Case Study Analysis: Yunnan Airlines' Strategic Management Approach

This case study provides a comprehensive analysis of Yunnan Airlines, a Chinese low-cost carrier. It examines the airline's background, operational context, and the challenges it faces within the evolving Chinese airline industry. The analysis employs strategic management tools such as Porter's Generic Strategies, PESTLE analysis, Porter's Five Forces, and SWOT analysis to assess the firm's strategic position and identify potential growth opportunities. The report explores strategic options, including the adoption of a 'Green strategy,' and offers recommendations for the airline's future development, focusing on its competitive advantage, market share, and adaptation to changes in the e-commerce landscape and governmental policies. The analysis highlights the importance of strategic planning, resource allocation, and the strengthening of core competencies to ensure long-term success in the dynamic business environment.

Running head: CASE STUDY ANALYSIS ON YUNNAN AIRLINES
CASE STUDY ANALYSIS ON YUNNAN AIRLINES
Name of the Student
Name of the University
Author Note

1CASE STUDY ANALYSIS ON YUNNAN AIRLINES
Executive Summary
As the global business environment is competitive in nature, the nature of the business needs to
be ever revolving. It is in regard to this that, all the firms who are present in the industry are
required to undertake procedures and strategies which will help them in attaining overall
organizational success. The given report is based on the case study of Yunnan Airlines and the
manner in which the firm has been evolving in the past. Moreover, the use of various strategic
management tools like PESTLE, Porters, Generic and SWOT have been made use of in order to
understand the manner in which the firm will be able to gain success. Out of the various options
which were available to the firm, the strategy which has been adopted can be understood to be
the Green strategy. In line of this, the recommendations which can be undertaken by the firm
have been provided.

2CASE STUDY ANALYSIS ON YUNNAN AIRLINES
Table of Contents
Introduction......................................................................................................................................3
Case study context...........................................................................................................................4
The challenges being faced by the firm...........................................................................................5
Application of Strategic models......................................................................................................7
Porter`s Generic Strategies..........................................................................................................7
PESTLE Analysis......................................................................................................................10
Porter’s five forces strategy.......................................................................................................13
SWOT Analysis.........................................................................................................................16
Options exposed to the firm...........................................................................................................18
Most appropriate option.................................................................................................................20
Conclusion.....................................................................................................................................21
Recommendations..........................................................................................................................21
References......................................................................................................................................23

3CASE STUDY ANALYSIS ON YUNNAN AIRLINES
Introduction
Strategic management can be considered to be an integral part of the organization`s
overall strategy. When any firm wants to ensure long term success in the business domain, then
in such a case, the firm would be required to apply various strategic management tools which
will enable the firm to achieve its overall goals and in line with this be able to attain a strategic
position in the competitor field. According to Aguinis, Edwards and Bradley (2017), the
Strategic Management can be understood to be the continuous planning, monitoring as well as
the analysis and assessment of the aspects which relate to the organizations overall success and
help the firm in meeting all its goals as well as objectives. The Strategic management as a
function helps the firm to meet the needs and in line with this also helps the company leaders in
assessing their overall current scenario, deploy the strategies which have been designed and
analyze the overall effectiveness of the implemented strategies. The function of strategic
management does not just involve the analysis of the cross functional business decisions but
revolves around the implementation of the same (Ansoff et al. 2018). The different functions of
the Strategic management can be understood to be centered around the formulation of action
plans, execution of the action plans, monitoring and evaluation of the action plans which have
been designed and making the changes whenever desirable. The reason why the Strategic
management as a function is considered to be very relevant can be stated to be centered around
the fact that it initiates a commitment to the overall strategic planning and focuses on the ability
of the organization to set down the short term goals as well as the long term goals.
This also contributes towards understanding the resource allocation and necessary
processes which assists in strengthening the core competencies of the organization. Hence, in

4CASE STUDY ANALYSIS ON YUNNAN AIRLINES
line of this, through the formulation of a strategy, the firm will be able to take adequate steps in
the right manner and be able to keep the pace with the changing needs of the business
environment. Moreover, the firm can also attain competitive advantage and improve the overall
market share (Baumgartner and Rauter 2017). This thereby allows the firm to improve the
overall market share. The focus of the report lies on the strategic management analysis of the
organization Yunnan Lucky Air. The report will examine the overall background and case study
related aspects of the firm. In addition to this, the problem which is being faced by the firm will
be examined and various Strategic models will be applied in order to understand the overall
intentions of the firm and the emergent of the right strategy.
Case study context
The case study throws light on the overall operations and history along with the
development of the Chinese low cost carrier named Yunnan lucky air. The firm had been
established in the year 2004 and had experienced profound growth in its years of operations
(Berenguer et al. 2008). The organization was found in 2004 with an initial capitalization of
US$2.2 million and the reason why the operations of the firm was centered around Yunnan is
because, the city showed exceptional potential for growth in the number of tourists and the
arrivals between 2007 and 2008 increased from 21 million to 24 million.
Hence, the purpose was to capture this growth so as to ensure that, the firm could benefit
from the growing operations. Lucky Air had its operations based around the Yunnan province
such as the Dali and Xishuanbanna. This helped the firm to gain monotony and in addition to
this, also assisted the firm in ensuring that they are able to establish themselves as low cost, high
efficiency and adopted some key components of the South west Airline model (Bowman and

