Submitted in part fulfilment of the requirements for the degree of Master of Science in Air Transport Management
Investigate the development of
Low-Cost Ca
ier in China domestic market
y
Jiayao Chen
6702118
Faculty of Arts and Social Sciences
University of Su
ey
September 2022
Word count: 15000 䏿–‡30000å—
© Jiayao Chen
i. Executive Summary
RYAN AIR, EASY JET, SOUTHWEST AIRLINES and AIR AISA are some of the low-cost airlines, given their unique geographical advantages, their constant efforts on reducing cost and their intention of developing the low-cost business model to the extreme, they have managed to survive and become the winners of this game. Their presence is a challenge to traditional management models launched by advanced management models, which has undoubtedly led to the healthy development of the global civil aviation market. However, the Chinese airlines have also pioneered their own low-cost airlines, influenced by the vigorous development of low-cost business strategies by airlines in Western countries. In 2005, Low-cost aviation in China started, with the establishment of Spring Airlines. During that period, low-cost business strategies did not work well in China at first due to the control over the number of ca
iers on the same route by government. There was also civil airspace control, fare control, pilot recruitment control and the monopoly of traditional airlines on the civil aviation market.
China's civil aviation market is now expanding at an alarming rate as the country's national consumption level continues to rise and more young people choose to travel by air. China, a s the second largest air traffic volume in the world, is rapidly relaxing its air traffic control, with the Civil Aviation Administration of China (CAAC) promulgating policies that are conducive to the development of low-cost airlines. The low-cost airlines, represented by Spring Airlines, Jiuyuan Airlines, Aokai Airlines, Juneyao Airlines and Xiangpeng Airlines, have gradually created their own distinctive low-cost business strategies in this environment and, in particular, Spring Airlines has given astonishing and satisfactory financial profitability statements for several years in a row, even under the adverse circumstances of the Covid-19, they still performing
illiantly with strong growth and profitability, aiming in impressing investors and the entire airline market.
Therefore, the aim of this study was to investigate the development of low-cost airlines in China up to 2022, after the Covid-19, and to provide a general summary. Apart from what mentioned the above, the other reason for conducting this study is that there was no research has been done in conducting a comprehensive market study of the low cost airline market in Mainland China specifically. Not mention to analyse the extent of its cu
ent market development and status to investigate the cu
ent status and outlook of the low cost airline market in China after the epidemic in particularly.
This study analyses the history and cu
ent situation of global low-cost airlines through a literature review and examines the European low-cost airlines with mature experience in low-cost warfare and summarises the differences between the Chinese and European low-cost airline markets. The following part is an in-depth analysis of the cu
ent situation of Chinese low-cost airlines, using various research approach and models with a large number of examples of famous Chinese low-cost airlines: Spring Airlines, and several other Chinese low-cost airlines that have adopted low-cost business strategies. Thirdly, the difficulties and advantages of Chinese low-cost airlines are analysed in comparison with China Southern Airlines, and the strengths and weaknesses of Chinese low-cost airlines are analysed, with a summary and outlook on their development strategies.
Highlights:
Through the results of the analysis, some significant elements that were highlighted to be important:
Firstly, the market for low-cost airlines in China is favourable and the demand for low-cost airlines in China remains very strong.
Secondly, the findings show that there is a significant gap between Chinese LCCs and European LCCs in terms of size and revenue. The reason for the gap is mainly because of the market conditions difference. The LCC market in China still has many limitations as there is a big gap in terms of purchasing and maintaining aircraft compared to European and American countries.
Thirdly, the scale of China's low-cost airlines is still very different from that of European and American low-cost airlines, and it is not feasible for China's low-cost airlines to simply imitate the operation mode of foreign low-cost airlines.
Fourthly, as low-cost airlines have not existed in China for a long time, Chinese do not have a high level of recognition of low-cost airlines, however, as the changing of public's perception, so that China's low-cost airline industry can be developed sustainably by establishing a fair market environment, effectively reducing controllable costs, which as further improving the service quality as well as establishing an excellent corporate culture.
Fifth, the relaxation of national policies has been decisive for the development of low-cost airlines.
Sixthly, we analyse the difficulties encountered by low-cost airlines in China at the level of national policy, at the level of company management, at the level of lack of hardware, and at the level of the company.
Seventhly, it also examines the domestic and international competition for Chinese low cost airlines, such as other low cost airlines in Asia and traditional airlines in the domestic market, as well as China's high-speed rail.
Eighthly, it is also desirable for low-cost competitors - the traditional airlines - to implement a low-cost operating model.
