Harvard Case - XiamenAir in 2014: The Dreamliner Decision
"XiamenAir in 2014: The Dreamliner Decision" Harvard business case study is written by W. Glenn Rowe, Xiaomei Guo. It deals with the challenges in the field of General Management. The case study is 19 page(s) long and it was first published on : May 13, 2014
At Fern Fort University, we recommend XiamenAir proceed with the Boeing 787 Dreamliner purchase while implementing a comprehensive strategy to mitigate risks and maximize the potential of this investment. This strategy will focus on leveraging the Dreamliner's fuel efficiency and range to expand international routes, particularly in emerging markets, while simultaneously enhancing the airline's brand image and customer experience through innovative technology and service offerings.
2. Background
This case study focuses on XiamenAir's decision in 2014 regarding the purchase of Boeing 787 Dreamliners. The airline, a rapidly growing Chinese carrier, faced a critical juncture as it sought to expand its international presence and compete effectively in the increasingly competitive global aviation market. The Dreamliner offered significant advantages in fuel efficiency, range, and passenger comfort, but also presented potential risks associated with the aircraft's new technology and ongoing development challenges.
The main protagonists are:
- XiamenAir's management team: They must weigh the potential benefits of the Dreamliner against the risks and make a strategic decision that aligns with the airline's long-term goals.
- Boeing: The aircraft manufacturer is eager to secure the sale and demonstrate the Dreamliner's capabilities.
- XiamenAir's passengers: They are the ultimate beneficiaries of the decision, as the Dreamliner's features could enhance their travel experience.
3. Analysis of the Case Study
To analyze XiamenAir's decision, we can utilize a framework that considers both internal and external factors:
Internal Analysis:
- Strengths: XiamenAir's strong financial position, rapid growth, and commitment to innovation provide a solid foundation for expansion.
- Weaknesses: The airline's limited international experience and potential reliance on a single aircraft type could pose challenges.
- Opportunities: Expanding into new markets, developing innovative services, and leveraging the Dreamliner's fuel efficiency to reduce operating costs.
- Threats: Competition from established international carriers, potential delays in Dreamliner production, and the risk of technical issues.
External Analysis:
- Porter's Five Forces:
- Competitive Rivalry: High due to the presence of established international carriers and the emergence of low-cost airlines.
- Threat of New Entrants: Moderate, as entry into the aviation industry requires significant capital investment and regulatory hurdles.
- Threat of Substitutes: Low, as air travel remains the dominant mode of long-distance transportation.
- Bargaining Power of Buyers: Moderate, as passengers have multiple airlines to choose from, but demand for air travel remains high.
- Bargaining Power of Suppliers: Moderate, as Boeing holds a dominant position in the wide-body aircraft market, but competition exists from Airbus.
Financial Analysis:
- Net Present Value (NPV): The Dreamliner's fuel efficiency and potential for increased revenue could lead to a positive NPV, justifying the investment.
- Return on Investment (ROI): The Dreamliner's operating cost savings and potential for higher passenger demand could generate a strong ROI.
- Break-even analysis: Assessing the number of passengers and flight hours required to achieve profitability with the Dreamliner.
Marketing Analysis:
- Target market: XiamenAir should focus on expanding its reach to international markets, particularly those with growing demand for air travel.
- Brand positioning: The Dreamliner's advanced technology and passenger comfort can enhance XiamenAir's brand image as a modern and innovative airline.
- Marketing strategy: Developing targeted marketing campaigns to attract new passengers and promote the Dreamliner's unique features.
Operations Analysis:
- Operations strategy: XiamenAir needs to develop a comprehensive strategy for integrating the Dreamliner into its fleet, including training pilots and maintenance personnel.
- Supply chain management: Ensuring a reliable supply chain for spare parts and maintenance services is crucial for minimizing downtime and maximizing aircraft availability.
- Technology and analytics: Leveraging data analytics to optimize flight schedules, manage fuel consumption, and enhance the passenger experience.
4. Recommendations
XiamenAir should proceed with the Boeing 787 Dreamliner purchase, but with a strategic approach that addresses potential risks and leverages the aircraft's capabilities:
1. Strategic Expansion:
- Focus on Emerging Markets: Prioritize expansion into high-growth markets with strong demand for air travel, such as Southeast Asia, Africa, and South America.
- Develop New Routes: Introduce new routes to destinations not currently served by XiamenAir, leveraging the Dreamliner's long-range capabilities.
- Partnerships and Alliances: Explore strategic partnerships with other airlines to expand reach and offer seamless connections for passengers.
2. Brand Enhancement:
- Marketing Campaign: Launch a targeted marketing campaign highlighting the Dreamliner's features and benefits, emphasizing comfort, technology, and fuel efficiency.
- Customer Experience: Invest in innovative technology and service offerings to enhance the passenger experience, such as in-flight entertainment systems, Wi-Fi connectivity, and personalized services.
