CASE STUDY

STRATEGIC MANAGEMENT (MGT 790)

22 October 2011 Nurnadrah Zaini 2010690086 Tuan Arif Tuan Mahmood 2010679616

Problems at China Airlines

CHAPTER 1 INTRODUCTION Introduction China Airlines Limited (CAL) was started on December 10, 1959, by some Chinese ex-Air Force officers in Taiwan with an initial fund of NT$ 400,000. The airline operated with just 26 employees and the limited resources of two PBY-5A Catalina flying boats. Operations began with two PBY-5A Catalina flying boats and 26 employees. Military charter work formed the bulk of its business. Within a couple of years, however, CAL had obtained a few war surplus C47 (DC-3) and C-46 transports which it used to link several points around the island. CAL was not Taiwan's first carrier. Civil Air Transport (CAT) had been founded before the mass exodus of Chinese Nationalists from the mainland. In time CAT became Taiwan's flag carrier, although the U.S. Central Intelligence Agency (CIA) owned 60 percent of it through the Pacific Corporation. It had been steadily losing influence when China Airlines was created. CAL, other regional carriers, and even Air America, also sponsored by the CIA, succeeded in parcelling out CAT's routes. After a few disastrous crashes, the Taiwanese government closed down CAT in May 1968. CAL subsequently became the official state airline. Key Dates: * 1959: Retired Chinese Air Force officers in Taiwan set up * 1966: CAL begins flying its first international route * 1971: United Nations' sanction of Beijing government limits * 1980: CAL posts its first loss. * 1993: CAL shares are listed on Taipei Stock Exchange. * 1994: CAL suffers one of the worst crashes in aviation history * 1998: Taiwanese government searches for a foreign equity

What are the dominant characteristics of the airline industry? Three main sets of airline business models that will be described in the next 1. Full-service carrier or FSC 2. Low-cost carrier or LCC 3. Charter carrier or CC Characteristics for Full-Service Carriers A full-service carrier (FSC) is defined as an airline company developed from the former stateowned flag carrier, through the market deregulation process, into an airline company with the following elements describing its business model: Core business: Passenger, Cargo, Maintenance. Hub-and-spoke network: This has as its major objective the full coverage of as many demand categories as possible (in terms of city-pairs6) through the optimization of connectivity in the hub. Global player: Domestic, international and intercontinental markets are covered with short-, medium- and long-haul flights from the hubs to almost every continent. Alliances development: No individual airline has developed a truly global network. Thus the network is virtually enlarged by interlining with partner carriers and become part of multi-HS systems. Vertical product differentiation: This is affected through in-flight and ground service, electronic services (Internet check-in) and travel rules to cover all possible market segments. Customer relationship management (CRM): Every FSC has a loyalty program to retain the most frequent flyers. The frequent flyers programs (FFP) have became part of a broader strategy called CRM. The general purpose of CRM7 is to enable carriers to better manage their customers through the introduction of reliable processes and procedures for interacting with those customers. The final aim of the CRM is to enhance the passengers buying and travelling experience in order Yield management and pricing: To support product differentiation, pricing and yield management is sophisticated, with the aim of maximizing the network revenues. Multi-channel sales: Sales channels are divided into indirect off-line (intermediate travel agencies) or indirect on-line (web intermediate electronic-agents); direct on-line: the passenger

buys the tickets directly via the airlines Internet site; direct off-line: the passenger buys the tickets directly via the airlines call centre, the airlines city office (CTO), or the airlines airport office (ATO). The FSC cover all of these channels. Distribution system: The complexity of the distribution system described above is technologically supported by external companies called Global Distribution Systems (GDSs). Among the most diffused GDSs are: Galileo, Amadeus, WorldSpan, Sabre. Characteristics for Low-Cost Carriers The concept of low-cost carriers or LCC originated in the United States with Southwest Airlines at the beginning of the 1970s. In Europe, the Southwest model was copied in 1991, when the Irish company Ryanair, previously a traditional carrier, transformed itself into an LCC and was followed by other LCCs in the UK (e.g. EasyJet in 1995). In the literature, there are several similar definitions of an LCC, also known as a low fare or no-frills airline (see Appendix II for a complete list of LCC existing in Europe). In this study an LCC is defined as an airline company designed to have a competitive advantage in terms of costs over an FSC.9 In order to achieve this advantage, an LCC relies on a simplified business model (compared with the FSC), a model which is characterized by some or all of the following key elements: Core business: This is passenger air-service despite the ancillary offers are increasing and becoming part of the LCC core business. Point-to-point network: The network is developed from one or a few airports, called bases, from which the carrier starts operating routes to the main destinations. Destinations are only continental within the EU or the US. No connections are provided at the airport bases, which function as aircraft logistics and maintenance bases. Secondary airports: City-pairs are connected mainly from the secondary or even tertiary airportssuch as London Lutonthat are less expensive in terms of landing tax and handling fee and experience less congestion than the larger ones,. such as London Heathrow. Small airports will strive to gain the LCC operation and the usual way is to reduce airport charges. Similarly, air transport activity generates welfare that is a multiple of the airports activities, inducing regional economic and social development. Local authorities recognize that the LCC operation is a potential driver for social and economic developments, and are willing to provide financial help (for example: tax exemption, marketing support while LCCs start a new

