An Investigation of Hainan Airlines in the Aviation Industry

AN INVESTIGATION OF HAINAN AIRLINES IN THE AVIATION INDUSTRY
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Contents 1.       Introduction. 3 2.       Discussion. 3 2.1 Strength and Weakness. 3 2.1.1 Strengths. 3 2.1.2 Weaknesses. 4 2.2 The Competitive Environment and its Challenges. 5 2.3 Development Strategy. 7 2.3.1 Non-Distressed Market. 7 2.3.2 Distressed Market. 8 3.       Conclusion. 10 4.       References. 12   List of Figures Figure 1: Value Chain Analysis of Hainan Airlines. 4 Figure 2: Market Position of Hainan Airlines. 5 Figure 3: Annual Earnings of Hainan Airlines (in Billion Yuan) 6  
An Investigation of Hainan Airlines in the Aviation Industry
1 Introduction
The sudden outbreak of COVID-19 has badly affected the aviation industry, with many airlines depicting a sharp downfall in customer calls and profit-making. According to the International Air Transport Association (IATA), the airline sector’s loss is estimated at around $126.4 billion in 2020 (Mtahk, 2023 2). However, the industry is forecasted to recover gradually due to the increased vaccination ratio and the lifting travel bans. Hainan Airlines (HA) is a Chinese airline based in Haikou, Hainan Province. As of 2021, the airline managed a fleet of over 200 aircraft and entertained more than 100 national and international flight operations. HA has been expanding its global presence vigorously and has launched new routes to more destinations like Sydney, Boston, and Tel Aviv. In 2019, HA reported a significant loss of around 4.6 billion Yuan (almost $650 million) due to intense competition and rising operational expenses (AboutHainan, 2023). However, the airline has executed various cost-reducing plans and streamlining strategies to uplift its revenue generation. All the major airlines, including HA, are expected to face particular challenges in the short term due to the repercussions of the pandemic but can experience growth in the long run as the industry would get recovered.
2 Discussion
2.1 Strength and Weakness
2.1.1 Strengths. HA has a robust domestic framework and facilitates passengers with more than 50 domestic destinations, allowing the airline to capture an extensive share of the Chinese market. HA has been working vigorously to improve its international presence by launching new routes to Europe, North America, and Australia destinations. It has enabled the airline to modify and upgrade its revenue generation by curbing its dependence on the domestic market. Furthermore, HA is also one of the members of the global airline alliance, the HNA Group (AboutHainanAirlines, n.d). As shown in the figure below, this gives the airline access to a larger ratio of customers and enables it to offer efficient interconnections with other airlines within the alliance by upgrading its value proposition (AirlineValueChain, n.d). Similarly, the airline has an elite yet modern fleet of over 200 aircraft, including narrow and wide-body planes. It enables the airline to operate efficiently and function accurately for its passengers to get them high comfort.
Figure SEQ Figure \* ARABIC 1: Value Chain Analysis of Hainan Airlines
2.1.2 Weaknesses. HA has struggled with profitability enhancement and reported a heavy net loss in 2019. The airline has faced intense competition with rising operating costs, putting pressure on its financial performance. Also, HA has faced safety issues, including incidents such as an emergency landing due to engine failure in 2018. These concerns have enhanced some customers’ negative perceptions of the airline (Chua, 2019). Similarly, HA has a relatively low brand recognition at the international level, making it difficult for the airline to attract customers internationally and to keep pace with other global airlines. Owing to these issues, the HA has been staggering for being bankrupt ( Zhou, 2021). HA has been expanding its international coverage and is still highly dependent on the Chinese aviation market. Thus, any economic or political disruptions in China could significantly affect the airline’s financial performance.
2.2 The Competitive Environment and its Challenges
HA operates in a highly competitive environment at the national and international levels. HA faces acute competition from domestic Chinese airlines, such as China Eastern Airlines, China Southern Airlines, and Air China. These airlines have a similar route map and compete on price, service quality, and brand recognition. Also, HA competes extensively with international airlines with the same destinations, such as Emirates, Qatar Airways, and Singapore Airlines ( Zhou, 2021). Competitive pricing, high-quality service, and extensive route networks are prime features that make it difficult for HA to attract international passengers.
Figure SEQ Figure \* ARABIC 2: Market Position of Hainan Airlines
(CAPA - Centre for Aviation, 2015)
Likewise, HA also faces issues from low-cost flight carriers like Spring Airlines and China United Airlines. These airlines offer lower prices to attract budget-conscious travelers and provide tough competition to other flag carriers (Mtahk, 2023 3). The challenges that HA has to tackle in this competitive environment include:
* The airline industry is highly competitive, and HA faces intense competition from domestic and international airlines. It can pose pressure on the airline’s competitive pricing and profit-making strategies.
* The airline industry is susceptible to economic fluctuations and geopolitical security issues, which can significantly affect the company’s passenger demand and profit ratio.
* HA operates in a heavily regulated sector, and compliance with regulations can be extensively challenging and costly (Mtahk, 2023, 4). In addition to these factors, regulation modifications or government policies can affect the airline’s operations and revenue generation.
* Customers’ preferences and expectations can change rapidly, and airlines must meet these demands. HA must continuously innovate and upgrade its services to sustain competitively in the market.
2.3 Development Strategy
Figure SEQ Figure \* ARABIC 3: Annual Earnings of Hainan Airlines (in Billion Yuan)
(Statista, 2023)
2.3.1 Non-Distressed Market. Before the COVID-19 crisis, HA could focus on several development tactics to sustain its competitive position and market growth. As shown in the figure above, the company has been earning extensively using a sound blend of financial, economic, and operational tactics. HA could continue to expand its international scope by initiating its operations on new routes t...