Ninth, the production of China's COMAC C919 will provide a huge cost advantage for China's low-cost airlines.
Limitations:
Due to the time constraints of the study, this paper only uses Spring Airlines as an example of a low-cost airline in China. The number of companies analysed for Chinese low-cost ca
iers is too small. Subsequent researchers can study other LCCs in China and summarise the problems encountered by each LCC. As there are not many LCCs in China, a SWOT analysis can be conducted to summarise the most significant problems encountered by LCCs in China. Due to the time constraints of the study, a single qualitative approach was chosen for the study, which dictated a number of methodological weaknesses. Firstly, the subjective nature of the study is inevitable. venkatesh et al XXXXXXXXXXpoint out that a distinct disadvantage of qualitative research is that it is a research framework based on subjective experience, which means that opinions from others or the researcher himself occupy a large part of the qualitative research. This can compromise the objectivity of the study and cause the researcher to place too much faith in the available evidence and lead to misjudgements.
The findings concerning that the future of the Chinese aviation market may lack secondary airports and the co
esponding manpower and management personnel.
For future research, studies could be ca
ied out on the possibility of developing long-haul low-cost airlines in China, as well as on the development of airport infrastructure in China, such as secondary airports, or the development of the aviation sector.
Keywords: low-cost airlines, low-cost business strategy, Spring Airlines, PESTEL, Chinese aviation market.
ii.Declaration of originality
I hereby declare that this thesis has been composed by myself and has not been
presented or accepted in any previous application for a degree. The work, of which
this is a record, has been ca
ied out by myself unless otherwise stated and where the
work is mine, it reflects personal views and values. All quotations have been
distinguished by quotation marks and all sources of information have been
acknowledged by means of references including those of the Internet. I agree that the
University has the right to submit my work to the plagiarism detection sources for
originality checks.
Author’s Name: Jiayao Chen
Author’s Signature: JY C
Date: XXXXXXXXXX
iii.Table of contents
iv.List of Tables
v.List of Figures
vi.List of a
eviations
Aircraft total number – the total number of aircrafts a airline company owns.
Aircraft age (av.) – the average age of all aircrafts by airline.
ASK/M - available seat kilometres, a measure of passenger ca
ying capacity (de Boer, 2018).
Airport number – the number of airports served by an airline.
Load factor - a measure of an airline’s passenger ca
ying capacity.
Total revenue - the combination of all incoming sources of money that the company has earned through the selling of air ticket and relevant services.
Net profit - total revenue minus total expenses.
RPK - revenue passenger kilometres, the number of kilometres travelled by paying passengers (Cui & Li, 2017).
Operated aircraft utilization (hours per day) - average daily flight time for all aircrafts.
9C-Spring Airlines
SZ – China southern airlines
vii. Acknowledgements
I would like to take this opportunity to thank everybody who has supported me during this research project.
I would like to express special gratitude to my supervisor, Dr. Bennett, for the incredible support, professional advice and guidance I have received during this project.
I am also very grateful to all the study participants without whom the research would not have been possible.
Finally, I would like to extend my gratitude to my family who made my studies at the University of Su
ey possible.
Chapter 1: Introduction
1.1 Research Background
1.1.1 Overview
After more than 40 years of development, Southwest Airlines has become one of the top three airlines in the United States and has maintained a record of 40 consecutive years of profitability. This was followed by a wave of low-cost airlines in Europe, which became a huge success in the European civil aviation market, with traditional network airlines losing a large number of passengers to the rise of low-cost airlines. The Asian low-cost market has grown rapidly since the turn of the century and has become the most interesting segment of the global aviation market. With China's civil aviation market being the second largest in the world after the United States, it has naturally become a key target for low cost airlines in the Asia Pacific region to expand. As early as the 2012 summer and autumn airline season, AirAsia, Thai AirAsia, Tiger Airways, Jetstar Asia and Cebu Pacific, and several other Asia Pacific low cost airlines, have opened more than 20 routes in mainland China. International low cost airlines in Southeast Asia are rapidly developing and taking the lead in capturing the airline market adjacent to China and Southeast Asia.
At the same time, China's civil aviation industry is also being impacted by high-speed rail, which has two most important advantages over aircraft: price and punctuality. In terms of price, in any case, fuel-powered air transport will never be able to beat electric-powered high-speed rail, as has been proven in both Japan and Europe. In terms of punctuality, according to the "National Civil Aviation Flight Operation Efficiency Report 2017" released by the Civil Aviation Administration of China, the punctuality rate of China's civil aviation flights in 2017 was 71.67%, reaching a peak of 88.33% in December