The airline industry has undergone significant restructuring in recent years.Airlines, formerly rivals in a highly regulated industry, have become opportunisticseekers of co-operation. In today’s world, mega-carriers and small airlines areworking together rather than competing with one another.
Forms of co-operation include sub-contracting, code sharing, franchising and theformation 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 thetrend of joint marketing, and the airline industry has become characterized by the desireto belong to a global network. The tendency has been to strive for a global presence.
The case of Air ChinaAir China was founded on the 1st of July 1955. Its headquarters is based in Beijing. Itengages in international and domestic passenger and cargo flight services. To unify itsfacility image and simplify its repairs and maintenances, its fleet of 118 aircraftexclusively consists of Boeing models. It has established hub-spoke style passenger andcargo transport network. The hub of this network is Beijing International Airport.The company is operating 339 routes, which consists of 53 international and 286domestic, operating more than 1,000 scheduled flights on weekly basis, serving 29 citiesin 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 anddomestic market.
Growing domestic marketFierce 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 fromthe Civil Aviation Administration of China (CAAC). Chinese Government adopted anaggressive fiscal policy by lowering the interest rate to 2 per cent, aiming to boost GrossDomestic Product growth (GDP).In 2001, China’s GDP reached 7.3 per cent, which is considered to be the fastest growingeconomy 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 developmentstrategy, 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 werecategorized into three groups; Air China,
Eastern Airline and Western Airlines. Air China operated in developed areas such as America, Japan, Western Europe and Austria, andthe other two groups aggressively expanded into international markets while mainlyfocused on domestic business.While the factors like price and schedule arrangement are well below the average leveland 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 pricesand schedule arrangements. Recently, all three groups have experienced deteriorating performances due to other global factors, and under these pressures, revenue maximizingand cost efficiency are becoming the first considerations when stipulating businessstrategies.
International marketThe demand for air travel has grown every year since the Second World War with theexceptions of the Gulf War in 1991 and 2001. Since 2001, emergent factors have curbedand added to the uncertainty of the airlines industry growth, such as the September 11attacks being a heavy blow to the world economy and dragging down the internationalairline industry, and USA military actions against Iraq posing additional threats to theairline industry.
Though these events have hindered growth, the speedy pace of economic globalizationand increasing demand of leisure travel by prosperous consumers has kept the air trafficgrowth at approximately 3.5 per cent per annum. But main players in the global markettook pessimistic stances by cutting down the capacity, furiously seeking consolidationwithin the industry, and lobbying the regulatory authorities for opening up the skies.
Air China SWOT analysisTo identify best practice and critical success factors of total quality managementimplementation, SWOT analysis was selected to analyze the case of Air China. TheSWOT analysis is the process of analyzing organizations and their environments basedon their strengths, weaknesses, opportunities and threats.
StrengthsAir China is the largest air carrier in China in terms of traffic volume and companyassets. 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 experiencedin international operations and services. It owns the most updated fleet and competentrepairs and maintenance expertise.Its information systems are the most advanced among Chinese airlines and compatiblewith its operation and service. It has a good reputation in both international and domesticmarkets, quality service and the number of loyal frequent flyers continues to increaserapidly.
WeaknessesAir China is operating across broad international and domestic markets competing withworld leading giant airlines as well as local small operators. This lack of clarity on thestrategic direction largely dilutes its capabilities and confuses its brand within markets.This has been reflected on its low profitability and utilization of capacity. Many qualityservices initiatives and practices are easily copied by the competitors.
OpportunitiesChina airline industry is growing faster than GDP increases, and the trend is predicted tocontinue to at least 2010. Worldwide deregulations make the skies more accessible; theroute agreement is easier to be achieved. The number of foreign visitors and investors toChina is increasing rapidly. Complementary industry like tourism will increase demandfor airline service. CAAC strong regulation and protection provides opportunities for consolidation and optimization. Customers are getting wealthier, tend to be less priceconscious and prefer to choose quality service.
