I Key Problem—
The imbalanced economic development in different provinces and cities of China resulted in differences between airports. There were three types of airports— A) Hub airport—to be a hub airport one had to provide efficient, convenient and low cost services to attract airlines to choose it as their route destination and travelers to choose it as a transit port. To become a hub, airports needed to meet two basic conditions: excellent position and huge air transport market and transit demands. B) Trunk airport—Trunk airports were those in provincial capitals, capital cities of the autonomous regions and economically developed cities. The role of the trunk airports was to transport local travelers and travelers from adjacent regional airports to other trunk airports. C) Regional airports—Regional airports were also known as local airports. They were small and built in remote areas. The main role of regional airports was the transportation of local passengers.
Feng Wang was the general manager of market development for the Dalian Airport –his primary goal was to establish the Dalian Airport as a major regional hub in the Northeast and Bohai Rim of China—second only to Beijing International airport.
In 2002, China’s civil aviation industry restructured and handed over 90 airports across the country to local governments, removing the protection of the central government. From this point onwards Dalian Airport had to compete with other airports as well as rail, road and sea transport. The issue before Wang was how could Dalian Airport benefit from the restructure and develop into a regional hub given its relatively small footprint. Traditionally, the aviation market was a point to point market—from a start city to a destination city. Dalian—the city—only had a population of six million (small by Chinese standards) of which only about one million people at most were willing to travel by plane. In addition, geographically Dalian City was surrounded on three sides by the sea. It was therefore obvious to Wang that the only way Dalian Airport could expand its footprint was to attract travelers from outside its service area.
Wang was aware that the key factors that drove passenger traffic was time and cost. As a result, Wang implemented strategies to enlarge Dalian airport’s footprint and attractiveness to travelers outside its traditional service areas. Dalian airport was already a gateway for international travel to Russia, Japan, the Koreas and other Asian routes. Wang reduced travel time by optimizing connecting and stopover flights and by constructing City terminals in cities around Dalian with free shuttle service to the Airport. As result, passenger traffic increased because of the ease of travel to the Airport; along with reduced waiting times for flights. Airlines were also attracted to Dalian as passenger traffic increased and as such competition among airlines increased which reduced ticket prices on various routes and were consequently lower than surrounding airports; this further drove increased passenger traffic to Dalian.
To further develop Dalian Airport as a regional hub Wang considered establishing an Alliance with other existing trunk and regional airports. By now Dalian had the assets—its comprehensive route network both domestic and international and its ties to various airlines and government entities to leverage resources from others. In May 2009, Wang launched the Alliance which included 32 airports that served various cities. However, he purposely excluded Dalian Airport’s two chief competitors Shenyang Airport and Qingdao Airport from the Alliance.
The establishment of the Alliance facilitated resource sharing and effectively promoted the development of member airports. After two years of operation, both the passenger throughput and flights in the trunk and regional airports had increased more than 40 per cent. Consequently, Dalian Airport’s revenue increased significantly and Dalian Airport became the dominant regional hub outside of Beijing in the Northeast and Bohai Rim of China.
While the Alliance proved to be a huge success for Dalian Airport; Wang was beginning to concern himself with recent developments that were threatening the Alliance and thus Dalian’s preeminent position. The development of the Alliance and of Dalian Airport attracted the attention of Dalian’s chief competitors Shenyang and Qingdao airports who attempted to divert passenger traffic from Dalian by strengthening their cooperation with existing Alliance members. In addition, within the Alliance there developed increased competition for transport services and members began looking to advantage themselves disproportionately against fellow members within the Alliance.
As a result of the above, the key problem facing Wang is how to effectively resist and counter the invasion and increased competitive threat posed by Shenyang Airport and Qingdao Airport into its market while simultaneously reducing the conflicts within the Alliance so as not to undermine its effectiveness.
II Relevant Theory
This case involves taking what was a trunk airport and developing it into a significant regional hub. The relevant theoretical concept would be how one develops a competitive advantage in the face of significant competition. Dalian Airport had to compete against 90 airports and to expand beyond its geographical constraints in order to develop and grow into a significant regional hub. One definition of competitive advantage is “a superiority gained by an organization when it can provide the same value as its competitors but at a lower price, or can charge higher prices by providing greater value thru differentiation. Competitive advantage results from matching core competencies to the opportunities.”
Wang did exactly that by first lowering prices for passengers and then by providing convenience thru easy access to the airport and by developing and further strengthening its route network thru the Alliance and thru its ties to various airlines and government entities. Wang saw the opportunities in front of Dalian and then went about matching its core competencies to those opportunities.
The question before Wang now and the essence of the key problem identified is essentially the rising threat to Dalian Airport; both from its chief competitors and its Alliance and whether Dalian has the ability to continue to maintain its competitive advantage.