connection). The reduced airport fees can be understood as an incentive, as most of these secondary airports are public. These incentives can be quite relevant and can be deemed to contravene the EUs competition rules. Single aircraft fleet: In general, the LCC operates with one type of aircraft such as the Boeing 737 series with a configuration of 149 seats. The fleet composition also depends on the fact that they operate on only short- or medium-haul routes. Aircraft utilization: The aircraft is in the air, on average, more hours a day compared with FSCs that have to respect the connectivity schedule. No frills service: The product is not differentiated as they do not offer lounge services at airports, choice of seats, and in-flight service, and they do not have a frequent flyer program. Fare restrictions are removed so that the tickets are not refundable and there is no possibility to rebook with other airlines. Minimized sales/reservation costs: All tickets are electronic and the distribution system is implemented via the Internet or telephone sales centre (only direct channels). Passengers receive an e-mail containing their travel details and confirmation number, when they purchase. The LCC does not intermediate the sale with travel agents and nor does it outsource the distribution to GDS companies. Ancillary services: LCC increasingly have revenue sources other than ticket sales. Typical examples are commissions from hotels and car rental companies, credit card fees, (excess) luggage charges, in-flight food and beverages, advertising space. The potential growth of this revenue comes from telephone operations and gambling on board. Mintel (2006) reported that Ryanairs revenue from sources other than ticket sales contributed 259 million to its 200506 net profit of 302 million. Those revenues already represent 16 percent of the carriers total revenue. For easy Jet, that kind of income originally represented only 6.5 percent of the airlines total revenue, but it increased by 41.3 percent from 2004. Not every low-cost airline implements all of the points mentioned above. For example, in 2005 Air Berlin started the UK domestic services as feeders to its German services out of Stansted, exploring the hub-and-spoke operations. The differences between the FSC and LCC business models are multifaceted (see, e.g., Alderighi et al., 2004). The significant structural cost gap between the two models results from these fundamental differences. Table 2.1 breaks down the cost gap between the FSC and the LCC business models. Overall, the LCC model can operate at 49 percent of FSC costs. In particular,

37 percent out of a total 51 percent of costs difference can be attributed to explicit network and airport choices (or business place and process complexity); another 9 percent of the LCC cost advantage comes from the distribution system and commercial agreements (costs which are narrowing with the elimination of commissions and GDS). Characteristics for Charter Carriers A charter carrier (CC) is defined, in this study, as an airline company that operates flights outside normal schedules, by a hiring arrangement with a particular customer. Charter flights have acquired the more specific meaning of a flight whose only function is to transport holidaymakers to tourist destinations. Although charter airlines typically carry passengers who have booked, individually or as small groups to beach resorts, historic towns, or cities where a cruise ship is waiting for them, sometimes an aircraft is chartered by a single group, such as members of a company, a sports team, or the military. In general, charter flights are sold as part of a package holiday in which the price paid includes flights, accommodation and other services. In the past, this was a regulatory requirement. With the EU deregulation the flight-only packages can now be sold only to those who want to travel to the destination. Most European charter airlines now form part of verticallyintegrated organizations, incorporating a tour operator, travel agency chain, airline and, more often hotels and ground transportation companies. Some examples of vertically-integrated charters are Britannia Gmbh, Condor, Air Jet, and Virgin Sun. Some FSCs have set up charter divisions: for example, KLM ownsMartin Air or Lufthansa owns Condor. Mason et al. (2000) reveal that in 1997 the two largest LCCs in Europe, easyJet and Ryanair, had unit costs more than double those of the largest UK charter airlines. CCs were divided into the ones that form part of vertically-integrated tour operating groups and those that remain independent. The sources of cost advantage that the two types of charter airline have over the LCCs were analysed and identified as the following: Larger aircraft and longer-haul destinations; Higher load factor, aircraft utilization and labour productivity; and Lower distribution costs, landing fees, aircraft leasing costs, and admin & finance costs.

