Domestic Passenger Airline Market In China

2267 words - 9 pages

China, with its extensive territory, large population and rich tourist resources, holds great potential for the development of civil airline market. What I am focusing on this report is the domestic passenger airline services offered in the People's Republic of China. Airline service in general is more like a banded consumer good. We all know that airline companies like BA, KLM, easyjet etc. We can enjoy different in-flight amenities when board on different company's flights. An airline passenger market can be generally divided into two segments-business travellers market and leisure travellers market. Those are the common features for airline market. While the domestic passenger airline industry in China has just begun for about 20 years since it separated from the military sector in 1982. So compared with the other western country's domestic airline market, the stage it is at is very preliminary. Government role is still crucial in this immature market. So the airline passenger market in China is very dynamic, fully reflects its special characteristics at this stage of development and the common features in the passenger airline industry.I would like to introduce the China Passenger market by mainly 3 parts, current market supply and demand conditions, income and price elasticities of airline service, strategy of driving demand of airline travel etc.Table 1The current China passenger airline market share division is like that. Before the restructure of the airline industry in November 2002, there are total 28 passenger airline firms in China owned by the state. China Southern Airline, China Eastern Airline and Air China together dominated the market in terms of share value. However, these dominant players together only accounted for 46.5% of the airline market in 2002. By nature of this industry large scale of operation benefits most, so an industry restructure is eagerly needed. After the industry restructure at the end of year 2002, the three big firms accounted for almost 80% market share in 2003, left only 20% for the relatively small suppliers like Hong Kong-based Cathay Pacific, Dragonair, and Air Macao.First let us look into the supply conditions in the China airline passenger market. There has always been excess supply capacity in this market for about 10 years. The average passenger airline industry load factor in 2001 is merely 53.4%.This situation is largely resulting from the CAAC's (civil aviation administration of China) price floor policy. Before 1997, the CAAC set a minimum price of 0.90 dollar per kilometer per people in China which was above the global average market price of 0.30 dollar per kilometer. A minimum price is set above the market price. Therefore it has a long term effect on the market of excess supply. Though the government tried to buy up some of the excess supply, many suppliers still tempted to break the minimum price rule and offer sale flight tickets at a price less than the official minimum rate. The result...

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