MIS201 Seminar 2 – Suggested Solution

1. Task 1
Read the case study E-commerce at Yunnan Lucky Air

2. Task 2
Answer the following questions.

• What are the company’s most critical business problems?

o Competition from three biggest Airlines - Air China, China Eastern Airline,
China Southern Airlines – dominated domestic air travel which means, Lucky
Air.

o New low-cost Chinese airlines (25 by 2007) due to which Lucky Air posing
huge competition as well. The low-cost airlines pressured each other to sell
low-cost tickets; bundled their services with tour packages, hotels, travel
services leading to huge competition.

o In order to achieve competitive advantage, Lucky Air had to establish their e-

commerce facility so they could provide improved services to the customers,
hence establish a strong position in the market.

• Who are their stakeholders / beneficiaries?

o Lucky Air’s executives

o Passengers

o Civil Aviation Administration of China (CAAC)

o Online Travel agents / agencies – Ctrip , eLong

o Offline Travel Agents

o Competitors - Air China, China Eastern Airline, China Southern Airlines and
all the Low-cost airlines

o Chinese Government

o China Aviation Oil (Fuel supplier for Chinese Airlines)

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 o National Development and Reform Commission (NDRC) – control the airline
leasing, fuel prices.

o Travelsky (Government owned)– the only Global Distribution System (GDS)

in China which applied the GDS fee

o Call centre for Lucky Air

• What benefits can they get from the new system?

o Lucky Air can focus on strengthening their e-commerce system as the number
of Internet users have been growing in China. Their IT operations are backed
by it’s parent, Hainan Airline which has the most advance web portals in the
Chinese airline industry, which is an advantage.

o They could get a competitive advantage over other Southwest Airlines and
U.S competitors by having a good e-commerce setup.

o They could use a ‘direct-to-consumer’ approach, earn loyalty by having the

customer approaching the airlines first.

o They could reduce their load on their call centres and hence save cost.

o Compete against the offline travel agents and online travel websites.

o By having their own system for booking, Lucky Airlines could reduce the
commission they would pay to the authorised offline travel agents.

o Although China’s e-commerce is not very sophisticated and has security

issues, but as the case mentions that online travel websites have seized the
market, and security concerns can be handled through third party payment
(Paypal, AliPay), it can be anticipated that there will be a gradual increase in
online booking in China.

• Who are their competitors?

o Air China, China Eastern Airline, China Southern Airlines – dominated

domestic air travel accounting for 83.7% market share. Other low-cost airlines
focused on domestic travel in Southwest China

• What competitive advantage will they have over their competitors?

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 o Increased number of passengers booking tickets using their e-commerce
facility, hence increase their profits.

o Developing reputation and trust with the customers by using ‘direct-to-

customer’ approach

o Save cost by not paying much travel agents, hence could provide reduced
prices further and provide other benefits like tour packages to the customers.

• Can they do it with the current systems?

o They already have a support of their parent company, Hainan which has most
advance web-portal which could be utilised for airline bookings. However,
establishing their own website and having an online booking feature with
secure payment would be an added advantage. It will increase the customer
engagement and trust with the Airline, improved services and higher profits.

• What technologies or systems would they need to do it better?

o They can develop a user- friendly website for booking tickets

o Have mobile apps developed, supporting multiple platforms

o Invest in advertisement and promotion of their e-commerce facility, especially

in Yunnan to direct more passengers to book online.

o Incorporate third party payment system like PayPal, AliPay when designing
their booking websites / apps

• At what point would the systems be acceptable to them?

o The system would be acceptable to them when majority of customers would

prefer to engage online with the airline, hence generating profits. This can be
realised when the company is able to showcase good digital performance, have
a digital presence (available on range of platforms), have a good digital brand
appearance (user friendly websites / apps), good web data privacy.

3. Task 3
• Conduct a situation analysis (SWOT and Strategy Development) to examine of
the company situation in terms of S, W, O, and T.

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3.1. SWOT analysis

SWOT TABLE
Strengths Opportunities

S1. Lucky Air is a low cost and high efficiency model – O1. Yunnan province has a beautiful landscape
which made domestic travel more affordable and hence leading to significant growth in travellers (21 million
attracted number of customers. to 24 million in 2008).

