The industry has also embarked in massive airline partnerships in their sale of tickets to enable easier provision of services to over wide distances as they collaborate with various other airlines to cover more travelling distances. This makes it easier for the constantly increasing number of travelers to have their needs catered for.
Since the airline’s image had taken a beating due to the culture prevailing in the organization, particularly among pilots, the carrier decided to go in for a revamp of its HR policies, according to experts. As a first step, the airline brought about a change in management. Chen Shui-bian, President of ROC, removed managers at the top-level and hired a woman chief executive, Christine Tsai-yi Tsung. The company also decided to reduce hiring pilots with a military background as they had become infamous as an “ex air-force flying club.” Instead, it started employing pilots who had worked with renowned international airlines like Singapore Airlines, United Airlines, Cathay Pacific Airways, etc.
PEST Analysis of the Industry
While using China as a case study for the industry, the industry suffered a big blow when the United Nations (UN) officially accepted the communist People’s Republic of China (PRC) as Taiwan’s legal government and the airline’s membership of the International Civil Aviation Organization (ICAO) was revoked. Following the cancellation by the UN, the carrier lost its international contracts with Japan, Malaysia, and Korea. Its significant air route to Saigon was also lost after the collapse of the South Vietnam government. To make matters worse, the 1973 oil crisis halted its soaring profits.
The experts in the industry felt that the airline’s poor reputation could be attributed to its safety record. In addition to this, CAL‟s recruitment policies, corporate culture, and the strained political relations between mainland China and Taiwan were blamed for its troubles. The rising fuel prices and the global economic slowdown only added to its woes. The airline’s history of 50 years of operations was marred by several and frequent airlines disasters (Refer to Exhibit III for Plane Crashes and Significant Safety Events of CAL). The unfortunate disaster record of almost 12 fatal events in its operations history had severely tarnished the image of the carrier.
In addition, in the 1980s, the airline domestic operations suffered and for the first time it registered losses when the rail and road services network improved on the island. Thereafter, the airline concentrated most of its efforts on increasing international passenger and freight services. Limited and China Southern Airlines Company Limited21 carried passengers to China. However, the relations between mainland China and Taiwan remained strained due to the disagreement regarding the political status of Taiwan. While the ROC maintained that it was the valid government ruling both Taiwan and mainland China, most countries held the PRC as the legitimate government following the UN’s recognition of it.
The crash history dated back to 1980, when one of its airliners crashed in Manila, the Philippines. The pilot made a risky landing and touched the ground even before it had reached the runway. The aircraft bounced and finally came to a halt on the runway, damaging two outboard engines and parts of a wing and killing two people among the 122 on board. In 1986, a CAL airliner crashed into an island in Taiwan killing all the passengers on board when the pilot reportedly made an error in judgment and attempted to go around before landing. In 1989, another pilot error led to an air crash. The pilot executed a wrong take-off, and killing all passengers on board.
In addition, in 1994, the pilot took a wrong killing 264 people in Nagoya, Japan. This incident led to a decrease in the airline’s passenger traffic, bringing down its profits to US$ 24 million. Investigations revealed that the pilot had accidentally kept the computerized “touch and go” mode on, which automatically pulled the aircraft up and away before landing. According to World Net Daily, “The pilot, determined to land the aircraft, engaged in a battle for control of the plane. The result was a classic computer “loop.” Each time the pilot pushed the airliner down to land, the computer obediently pulled the jet back up to go around. On the third try, the entire system, including the airliner, crashed.”
Despite receiving criticism from several quarters, the airline didn’t improve its safety standards and witnessed another disaster in 2002, when a Boeing 747 crashed, killing all on board. Of those killed, 190 were from Taiwan, 14 from Hong Kong and Macau, nine from mainland China, and one from Switzerland. To protect itself from public wrath, the airline initially passed on the blame to mainland China and issued a press statement accusing them of intentionally attacking the plane with a missile. The fact that either of these occurred speaks for itself when reflecting on CAL safety record, which is exceptionally bad when compared to other oriental airlines.”
The low standards of maintenance at CAL again came to light in the 2007 disaster. The aircraft caught fire immediately after landing in Okinawa, Japan. Moments after passengers were evacuated, the plane broke up into two parts. The investigation committee found that fuel had been leaking from a hole created by a loose bolt. Investigating officials said, “The bolt that came loose and damaged the fuel tank of the CAL jet that burst into flames at Okinawa’s Naha Airport last Monday likely was incorrectly installed, as a washer and other parts that should have been installed with it have not been found.” According to them, this might have happened during a routine maintenance check-up. According to The BBC’s Jonathan Marcus, “Keeping older aircraft flying is not a problem in itself, but it clearly requires operators to maintain the highest levels of maintenance and to ensure that repair work is carried out to the standards recommended by the manufacturer.” Another fact which further damaged the airline’s reputation was that it had offered an instant compensation amount of US$ 800-900 at the accident site. Industry observers described this as a desperate attempt by the airline to save its image. The step was strongly criticized by the passengers. In addition to this, passengers also complained that the airline crew was insufficiently trained to handle such an emergency situation.
