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 China
Air 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 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 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.
The 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...