Introduction
According to United Nations (2008), deregulation of the airlines in the recent years has resulted to free strategic choice making in terms of fares and network structures. Most airlines, including Hainan opted for the hub-and-spoke networks, which resulted to increased concentration of traffic on spoke routes and increased savings from the fewer routes. The advantage from the same was maximizing the traffic densities due to the use of large crafts along the routes. However. Graham (2013) outlines that the system adopted has resulted to congestion in airports and a high number of flights have been affected by delays, missed connections and cancellations. Therefore, airport congestion is a major policy issue that has to be addressed.
Hainan airlines was founded in 1989 in one of the largest economic zone in China. In 1995, the company established its first executive operations with Bombardier Learjet 55 and owned shares in an airport when the company purchased 25 percent stake at Haikou Meilan international airport. By the year 2000, the company controlled a number of airlines including Shanxi airlines. Despite operating a largest airline in China, the company also operates a number of subsidiaries such as 11 airports and other commercial businesses.
Historical growth trend
The company begun its executive operations in 1995 with a Bombardier Learjet and by the year 1998, it became the country’s first carrier to own shares in an airport. It became Hainan airlines group in the year 2000. In 2007, HNA Group formed a new company Grand China Airlines Holding and aimed at merging all the company’s aviation subsidiaries. The group also invested in other airlines such as Beijing capital airlines.
Global cities such as in china enjoy strong global ranking due to airport capacities. This is because of the high value economic activities with high propensity of using the city’s air travel.
Airport congestion
Airports offer global connectivity to countries and promote tourism, exhibition and conferencing. Activities in airports that result to congestion include long-haul intercontinental services, charter services, domestic services, freight, private business aircraft and general aviation among others such as emergency services. Most airports have lots of segmentation in order to ease congestion and increase their services. However, there are other factors to consider that keep facing busy airlines such as Hainan airlines. Such include airport bottlenecks like global air traffic systems that contribute to congestion, environmental constraints that lead to introduction of restrictions and complicated multi-airport systems resulting from functioning and geographical segmentation (Graham, 2013). Any of the constraints and bottlenecks will eventually affect demand for airport and airline services.
In response to China’s major airport congestion, Hainan airlines is one of the major airlines that plan to be forced a way from major airports to offer long-haul flights. Additionally, this is in response to increasing demands from international flights for space in major airports; hence, resulting to the airline to look into other cities in the country as ports of entry to China. Hainan airlines, alongside china eastern airlines is the dominant airline for long-haul routes from Beijing, Guangzhou and Shanghai to Europe and US.
Major airports in China have had increasingly high demand for slots from international airlines to increase their frequencies plus others wanting to launch their services. This has led to increasing congestion that has resulted to Hainan airlines among others to seek alternatives. Sources indicate that Beijing capital had 557,167 aircraft movements and an accommodation of 81.2 million passengers in 2014. The number of airlines and passengers have exceeded the airport’s capacity of 76 million passengers.
In response to congestion, Hainan airlines entered the Beijing-Chicago market and launched the services with Boeing 787 Dreamliner. This was one of the steps towards establishment of long-haul services as a response to congestion at the airports in china. The airlines will have approximately 860 seats weekly. By the year 2011, Hainan improved its performance along the Seattle route and recorded 81 percent passenger load. Considering the fact that investing in capacities is costly and the complexity of congestion pricing cannot be overlooked, it is imperative that the problem of airport congestion be addressed and key policies implemented.
Delays in airports are one of the effects of congestion (Graham, 2013); which is why most of the airlines, including Hainan, have reduced their frequencies, although it is not clear in hub airports; hence, Hainan as an operator in hub airports is less sensitive to congestion in the choice of the airline flight frequencies.
As highlighted above, the major effects of airport congestion is delays and flight cancellations. Beijing capital airport is one of the major airports in china with massive congestion that has affected many airlines, including Hainan. In response, the capital has implemented plans to have a third airport to handle well over 72 million passengers to take the pressure off Beijing capital airport.
Air travel in china is fast growing and is the world’s second largest although is experiencing heavy air traffic, yet there is a tight control of air space by the country’s military; hence, giving the country a worst record of delays for the flights. Therefore, Hainan airlines is faced with flight delays and cancellations and has experienced air rage in flights and airports.
