E-Commerce at Yunnan Lucky Air
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 China’s Yunnan province. Yunnan was one of China’s top tourist destinations, famous for its beautiful landscape and multi-ethnic culture, and Lucky Air had successfully attracted over 1.2 million Yunnan-area travelers in 2007 alone – more than double the number of passengers from the year before. Compared to such major competitors as Air China and China Southern Airlines, Lucky Air operated at a relatively small scale, modeling its low-cost, highefficiency strategy on Southwest Airlines in the United States. And the years of consistently rapid growth seemingly demonstrated the model’s strength. Yet Lucky Air and its parent, Hainan Airlines, were growing concerned. The Chinese airline industry was heavily regulated, limiting flexibility for new airlines. Nonetheless, new low-cost competitors were blossoming, and Lucky Air found itself among an increasingly crowded field: there were 11 low-cost Chinese airlines by 2007, and two more waiting for official approval. Anticipating a potential squeeze, Lucky Air was searching for additional competitive advantages. One option was to focus on e-commerce. Lucky Air’s IT operation was backed by Hainan Airlines, which had one of the most advanced web portals in the Chinese airline industry. True, airline e-commerce was still at an early stage in China, but Lucky Air was eager to position itself at the
This case was prepared by Inaki Berenguer and Ningya Wang (MIT Sloan School of Management, MBAs Class of 2009), and Cai Shijun,
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 China’s Yunnan province. Yunnan was one of China’s top tourist destinations, famous for its beautiful landscape and multi-ethnic culture, and Lucky Air had successfully attracted over 1.2 million Yunnan-area travelers in 2007 alone – more than double the number of passengers from the year before. Compared to such major competitors as Air China and China Southern Airlines, Lucky Air operated at a relatively small scale, modeling its low-cost, highefficiency strategy on Southwest Airlines in the United States. And the years of consistently rapid growth seemingly demonstrated the model’s strength. Yet Lucky Air and its parent, Hainan Airlines, were growing concerned. The Chinese airline industry was heavily regulated, limiting flexibility for new airlines. Nonetheless, new low-cost competitors were blossoming, and Lucky Air found itself among an increasingly crowded field: there were 11 low-cost Chinese airlines by 2007, and two more waiting for official approval. Anticipating a potential squeeze, Lucky Air was searching for additional competitive advantages. One option was to focus on e-commerce. Lucky Air’s IT operation was backed by Hainan Airlines, which had one of the most advanced web portals in the Chinese airline industry. True, airline e-commerce was still at an early stage in China, but Lucky Air was eager to position itself at the
This case was prepared by Inaki Berenguer and Ningya Wang (MIT Sloan School of Management, MBAs Class of 2009), and Cai Shijun,
Cited: August 11, 2008 E-COMMERCE AT YUNNAN LUCKY AIR 12 JetBlue press release, “JetBlue Airways Travelers Take Flight with PayPal” (April 3, 2008), http://www.reuters.com/article/pressRelease/idUS139207+03- August 11, 2008 E-COMMERCE AT YUNNAN LUCKY AIR 15 16 Jupiter Research, “Understanding the Influence of Loyalty Rewards on Online Air Buyers” (2007) August 11, 2008 E-COMMERCE AT YUNNAN LUCKY AIR August 11, 2008 11 Passengers into Yunnan Province, 2007 Breakdown of Arrivals (millions) Chinese Arrivals 21.02 Growth Rate 22.6% nationals 18.80 Foreigners 1.45 Hong Kong 0.34 Macao 0.09 Taiwan 0.34 August 11, 2008 12 Exhibit 3 Yunnan Lucky Air Detailed Costs, 2007 Percentage 36.5% 13.0% 2.5% 17.5% 8.4% 0.2% 0.2% 1.9% 2.0% 1.5% 5.0% 11.3% 100.0% Source: Yunnan Lucky Air financial statement (2007) August 11, 2008 13