Tours and Travels Industry: China Southern Airlines

Company Report

Company Report – China Southern Airlines

Tours and Travels Industry

The increase in the disposable income of the middle class families and easing of restrictions on the movement of people across the world has given a boom to the tours and travel industry. China being the highly populated country, the expanding tours and travel business has led open the doors for innovation and service differentiation (Luk, 2012). The researches show that China has lately become one of the largest travel and tourism market in the world. The travel spending of the Chinese travelers is increasing significantly. The total revenue of the travel industry in China increased by 15.2 % in 2016 as compared to 2015 (Statista.com). Though the Chinese travel industry is booming, the tours and travel sector in the country is still in the growing phase. The sector is highly regulated by the government and leaves little scope for foreign players. This situation gives the Chinese airlines great opportunity to grow and flourish.  China Southern Airline Co., Ltd is the largest airlines in China as measured by the passengers carried. It has its headquarters in Guangzhou (global.csair.com). The airline is reviewed for its strengths and weakness. Recommendations are also made so that the airlines can exploit the opportunities available and ensure a sustainable growth in the country as well as the world. 

China Southern Airlines

China Southern Airlines was founded in 1988.  By 2016 the company has employed more than 100,000 employees and includes about six subsidiaries in airlines sector. It is presently the third largest airlines in the world by the passengers carried. 

The two aspects in which the airlines excels at and one weakness of the company are  discussed below.

CSA Excels at

1. Largest fleet of aircrafts and infrastructure:  China Southern Airlines has the largest fleet of passenger and cargo aircrafts, of more than 754 in China (csair.com). Since the company is comparatively new, the aircraft fleet of the company is also young, with the average age of about 7 years. Thus the company has long time to invest in the replacement of its fleet and hence can operate at competitive prices to achieve high revenues and higher profitability (SWOT & PESTLE.com, 2017).  The large fleet of the company ensures it has the ability to meet the growing demands of the country. The fleet of the company has variety of aircrafts.  It is the only airlines in china to operate including the Airbus A380.  Thus the company has good technology and operating ability to grow and sustain. 
2. Developed Network and tie-up with American Airlines:  The airline has a huge network in China as well as across the world. It is connected with as many as 150 cities domestically and covers over 600 routes. The airlines is the only in china to connect with various foreign countries and also a pioneer in starting foreign country flights. For eg. it was the first airlines to connect China with Taiwan in air directly (gotravelyourway.com, 2018). Thus is known for enhancing the relations between China and Taiwan.  The airline is also known to be the first one to have a flight on the transpacific route from Guangzhou to California (gotravelyourway.com, 2018). It is thus observed that the airline has a very huge network and it continuously exploring new routes. This will help the airline in maintaining its demand and sustain in long term. In Addition to this, CSA is the first airline to join the alliance of Sky Team. The alliance being the 2^nd largest alliance in the world, CSA joining it is matter of proud and honor. CSA is rated as a 4-star airline by Skytrax for its services and is the biggest 4 start rated airline in the world. Thus China southern airline is among the first choices for business class as well as tourists in the country. The company has proved its excellence in its services.

CSA Weakness

 China Southern Airlines (CSA) is known for its good connectivity and large fleet of aircrafts. However, one weakness that the company is facing is high interest cost. The company has huge liabilities in foreign currency. The interest cost on loan is high for the company.  Also the company is still in the evolving stage and hence is undergoing continuous restructure changes.  This is resulting in increase in non-current liabilities of the company (NCL increased to 86,598 RMB million in 2017 from 77,534RMB million in 2016) and the interest expense in return (csair.com). As a result the profit percent is decreasing. Competitive pricing is making it difficult for the company to increase the fares.  This situation is alarming for the company because if the liabilities and interest cost keeps on increasing, the company may become risky in long term and might run out of cash when it has to simultaneously to replace its aircraft fleet. High liabilities and interest expense might lead the company into insolvency. 

Conclusions & Recommendations

It is concluded from the above review and analysis that China Southern Airline is the largest airlines in china with huge fleet of aircrafts and large network of flights in china as well as outside the country. The airline is known for its goods services and connectivity. However, the airline has huge liabilities and high interest cost which might make it difficult to earn profit and sustain in future.

It is recommended that the airlines should initiate cost control measures to increase the gross profit margin in order to pay the high interest cost as well as the liabilities as and when they fall due. The low costs of operations will increase the cash flows from operations to the firm and enable it to meet the cash costs. Secondly, it is also observed that the company is expanding continuously with addition of new subsidiaries. It is important that the company limits its expansion plans for some time and target more on achieving stability in the capital structure and culture of the organization.  By abstaining from further expansion, the company can avoid increase in its liabilities and will be in the better position to serve its liabilities. The financial statements of the company show that the revenues of the company are increasing; however there is simultaneous increase in borrowing costs of the organization.  The cash flow statement of the company shows decrease in the cash from operating activities in 2017 from 2016. Thus even though the revenues are increasing the cash flow is not increasing. The management needs to view this as a concern and work more towards internal management. 

Thus it is recommended that the management of CSA must avoid further expansion of the business and concentrate upon building stronger capital structure of the company by reducing its debts and improving the cash flows.