Generation of demand for the Hainan airline services
The high demand for the airline services is related to the full services associated with the good reputation for the comfort and safety of the customers. Other inflight services that result to increased demand for the services include the choices for main meals and beverages, the audio and video demand on long haul routes to America, Europe, Africa and Australia. The airline has seatback screens with channel choices. For the business class, the airline offers attractive services including restaurant quality meals and beverages, baggage allowance of 32 kilograms and in seat privacy screens among others. These are some of the reasons as to why rerouting and hub-and-spoke networks are some of the options that the airline has
The company has its strengths in the recent trend of high profitability, which is attributed to the quality of services including networking to all major destinations within China, USA and Europe; competitive pricing with better value for money in comparison with other Chinese airlines; and best quality catering services (Asiaweek, 2010). Another attractive package for the customers of the airline service include the premium classes and lounges where the company offers classy business class travel services across Europe, Asia and America. Additionally, the economic class is unmatched to provide the best flying experience in comparison with other Asian airliners.
Level of growth predicted by FAA
Basing on the fact that Hainan airlines started with only 2 aircrafts and now they have more than 300 planes in 10 airlines, the company plans to improve its accommodation and transportation services. The company has had a number of mergers and acquisitions over the past decade, which makes the future bright for the company. Exploration of the global markets, for instance, exploring Europe and USA, will help the company to expand.
Although the federation aviation administration does not rank airlines according to their safety, it lists countries according to their substandard aviation rules, yet still allows them to fly to the United States of America. In 2013, American airlines struck a deal with Hainan airlines to share information regarding flights that will open up the Chinese market to America. Additionally, the deal enabled American customers to use the Hainan airlines to connect to Beijing and Shanghai (Asiaweek, 2010). The FAA rates the service quality of Hainan, among other few, at five star rating in an annual survey of millions of passengers.
The company has plans of buying 30 Boeing 787 Dreamliners, an indication of fast growth in the company in terms of long-haul fleet. This will be an effective measure of beating the intensifying airport congestion. Congestion pricing may not be internalized fully at the carrier airline levels, especially in airports dominated by monopoly airlines. Therefore, regardless of the market structure, congestion pricing is always necessary as it is welfare improving. Yet it remains unpopular in the real world and the changes in passenger welfare depends on the valuation of time. Under the pricing strategy, the airlines’ landing fees is dependent on how much the airline contributes to the congestion (Asiaweek, 2010).
Possible solutions
Although there is not much literature about airport congestion and the eventual airline delays in the Asian market, there is a substantial growth in the Chinese market, which is attributed to airline liberalization and the rapid economic growth in the region (United Nations, 2008). Hainan airlines has, therefore, become one of the victims of airport congestion.
One of the solutions adopted for the situation include introduction of long-haul flights in order to complement the preexisting short haul flights. The company has acquired large carrier crafts for the long haul flights.
Another solution to airport congestion that the company experiences is airport expansion. China has begun the expansion process with building of another airport a few miles from Beijing capital airport, which is the busiest in the country. Expansion of the airport hubs across the country will enable the hubs to handle the expected growth in in the Hainan airlines. Among the ten airports managed by the airliner, close to four are in the process of expansion, as a way to ease congestion.
Apart from that, the airliner has automated its services to avoid dealing with a large capacity of passengers and cargo. Currently, a passenger can book online and only present himself for checking and approval before boarding the plane. Communication has been improved because the customer care attendants have the capacity to call passengers directly and inform them about the status of the flight they expect. This means that at any point in time, an airport has only passengers who are almost flying or those who are arriving, but not those waiting.
Conclusion
Hainan airlines is one of Asia’s largest airline companies and has more growth options through exploitation of new opportunities in the market such as making mergers and acquisitions across the country, and the continent. Exploitation of the skyrocketing growth rate and profitability to invest in the global market will play a vital role in sustaining profitability. However, it has plunged the firm into experiencing congestion problems because of increased capacity of cargo and passengers at airports. Nevertheless, the firm has introduced long-haul journeys where large planes carry many passengers and cargo. Apart from that, the firm is expanding some of its airports to ease congestion. Automation of its services has helped in facilitating good communication and operations within the airports.
References
Congestion at hainan airport. (2010). In Asiaweek (13th ed., Vol. 20). Asiaweek.
Graham, A. (2013). Managing Airports 4th Edition an international perspective. (p. 344). Hoboken: Routlege.
United Nations. (2008). Review of developments in transport in Asia and the Pacific, 2007: Data and trends. (2nd rev. ed.). Bangkok, Thailand: United Nations Economic and Social Commission for Asia and the Pacific.