S2. Due to limited route granted by the government, O2. Chinese Airlines was heavily regulated, with
Lucky Air have a monopoly status within Yunnan and limited flexibility for new Airlines, which could
gained most profits. hinder the growing competition in the low-cost airline
industry.
S3. Lucky Air used single type of aircraft and reduced it
maintenance and operational complexity. It offered one O3. Significant increase in Chinese people’s
seat class (coach), simple one-way pricing, no seat disposable income leading to growth in passengers
assignment or in-flight entertainment. Most routes were (16.8%) in China. Large number of people travelling
short point to point to increase on-time departure and for leisure and vacation leading to a huge market.
arrival. Operated in secondary cities, hence low
congestion and reduced landing costs. Saves cost, hence
low-cost carrier. O4. Availability of advanced technologies (that have
been successfully used in the US and Europe) to
S4. Lucky Air’s IT Operations were backed by Hainan enable customer self-service that enables customers to
Airlines which had most advanced web portals in the obtain standard airline service via phone, kiosk,
Chinese industry, so they could focus on e-commerce. email, or the internet without human assistance.
Customer-self-service implementation will give a
S5. Already have a customer base and a good reputation seamless experience to customers and increase their
in Yunnan province with 24 million arrivals (2008). satisfaction.
They can target their existing customers to use their
ecommerce facility, which will strengthen their customer O5. Promoting the e-commerce system to young
relationship and further promote the facility. professionals who would use online booking more, as
number of people who would prefer to purchase
tickets online is relatively low in Yunnan province.

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Weaknesses Threats

W1: Lucky Airlines is limited to domestic flights and has T1. Competition from Air China, China Eastern
its hub in Yunnan province. Due to the limited route Airlines China Southern Airlines - dominated
licence, they may not be able to compete with some other domestic air travel.
airlines (like Spring Airlines), which has expanded to
larger tourist places (like Shanghai) where they have T2. New low-cost competitors coming up (25 by
also offered hotel, tour packages. Moreover, in such 2007). About 780 routes for low - cost flights
larger cities, it is easier to establish a digital presence (projected growth in low-cost airlines by 20% by
due to majority of people preferring online engagement 2013) intensifying the competition.
with the airlines.
T3. Lucky Air’s 4 largest components of operating
W2. Being a small Airline, it has to pay for fuel in costs – Fuel, landing fee, aircraft leasing and taxes
advance, adding to the firm’s financial burden. were influenced by government regulations. Fuel
price in Yunnan is higher than national average.
W3. Being a low-cost company, Lucky Airline has Carriers in China cannot hedge oil price risk through
limited airplanes (5). Being a small airline, they are on a financial instruments.
lower priority to receive airplanes on lease, hence is It could not get a huge cost advantage (only 5%).
unable to respond quickly to the market needs.
T4. Online travel agents have seized the market and
W4. Not having a call centre back-end operation to will continue to grow as the number of internet users
support customers. are increasing.

W5. Focusing only on domestic flights from Yunnan, T5. Overall, in China Internet penetration is low,
where number of people who engage online for except few cities like Beijing, Guangzou, Shanghai.
purchasing and online banking. Lucky Airlines most operates in secondary cities,
especially in Yunnan, where number of customers
preferring online purchase and online banking is low.

Optional assumptions (if any)

Lucky Air is not having a dedicated website, or a mobile app and is only dependent on Hainan Airline web-
portal. They have resources or funds to develop the new e-commerce system.

The number of users who would use online booking/online banking in China and more specifically in
Yunnan will increase with time.

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3. 2. Strategy Development
STRATEGY
External Element (for clarity cross-ref them with your SWOT and name them here as
Pick a
well):
single pair
from O4 (Availability of advanced technologies (that have been successfully used in the US and
SWOT Europe) to enable customer self-service)
e.g., “04 – Opportunity 4”
Strategy development for O4 – W4
Internal Element (cross-ref with your SWOT and name): W4 ( lack of a call centre

Strategy 1:
As the company is depending on IT operations and support of Hainan Airlines, they could
invest in implementing their own user-friendly e-commerce system to support their
customers with online bookings.