Williams (2001) provides a brief overview of the charter carrier business model and its vertical integration in the EU. He addresses the question whether Europes charter carriers will be replaced by LCCs and his answer is negative. Statement of Problems What is the main issue of CAL? The following events are those involving at least one passenger death where the aircraft flight had a direct or indirect role. Excluded would be events where the only passengers killed were stowaways, hijackers, or saboteurs. 1. 12 August 1970; China Airlines YS11; Taipei, Taiwan: The aircraft was on approach under conditions of heavy rain and low clouds when it struck a low ridge about 660 feet (200 meters) about one half mile (800 meters) from the runway. Two of the five crew members and 12 of the 26 passengers were killed. 2. 21 November 1971; China Airlines Caravelle; near Penghu Islands, Formosa Strait between Taiwan and the PRC: The aircraft was believed to have been destroyed by an inflight explosion caused by a bomb. All 17 passengers and eight crew members were killed. 3. 27 February 1980; China Airlines 707-300; Manila, Philippines: The crew executed a steep and unstabilized approach, touching down hard short of the runway and bouncing, eventually stopping on the runway after having the two outboard engines and parts of wing departing the aircraft. Two of the 122 passengers were killed. 4. 16 August 1982; China Airlines 747; near Hong Kong: The aircraft encountered severe inflight turbulence. Two of the 292 passengers were killed. 5. 16 February 1986; China Airlines 737-200; Pescadores Islands, Taiwan: The aircraft touched down on the runway but crashed during an attempted go around. All six passengers and seven crew members were killed.

6. 26 October 1989; China Airlines 737-200; near Hualien, Taiwan: The crew was using an incorrect departure procedure and hit cloud shrouded high ground at 7000 feet (2130 meters). All seven crew members and 49 passengers were killed. 7. 26 April 1994; China Airlines A300-600; Nagoya, Japan: Crew errors led to the aircraft stalling and crashing during approach. All 15 crew and 249 of the 264 passengers were killed. 8. 16 February 1998; China Airlines A300-600; near Taipei, Taiwan: The aircraft crashed into a residential area short of the runway during its second landing attempt. The scheduled flight had been inbound from the island of Bali in Indonesia. The event occurred under conditions of darkness with rain and reduced visibility due to fog. All 15 crew and 182 passengers were killed. At least seven persons on the ground were also killed. 9. 22 August 1999; China Airlines MD-11; Flight 642; Hong Kong, China: The aircraft was landing in Hong Kong at night and during a storm after a flight from Bangkok, Thailand. The aircraft struck the runway and came to rest upside down and on fire. All 15 crew members survived, but three of the 300 passengers were killed. 10. 25 May 2002; China Airlines 747-200; near the Penghu Islands, Taiwan: The aircraft crashed into the sea about 20 minutes into a scheduled flight from Taipei to Hong Kong. The impact area was in the Taiwan Straits near the Penghu Islands about 75 km (47 mi) from the coast of Taiwan. Weather and flight conditions were normal, and no distress signal or other communication was received prior to the crash. The accident investigation concluded that the in-flight breakup was due to a structural failure in the aft lower lobe section of the fuselage. The investigation attributed this failure to an inadequate repair of tail strike damage that was sustained in 1980. All 19 crew members and 206 passengers were killed. 11. 20 August 2007; China Airlines 737-800; Naha, Japan: Shortly after landing at Naha on the island of Okinawa, the left engine caught fire and the crew initiated an emergency evacuation. Although the aircraft was destroyed by fire, all 157 passengers (including two toddlers) and eight crew members survived.

