China Airline Industry

31
Erdem Tokmakoglu Andy Y. Lee Huh

Transcript of China Airline Industry

Erdem  TokmakogluAndy  Y.  Lee  Huh

PEST AnalysisSWOT Analysis

Five Forces

3,4 7,5 16,6 51,2 67,2 138,3 231

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Million  Pe

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sPassenger Traffic - Airports

Passanger  Traffic,  mill.  PersonsPassanger  Trafic  Turnover,  mill.  Persons-­‐kmNumber  of  Airports

CHINESE GDP AND OUTBOUND FLIGHTS – Economy Analysis

PROJECTED TRAFIC AND ECONOMIC GROWTH – Economy Analysis

Economy and Political Environment

• Demand for air travel is characterized by very high-income elasticity.

• Increasing capacity during upturns can be very difficult – Planning required

• in China labor Unions are very weak and companies can hide their wages.

• Oil prices that takes 10-14% of an airline’s operating costs.– Hedging is an option

• Exchange Rate effect prices• China fully deregulated industry in an effort to make

more efficient• ATC Regulations negatively affect the industry

Industry  Rivalry  between  

LFA  and  FSA

Barriers  To  Entry• Airport  Slots  

available• Frequent  Flyer  

Programs• Economies  of  Scale

Power  of  Buyers• Internet

Power  of  Suppliers• Airports,  hubs

• Aircraft  Manufacturers

Substitutes• Rail  Service

StrengthsWeak  unions

Fully  deregulatedLFA

Low  cost  structureHigh  demand

HUBshigh  passenger-­‐volume  city-­‐

pairs.Chinese  top  tourism  spender

WeaknessesNo  fuel  efficient  planesAverage  Vehicle  AgeQuality  of  service

Usage  of  small  body  jets  (no  economies  of  scale)

ThreatsDemand  ElasticityBusiness  Cycles

Oil  pricesHard  to  increase  capacity

FX  fluctuationsDuopoliesCollusion

Other  SubstitutesOther  Hubs

OpportunitiesOverall  Growth

2011  – 2030  will  tripleGrowth  In  China  up  to  7,5%More  fuel  efficient  planes    

Low  Fare  Airlines Full  Service  Airline

Generally  Lower  service  levels,  pre-­‐flight,  inflight,  post  flight

Generally  higher  service  levels,  pre-­‐flight,  in-­‐ flight  and  post-­‐flight  

Faster  turnaround times Slower  turnaround  times  

Homogenous  Fleet Heterogeneous fleet

Point-­‐to-­‐point system Hub-­‐and-­‐spoke system  

Higher  seat density Lower  seat  density  

Secondary  and  regional  airports Primary  airports  

Online and  direct  booking  and  distribution  of  tickets

More  emphasis  on  intermediaries  such  as  travel  agents  

ELECTRONIC PURCHASES

Price Over Quality

Consolidation after DeregulationsAssociates and/or Subsidiaries

Consolidated  with:China  National  Aviation  Corp.China  Southwest  AirlinesSubsidiaries:Air  MacauMacau  Asia  ExpressCathay  Pacific  AirlinesShandong   AirlinesShenzhen   Airlines

Consolidated  with:Great  Wall  AirlinesChina  Yunnan  AirlinesChina  Northwest  AirlinesSubsidiaries:China  Cargo  AirlinesChina  Yunnan  AirlinesJiangsuWuhan

Consolidated  with:Zhoungyuan AirlinesChina  Northern  AirlinesChina  Xingjiang AirlinesSubsidiaries:China  Postal  Cargo  AirlinesFujian  AirlinesGuangxi  AirlinesGuizhou AirlinesSichuan  AirlinesSouthern   Airlines  Group  Shantou  AirXiamen  AirlinesZuhaii Airlines

Air  China China  Southern China  Eastern Total Remaining

Turnover ¥100,837,682.00  

¥96,100,000.00   ¥86,973,000.00  

PassangersCaried

(thousands)72,415.84   86,484.99   73077.06 319,000 87,022.11  

Dom. In  thous.PassangersCaried

61,430.80 77,634.23  

Revenue  Passager  KM(in  millions)

¥129,773.32   ¥135,534.73   ¥109,112.68   ¥500,000.00   ¥125,579.27  

Passager  KM(in  millions) Dom. ¥86,588.77 107,278.56  

Load  Factor 0.80 0.90 0.71

Fleet 461.00 491.00 377.00

Average  Aircraft  age 6.54 6.32 7.00

Operating  Expenses ¥92,628,623.00   ¥95,887,000.00   ¥79,292,000.00  

HHI 0.26 0.27 0.22 0.188465418 CR4=0.75

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Market  Cap  HK$bn Share  Price  HK$ Target  Price  HK$ Upside  %

China  Southern Air  China China  Eastern

MARKET PERFORMANCE

0,8930,836 0,798 0,799

0,941 0,951 0,963 0,956 0,949 0,949

00,10,20,30,40,50,60,70,80,91

2009  Q1 2009  Q2 2009  Q3 2009  Q4 2010  Q1 2010  Q2 2010  Q3 2010  Q4 2011  Q1 2011  Q2

SHARES  OF  BIG  3

SHARES OF THE BIG 3

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2010  Q12010  Q2

2010  Q32010  Q4

2011  Q12011  Q2

Cost  Per  Passenger  per  km  (RMB)

