China Airlines on Guam
This is a case study about how a foreign carrier, China Airlines, adapts it strategy competing in the Guam-based airline industry. The case traces the company’s history on Guam from setting up its regular flight schedule between Guam and Taipei, through a pricing competition with its main competitor Continental Micronesia, to today where it occupies the sole market share of flights between these locations. In addition, the study explains China Airlines approach to its customers through partnerships with hotels and tourism companies in both Taiwan and on Guam; how this business has been affected by immigration regulations; and how it has become a successful carrier on Guam, in spite of failing to reach its initial goal for even being on Guam. Business Background on Guam
China Airlines is a foreign aviation corporation with headquarters in Taipei Taiwan. Before 2000, China Airlines only flew charter flights to Guam, with the market here being limited by the requirement that Taiwanese hold American visas to enter Guam. These charter flights, or irregularly scheduled flights specially arranged according to the needs of customers, were more expensive than normal flights, and were held at peak travel times, such as Chinese New Year (which usually is in January or February and lasts about fifteen days), a golden travel time period throughout Asia.
In March 2000, the United States passed a visa waiver policy, allowing Taiwanese to come to Guam directly from Taiwan with only a Taiwanese passport and a Taiwanese identification card. The stay period was only valid for 15 days. With this policy in place, more Taiwanese came to Guam for vacation. With this growing tourist market in mind, China Airlines set up regularly scheduled flights between Taipei and Guam twice a week with a capacity of about 150 passengers per flight. When China Airlines began regular flights, its goal was to develop its market in the whole Micronesia area, targeting Guam as its hub to fly to the surrounding islands, and keeping flight capacity small, as the airports around these islands did not have the infrastructure that would allow large planes to land. However, its main competitor on Guam, Continental Micronesia Airlines, had established a presence in the Micronesia area from the 1970s onward, making it difficult for China Airlines to open flight routes throughout the region. The way China Airlines operated its business was to contract with a global ground aircraft service group named Aircraft International Service Group, which does airplane maintenance, aircraft cleaning service, refueling and passenger check-in. In such a way, China Airlines did not need to recruit an entire team to Guam, thus keeping its operational costs low and allowing it to compete with Continental Micronesia, which also had regular flights between Taipei and Guam.
A pricing competition between China Airlines and Continental Airlines lasted for about five years to capture the largest share of the Guam market. Both airlines tried to lower their ticket prices to keep their flight routes. As a result, neither of the airlines could make a profit from these flights since they targeted the same group of customers. As a corporation, Continental Micronesia had to give up the market when it could not make a profit anymore according to current chief executive officer of Continental Micronesia Charlie Duncan. Thus Continental terminated its regular flights between Taipei and Guam in October 2005, according to Pacific News Daily. To force Continental Micronesia to terminate its three times weekly regular flight routes between Taipei would be China Airlines’ first marketing strategic achievement even though it lost money during the competition. But as the last airline standing after a pricing competition, they had more pricing flexibility. Sometimes China Airlines is able to sell tickets from...