- Employee Training: Train employees on the Dreamliner's features and benefits to ensure consistent and high-quality customer service.
3. Risk Mitigation:
- Diversify Fleet: While the Dreamliner offers advantages, XiamenAir should not solely rely on this aircraft type. Diversifying its fleet with other aircraft models will minimize operational risks.
- Technical Expertise: Invest in training and expertise to ensure the airline has the necessary skills to maintain and operate the Dreamliner effectively.
- Contingency Planning: Develop contingency plans to address potential delays in Dreamliner production or technical issues, ensuring minimal disruption to operations.
4. Innovation and Sustainability:
- Data Analytics: Utilize data analytics to optimize flight schedules, manage fuel consumption, and enhance the passenger experience.
- Environmental Sustainability: Promote the Dreamliner's fuel efficiency as a key aspect of the airline's sustainability initiatives.
- Technology Integration: Explore opportunities to integrate new technologies, such as AI and machine learning, to improve operational efficiency and customer service.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of XiamenAir's internal and external environment, considering:
- Core competencies and consistency with mission: The Dreamliner purchase aligns with XiamenAir's growth strategy and commitment to innovation.
- External customers and internal clients: The Dreamliner's features will enhance the passenger experience and provide employees with opportunities for professional development.
- Competitors: The Dreamliner will enable XiamenAir to compete effectively with established international carriers and emerging low-cost airlines.
- Attractiveness - quantitative measures: The Dreamliner's fuel efficiency and potential for increased revenue are expected to generate a positive NPV and strong ROI.
Assumptions:
- The Dreamliner's production and development will continue on schedule, with minimal delays or technical issues.
- XiamenAir will be able to secure the necessary financing for the purchase and integration of the Dreamliner.
- The global aviation market will continue to grow, providing opportunities for XiamenAir to expand its operations.
6. Conclusion
XiamenAir's decision to purchase the Boeing 787 Dreamliner presents a significant opportunity for the airline to expand its international presence, enhance its brand image, and improve its operational efficiency. By implementing a comprehensive strategy that addresses potential risks and leverages the Dreamliner's capabilities, XiamenAir can solidify its position as a leading player in the global aviation market.
7. Discussion
Alternatives:
- Delaying the purchase: This would allow XiamenAir to wait for further development of the Dreamliner and potentially secure a better price. However, it could also result in missing out on the early adopter advantage and losing market share to competitors.
- Purchasing a different aircraft type: Other wide-body aircraft models offer similar capabilities, but may not provide the same level of fuel efficiency or passenger comfort.
- Focusing solely on domestic routes: This would limit XiamenAir's growth potential and could lead to reduced profitability in the long term.
Risks:
- Technical issues: The Dreamliner's new technology could lead to unforeseen technical problems.
- Production delays: Boeing's production schedule could be disrupted, delaying delivery of the aircraft.
- Competition: Established international carriers and emerging low-cost airlines could aggressively compete for market share.
Key Assumptions:
- The Dreamliner's production and development will continue on schedule, with minimal delays or technical issues.
- XiamenAir will be able to secure the necessary financing for the purchase and integration of the Dreamliner.
- The global aviation market will continue to grow, providing opportunities for XiamenAir to expand its operations.
8. Next Steps
- Negotiate purchase agreement: Finalize the terms of the purchase agreement with Boeing, including pricing, delivery schedule, and maintenance support.
- Develop integration plan: Create a comprehensive plan for integrating the Dreamliner into XiamenAir's fleet, including training pilots and maintenance personnel.
- Implement marketing campaign: Launch a targeted marketing campaign to promote the Dreamliner and attract new passengers.
- Monitor performance: Continuously monitor the Dreamliner's performance and adjust strategies as needed to maximize its benefits.
By taking these steps, XiamenAir can ensure a successful transition to the Boeing 787 Dreamliner and capitalize on its potential to drive growth and profitability.
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Case Description
In spring 2014, XiamenAir is the most profitable of the five largest airlines in China. With bases in Xiamen, Fuzhou and Hangzhou, its flight network covers major cities in China with international service to Macao, Taiwan, Hong Kong and other Southeast Asian countries. The company prides itself on its differentiation strategy: customer service, building a brand and reputation that its customers trust and providing a service for which its customers are willing to pay a premium price even when there are low cost/low price carriers available. Its management is contemplating buying six new Boeing Dreamliner wide-body aircraft that will allow the company to expand its market to Europe, Australia and western North America. Will this purchase enable Fujian Province to more quickly become established as the regional hub for Southeast Asia, Northeast Asia and cross-strait transportation? Will it help speed China's push to internationalize its passenger airlines? In the face of growing competition from high-speed rail networks and both Chinese and international airlines, the management must decide how best to grow the company and maintain its profits.
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