The application of "Blue Ocean Strategy" AND “Long Tail

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5 Νοε 2013 (πριν από 3 χρόνια και 10 μήνες)

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Web TECHNOLOGY AND
LOW COST CARRIERS
——The application of "Blue Ocean Strategy" AND “Long Tail
Strategy" at SPRING AIRLINES
网络技术与低成本航空
——兼谈“蓝海理论”“长尾理论”在春秋航空的运用
WANG ZHENGHUASPRING AIRLINES
春秋航空公司王正华
2008.5
Preface
Spring International, the holding company of Spring Airlines, began
introducing web technology into it s tourism business in the early
eighties, connecting to more than 4000 agencies through its B2B
channel.
After receiving approval from CAAC to establish the new
company of Spring Airlines, it was decided that spring should
develop its own Online Reservation system, Self check-in system,
Flight Operational Center (FOC) system, Maintenance and spares
management system (MES) ,Office Automation (OA) system, and
Financial Management system on B2C platform.
Spring Airlines’achievement in low cost travel at this stage must be
greatly attributed to the efforts Spring has taken to introduce and
operate with web based technology.
Preface
The web is redefining our consuetude
The web is changing the business
The web is reshaping our world
It’s my great pleasure to share the application of web
technology at Spring with you and to receive your
comments or views at the end of the presentation.
Agenda
1, The principles of Blue Ocean Strategy & Long Tail
Strategy
2, Spring’s Application of Blue Ocean Strategy &
Long Tail Strategies
3, Our proposal to boost the Low Cost Airlines market
1, Principles of Blue Ocean Strategy & Long Tail Strategy
i, Latest research of Blue Ocean Strategy & Long Tail
Strategy
ii, Background of Blue Ocean Strategy & Long Tail
Strategy
iii, Roles in Blue Ocean Strategy & Long Tail Strategy
iv, Rules derived from Blue Ocean Strategy & Long Tail
Strategy
v, The logic behind Blue Ocean Strategy & Long Tail
Strategy
i, Definition of “Blue Ocean Strategy”and “Long Tail
Strategy”
“Instead of homogenization and low-margin, anyone who focuses
on differentiation, lower cost, and creates the ability of
converting consumers who was not originally in your spectrum
into your customers, he is in the Blue Ocean of no competition
or less competition.”
(Korea) Professors Kim and Mauborgne
In contrast with Pareto’s 20-80 Rule, Long Tail Strategy is
“putting small business and small markets together, which
accounts for 80% of the total demands and does not get enough
attention from traditional operators, to create a longer, huger tail
(demands).
(Chris, chief editor, "on-line" magazine, United States, who is regarded
as the father of the second Internet Era)
ii, Background of Blue Ocean Strategy, Long Tail
Strategy
With the development of web technology, dramatic changes
have taken place in people’s social life and management actions.

Instrument of manufacture

Instrument of mass-communication

Instrument of Management
iii, Roles in Blue Ocean Strategy & Long Tail Strategy

Consumers became producers

Readers turned into editorial writers

Subordinates changed into conductors

Professional vs. amateur

Elites vs. grass roots

Commercial vs. self use
iv, Rules derived from Blue Ocean Strategy &
Long Tail Strategy
Reduce Consumer costs
–Minimized inventory, eliminating intermediaries, consumers
participate in the production
Consider Customized markets
–one communicating channel may not suitable for all audiences
–one product may not suitable for all consumers,
–one price may not suitable for all markets
Dismiss Dominant controller
–Information shared by everyone, "and" instead of "or“
–Voluntary for community, the power of gratis
v, Logic behind Blue Ocean Strategy & Long Tail
Strategy

Utilize the general characteristics of Internet

As marginal cost reduced, input-output ratios rise, and
marginal profits increase

Intangible assets replace tangible assets investment

The web has became a popular tool giving integration
between amateur and professional

Transparency, authenticity, no additional cost
Agenda
1, Principles of Blue Ocean Strategy & Long Tail Strategy
2,
Spring’s Application of Blue Ocean
Strategy & Long Tail Strategy
3, Our proposal for boost Low Cost Airlines market
Spring started from a 2 square meters shanty
春秋从2平米的小亭子起家
i, Spring chose low-cost air
When Spring International first received the award of the best
travel services provider in 1994, it started to thing of thenext
phase of furtherexpansion.Four directions have been mentioned:American Express: entering into Financial Services business
British Reed Exhibitions: entering into Exhibition Industry
JTB in Japan: extending business toward upstream and
downstream
TUI in Germany: entering into aviation industry
i, Spring chose low-cost air
Spring International spent three years in research and analysis
before making this decision. In the next seven years,it visited
world’s major legacy airlines, tourism charters, low-cost airlines,
and studied their business practices, while chartering 30,000 flights
during this period. Privatization is the trend among global aviation
markets. In the year 2004, CPC Central Committee decided to
privatiseindustries mostly monopolized by SOE industries. Civil
aviation was in the list.
The business effectiveness between tourism and aviation industryis
obvious. Furthermore, per capita income, the land breadth and the
amount of population bring huge demands for LCC. The executive
team decided to take the LCC model.
ii, Can Low Cost Airlines survive in China?
When low-cost carriers are surging, people ask again and again:
“Can low cost carriers survive in China ? "This is a hot topic
since Spring Airlines was launched.
A lot of experts within the aviation industry still argue about the
future for Low Cost Carries, because there are no favorable
policies to allow Low Cost Carries to flourish.
Scholars, and people from the industry are arguing that there are
no much favorable policy ground for LCC survive in China.
The arguments are based on the following reasons:

