HNA case study Essay

1. What contributed to HNA’s success in the China Airline Industry? 1. China’s prosperous market conditions Rising middle class (rising per capita income) Entry into WTO ïÆ'   growth in imports and exports Migration of rural population into urban cities Influx of foreign investment 2. Deregulation of civil aviation market 3. Strategic Decisions: Unconventional approach for a regional start up airline – chose to compete as a trunk line feeder Development of feeder routes in Western China – consistent with government plan to develop the â€Å"Silk Road† Effective acquisitions that helped them to expand faster 4. Effective utilization of capital markets (internal and external) to expand operational scale and lower operating costs 5. Culture Encompasses Chinese culture and Western modern management Lazy Ant Theory and Swapping System 6. Quality Excellent flight safety standards Punctuality rate is first in China 7. Clear Strategy: To be low cost provider Focused on cost structure and operating efficiency Cost per ASK was very low Lower maintenance cost Similar model of planes Ran aircrafts longer Investment in technology Lower staffing cost per ASK 8. Started outside CAAC – did not have to adhere to government standard. Forced them to be more aggressive 9. Strong Interrelation among the blocks of businesses contributes to increasing revenue for their airline business 2. What are the challenges that the company faces at both the business and corporate levels? Business Unit Price of Oil (airline) High financing costs (airline) Entry of budget hotel competitors (hotel) Entry of upscale international franchise (Hilton etc) into hotel industry (hotel) Credit rating firm downgraded the airline to second lowest rating Corporate level High debt level puts the company into difficulty of raising funds to expand Relative industries block – important to maintain relevance to its airline business 3. Was the company’s increasing breadth a distraction to the airline business or a route to competitive advantage? The increasing breadth might work in favor for HNA’s airline business as they seek to revamp itself into Grand China Airline. By increasing its breadth, it can help to strengthen the new airline brand name to other parts of the world. Particularly for the hotel business, HNA can utilize them to promote the brand presence of its airline business to tourists. However, HNA need to be careful of the breadth of business it can extend to. It should be kept within the boundaries of the airline industry such that whatever industries it is trying to expand to, it should contribute directly to its airline business (obvious synergy). For example, the departmental store business does not create synergy with the airline business.