Investigation on the Opportunities and Challenges for the Development of Business Jets in China
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CHAPTER ONE: INTRODUCTION
Aviation industry professionals project that the growth of the Chinese business aviation market is about to experience an exemplary growth. For a long time, Sandhu (2018) shows that China private business Jets has taken a long time in development and has been behind other market players like the United States. According to Su et al., (2020), the slow growth in the Jet business sector is as a result of the deficiency in infrastructure development as well as the stifled demand in the country. However, the future of business private Jets is promising. Kourousis and Comer (2018) report indicate that the growth of the Jet business sector in the country has started to gain momentum in terms of development and innovation; therefore, its future is promising. Also, Wang and Leib (2018) show that the private Jets business in China has begun to catch up with the leading player in the world, i.e. The US. Fu et al., (2020) highlights that the latest growth in Chinas business jets market is due to the comprehensive development of new airports by the Chinese government to accommodate the vital growth of the industry which is a significant contribution in the Chinese economy as well as the vast opportunities that are available in the industry.
Additionally, most of the aviation conferences held in the Asia growth of the business aviation sector contributed immensely to the growth of the Business Jets sector in China. Huang and Wang (2017) assert that the Asian Business Aviation Conference and Exhibition is one of the conferences that bring many Asian countries together to discuss the importance of the aviation industry on the Continent. The summits have led to increased demand for corporate and private jets alike to operate in the aviation industry for revenue generations.
Increased demand for private jets is being experienced in China. Shuang (2016) highlights that the demand has been contributed by the adoption of cost-effective transit policies by various aviation companies. However, the drastic demand has also been contributed by the expansion of Chinese aviation companies into corporate jets global markets for convenience increment and to enable the companies to win a status symbol.
Recently, many charter companies and management fly corporate Jets for business with an advanced airline oriented operating aviation business environment under development in China. Zhu, Jia and Shi (2017) show that there is a favourable political environment for the development of the Chinese aviation industry. The country has promoted and encouraged the development of training schools for pilots and maintenance teams who will solely work in the aviation industry. This study mainly investigates the opportunities and the challenges that have resulted from the development of Business Jets in China.
Background of the study
Recently, Dai, Guo and Luo (2019) reported an increase in the number of personal and corporate business jets in China. Chen, Barros and Yu (2017) shows that the trend will continue in the future due to the rise in demand of airline travels and the technological innovation that has been experienced in the country in the past decade. In 2015, Yunlong (2017)’s report highlighted that there was a rise in business Jets by 3% in China. Besides, the report also shows that there was an introduction of 115 new personal Jets from individual entrepreneurs in the country. Chow and Tsui (2017) show that there was an increase in preowned aircraft from 2016, where the number doubled from 70 to 128.
Wu et al., (2020) states that there are many challenges in the U.S. private and the corporate jets in accessing the busier airports in China due to the insufficient infrastructure. This has led to an increase in opportunities for local investors as well as the government in China to venture the industry. Qin et al., (2019) shows that the shortage of infrastructure is scheduled to change with 260 airports which are to be in operation by 2020 from 220 operating. The increase in the number of airports is coupled with the increase in demand for business Jets opportunities for the aviation market investors in China.
Figure one: Growth of airline passengers in the last ten years; (Wu and Man, 2018)
Problem statement
China is one of the global dynamic markets in the world despite the fact that China is a skeptical country in developing the domestic sector. However, the aviation industry in China experienced immense growth due to support by the Chinese government and rising demand by the citizens in the aviation industry (Liao et al., 2020). This has led to an increase in many opportunities in another business sector as well as in the aviation sector. On the other hand, there has been an increase in the number of challenges in the aviation industry as well as the other industries that are directly or indirectly related to the aviation sector.
According to Yang et al., (2017), the China aviation industry is expected to double in every eight years. Recently, the country has made good progress in aviation market development, and many other markets, including private aviation, industrial aviation, and emergency are expected to respond to the substantial growth potential. The chine economic growth is becoming an investment hub for foreign investors due to the supportive government policies to support the airline industry and yield positive results.
