Porter’s five forces
1Threat on entry
Low economies of scale
Entry barriers for new (cost, gates and slots)
Highly concentrated (southern)
2The power of suppliers
3The power of buyers
4The threat of substitutes
5Rivalry among existing competitors
Air China and China Eastern competitors in this industry
PR public relationship
Sensitive to the price of oil
Replace Japan Airlines in passenger transport ability to rank first in Asia (Japanese Economic News 2009)
While global markets have tumbled over the past month, China Southern has served as somewhat of a safe harbor; the stock has outperformed the S&P 500 over the past month, down only 4% compared to the benchmark’s 8% drop.
Juxtaposed with other emerging market equities, China Southern’s performance is even more impressive: -4% versus -12.9% in the iShares MSCI Emerging Market Index (NYSEARCA:EEM).
The reason why the stock has held up over the past month are manifold. First, the stock had been beaten up badly all year because of rising oil prices. After a ten-month downtrend, the stock may technically be finding a bottom.
China Southern Airlines is particularly sensitive to the price of oil. The Chinese government severely limits the hedging flexibility of its state-run carriers after losing billions on hedges at the beginning of the financial crisis. While such policy is burdensome in times of sky-high oil prices, when the price of oil falls substantially China Southern…