Insufficient airport available for stop. Especially the secondary
airports in metropolitan area

Heavy import tariff on aircraft and spare parts in China, and
airlines can’t make their own decision when buying aircraft.

LCC’sReservation model based on B2C e-business, but credit card
payment are not well know among Chinese passengers. Cash
payment is still prefered.

The sky is not fully opened, airfare is still controlled by
government.

Fixed cost accounts for 80% of the total spending, controllable cost
is less than 20%.
ii, Can Low Cost Airlines survive in China?
These five requirements are widely regarded as key success
factors according to global LCC practices.
If that is true, LCC model might sound impossible in China
iii, Spring made LCC achievable at current
stage
We believe that providing what the market needs is Spring’s sole-
object. LCC best practices might not be useful if implemented ina
dogmatic way. Spring’LCC story departs from Chinese
characteristics and is meeting the increasing demand for travel at a
low a cost as possible with no frills.
Meanwhile, safety issue has long been regarded as Spring’s priority.
Low Cost never means low cost on safety. (Details not described in
this paper )
Price comparison with other airlines(2006-2007)
春秋与其他航空公司06-07年航线价格对比表
232
125
174
174
310
291
368
183
价格
相差(¥)
Difference
19%0.420.34697572
上海-海口
36%0.600.38646414
合计average
33%0.550.37528354
上海-厦门
37%0.650.41480306
上海-青岛
57%0.770.33540230
上海-温州
44%0.660.37677386
上海-天津
41%0.630.37887519
上海-珠海
25%0.550.41711528
上海-桂林
比例
%
其它
Others
春秋
Spring
其它
Others
春秋
Spring
相差

平均折扣
(%)
Average discount
平均价格(¥)
price/seat
航线
Route
-By end of 2007, Spring Airlines realized RMB 1.63
billion in revenue, but subsidizing passengers with
RMB 920 million
-Spring Airlines was ranked the 1st in “payment of
government infrastructure levies”at consecutive 2006
and 2007
-Spring Airlines is graded at the 1st credit tier by
GECAS (only few leading airlines, such as Air France,
gain this grade)
-40%0.050.03
财务费用水平
Financing expenses level
-69%0.350.11
营业费用水平
Operating expenses level
-53%0.190.07
管理费用水平
Administrative expenses level
-18%4.323.55
主营业务成本水平
Operation cost level
增降
difference
国内同行
十八家公司
(平均)
18 domestic airlines
Average
春秋
Spring
成本项目
Items
Cost comparison with major carriers
与主流航空公司成本对比表
数据来源:民航总局财务司2007年民航企业财务快报信息
source: Finance department of AAC in 2007 Financial Express Information
0
1
2
3
4
5
6
7
60080010001200140016001800200022002400
航距
座公里成本
ASK per seat vsRoute Length
Compare with leading low-cost carriers
春秋航空公司与世界著名低成本航空公司
座公里成本比较图
数据来源:亚太航空中心
source: Asia Pacific aviation center
Profit Margin%
利润率
%RyanaireasyJetVir
g
inBluejetBlueSouthwestGOLWestJetAirAsiaSpring Average
EBITDAR
35%16%25%14%19%34%20%28%27%22.8%
Net Income
20%3%8%-1%7%19%2%15%11%10.9%
Profitability
Compare with leading low-cost carriers
春秋航空公司与世界著名低成本航空公司
利润率对比表
数据来源:各公司最新年报(2007年或2008年年报) source: latest annual reports
iv, How to achieve low cost
High load factor-we prefer lower fares satisfying air
traveling demand rather than providing high
price elite level travel with lots of empty
seats. Average load factor: 95%, 19% higher
than the market
Low operating expenses -Spring Airlines has developed
its own distribution system, including B2C
direct sale systems, departure systems, self-
service check-in system, cutting 5% of the
total cost.
iv, How to achieve low cost
Single class —After cutting Business class and adjusting seat size
to standardized 29-30 inches, Spring’s aircrafts are
configured in a 180-seat, all-economy configuration.
22 more seats than traditional airlines.
Single aircraft type (A320) —Reduces costs in spares, training
and maintenance
Differentiation —Without unnecessary service on board, we
provide only one free bottle of mineral water. Extra
beverage or food are chargeable, leaving time for
flight attendants’air selling. Both company and
passengers have benefited from it.
Low price on Spring Airlines website
CHECK-IN BY YOURSELF 自助值机
V, Low prices but good quality
To really achieve the "win-win" practices while
implementing "lowest price", we ensure customer
experience of Spring travel is based on these factors :
Safe, Convenient, Punctual, Warmhearted, Trustful
Safe, Convenient, Punctual, Warmhearted, Trustful
Good quality—Safety