CHAPTER 2 WHAT THE CASES IS ALL ABOUT What are the reasons for China Airlines' problems and how politics could affect the business prospects of an organization? This case deals with the problems faced by Taiwan-based full service airline, China Airlines Ltd. (CAL). Much of its trouble was attributed to its poor safety record in the 1990s that severely tarnished its brand image besides lowering passenger traffic. In addition to this, analysts felt that faulty pilot recruitment policies, lenient flight crew training process, lax maintenance systems, high cost operational structure, inefficient corporate culture, and the cost-cutting policies of the management which sacrificed safety standards added to its woes. The strained political relations between mainland China and Taiwan which prohibited the airline from launching flights to routes in China only compounded its problems.

What factors are causing change in the airline industry? 1) Fuel price. Fuel price has been the dominant driver of airline financial performance over the last three years. According to analysis, airlines responded by improving their efficiency of fuel use and also by improving labour productivity. World dependent on the fuel largely and the rise in the fuel prices impacting the decisions of the countries and this topic Oil prices still matter to the health of the world economy. Higher oil prices since 1999 partly the result of OPEC supply management policies contributed to the global economic downturn in 2000-2001 and are dampening the current cyclical upturn: world GDP growth may have been at least half a percentage point higher in the last two or three years had prices remained at mid-2001 levels. Todays airlines face many new problems. The historical trends show the true story of what is happening in the airline industry. There are many factors that contribute to these problems and

Increase in fuel rates/cost is one of them. With the current political disputes in Eastern Europe and the unrest in the Middle East, the cost of oil is likely to rise as is the unstable nature of this resource and industry in general. Why does the airline industry which is always sensitive to price change take no action this time? The South-west Airline Company disclosed that now it was the peak period for tourism, and the number of airline passengers had just revived a little. If we raised the ticket price at this time the passengers would scare away. Several transportation companies also mention that the domestic transportation is stagnant recently, and it would be further overwhelmed if the airline raised price now. Therefore under the present condition of fuel price surge, the airline should minify the loss through management strengthening, cost lowering and efficiency improving, but not simply raise the price. Increases in fuel prices affect the airlines in two ways; the cost of fuel has an obvious and direct impact on the cost of operation, and fuel cost increases have repeatedly triggered economic recessions, which in turn result in a substantial decline in demand for air travel and air cargo. Changes in cruise speed, use of flight simulators, sophisticated flight planning systems, increasing load factors and the introduction of newer, more aerodynamic aircraft designs combined with modern engine technology, are all recent success stories. Airlines continue to look at every possible facet of their operations to further improve fuel efficiency through measures like taxiing on one engine, delaying startup and push back, removing all discretionary weight, and using ground power instead of on-board auxiliary power units while at the gate. These and similar measures are increasingly being used where commensurate with safety considerations to save fuel and, not incidentally, to reduce emissions. However, as of today our options for further dramatic improvements on the order of what we have been able to achieve over the past few decades are limited. 2) Shrinkage of High-End Demand for Air Travel DOTs analysts believe that the collapse of high-end demand at the end of 2000 was not simply another cyclical change, but rather an important structural change driven by a powerful combination of economics and technology. While leisure travelers have always chosen an airline primarily based on price, there is growing evidence that business travelers have become

significantly more price sensitive. For many, the change is likely to be permanent. Together, the economic downturn beginning in the latter half of 2000 and 9/11 engendered some major changes in business travel purchasing habits. Because cutting travel budgets became a corporate imperative, businesses embraced lower cost travel alternatives, including low-cost air carriers. Many trips that would have been routine just a few years ago simply werent taken. Consider how many fewer trips you take today during the course of a major transaction than even a few years ago. Thats because your clients are more attentive to such costs and because it is so easy to exchange redlined documents electronically. Businesses in every sector made similar changes in their travel patterns, substituting web conferencing and other technologies for face-to-face meetings. 3) Emergence of a New Cadre of Low-cost Carriers The new generation of U.S. low-cost carriers like JetBlue, AirTran, and Frontier are bigger and better than the previous generation of LCCs, most of whom ultimately failed. Flying on a low-cost carrier generally used to mean infrequent service on aging airplanes across a limited network. No longer. LCCs now offer convenient schedules, state-of-the art aircraft, and amenities that meet or exceed those offered by the full service airlines. This competitive challenge has forced pre-deregulation airlines we now call them legacy carriers -- to take a hard look at their business strategies and reduce costs wherever possibl and third, the increased transparency of alternative airline offerings and less expensive itineraries made possible by the internet and other technologies. 4) Internet Another factor underlying the structural changes in the industry is the internet not as a substitute for travel but as a perfect purveyor of information about travel. Carriers everywhere have embraced online ticket sales as a means of reducing distribution costs. Low-cost carriers were often in a better position to take the greatest advantage of internet distribution channels because they were unburdened by the legacy of existing distribution systems and technologies. Travelers now have the wherewithal to compare price and service offerings of all airlines quickly and efficiently, and to act on those comparisons instantly with only a few keystrokes.

