Question 1: Which competitive tactics are Chinese carriers using on trans-Pacific routes? How would you label the basic strategy?
Chinese carriers are appropriately employing cost leadership, differentiation, and differentiation focus strategies to outperform their American counterparts on trans-Pacific routes. These tactics seem to be working just well coupled with the subsidies provided to national carriers by the Chinese government (Moss 2). These carriers are, thus, pursuing a two-pronged focus involving cheaper prices and maximizing on subsidiary services like food. Moreover, they are also focusing more on new routes with better financial prospects in the long-term. This differentiation allows them to net more flights than their American counterparts. Their cost leadership strategy is facilitated by the new batch of fuel-efficient planes purchased and the reduced fuel prices. Chinese carriers can be said to pursue differentiation focus as their primary strategy. This strategy is well depicted by the strategic choice of their new flight routes in North America and Europe with an aim of benefiting from their long-term profitability rather than the short-term.
Question 2: This strategy has pros and cons. What are the advantages of such long-term thinking?
The advantages of this differentiation focus include low competition, prices, and growing market. These new destinations often lack direct airline services and thus ensure that the Chinese carriers plying these routes have no competition. They are, therefore, solely in-charge of prices. Further, the airlines often charge low prices so as to entice customers. This is an advantage to the consumers. Consumers also find these new routes more convenient than the conventional routes since they save them time. Lastly, the new routes present a growing market with a high likelihood of becoming huge prospects in the future. Controlling such markets from the beginning provides a strategic competitive edge to the Chinese carriers. They are better poised to master the market and understand its dynamics before other airlines start considering it.
Question 3: What are the risks of the strategy? What kinds of things might cause this strategy to fail miserably? What kinds of random events, for example, could cause a deep dip in the number of passengers who fly across the Pacific?
The most prevalent risk of this strategy is the failure of the market to grow into a lucrative size. It is not assured that the new routes will reach the size of established and profitable routes like Beijing and Shanghai (Moss 3). This strategy is often based on probability and as such could end up failing. Some occurrences that could lead to this failure include lack of customer goodwill, the reduction or elimination of subsidies, and harsh economic conditions. Customers may decide to adhere to the currently established routes due to loyalty and predictable expectations. The new route may be cheap but unpredictable in terms of customers’ expectations and timing. Moreover, tough economic conditions could coerce the Chinese government to either reduce or eliminate the subsidies provided to encourage this strategy. Moreover, this same reason could adversely affect consumers’ choices especially would-be tourists.
Question 4: Finally, does Donald Trump himself represents a certain risk to the strategy? Could his presidency have an adverse effect on short-term and long-term flying patterns and passenger numbers?
Donald Trump presents a certain risk to this strategy, especially in the short-term. His anti-China policies have already adversely affected trade between the two countries. If these policies spill over to the airlines’ sector, the viability of this strategy will come to question. The fact that the strategy is favoring the Chinese more than the U.S will definitely come to play if it succeeds. The Trump regime could end up imposing tariffs on the Chinese carriers especially considering the fact that they are not operating on a level playground with the provision of government subsidies. Worsening the already tense conditions between the two countries could affect both flying patterns and passenger numbers moving across the two nations. However, the U.S is preparing for a presidential election next year whose outcome will have a direct effect on the airline industry.
Moss, Trefor. “’Better Food, Better Service’: China’s Airlines Fly Past U.S. Rivals on Pacific Routes.” The Wall Street Journal, Dow Jones & Company, 9 Dec. 2016. Retrieved from www.wsj.com/articles/better-food-better-service-chinas-airlines-fly-past-u-s-rivals-on-pacific-routes-1481194946.