ThreatsAir China faces imminent aggressive competition from world leading airlines and pricewars triggered by domestic players. Foreign airlines will accessthe Chinesecomputerized seat ordering system, providing Chinese passengers with more choices.Trains and buses will dramatically improve speed and services in their medium/longdistant routes, attracting passengers away from air service. The way forward to achieve excellence 2008
On/off flight serviceAir China has classified customer satisfaction drivers according to the degree of tailoringservices to individual passengers. The basic needs that the company has to deal with aresafety, getting the luggage to the right place, and punctuality. The services must meet the basic requirement first before climbing into the higher satisfaction stages.In order to become more competitive, the services must focus on qualifier drivers, i.e. providing more available choices on food menus, or enhance seating comfort. Justmeeting customer requirements is not enough; delighting passengers is only the way todifferentiate business from other competitors.
Air China insist that employees are more important than technical systems. The creed is“people serve people”. Applying this in a practical way, a new purpose was initiated tointegrate the menu planning process with first/business ticket ordering and check-insystem. The idea is that when passengers order the ticket, they can order lunch/dinner andchefs would be informed to prepare the food plan. When information is confirmed upon check in, meals are processed and lifted on board. In this way, passenger taste can beaccurately matched.
People managementWhen dealing with people, the main principles of Air China can be described as: Excellence relies on people.Programme strategies would not be improved andfulfilled without people participation, enthusiasm and contribution. Managerial effectiveness. Its role can be defined as facilitator to build up partnerships between individuals and the organization, and between theorganization and its customers. Organizational productivity. Quality should be seen to start from the top. Leadersmust be intimately involved to see that the quality paradigm is planted into theminds and hearts of all staff. The nonhuman side of the organization
. Such equipment, facilities, processes andsystems can only live in the hands of people with enthusiasm. So-calledadvancements are meaningless for the company unless they can contribute to bothemployee and customer satisfaction.Among the change initiatives, leadership, teamwork, and training were top priorities inthe initial stages of the programme.
Supplier network with partnershipUnder the new quality strategy, the company decided to eliminate the short-termsuppliers where possible; the reconfiguration of supplier network aimed to build up long-term partnership, which contribute to quality enhancement. The rationale of supplier partnerships is demonstrated in the Boeing Commercial Aircraft Company, selected byAir China as the partner for supplying the most critical purchased item-aircraft as part of the new quality strategy.The company resold the other models to simplify repairs and maintenance, and to unifyfacilities image. Now its fleet exclusively consists of a series of Boeing models. Thecompany assigns its employees to work with Boeing on various aspects of the aircraftrelated to modification of cabin classes such as seating redeploying, in-flightentertainment and communication facilities to serve passengers.
Information technology adoption and integrationTechnology is classified as a nonhuman side of the organization, and management wasvery wary of the risk of dehumanization. The adoption of information technology (IT)connects the different phases of the passenger travel process. It should enable both passenger and employee control over travel/service process to facilitate friendlyinteractions. IT is now being used substantially in areas like passenger enquiry, ticket ordering,luggage tracing, check-in, frequent flyer programme (FFP) and on board services.Through a choice of technology, Air China can develop processes and procedures assimple and understandable as possible. The belief is if the service activities are madeeasier for passengers to understand, learn, and complete, passengers would feel moreconfident to control his/her own travel. Quality integration
Air China has tried to build a strategy on a genuine understanding of the customers’ trueneeds. It identified key customer satisfaction drivers, then turned them into a foundationto shape company development strategies and innovations. The objective is to realize thequality-strategy integration.This integration is seen throughout the process of strategy management.
Based on preliminary market research and customer analysis, multi-teams generated strategic ideas,e.g. defining customer satisfaction drivers and specifying criteria in the main serviceareas, and formulating strategy choices for management to make strategic decisions.The next phase in the process began with defining the key business activities around passengers travel process, developing new services, and deploying policy to allocateobjectives and resources to processes. With the progress of Excellence 2008, Air China isendeavouring to integrate quality into business, and consistently integrate strategy business functionalities with TQM discipline, aiming to transform the company intocustomer service organization.
This is a shortened version of “SWOT analysis for Air China performance and itsexperience with quality”, which originally appeared in Benchmarking: An International Journal, Volume 13 Number 1/2.The authors are A.M. Ahmed and K.S. Almarri.