What are the companys key resource strengths and competitive capabilities? What competitive liabilities and resource weaknesses does it have? What opportunities exist? What threats to its continued success are present? The best way to answer this question is by SWOT analysis. Strength High safety record A very warm hospitality Rich of history Weakness Threat New competitors come from abroad and domestic Increasing expenses for oil supply Poor quality perception Higher fares levels Cannot provide seamless service

Rich of reputation Opportunity Increasing income in China as a result of growth in GDP Increasing a leisure times for Chinese people World factory will raise potential demand in business travel Internet distribution may reduce operational cost

CHAPTER 3 WHAT ARE THE ISSUES

Industry and Competitive Analysis Describe CALs business model. What strategies has CAL relied upon to build competitive advantage in the industry and initiatives adopted by China Airlines to restore consumer confidence and bring the company back into profits? 1) Quality and Innovation Maintaining Taiwan's Leading Brand The year 2009 was a difficult one for the aviation industry, with the financial downturn and soaring oil prices causing air carriers to park many of their aircraft, a move that also affected maintenance revenues. With the beginning of economic recovery at the end of the year, however, along with the governments active pursuit of the Taoyuan Aerotropolis plan and the new era in flights across the Taiwan Strait, the airline industry is expected to boom once again in 2010. 2) Professional service that puts the customer first For the past two years CAL has espoused the slogan, Customers Come First, but for CAL it is more than just a slogan. It signifies concrete action, and from start to finish, from inside to outside, CAL has assiduously pursued this ideal. 3) Maximizing operational synergies and reinforcing team competitiveness To effectively realize the synergies of group operation, CAL has mapped out a comprehensive airline service blueprint designed to create a new corporate niche. CAL moved into its new corporate headquarters in the Taoyuan Aerotropolis in 2010, and major improvements in administrative and operational efficiency are in store. The employees of CAL are full of confidence and, in addition to increasing the companys core business the improvements will also help Taiwan become an Asia-Pacific aviation hub in line with government policy. 4) Taking care of talent and training Since talent is the most important foundation of a corporation, CAL has continued to take the greatest care with the training of its personnel as it continues to convey first-class quality through the cultivation of professional talent. 5) Caring for Taiwan and fulfilling the responsibilities of a corporate citizen

Throughout its 50 years of history, CAL has always taken pride in being an outstanding corporate citizen of Taiwan, and has involved itself in charity and social-benefit activities, helping to promote tourism, culture, the arts, sports, and environmental protection. 6) Never-ending Pursuit of Safety The pursuit of flight safety is the force that always motivates CAL in its quest for improvement. This motivational force has driven CAL to internalize the principle of Safety for All into its corporate safety culture and strive toward the goal of Safety First. 7) Energy conservation, carbon reduction, and environmental greening CAL took the lead in receiving accreditation through the Environmental Protection Administrations greenhouse gas inventory, and implemented IATAs e-Freight program in 2009, ushering in a new era for aviation environmental protection in Taiwan. Financial Condition and Financial Analysis What does an analysis of China Airlines financial statements reveal about the companys performance? Operating Profit and Net Profit In 2010, China Airlines posted an operating profit of NT$ 14,765 million (operating margin 10.7%), reversed NT$16,461 million from an operating loss in 2009. Net profit reached NT$10,622 million (net margin 7.7%), reversed NT$14,427 million from a net loss in 2009.

Operating Revenues percentage points In 2010, total operating revenues reached NT$138,140 million, an increase of 40.8% over 2009. Total operating cost increased 23.6% compared to 2009 to NT$123,375 million. Passenger

revenue increased 28.1% compared to 2009 to NT$75,721 million and cargo revenue increased 68.4% compared to 2009 to NT$56,759 million, respectively. Other revenue also increased 7.9% compared to 2009 to NT$5,660 million.