5CASE STUDY ANALYSIS ON YUNNAN AIRLINES
Faulkner 1997). The reason why the airline was able to maintain its efficiency status is because,
the usage of just one type of an airline contributed towards reducing the maintenance as well as
the operational efficiency. Moreover, another strategy which was adopted by the organization
also involved operating in the secondary cities so as to avoid congestion and reduce the overall
landing costs which take place (Datta 2010). The e-commerce scenario in China had been
growing at a great extent and in relation to this, the firm aimed to take advantage of the trends in
the e-commerce industry so as to increase the overall revenue structure of the firm. The online
travel market in China was relatively very small in size and had not become a popular idea until
the firm began to also sell its tickets online. The company sold 80% of its tickets through the
various agents who are present and they were paid a 2% commission on it.
Additionally the rest 20% of the tickets were sold through the website of the firm and in
line with this, the website of the company and its related operations have been discussed
adequately (Berenguer et al. 2008). Additionally, the menu of the website offered a variety of
benefits which helped in making the website a hub of the community and in line with this, the
case study ends on the note that, the company is looking out for various growth opportunities
which would assist the firm in gaining recognition. Hence, the company was required to come
up with a relevant strategic plan to ensure growth.
The challenges being faced by the firm
The case study hinted towards a certain number of challenges which could be faced by
Yunnan airlines and in line of this, the different challenges has been discussed in the following
section.
Aligning with China`s travel industry and governmental policies

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Currently, China has planned to expand its overall operations and invest heavily in the
travel and governmental policies. The amount of investment relates to US$20.2 billion. This
investment would be focused towards the upgrading of the current capacity of the existing
airports and opening new airports across the country (David and David 2013). Hence, this
provides the company with an overall opportunity to ensure that it is successfully able to gain
access of this. Moreover, the easy going climate regulations could also attract a large number of
new entrants and contribute towards increasing competition.
Limitations of the low cost strategy
The next challenge which can be faced by the organization can be understood to be the
limitation of the low cost strategy. Although at present Yunnan Airlines has been able to benefit
to a great extent relating to the low cost strategy of the organization, it needs to be understood
that, this strategy would not benefit the firm in the long run and if the firm aims to attain success
in the long run, the firm would be required to rewind the overall strategy, which would enable it
to attain long term success and additionally also allow the firm to gain long term advantage at the
workplace (Engert, Rauter and Baumgartner 2016).
Online booking domain
The online booking domain has become an increasingly relevant domain which is present
around the globe. In line of this, Yunnan Airlines would be required to ensure that a maximum
number of its operations can be achieved and in relation to this, the Yunnan airlines would be
required to expand its operations in a manner such that it is able to engage in long term success.

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Application of Strategic models
Therefore, from the previous section it was understood that, the firm would be required to
undertake several initiatives which would ensure that it will be able to combat against the current
forces which lie in the external environment of the firm and be able to imply these changes
within the current scenario (David and David 2013). Therefore, the use of various Strategic
management tools like the Generic Strategies of Porter, The PESTLE Analysis, the SWOT
analysis and the Porters Five forces strategy in order to understand the manner in which the firm
would be required to apply a suitable strategy for the firm.
Porter`s Generic Strategies
The generic strategies have received their name because they can be easily applied in all
the industries. The Porters generic strategy has been discussed by Michael Porter in 1985 in the
book, Competitive Advantage: Creating and Sustaining Superior Performance." The three
primary types of the generic strategies which are available to the firm can be understood to be as
the Cost Leadership strategies which involve no frills, the Differentiation strategy which creates
unique and desirable products as well as the services (Berenguer et al. 2008). Additionally, the
focus strategy tends to focus on the specialized service which the firm usually offers in the niche
market. The Focus strategy is further divided into the Cost Focus and the Differentiation Focus
which enables the businesses to engage in a suitable strategy with respect to the same.
.