China  Airlines China  Southern China  Eastern

Air China Route Map

China Southern Airlines Route Map

China Eastern Airlines Route Map

From To Purchase  Dat

Departure Company Time Arrival Travel  time Vehi

cle Price  

Beijing Shanghai  (pudong) 12-­‐Jun 30-­‐Jun

Air  China 7:35:00  AM 9:40:00  AM 2:05:00 737 $210.00  

China  Southern 7:30:00  AM 12:10:00  PM 4:40:00 737 $287.02  

China  Eastern 7:35:00  AM 9:45:00  AM 2:10:00 A330 $102.71  

Train 7:30:00  AM 12:23:00  PM 4:53:00 $93.00  -­‐$167.00

Beijing Shanghai  (QIO) 12-­‐Jun 30-­‐Jun

Air  China 7:30:00  AM 9:40:00  AM 2:10:00 777 $210.09  

China  Southern 8:35:00  AM 10:50:00  AM 2:15:00 A321 $210.09  

China  Eastern 7:30:00  AM 9:40:00  AM 2:10:00 757 $$66.84

Train 8:00:00  AM 12:05:00  PM 4:05:00 $93.00  -­‐ $167:00

Beijing Guangzhou 12-­‐Jun 30-­‐Jun

Air  China 8:05:00  AM 11:05:00  AM 3:00:00 A321 $303.00  

China  Southern 8:30:00  AM 12:10:00  PM 3:40:00 A320 $303.09  

China  Eastern 5:45:00  PM 7:40:00  PM 1:55:00 738 $154.88

Train 1:05:00  PM 10:32:00  PM 9:27:00 $144.00  

Guangzhou Shangha(puong) 12-­‐Jun 30-­‐Jun

Air  China 9:00:00  PM 11:15:00  PM 2:15:00 A340 $235.00  

China  Southern 7:30:00  AM 9:45:00  AM 2:15:00 A320 $195.54  

China  Eastern 7:35:00  AM 9:45:00  AM 2:10:00 320 83.15-­‐ $195.54

Train 6:11:00  PM 10:08+1 15:57:00 $35.00  

Guangzhou Shanghai  (QiO) 12-­‐Jun 30-­‐Jun

Air  China 9:20:00  PM 12:00:00  PM 2:40:00 737 $235.09  

China  Southern 9:00:00  AM 11:20:00  AM 2:20:00 A320 $235.09  

China  Eastern 9:30:00  AM 11:45:00  AM 2:15:00 737 $83.15-­‐ $195.54

Train 12:31:00  AM 8:14:00  AM 7:43:00 $16.00  

PRICE WARS - COLLUSION

Price Wars - Collusion

Low  costs  Highest  Profits

Low  Pricing  StrategyStackelberg Leader

Stackelberg Follower

AIR PASSANGERS MILES

China Southern Passenger Loss Because of the Guangzhou HSR

From To Purchase  Dat

Departure Company Time Arrival Travel  time Vehi

cle Price  

Beijing Shanghai  (pudong) 12-­‐Jun 30-­‐Jun

Air  China 7:35:00  AM 9:40:00  AM 2:05:00 737 $210.00  

China  Southern 7:30:00  AM 12:10:00  PM 4:40:00 737 $287.02  

China  Eastern 7:35:00  AM 9:45:00  AM 2:10:00 A330 $102.71  

Train 7:30:00  AM 12:23:00  PM 4:53:00 $93.00  -­‐$167.00

Beijing Shanghai  (QIO) 12-­‐Jun 30-­‐Jun

Air  China 7:30:00  AM 9:40:00  AM 2:10:00 777 $210.09  

China  Southern 8:35:00  AM 10:50:00  AM 2:15:00 A321 $210.09  

China  Eastern 7:30:00  AM 9:40:00  AM 2:10:00 757 $$66.84

Train 8:00:00  AM 12:05:00  PM 4:05:00 $93.00  -­‐ $167:00

Beijing Guangzhou 12-­‐Jun 30-­‐Jun

Air  China 8:05:00  AM 11:05:00  AM 3:00:00 A321 $303.00  

China  Southern 8:30:00  AM 12:10:00  PM 3:40:00 A320 $303.09  

China  Eastern 5:45:00  PM 7:40:00  PM 1:55:00 738 $154.88

Train 1:05:00  PM 10:32:00  PM 9:27:00 $144.00  

Guangzhou Shangha(puong) 12-­‐Jun 30-­‐Jun

Air  China 9:00:00  PM 11:15:00  PM 2:15:00 A340 $235.00  

China  Southern 7:30:00  AM 9:45:00  AM 2:15:00 A320 $195.54  

China  Eastern 7:35:00  AM 9:45:00  AM 2:10:00 320 83.15-­‐ $195.54

Train 6:11:00  PM 10:08+1 15:57:00 $35.00  

Guangzhou Shanghai  (QiO) 12-­‐Jun 30-­‐Jun

Air  China 9:20:00  PM 12:00:00  PM 2:40:00 737 $235.09  

China  Southern 9:00:00  AM 11:20:00  AM 2:20:00 A320 $235.09  

China  Eastern 9:30:00  AM 11:45:00  AM 2:15:00 737 $83.15-­‐ $195.54

Train 12:31:00  AM 8:14:00  AM 7:43:00 $16.00