Yunnan Lucky Air

The worst sort of business is that grows rapidly, require significant

capital to engender growth and than earns little or no money. Think
Airlines.
~ Warren Buffet

Leveraging information technology & Obsession with lowering cost

gives strong wings to fly.
~ Team Ahmedabad
 Organisation Profile
 Low cost model,
Founded in 2004
($2.20 Mn) with
hub in Kunming
 Good growth numbers
on YOY basis,
Breakeven in first 03
years
 Monopoly in
Yunnan Province
 5 Boing 737-700
aircraft with 148
seats, load factor
81.4% in 2007
 1.2 Mn travellers &
$ 104.3 Mn
Revenue in year
2007 alone  Strong IT support from
parent Hainan Airline
 PESTLE Analysis of Yunnan Lucky Air
Political Factors Social Factors
• Heavily regulated airline
Economic Factors • Rising Per Capita Income
• Rapid Economic Growth • Untapped tourist
industry
• Significant increase in potential.
• Major cost components
disposable income. • Low Trips per capita.
heavily influenced by
• Increase in leisure travel. • Less No of frequent
Govt. Regulations.
• High fuel costs/ advance flyers.
• Significant pricing
payments. • Fewer airline related
regulations
• Higher Landing Fee. holiday destinations.
• High security concerns
Technological
• Web Based ticket
booking. Legal Environmental
• Use of technology to
expedite check-ins. • Route Optimization.
• Subject to Legal Suits
• Increasing opportunity for • Fleet Optimization.
due to Government
E-Commerce. • Low Carbon travel.
regulations.
• Increased demand for in-
flight services.
• Newer, more ideal aircraft
 Impact Analysis

Impact
Factor Trend Evaluation (1-low, Rank
5-high)
• Pricing Regulation • Threat 4
Political • Increased Security Provisions • Threat 2 4
• Wage Increase • Threat 3
• Rapid Economic Growth. • Opportunity 5
• Significant increase in disposable income. • Opportunity 4
Economic 1
• High fuel costs and advance payments. • Threat 4
• High city based Landing Fee • Threat 3
• Low Trips per capita
• Opportunity/ Threat 3
• Less No of frequent flyers.
• Opportunity/ Threat 3
Social • Rising Per Capita Income and untapped tourist • Opportunity
3
4
potential. • Opportunity/ Threat  3
• Fewer airline related holiday destinations.
• Decrease in offline travel agencies. • Opportunity/ Threat 1
• Web based ticketing. • Opportunity 4 2
• Entry of websites like Orbitz. • Opportunity/ Threat 3
• Opportunity
Technological • Use of technology to expedite the check-in process. 4
• Opportunity/ Threat
• Increased demand for in-flight technology. • Opportunity 2
• Improved aircraft designs. 4
 Porter’s Five Forces Model Analysis

Entry Barrier
Threat
Threat of New
New Entrants
ofHIGH Entrants

Bargain Power of Suppliers

Competitive Bargain Power of Buyers.
HIGH
Bargaining
Bargaining power
power of
of Bargaining
Bargaining power
power of
of
Rivalry MODERATE
Fuel/Aircraft /Ticketing
Suppliers
Suppliers Buyers
Buyers traveller
HIGH Business/Casual

Power of Substitute
Threat of
of Substitute
Threat LOWSubstitute
products
products and
and services
services
Automotive / Locomotive
 Conclusions of Environmental
Scanning
Economic and technological factors would be the key areas

Moderate to high bargaining power of stakeholders

The airline industry is not an attractive one when it comes to starting a company
or even investing in

Key Trends in the Aviation Market

1
• China to become world`s largest aviation market by 2024 ~IATA
• Air travel growth -15% CAGR
2

3
• Continuing growth of low-cost carriers
• Increased congestion at Airports
4
• Greater market access for different airlines (will lead to greater
5 competition)
6
• More megacities
 S
• Early Mover among Low Cost
• Varying return on Investment W
• High Lead time in Aircraft
Airlines
Procurement (Leasing/Purchase)
• Strong Parent Organization
• Less cost advantage over industry
• Strong information technology
average
infrastructure
• Limited ability to increase price/
• High Capacity Usage
respond to market dynamics
• Monopoly in Yunnan Province
• No hedging of fuel prices
• Relatively young aircraft fleet
• Limited Operational Area

• Economic Boom
• Government Regulations
• Untapped domestic & International
• Formidable competition
destination
• Gas/Oil Price Fluctuation
• Technology Advancement
• Third party Online Ticket Sales
• Airline Alliances
• Expansion of High-Speed rail
• Online ticket booking
Network
• Inflight Entertainment (Payment
• Increase in labour cost
Basis)
O T
 BCG Matrix
High Low
High
Market Growth Rate
Low

Relative Market Share

 Grand Strategy Matrix
Rapid Market
Quadrant 2 Growth Quadrant 1
Product Development Product and Market Development
Market Development Market Penetration
Market Penetration Backward Integration
Horizontal/Vertical Forward Integration
Integration Concentric Diversification
Liquidation/ Divestiture
Week Competitive Strong Competitive
Position
Position

Quadrant 3 Quadrant 4
Retrenchment Related/ Unrelated diversification
Related/unrelated diversification Horizontal/Vertical diversification
Conglomerate diversification Conglomerate diversification
Liquidation/ Divestitures Joint ventures

Slow Market Growth

 Strategic Options
Cost • OPEX optimization
• Focus on web based services including e-ticketing
Leadership • Manpower optimization through IT

• Cutting-edge IT technology to create value for

customer
Differentiation • Customer friendly CRM programs
• Brand development
• Flying from greenfield airports
• E-Commerce Company as a Subsidiary
• Tie-up with credit card/payment gateway
Integration companies
• Code sharing with other airlines for route
optimization

• Travel and hotel business to drive other source of

Diversification income
 Action Plan
• Setup E-Commerce subsidiary to:

Handle Ticketing
offering
Paperless
Bundled Tour Packages value added
travel
services.
Service Self service
Reducing human Customer loyalty Improvement KIOSKs for
intervention programs from customer
Feedback
check-in

• Integration with local hotel and taxi services

• Targeting students/Group/Corporate Travel
• Purchasing/Leasing young and efficient aircraft
• Acquiring/ leasing small aircrafts to connect people to main hubs.
• Association with existing high speed train services and cabs/buses for pick-up
and drop.
Projected Outcome of Strategy
Cost saving and revenue generation
through e-commerce initiative

Improvement of services through

customer feedback on web-portals

Enhancing loyal customer through

improved CRM

Additional revenue generation by tapping

smaller cities

Reduction in maintenance cost

 Projected Growth of Lucky Air
Projected Growth
120

100
Revenue (10 Million $)
80 Number of Passangers (In Million)
Load Factor (%)
60 Fleet
Cost Structure(%)
40

20

0
2004 2006 2007 2010 2013
THANK YOU….