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Figure 1: The competitive generic strategy
(Source: Datta 2010).
The point of differentiation which lies with respect to the Cost focus and the
Differentiation Focus is that, the Cost focus emphasizes on cost minimization within a specific
chosen market whereas the differentiation focus aims to pursue differentiation within a focused
market.
The cost leadership strategy
The manner in which a firm can gain competitive advantage in the long run can be
understood to be related to the development of the edge which helps in gaining the maximum
sales and assists in ensuring that, the overall management of the firm can be done in the right

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manner. The different firms present in the competitive environment will be able to overcome this
strategy by ensuring that they are able to increase the overall profits of the business and increase
their market share by charging lower prices. The Yunnan airlines has been able to do this by
ensuring that their overall prices are low and they also tend to operate in second cities which are
less common, hence, it is able to increase the market share in the market (Datta 2010). The
Yunnan airlines has been able to achieve success in the given domain by being able to have
access to the capital which is required by investing in the technology which brings the costs
down. In addition to this, the firm tends to engage in very effective logistics which enables the
firm to run on a low cost base (Engert, Rauter and Baumgartner 2016). Additionally, the firm is
also able to engage in cost cutting techniques which differentiate it from other competitors.
The Differentiation Strategy
The differentiation strategy is another strategy which enables the firm to differentiate its
overall offerings and by making the offering of the firm one of the most attractive ones. The
manner in which this can be done can be contributed to the fact that, this will enable the firm to
have separate and unique features as well as functionalities which will provide adequate support
and durability. Additionally, the differentiation strategy can be successfully applied by engaging
in the research, development as well as innovation techniques (Datta 2010). In line of this, it is
also reliant on the overall capability of the firm to deliver high quality products and services.
The different large organizations which tend to pursue a differentiation strategy need to remain
agile with the new development of product and ensure that they are being able to stay ahead in
the market.
The Focus Strategy

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The focus strategy is another suitable strategy which can be utilized by the firm in order
to ensure that they can contact a particular niche market which would assist them to understand
the overall dynamics of the market and thereby be able to meet with the unique needs of the
customers (Ethiraj, Gambardella and Helfat 2016). Additionally, the firm would also be required
to serve the different customers in the market selected uniquely well as this would help in
building brand loyalty which would then assist in making the segment attractive in nature. The
choice which lies to the Yunnan airlines in such a case can be understood to be the Cost
Leadership Strategy or the Differentiation strategy.
As the firm is already undertaking the Cost Leadership strategy for the second cities, it
would be appropriate for the firm to adopt the Differentiation strategy which would enable the
firm to engage in a long term successful relations with the different customers present. Hence, to
differentiate with respect to the current operations being undertaken by the firm, it is
recommended that the organization engages in a strong relationship with the different target
market segments which would enable it to maintain the overall competitive positioning in the
market for itself(Frynas and Mellahi 2015).
Therefore, it becomes integral to ensure that, the firm is being able to consider the market
share and lowering of prices technique, additionally, aspects like the differentiation strategy
relating to the unique features can also be undertaken by the Yunnan airlines in order to ensure
that, it is being able to secure a strong future
PESTLE Analysis
The PESTLE analysis can be understood to be an effective strategic management tool
which can be utilized by various businesses in order to examine and scrutinize the various factors

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which lie in the external environment of the firm. It is through the analysis of these six factors
that a business is able to gain an understanding of the manner in which, it will be able to perform
in the long run. Hence, in order to arrive at a conclusion for the Yunnan Airlines which will deal
with the future steps which have to be undertaken by the airlines, the section will conduct a
PESTLE analysis pertaining to the external environment of the firm.
Political
The political environment in which the different airlines tend to operate in can be
understood to be the fact that the governmental regulations and legislatives tend to favor the
passengers over the airlines industry. This is because, according to Ethiraj, Gambardella and
Helfat (2016), the passenger safety is paramount and the previous monopolistic behavior of the
airlines has made the regulations weary of the airlines and related rules and in relation to this, the
regulations centered around the industry has become tighter. Additionally, there has been a
deregulation on the industry on the demand sides and the different customers are exposed to
more amenities and lowered prices. The Chinese labor unions are very weak and hence, the
companies are easily able to hide their wages. Additionally, the ATC Regulations tend to
negatively affect the industry.
Economic
The demand of the industry in China can be understood to be characterized by high
income elasticity. Moreover, the oil prices tend to take up 10-14% of the airlines operating
costs. The exchange rate present in the country tends to affect the overall operations of the firm.
The global airline industry has not been able to recover after the terrorist attacks and hence,
various airline companies have been affected by the recession (Gallus and Frey 2016). There has