Strategy 2:
As a smaller number of people in Yunnan are inclined to engage online, the company
back-end operation to support customers)

would need to develop a self-service system with user-centric, simple interface and
reasonable number of features with focus on “Usability”. The system should also be
available for usage on mobile devices to enable customers to buy tickets online seamlessly.
e.g. W4 – Weakness 4

This will further help Lucky Air to reach out to a greater number of customers, especially
young professionals who prefer to do majority of their tasks through mobile phones. It
will also help Lucky Air to replace the travel agents to whom the airline needs to pay
commission and they also pose competition.

Strategy 3:

Promote their digital presence through paid advertisements, Search engine optimisation,
social media marketing (Facebook, Twitter), email marketing, blogs. The marketing of
Lucky Air digital presence needs to be done so that a greater number of people are aware
of it and utilise it for booking tickets, which will increase their customer base.

Strategy 4:
Integrating a secure payment with their online booking system using third parties (Paypal,
AliPay as they are more popular in China) which will encourage people to utilise this
facility. In general, people are not willing to do online purchase/ online banking in China,
especially in smaller cities, due to fear of fraud and online errors.

Recommendations (reference back to one or more of your strategies)

i.e., Explain and justify what strategy (or a combination of strategies) would you recommend adopting.
Given the opportunity of the available and advanced technologies that have been successfully used in
the US and Europe to enable secure customer self-service, our ability to overcome the weaknesses of
the lack of a call centre back-end operation for customer support lead to our recommendations that
Lucky Air implement a customer self-service to help Lucky Air to:

- enable Lucky Air customers buy ticket online via Lucky Air’s system (Strategy 1).

- reach out to a greater number of customers (especially young professionals who prefer to do majority
of their tasks through mobile phones) (Strategy 2)

-to replace the travel agents to whom the airline needs to pay commission and they also pose
competition (Strategy 4)

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- give a seamless experience to customers and increase their satisfaction.

Once the firm has a reasonable level of work done to develop a secure and easy to use website, which
has been tested well, and is ready to use, then they should start focusing on establishing their digital
presence by promoting their e-commerce facility through multiple channels (Strategy 3).

4. Task 4
What alternative technologies or systems related strategies do you propose. Justify
which strategy or their combination you recommend adopting.
Lucky Air can establish their e-commerce by investing the below mentioned
technologies.

• Online Travel Agents (OTA) – The airline can get itself listed with one of the OTA’s who
intermediaries between the customer and the airline are and help in online ticket booking.
The Airline would need to pay a commission to the OTA for their service. OTA work by
connecting to the “global distribution system” to get the flights and charges details.
• Airline develops its own user-friendly website with relevant features which helps
customers to engage with the airline easily. Along with online ticket sale, they could
provide the Frequent Flyer Program (FFP) on the website to, timetable download,
searches, tour package sales, financial statements.
• Join Venture for Website – If the airline is unable to have its own website, it can have a
join venture with other airlines. Airline can control and share a virtual channel through
integration and cooperation.
• Portal website – Portal websites have strategic alliance with application service providers
(ASP) to run a ticketing business on the internet. (Yahoo!Kimo), Yam
• A mobile app which can be used on multiple platforms (like Andriod, Apple). Passengers
can use their smartphones as electronic ticket by scanning a barcode
• Social Media – using social media sites like Facebook, LinkedIn, Twitter will help them
establish their digital presence.
• Secure payment System – Using a third-party payment system, Paypal, Alipay to ensure
that online payment system is secure.

Website and Mobile apps can have secure payment system integrated in them. Social
media will be an additional tool to promote the online ticket booking systems that the
company has established.

References
https://centreforaviation.com/analysis/airline-leader/airline-e-commerce-245159
https://www.sabre.com/insights/enhacing-the-passengers-digital-experience-through-
better-airline-e-commerce/
https://www.altexsoft.com/blog/travel/history-of-flight-booking-crss-gds-distribution-
travel-agencies-and-online-reservations/
Airline e-commerce: the revolution in ticketing channels, Zheng-Yi Shona,b,*, Fang-
Yuan Chenc , Yu-Hern Changc (2003)