ECON7002 WANG XUAN [ID: 43627570]
China Eastern Air Holding Company, headquartered in Shanghai, is one of the three largest major state-owned air transport companies in China. ‘The scope of business includes public air transportation, general aviation and air transport operations and the production and sale of related products, aviation equipment and equipment maintenance, passenger air transport, freight services and ground handling, aircraft leasing, and aviation training and consulting services.’1
As the core of it, China Eastern Airlines Corporation Limited is the first listed company in Chinese civil aviation industry. It flies a fleet of more than 500 long-haul serves nearly 6.7 million travelers monthly and ranks among the world’s top 5 airlines in terms of passenger transportation volume.
The objective of this essay is to use the tools of economic analysis and relevant diagrams to illustrate how current or upcoming domestic government policies could affect the Chinese domestic flight lines business of China Eastern Airlines Ltd. and its competitiveness within the domestic market.
TTHE NATURE AND CHARACTERISTICS
During the past few decades, the air transport industry has grown dramatically and has become one of the most essential industries of countries all around the world.
Comparing with other industry, the air transport industry has several unique characteristics, including: 1) the unique production process: spatial displacement of travelers; 2) the unique product form: the fast transportation service; 3) the unique consumption process: the consumption process is combined with the production process (i.e. Consumption process and production process happen at the same time).
The characteristics of airlines companies including: 1) ) long term construction and selling periods; 2) high fixed costs and high debt levels; 3) low marginal profits with high long-term total profits; 4) fierce competition; 5) limitations of climatic conditions and policies.
YPE OF BUSINESS & TYPE OF MARKET
Based on the 2013 annual report of China Eastern Airlines, we can easily get the conclusion that the main business of it is the domestic flight lines business (chart 1).
In Chinese domestic airline market, the market share of China Eastern Airlines fluctuates between 19.84%-23.79% in the past two years (chart 2a).
Three major state-owned air transport companies form a significant presence in Chinese domestic airline market. From this perspective, Chinese domestic airline market is an oligopoly market.
Chart 2a:2 Changes of airlines capacity of domestic airlines In Chinese domestic market (2011-2013)
Market share and geographic position:
China Eastern Airlines’ core strength is rooted in its domestic flight lines business; an annual increase of its market share and the loyalty of its customer base. It serves nearly 80 million travelers annually and ranks among the world’s top 5 airlines in terms of passenger transportation volume.
The headquarter of China Eastern Airlines is located in the Shanghai Metropolis. This city has already flourished as the center of commerce of China and become one of most undisputed financial hubs of the Asia Pacific since the 1930s. It is also a popular tourist destination renowned for its historical landmarks. Compared with the other cities, Shanghai has some distinctive superiorities of developing airlines market in the geographical seat, transport condition and potential market.
Due to the important position…