III Assessment of Alternatives
One option that Wang considered in order to maintain his competitive advantage was to utilize outside assistance. While Dalian’s route network was complete, it could still be improved further. Some routes were not intensive enough, and the waiting time between some flights could be longer than two hours. Dalian Airport could seek to strengthen cooperation with trunk and hub airports outside the Alliance and increase the number of flights. The most effective way to achieve this goal was to establish a nationwide hub and trunk airport alliance that could effectively leverage the partners’ existing route network and transport passengers from one regional airport to another through regional to trunk to regional routes; and thus increase Dalian Airport’s connectivity. While this approach would result in driving increased passenger traffic to Dalian Airport and strengthen its competitive advantage; Wang may not be able to prevent his chief competitors (Shenyang and Qingdao airports) from joining this “new alliance” as he did in the original Alliance. So in the end, he could inadvertently strengthen his competitors and instead weaken his competitive advantage.
Another alternative Wang considered would be to increase its own power. Dalian Airport could rely on itself to respond to the challenges by consolidating its leading position in the original Japanese, Korean and Russian routes and increasing trunk and regional routes in order to operate more smoothly. In addition, it was also possible to start routes to Europe, America, Southeast Asia and Australia; which would attract passengers from Northeast China who habitually transferred at Beijing or Shanghai Airport that had the advantage of minimum transit time. Dalian Airport could also find ways to improve the added value of tickets by offering coupons and free travel services to transit passengers, handling exit formalities and providing free accommodation to international transit passengers. These three moves would result in attracting more passengers, strengthening Dalian Airport’s position in the Alliance and its ties with other members and resisting challenges from Shenyang and Qingdao airports. However, these three moves would require Dalian Airport to pay for all the related costs associated and thus could potentially eliminate one leg of its competitive advantage by reducing the Airport’s overall profitability.
A third option for Wang is to strengthen ties to resist external forces. Dalian Airport could resist the challenges posed by Shenyang and Qingdao airports by strengthening cooperation among Alliance members by implementing unified service processes and technology. For example, if passengers needed to change flights, even between two different airlines, the departure airport could provide one stop check-in services. Dalian Airport could also fly wet-leased aircraft to increase flights between regional airports. In this way, Dalian would not only effectively resist challenges from its two chief competitors but also strengthen the Alliance member’s cohesion. However, as in the second option noted above Dalian Airport would incur significant costs if implemented and possible weaken its competitive advantage.
IV Suggested Course of Action
After analyzing and assessing the various options Wang had to choose from the only strategy that appears to solve the key problem for him which is to both resist the competitive threat posed by Shenyang and Qingdao airports; while simultaneously, reducing member conflicts within the Alliance is option three—strengthening ties to resist external forces.
Wang created the Alliance so it was very important to him on a personal level to see that the Alliance resolved its inner conflicts and emerged stronger than before. The first two options did not do anything to strengthen the Alliance itself. The third option clearly allowed Wang to strengthen the Alliance and reduce tensions within it by increasing cooperation among its membership. In addition, the third option also allowed Dalian to resist the incursions by Shenyang and Qingdao airports and thus solved both issues identified in the key problem. Although Dalian would incur significant costs if option three is implemented some of the costs would be reduced due to the increase in passenger traffic at Dalian Airport as a result of these changes. In the end, in my opinion option three is the most effective strategy that Wang should pursue.
V Key Takeaways
The key takeaway in this case as I see it is that one can never rest on ones laurels or accomplishments; in order to maintain ones competitive advantage an organization must constantly evolve. It would have been easy for Wang to sit back and say he accomplished everything he originally set out to do. He took Dalian Airport from a small trunk airport and transformed it into a major regional hub and formed an Alliance with other airports which further allowed Dalian Airport to grow and prosper. However, he was astute enough to understand that sitting still will eventually erode Dalian’s position as other competitors begin to look for ways to grow and erode Dalian’s competitive advantages. The one constant that Wang understood was that changing and evolving to new circumstances or threats posed in the marketplace and adapting to these changes was the only way to maintain a competitive advantage. He identified what needed to be done going forward and considered various strategies to maintain Dalian’s dominant position. We see this today especially in the technology marketplace where standing still and not changing can lead to loss of market share and sometimes extinction. Take Blackberry, which for a long time had significant competitive advantages but failed to adapt to the “i-phone”; and, eventually lost its competitive advantages and its once dominant position in the smartphone market to Apple. We see how Google and Facebook continue to adapt and change to stay ahead of potential competitors and maintain their competitive advantage either thru new product offerings or thru acquisitions. As that old baseball philosopher Satchel Paige once said “don’t look back someone may be gaining on you”.