Choose the most advanced aircraft: Airbus 320, the best engine:
CFM.

Best aviation electronics :Honeywell;

Best tyres: Bridgestone

Best technical staff: better treatment, best vision, best safety
driven working environment

Emphasize six aspects of “Trust": shareholders, passengers,
staffs, nation, peers, society

Management stock incentive: 95 core shareholders, 300 staff
shareholders
Spring Airlines won the “2007 Flight Safety Awards”presented by
CAAC, the only airline among 19 new companies
Good quality—Convenience
Cheapest tickets are available at Spring Airlines’website.
The processes, from enquiry, reservations, payments, seat
selection, e-ticket printing, to self-service check-in,
implement the most advanced technology used in
Western Europe and America. Passenger may not have
seen or met a member of staff from Spring, until they
catch their first sight of flight attendant’s smile at the
door of the cabin of the aircraft.
延误班数
流控
52%
天气
15%
工程机务
14%
地面保障
6%
其他原因
13%
Good quality—punctual
Improve management to reduce delays from maintenance (14%) and
ground support dysfunction (6%);
Expand the fleet and add a new home airport to avoid the flow
controlling(52%).
High quality—warm service
Except for its differentiation strategy, Spring Airlines provides
services with its own characteristics:
–Airhostess with a bright smile,
–Pleasant and friendly presentation,
–Selling gifts with a basket held in their arm.
The most obvious characteristic of Spring Airline is that the quality
control model from its parent company-Spring travel agency also
makes air flight company successful.
It follows the principles below:
–Each flight must be visited, every week reports must be submitted,
–every month reward or punishment must be cashed,
–everyone’s file must be established.
Agenda
1, Theoretical principles of Blue Ocean Strategy and Long Tail
Strategy.
2, Blue Ocean Strategy, Long Tail Strategytheir use in Spring
3,
Policy recommendations to develop low-cost
Carriers
CAAC pays high attention to the operation of LCC
During the 2008 CAAC annual meeting, “a number of new
regulations strengthening of national public air transport
system ”were issued.
In the “Regulation”
“Article 13, to encourage airlines and airports to explore low-cost
air transport mode, and promote public service degree of air
transportation .”
“Article 21, research on transportation charges and other ticket fares
reforms, create a policy environment conducive to the development
of low-cost air transport.”
Despite the bankruptcy of Oasis Hong Kong Airlines and other low-
cost carriers in the market, low-cost carriers are in accord with the tide
of "people's livelihood" After all, low-cost carriers in the world are
still blossoming rapidly.
While low-cost carriers’make their successin Europe and the United
States,LCC arecatchingupin Asiatoo.
For example,it only takes Thailand's low-cost carrier--AisaAirlines
seven years to develop nearly 70 aircraft. It won an unprecedented
success in South Asia aviation market, it now ambitiously aims its
target to China's aviation market.
China has already been slower in the international aviation market
than others, we should be prepared to compete fiercely in China’s
expanding aviation market, particularly in the low cost carry prevision.
3, policy suggestions to develop low-cost Carriers
i, secondary and third grade airports near big cities.We Look
forward to learning Singapore, Kuala Lumpur’s experience to
establish low cost terminal buildings near big airports, or
establish low cost terminal buildingsinmilitary-civilian airports.
ii, reduce the tariffs of buying aircrafts and their spares.
iii, make policies to encourage enterprises to develop network
technology.
iv, make incentives policies to reward high load factor at the same
cost and on the basis of environmental protection.
v, develop policies to promote low-cost carriers, like all types of
policies Malaysia government made to support Air Asia.
Conclusion
"If you and your enterprises are smart enough, it is
time to join little characters’commercial activities and
dialogues. If you ignore the global network combined with
little characters’commercial activities and dialogues, and
forget to study from these little characters, you and your
enterprise will lose opportunity, even lose your current
business and reputation.
--quote from prediction by David Sifry, the founder of Web.2.0