08-076 August 11, 2008
E-commerce at Yunnan Lucky Air
Inaki Berenguer, Cai Shijun, Li Liang, Liu Jing, Ningya Wang
Preserve the essence of traditional Chinese culture while learning from successful models of the world. - Yunnan Lucky Air, statement of corporate culture Fortune had favored Yunnan Lucky Air. Four years after its founding in 2004, Lucky Air had grown into a US$104.3 million (RMB720 million) low-cost airline, serving domestic routes from its hub in Kunming, the capital of southwestern Chinaâ€™s Yunnan province. Yunnan was one of Chinaâ€™s top tourist destinations, famous for its beautiful landscape and multi-ethnic culture, and Lucky Air had successfully attracted over 1.2 ...view middle of the document...
Jonathan Lehrich. Copyright Â© 2008, Massachusetts Institute of Technology. This work is licensed under the Creative Commons AttributionNoncommercial-No Derivative Works 3.0 Unported License. To view a copy of this license visit http://creativecommons.org/licenses/by-nc-nd/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA.
E-COMMERCE AT YUNNAN LUCKY AIR
Inaki Berenguer, Cai Shijun, Li Liang, Liu Jing and Ningya Wang
cutting edge of technology and reap the same rewards as Southwest Airlines and similar U.S. competitors. Yet Lucky Airâ€™s executives had to decide what was right for their company, customers, and market. If they chose the wrong expansion strategy or missed the mark with e-commerce, then the companyâ€™s luck might run out forever. Passenger Aviation in China Chinaâ€™s airline industry had benefited from the countryâ€™s rapid economic growth in the previous decades and the significant increase in Chinese peopleâ€™s disposable income. The Civil Aviation Administration of China (CAAC) anticipated an average annual growth rate of 15% for air traffic up through the year 2020. In 2007 alone, passengers in China increased to 387 million, a 16.8% jump from a year before. Roughly 349 million passengers traveled on domestic flights, a 16.7% annual increase, and 38 million passengers traveled on international flights, a 17.5% annual increase. Moreover, an increasingly large percentage of these passengers traveled for vacations and leisure and paid the airfare themselves (see Exhibit 1). There were 25 airlines operating in China by the end of 2007. The three biggest national airlines â€“ Air China, China Eastern Airlines, and China Southern Airlines â€“ dominated domestic air travel, accounting for a combined 83.7% market share. The airline industry was heavily regulated, but recent years had seen some relaxation of government regulations and the founding of a number of new airlines. A wave of new low-cost airlines had emerged, making domestic travel more affordable for everyone. Analysts estimated that about 780 routes were appropriate for low-cost flights, based on route popularity, trip length, and similar factors, and that by 2013 25% of passengers would be carried by low-cost airlines with a projected growth rate of 20% per annum.1 The growth potential attracted many new entrants and intensified competition. Government regulations restricted airlinesâ€™ ability to reduce ticket prices, yet the sheer abundance of low-cost airlines pressured each to lower its ticket prices as much as possible. Some airlines opted to expand beyond offering flights alone. Spring Airlines, launched in 2005 and based in Shanghai, flew to 23 destinations within China and had achieved US$72 million in revenue and US$4.3 million in net profit by the end of 2006. The key to Springâ€™s growth strategy had been the decision to pursue the large Shanghai tourist trade by offering discounted tour packages. By...