Study rationale
According to Tsionas Chen and Wanke (2017), the growth projection in the aviation industry has a significant effect on other sectors of the economy. The study on the opportunities and the challenges as a result of the growth expansion of the aviation industry in China will help in the preparation of other sectors of the economy in China. The aviation sector, as well as other industries, should prepare on the challenges that the growth of business Jets will result. This study will help many players in the various industry to optimize the resultant opportunities that this study uncovers. In addition, the study will be a useful tool in technological advancement that will help different industries to overcome the challenges that will be experienced in the various industries in the economy of China.
Aim of the study
The expansion and development of the aviation industry in China have resulted in many changes and trends across the industry. One of the trends in the development of Business Jets in industry. The main purpose of this research is to identify the potential opportunities as well as the challenges of the development of Business Jets in the industry.
Study objectives
Study objectives help the study to funnel down or give the study a specific focus that is not general. This investigation adopted the following main objectives.
- To investigate the growth and expansion of business Jets in the Aviation industry in China.
- To find out the opportunities that growth of development business Jets in China.
- To investigate the Challenges that the growth of development of business Jets in China.
Study questions
Based on the above research objectives, the study adopted the following research questions.
- What is the growth of business Jets in the Aviation industry in China?
- What are the resultant opportunities of business Jets in China?
- What are the resultant challenges of growth of business jets in China?
CHAPTER TWO: LITERATURE REVIEW
Development of the Aviation industry in China
The development of the aviation industry in China began in the mid-19th century. Yadav and Goriet (2019) highlight that China was ranked 37th globally in terms of Revenue Passenger Kilometers. Since the social and economic reforms were initiated in China, the country has recorded an extraordinary growth in its Gross Domestic Product. For the past decades, Zhang K and Zhang A (2017) shows that China has been recording an increase in 10% GDP per year in the last three decades. Likewise, the airline industry has experienced growth that is double of the country GDP figure, recording an increase of at least 17% in the total passenger traffic as well as cargo transport (Dai et al., 2020). In a period of fewer than 30 years, the aviation industry has been transformed with China hosting one of the largest airports as well as becoming one of the largest travel industries in Asia. Additionally, China has become the second-largest air travel market in the world from the United States
The start of china’s global aviation market (1937-1990)
The Pre – PRC Era
In 1936 (Republic of china period), SHAO, LIU and HUANG (2019) show that the government of China opened the first global world international air route between Hanoi, Vietnam and Guangzhou. However, in 1937, the airline industry was almost shut down due to the Japan invasion in China (Lugouqiao Incident). From 1937-1948, Dougan (2016) shows that only three international airlines were operational between China and the Philippines, India and the U.S. This was a consequence of the resistance war against Japan’s invasion. This was before the establishment of the People’s Republic of China which was formed in 1949.
Pre-Reform ERA
The pre-reform era took place after the establishment of the People’s Republic of China in 1949. In this regard, Lu (2018) shows that the procedures of opening up international airlines and routes were slow even after the establishment of global airlines with Japan, Soviet Union, France, and a number of West Asian nations as well as the Southeast countries. One of the major contributions for the slow development was due to; 1) the revolution of the Mao Zedong’s culture from 1966 to 1976 which resulted to China’s isolation from the global markets; and 2) the incumbent Chinese People’s Republic government was not fully recognized in the international forums and the united nations until when the Chinese government established a diplomatic relationship between the western countries from the year 1971 (Pan, Huang and Qi, 2016). Additionally, China was not involved in global forums. At this period, Lu et al., (2018) show that there were only 12 international air travel routes in 13 nations covering an average distance of 56,000Km.