Micro and internal Issues
This move was seen by industry experts as a smart move. As Debbie Wu, a public relations expert at Fu-Jen Catholic University puts it, “China Airlines has undergone many changes ranging from organizational reconstruction to buying new jets and designing new uniforms — changes that consumers have noticed. The public is forgetful, and the airline has diverted attention from the negative news by creating new topics with these moves. It has successfully turned its image around. Estimates by Thomson-Reuters in 2009 predicted a NT$ 762 million profit in 2010 for the airline. On the other hand, some experts felt that the growth outlook for the global aviation industry in 2009-2010 was quite gloomy in light of the rising oil prices and the declining demand for cargo and freight services due to the economic recession.
Core competence
While CAL took steps to revive its image, it also focused on offering benefits to consumers that would attract them to the airline. In 2005, it initiated an “Online ATM” with e-ticketing technology, in collaboration with Cathay United Bank to reduce operational costs as well as provide consumers an easy payment option. Taiwanese consumers could purchase air tickets from the CAL website for international flights using these ATM cards. A Taipei Warehousing Integration Operation System was also launched that provided warehouses, freight forwarders, and airlines with a digital platform to exchange information, shorten procedures, increase cost efficiency, and ensure better service quality to customers.
CAL continuously improved its e-services and from 2007, a B2B2C system Axess was also started that connected the CAL computer reservation system to ticket agencies. This enabled agents all over the world to issue e-tickets to travellers within a few minutes. According to experts, implementation of such an efficient and transparent transaction system for the benefit of customers to select tours, not only improved CAL‟s image but also increased its sales potential. E-service upgrades also helped agents to provide Dynasty Package products to frequent flyer members. An inter-airline e-ticket facility was also started between CAL and 54 major airlines such as British Airways, Cathay Pacific, KLM, US Airways, JAL, Singapore Airlines, Alitalia, China Southern Airlines, China Eastern Airlines, and EVA Airways. Experts opined that such a move to improve e-ticketing procedures would bring down check-in times and reduce the chances of tickets getting lost. This would benefit passengers and at the same time lower operating costs for the company.
Positive issues for the success.
The recruitment procedure at CAL was made stringent. The recruits had to undergo a strict screening process which ensured that the minimum qualification criteria of the pilots were met. This was a bid to curb the rising objections regarding the airlines‟ safety record. To offer training to the new recruits, CAL employed a military flight training method, developed by „BAE Systems‟ to train pilots. Besides regular training programs, CAL also started regular flight simulator tests once in three months. These tests included testing the pilot’s skill under simulated emergency situations. For instance, pilots had to perform a successful landing operation in a simulated situation when the plane failed to function due to bad weather. They also tested a pilot’s skill to control non-scheduled raid situations and emergency situations. During this process, the pilots‟ actions were monitored by a system that recorded any unacceptable behaviour on their part. According to Young, “Pilots failing to pass the tests are required to enhance their skills until they can handle all kinds of critical situations without endangering a single life on board.” The company also took severe disciplinary action against pilots who failed to observe the rules lay down by the company. For instance, it immediately removed a pilot whose blood-alcohol level was 0.087 percent (more than the permitted level of 0.04 percent) before he boarded a flight that was leaving for the US. This prevented pilots from consuming alcohol 12 hours prior to any flight duty.
CAL also arranged for a training program for recruits in the US and Australia to help build up their skills, language ability, and discipline. During the initial years, these newly recruited pilots had to work as co-pilots under the captaincy of the senior pilots who had a military background. An analyst said that one such co-pilot had revealed that “you have to remember at all times that the guy in the right-hand seat is trying to kill you.” However, this initiative led to the pilots complaining that, “they were frustrated when they came back because seniority kept them in the co-pilot’s seat.”