Passenger Business Passenger revenue was NT$75,721 million in 2010, an increase of NT$16,591 million or 28.1% over 2009. According to the breakdown of passenger revenue by routes, North America represented the prime market contributing 26.5%, followed by Southeast Asia, Northeast Asia and Mainland China, with the contribution of 18.8%, 15.1% and 13.6%, respectively.

Cargo Business Cargo revenue was NT$56,759 million in 2010, an increase of NT$23,049 million or 68.4% over 2009. North America, the largest portion of cargo revenue, operated 59.6% of the cargo revenue, followed by Europe 18.4% and Southeast Asia 13.4%.

Operating Costs and Employee Productivity The total operating expenses reached NT$123,375 million in 2010. The three major cost items were fuel (43.0%), labor (13.0%), and airport & ground handling charge (13.0%). Unit cost increased 3.7% compared to 2009 to 9.56 (NT$/ATK). Unit cost exclusive of fuel decreased 5.2% compared to 2009.

CHAPTER 4 HOW TO SOLVE THE CASES Manager Role in Crafting the Strategy We will investigate the Porters Five Forces for the crafting the strategy of this industry.

Figure 1: Porters Five Forces Porter's 5 Forces Analysis Threat of New Entrants. At first glance, you might think that the airline industry is pretty tough to break into, but don't be fooled. You'll need to look at whether there are substantial costs to access bank loans and credit. If borrowing is cheap, then the likelihood of more airliners entering the industry is higher. The more new airlines that enter the market, the more saturated it becomes for everyone. Brand name recognition and frequent fliers point also play a role in the airline industry. An airline with a strong brand name and incentives can often lure a customer even if its prices are higher. Power of Suppliers. The airline supply business is mainly dominated by Boeing and Airbus. For this reason, there isn't a lot of cutthroat competition among suppliers. Also, the likelihood of a supplier integrating vertically isn't very likely. In other words, you probably won't see suppliers starting to offer flight service on top of building airlines. Power of Buyers. The bargaining power of buyers in the airline industry is quite low.

Obviously, there are high costs involved with switching airplanes, but also take a look at the

ability to compete on service. Is the seat in one airline more comfortable than another? Probably not unless you are analyzing a luxury liner like the Concord Jet. Availability of Substitutes. What is the likelihood that someone will drive or take a train to his or her destination? For regional airlines, the threat might be a little higher than international carriers. When determining this you should consider time, money, personal preference and convenience in the air travel industry. Competitive Rivalry. Highly competitive industries generally earn low returns because the cost of competition is high. This can spell disaster when times get tough in the economy.

Global and Multinational Strategy

CHAPTER 5

CONCLUSION Key Success Factors What are the key factors that define success in the industry? What are the key competencies, capabilities, and resources of successful aviation companies?

China Airlines and Air China Cooperate on Frequent Flyer Program April 25, 2005, Taipei, Taiwan, China Airlines and Air China will cooperate on a joint mileage program beginning on May 1, 2005. Starting in May, members of China Airlines Dynasty Frequent Flyer Program can accumulate mileage in their accounts when traveling on Air China. At the same time, members of Air Chins Companion Frequent Flyer Program can enjoy the same benefits when travelling on China Airlines flights. The accumulated mileage can be used to redeem for free tickets and upgrades. The cooperation covers all the routes operated by China Airlines and Air China. Passengers taking China Airlines flights from Taiwan, and then transferring to Air China, will be able to accumulate mileage on the whole trip, making it easier to accumulate air miles and redeem. For Taiwanese passengers traveling to China, China Airlines provides services from Taipei and Kaohsiung to Hong Kong, and from Hong Kong, Air China provides flights to Beijing, Tianjin, Hangzhou, Dalian, Chongqing, Chengdu and Guiyang. This is CALs second cooperation on a mileage program across the Taiwan Strait, after it began cooperating with China Eastern Airlines last year. China Airlines is also negotiating further mileage program cooperation with additional mainland Chinese carriers. There are more than 1.6 million members in CALs Dynasty Flyer Program. With 15,000 miles, members of the Dynasty Flyer Program can exchange for seat upgrades on regional flights. There are more than 2 million members in Air Chinas Companion Frequent Flyer Program, and its members can get upgrades on domestic flights with only 3,000 kilometers.

Recommendation What recommendations would you make to CALs top-management team to sustain its competitive advantage in the aviation industry?