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China Southern Airline Competition Anaylsis

University/College: University of Arkansas System
Date: November 12, 2017
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China Southern Airline Competition Anaylsis

Meanwhile, Boeing 787 Adrenaline suit for the thinner market with point-to-point service. These new generation airplanes have less the amount of runner and lower cost per seat- mile (Hanson 2007) Furthermore, both companies are experiencing delays in production due to the wiring problem and employee industrial action. (Holloway 2009)This effect wills huge influence the airlines’ operating costs and the flight plans etc. This due to the airline need to make an order first and wait for longtime to handover the planes. However, China southern airline have order Five AWAY which was deliver in 2011, and ten BIBB. He original was delivered in 2008,(CSS-air 2011) as southern airline face the financial problem in that ear, the delay hand over the new airplane might be the good news. In addition, new generational airplanes will enhance service quality and the airline’s power in this competitive environment in later years. The fuel price is frequently the largest single direct operation cost, which was the international oil price, the fuel cost will increasing year by year. The aviation fuel price is directly link to the global oil prices which fluctuated by the global demand and supply of crude oil.

Moreover, there might have other different factors will impact the air fuel price. For instant, the government might be impact the fuel price n order to impose the import duties and some kinds of tax moreover will be control or fix the fuel price. (Diagnosis 2010) In China, the fuel market is monopolized by the state own Aviation Oil supply company and the price is generally is 20% higher than the international market price. (Graham, Petrodollar and Forsythia’s). This might be the negative factor to the China southern airline respond the completion.

However, the airline can hedge against future increases in fuel prices by buying fuel forward for future delivery at fixed prices’. This might be the way to anticipate the increasing the fuel price. Diagnosis 2010) However, the hedging can also go wrong when the market price is low than set price. This will led airline losing the money. In year 2008, most of Chinese airline lose their income due to this reason, but China southern airline haven’t participate this hedging and get the good financial performance. This might seems good situation to southern airline.

Threat of new entry The threat of the new entry will be very low in this industry because the features of the market present an oligopoly market and it exist high barrier to entry as excess capacity,(Shaw 2007) The barrier to entry the market might be below factors. A first factor of this industry presents high fixed costs and low marginal costs. The high fixed costs are occupy%-90% of total costs and the Marginal costs is less than one four of the whole allocated cost. (Page 2009) In the fixed cost of direct operating cost, the aircraft is one of main cost in the airline operation, the cost of purchasing and lease charges the airplanes.

The price for per aircraft is expensive, such as a single Airbus AWAY costs $150-240 million and AWAY around $300 before discounts. (Holloway 2009) in addition, the aircraft maintain and the insurance of the flight equipment is very high in this industry, the maintenance and overhaul cost cover the routine maintenance and maintenance checks carried out between flight or overnight. This is restricted strictly by the block hours or number of flight cycle and the consumption of spare parts are very high. (Diagnosis 2010) These are very difficult for the most of the new entrants who have not enough financial power.

Another one seems to be the airport and en-route charges. Seriously, the most of the route are constrained by the government before the Open sky. The entrants must get the Flight right and purchasing the route from the government. Low-cost airline are generally restricted from the most profitable trunk route in China. (Graham, Petrodollar and Forsythia’s) Airport slots provide the classical barrier to entrants the airline must to pay airport very high fee in the bigger airports. (Shaw 2010) Furthermore, the incumbent airlines already spent huge money to invest timed slots and the terminal and lounge bridges at the congested hub airport.

For example, China southern airline occupies larger percentage at the main biggest airports such as Guanos share 53. 8% flight and using whole terminal B. (Hanson 2007) et the good time slot, the result they Just can offer flight on off-peak time and less popular airport. Skill labor resources- such as pilot and mechanics are the important element of airline. The number of these kinds of staff is severe shortage in China; it is hard for entrants to recruit people. (Graham, Petrodollar and Forsythia’s) Moreover, E-business still not mature; selling the ticket online is difficult for airline in China.

So that, low-cost airlines are also need to sell the ticket on agents which need the commission. This will lose the advantage of the low price. Furthermore, the major incumbents’ airlines which are not allowing their partner agents to sell the low-cost airline ticket to anti-rivalry. (Graham, Petrodollar and Forsythia’s) Lastly, fuel prices also the burier for new entrants, this already discussion above. Hence, the entrants of the low-cost airline and private own airlines are still in the very initial stage in China. The majority of the Low-Cost airline is hard to run and losing money.

Despite this, there are still have a few airline successful participants the competition and started to make profit. Spring Airlines itself reported a peer cent increase in pirating revenue to Rumble . 99 billion, and a sevenfold Jump in profit to Rumble Milton. (smith 2010) The entrant low cost airline have lean and hungry look who become a huge threat to China southern airline, Because, the low-cost airlines using the single type air plane, provider point to point only short turnarounds/high aircraft utilization and No thrills to cut service cost and selling the cheapest airfare even 1 RMI. Graham, Petrodollar and Forsythia’s) So that, the incumbent airline (China southern airline) must prepare themselves for constantly threat from the entrants (low-cost airline), especially in the short-haul, point-to-point market. (Showcase) Threat of substitutes For the long haul and international travel it seems really no substantial competition to the air industry. The most significant transport tool can attack the air transport will be the railways in the short haul or the domestic Journey. (Worthington and Britton 2009) In the recent year, China is moving ahead with high-speed railway.

In addition, China high speed railway networks already reach 13,073 km (8,123 mi) by 2011 and continue to spend $Bonn plan 16,km of built high-speed rail lines connecting hole major cities in china by 2020. (railway-technology 2011) the advantage of the high speed railway can be more convenient it can provide the city-center to city central travel, in addition, the high speed railway more reliable, punctual and safety than air plane, the train environment are more comfortable and relax than air. And the price will low than air travel in the short trips.

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