year 2007, Lucky Air had five Boeing 737-700 airplanes that has capacity of 148 seats each. In year 2007 itself, Lucky Air carried roughly 1.2 million passengers for a total of 17,875 flight hour with a load factor of 81.4% as compared to year 2006 which it carries roughly 500,000 passengers for 5,746 flight hours with 74.7% load factor. Within the same period, Lucky Air had more than tripled its operating revenue from USD 31.2 million to USD104.3 million that achieved profitability three years after it was founded.

Lucky Air adopted most of the key components of the Southwest Airlines model and had positioned itself as a low-cost, high-efficiency airline. It reduced its maintenance and operational complexity by using a single type of aircraft and offers only one seat class with simple one-way pricing which does not consist of any seat assignments or flight entertainments. Most of Lucky Air's route were short-haul and point-to-point to increase on-time departure and arrival. As it grew ,by early 2008, Lucky Air gradually added flights to and from destinations outside the province and these extra-provincial routes represented 87 out of its 150 weekly flights.

Lucky Air operated mostly in secondary cities to avoid congestion and reducing landing costs. however unlike low-cost airlines in United States and Europe that could achieve a roughly 30% cost advantage, Lucky Air's cost structure was only about 5% lower than the industry average which mostly due to government-imposed constraints. The milestones chart below displays the growth of Lucky Air from its establishment date on year 2004 up to year 2016.

Figure 1: Milestones of Lucky Air (HNAGROUP, 2009 and Planespotter, 2016)

Lucky Air has shown a significant growth sever since the first establishment on year 2004. Almost every consecutive years, additional planes were brought in to cater the growth of is tourists

As of year 2016, Lucky Air had brought in 45 aircrafts aside from the 3 aircraft obtained during the establishment in year 2004. Out of the 45 aircrafts, 36 is still active while 6 has been historical while 3 more placed in order. The chart below displays the breakdown of the aircrafts:

Aircraft Type Current Future Historic Avg. Age Total

Airbus A319 3 11.0 Years 3

Airbus A319-100 3 11.0 Years 3

Airbus A320 7 1 3.9 Years 8

Airbus A320-200 7 1 3.9 Years 8

Boeing 737 26 2 6 5.2 Years 34

Boeing 737-700 12 6 7.5 Years 18

Boeing 737-800 14 2 3.3 Years 16

Total 36 3 6 5.5 Years 45

Figure 2: Lucky Air Fleet Matrix ( Planespotter, 2016)

2.0 SWOT Analysis

SWOT analysis is a useful technique for understanding Yunnan Lucky Air's strengths and weaknesses as well as for identifying both the opportunities exposed to and the threats faced. On a little thought, SWOT will help Yunnan Lucky Air to discover opportunities that are well placed to exploit. Apart from that, understanding the weaknesses will assist Yunnan Lucky Air to manage and eliminate threats which would otherwise caught unaware. Therefore, looking in Yunnan Lucky Air and their competitors by using SWOT framework will allow us to start crafting strategies that distinguishes Yunnan from the competitors and able to compete successfully in the market.

To determine the strength and weaknesses, it has to begin with reviewing the internal factors such as marketing, finance, production and operation, management and management information system that can be determined by using the building block tool. There are many subareas within these factors such as customer service, pricing, packaging and advertising under marketing. Strengths refer to core competencies that gives Yunnan Lucky Air an advantage in meeting the needs of its target markets. The analysis of strength should be market oriented or customer focused because strengths are only meaningful when it assists in meeting customer needs.

Out of all the analysis, it is found that Yunnan Lucky Air have several strengths such as, being the best low cost carrier in recent years, having high capacity usage where there are few unfilled seats, dominated the short haul segment between Yunnan provinces such as Dalie and Xishuanbanna, one of the most profitable airline which achieved profitability just after three years it was founded, IT operations which leads to efficient operational matters that results in low cost hence having low fare with great values.

Weaknesses refer to limitations that Yunnan Lucky Air had when developing or implementing a strategy. Weaknesses should also be examined from customer perspective because customers often perceive weaknesses that a company could not see. However it does not mean that non-market oriented strengths and weaknesses to be forgotten when being a market focused upon analyzing the strengths and weaknesses but would rather be both tied together to customer requirements. Hence only those strengths that relates to customer satisfaction are to be considered as true core competency.

The possible areas to look for when analyzing internal factors that affects Yunnan Lucky Air are resources and capabilities. Resources consist of profitability, sales, relative cost of this new services, employee capabilities and product portfolio analysis. Capabilities then consists of goals to identify internal strategic strengths, weaknesses, problems, uncertainties and constraints.

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