Negative issues against the success
Industry experts felt that the poor safety record of the airline could be attributed to several factors including neglect of aircraft maintenance, bad hiring policies for captains and co-pilots, a lenient flight crew training process, and cost-cutting policies of the management, which sacrificed safety standards. They also suggested that the airline was careless regarding flight simulators and training time of pilots. Another major reason pointed out by industry experts was the ex-air force background of a majority of the airline’s pilots. Airline analysts reported that these pilots were known to have a tendency to take risks that other trained pilots would not take. Industry analysts also suggested that the airline’s laid-back attitude in matters of safety followed from the fact that it was a government-owned airline. According to Bruce Tsao (Tsao), an analyst with Capital Securities, “Their staffs are more like government employees than their counterparts in other companies. It’s an old company with a government background. That mentality may be related to its safety track record.”
While most of its troubles were attributed to its poor safety record, hostile cross-strait relations between mainland China and Taiwan added to the airline’s troubles. From 1949, mainland China carriers had been prohibited from operating services to Taiwan and it was mandatory for all Taiwanese planes to land in the airspace of a third country such as Hong Kong or Macau before flying to mainland China. Such transfer of flights and cargo in Hong Kong or Macau wasted both time (about three times more than the direct route across the 150-km long Taiwan Strait) and money and increased the cost burden for all Taiwanese carriers including CAL.
The carrier faced competition from both Taiwanese carriers as well as China’s aggressive government- owned budget airlines. These China-based Low Cost Carriers (LCCs) not only captured CAL’s market for short-haul flights in the region, but also a significant proportion of its international market of operating nonstop flights to Europe, across the Pacific Ocean. CAL could not adopt an LCC model since the already low labour costs meant less scope for reducing costs further. However, analysts felt that the “regulatory and interfering regime” of Taiwan had been responsible for restricting CAL’s global expansion as an LCC. While much of the threat was from LCC’s, CAL also faced competition from Taiwan-based EVA Airways, an FSA which operated on domestic as well as international routes.
CAL’s problems were compounded by the rise in fuel costs and the reduced passenger volumes due to the global economic slowdown. For the first quarter of 2008, CAL incurred losses of US 98 million. The airline adopted various strategies to lower operational costs like reducing the number of flights by 150 per month and allowing employees to take leave without pay. About 100 passenger services catering to destinations in the US and Asia and 50 cargo services were reduced per month. The saturation of the main airport hubs in Asia and a dearth of secondary airports also posed some operational problems for CAL. It is evident that the airline has been facing lots of challenge. However, there have been strategies to revamp the situation to enable the airline appear in the industry’s mapping.
Strategies options
One of the steps taken by CAL was to cut costs. It simplified its fleet by reducing the kinds of aircraft it operated. According to Wei, “By reducing the types of aircraft we have, we can improve our cost controls even more than through training our pilots and maintenance crews.” CAL reported that fleet renewal and aircraft type streamlining had always been one of the important cost-saving strategies of the airline. In 2007, the average age of the aircraft was only 5.6 years, with only three aircraft types, making it one of the youngest fleets in the world. In 2008, CAL removed two Boeing B747-400s and added a new Airbus A330-300. With this, CAL‟s average fleet age was just 6.2 years.
Since its inception, CAL had operated as an FSA and it continued with this business model rather than going in for an LCC model. The airline felt that the LCC model would not work out for it in view of the restrictive operating environment for Taiwan-based carriers. In addition, its fares were quite low and competitive. There was little scope for further reducing operational costs by lowering the fares even more and thereby increasing demand and total revenues. Thus to beat the competition from other Taiwanese operators and LCCs of mainland China, CAL pursued a different set of strategies to control operational costs and garner profits. It procured new aircraft, entered into alliances with important international airlines to expand its global networks, introduced new routes, expanded cargo business, enhanced in-flight services, and developed its maintenance and safety facilities. According to industry experts, all these steps helped the airline to streamline costs and boost sales.
While the airline continued with its business model, it planned to adopt some characteristics of LCCs to lower operational costs. It introduced a series of e-services on its website www.China- airlines.com, providing on-line booking, on-line individual and group check-in, and on-line baggage tracking services to customers. For business travelers who wanted quick service, it started express passenger check-in service kiosks at two important airports in Taiwan.
References
Lucian Bebchuk & Jesse Fred (2004), Pay Without Performance, the unfulfilled Promises of Executive Compensation. Harvard University Press.
Michael L. Davis, (2008) Executive Compensation: The professional’s Guide to current issues and practices.
Office of the Secretary of Defense, Annual Report to Congress, The Military Power of the People’s Republic of China, 2005
Nolan P, (2004), Transforming China Globalization, Transition and Development, Anthem Press
National Occupational Employment and Wage Estimates 2011.
United States Department of Labor, 2010.
Wendt’s "Collective Identity Formation and the International State", American Political Science Review, 1994
