Case Study – Lucky Air
Department of Business Administration; The University of the People
BUS 5117: Strategic Decision Making and Management
Dr. Pepper; UNIT 5 – Written Assignment
July 21, 2021
Case Study: Lucky Air
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Lucky Air emerged as a low-cost domestic airline based out of China’s Yunnan province
in 2008. It was modeled after a popular United States airline: Southwest (Berenguer, 2008), but
due to the increased regulations China imposes on the airline industry, Lucky Air was running
into risks that Southwest was not obligated to. Due to the growing ecommerce industry, and the
search for additional competitive advantages, Lucky Air was turning its focus toward ecommerce (Berenguer, 2008). Overall Internet penetration in China was low, compared to the
United States, and varied among the regions. At the end of 2007, China was up 53.3% from the
end of 2006, growing by millions per month, and was expected to top the U.S. by mid-2008
(Berenguer 2008). From serving domestic flights, to expanding to over 14 international
connections, Lucky Air found a way to benefit from increased cash flow into the Chinese
economy (Kon, 2017).
Lucky Air also used these strategies to keep costs low, utilizing the cost leadership
generic strategy (Berenger, 2008; Ketchen, 2012):
1. Lucky Air’s partnership with Hainan to use the advanced software used by Hainan
Airlines helped Lucky Air’s position in the industry.
2. They used only a single type of aircraft, which helped to reduce maintenance and
operational expenses.
3. Lucky Air simplified seat “classes” to one: coach, and did not assign seats, or provide
any sort of in-flight entertainment.
4. Most of its routes were short haul and point-to-point to increase on-time departure and
arrival. It operated mostly in secondary cities to avoid congestion and reduce landing costs.
The following paper will address the challenges facing Lucky Air and a recommendation
for the company to utilize cost leadership in its strategy.
Case Study: Lucky Air
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Challenges for Lucky Air
Unfortunately, unlike Southwest airlines in the United States, Lucky Air’s cost structure
was only about 5% lower than the industry average, which was mostly due to government
regulations. Berenguer (2008) goes on to explain that the government regulated many cost
factors for Lucky Air, the largest being:
1. Fuel: China had only one fuel supplier and fuel prices were set by a national
commission.
2. Landing fees: Most Chinese cities had only one airport, which made finding
secondary airports, with lower landing fees, more difficult.
3.
Aircraft leasing: China mandated that airline capacity expansion could not exceed
35% per year, with caps usually falling much lower.
4. Taxes: China taxed airlines between 2-10% for taxes.
5. Availability of Ticket Distribution: In China passengers can buy airline tickets
directly from an authorized distributor: the airline, an agent, or online. Usually, when
a customer buys a ticket directly from the airline, the transaction would be handled by
that airline, in China, it was handled by a Global Distribution System (GDS),
TravelSky (Berenguer, 2008).
Although China’s technology infrastructure had improved rapidly in recent years, the ecommerce sector remained relatively unsophisticated. People have not transitioned to online
purchases throughout China in a large scale.
Business Strategy for Lucky Air
To maximize cost efficiency, I think that Lucky Air should focus on maximizing expense
efficiency in the following ways (Table 1):
Case Study: Lucky Air
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Table 1 – Business Strategies for Lucky Air
Strategy
1. Fuel and capacity
expansion
Cost-Centered
2. Landing fees
3. E-Commerce
1. Online Payments
Differentiation
2. Targeting Marketing
3. Loyalty Programs
Cost-Centered Benefit
1. Maximize the ratio of fuel to passenger ratio to
minimize the cost of fuel.
2. Prioritize secondary airport landings and focus
on regular travel to these.
3. Maximize flight turn arounds by focusing on
regular ecommerce deliveries, which could
also lessen fuel fees.
1. If Lucky Air can utilize the online payment
features, it could drive more ecommerce
businesses and passengers to their flights.
2. If Lucky Air can focus marketing toward
online users, and regular fliers (such as
businessmen and students), they can help
maximize sales and boost visibility.
3. Loyalty programs help build a repeat customer
base.
Lucky Air’s website, luckyair.net (Berenguer, 2008), was the first in the industry to
enable online credit card verification and create an online community for its passengers. Lucky
Air hoped to reach more customers directly via its website and build more brand recognition and
a loyal customer base. Being sure to provide excellent transaction security for any payment
systems allowing for online buyers.
Implementing the Overall Strategy
In conclusion, this is a huge opportunity for Lucky Air to be a leader in many markets:
domestic flights, ecommerce, and online ticket availability. One of Lucky Air’s strengths is its IT
operations. With the combined competitive advantage of being a first mover, and the low-cost
expense partnership with Hainan for use of IT software, Lucky Air can use these advantages to
help bring down costs. Further differentiation with target marketing and loyalty programs could
boost recognition and help Lucky Air shine online.
Case Study: Lucky Air
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References
Berenguer, I., Jing, L., Liang, L. Shijun, K., & Wang, N. (2008). Ecommerce at Yunnan Lucky
Air. MIT Sloan School of Management. Retrieved
from: https://mitsloan.mit.edu/LearningEdge/strategy/EcommerceYunnan/Pages/default.
aspx
Ketchen, D & Short, J. (2012). Strategic Management: Evaluation and Execution. This book is
licensed under a Creative Commons by-nc-sa 3.0 license. Retrieved from:
http://jsmith.cis.byuh.edu/books/strategic-management-evaluation-and-execution
Kon, James. (2017). Tourism boost as Yunnan Lucky Air begins flights to Brunei. Center for
Strategic and Policy Studies. Retrieved from:
http://www.csps.org.bn/2017/07/16/tourism-boost-as-yunnan-lucky-air-begins-flights-tobrunei/