Post- Reform Era
In this Era, the government of China initiated strategies to meet the international world aviation market expectation after the economic reform from 1979 to early 1990 (Li and Zhou, 2018). In this period, China started to meet its partial deregulation processes in the airline industry. In the early 1980s, The CAAC became independent and was responsible for controlling the China aviation processes fully. Before 1978, Shuang (2016) shows that the airline industry was paramilitary organized to serve the specific political interest of China. The whole aviation industry during the period was entirely under the control of the Civil Administration of China – CAAC -. In this regard, the CAAC was not only the industry regulator but also took the ownership of Chinese airlines in all operations. Any activity in the airline industry, including the route frequency, market-entry, funding, and aircraft purchasing were under the control of CAAC.
From the early 1980s, Zhaohui and Qinglong (2017) show that reforms were done in the aviation industry with an aim to become more market-oriented. Since then, Chunting (2018) asserts that the country has adopted a development strategy, i.e. export-oriented strategy. The top priority of the Chinese government was to establish a direct link to the other five important markets in the aviation industry. Based on the new vision, goals and objectives than was initiated by the government during the transformation period, the airline industry transformed into a partially deregulated industry from a strictly regulated industry. H.U. (2016) demonstrate that the new strategy was to achieve a new airline consolidation, liberty to all the international and domestic policies, opening up as well as developing the domestic aviation industry. There was the implementation of several reforms such as transforming the industry to as a revenue-generating business entity, separation of management of airports and airlines. In this case, the CAAC allowed private airline companies to operate in more international routes. In this period, the average of the total distance covered by the airlines increased to 100,000km. However, up to the Post-Reform Era, the growth of the aviation industry in China was too slow.
However, Haoxuan (2019) indicates that the country had not adopted an international airline policy until 2003. To date, the bilateralism dominates in the global air transport negotiations. The future of the airline industry in China began when the Chinese government indicated to achieve an Open Sky negotiation by 2020.
Formation of the global Airline networks In China
From the early 1990s, Chaohan and Zhang (2017) show that China embraced the international aviation market with more effort to deregulate the route entry and market entry processes. In 1996, the Chinese airports were registered by the international civil aviation organization. This allowed the Hainan province to open up to the fifth freedom of the air. This was a significant move that placed China in a good position in the international aviation industry entry. Meanwhile, Hadi‐Vencheh et al., (2020) show that China’s biggest three airline companies which include the China Southern, Air China and the China Eastern, signed a cooperation contract with the global airline market which included Japan Airlines and United Airlines. This meant that more expansion route entries would be realized in the country with an easy route and market route entry. During this period, Pirie (2020) demonstrate that the number of cities and the foreign countries with global air travel in China increased from 25% and 33% to 34% and 56% respectively.
Figure 3: Annual growth rate of china international passengers from 1990- 2015; source (Gong et al., 2018)
The Chinese global aviation industry did not only expand within their territories but also established consolidated market connections in the existing global markets. When the China aviation market expanded quickly to the new international market networks, the major international routes were centralized in both the foreign countries and the capitals of China except for the international routes between the Auckland and the Shanghai. Additionally, Li, Strauss and Lu (2019) demonstrate that the yearly number of international airline passengers increased from 1.10 million to 6.25 million. This was a significant growth rate of approximately 19% between 1991 and 2001, as shown in the figure below. This growth rate was faster than the international growth rate, which is about 5.5%. Besides, Chen et al., (2017) show that China’s international market share in the aviation industry rose from 1.9% to 6.2% in the same period. During this development phase, the deregulation process provided a fundamental basis for exponential growth due to the formation of the international air networks in the country.
The rapid expansion of international air networks from (2001 to present) in China
In the early 19th century, China international air networks experienced exponential growth. Liu et al., (2017) Shows that the development was as a result of the adoption of some policy changes in the aviation industry in a board perspective. In 2001, China participated in the World Trade Organizations (WTO) which pushed forward several international travel policies and dissolved the barriers in the global market and travel opportunities between the Western countries (Yadav and Goriet, 2019). Consequently, international aviation markets found new opportunities in China. Besides, the Chinese government adopted a new strategy to confront the new challenges that arose and promoted the economy of scale in the aviation industry. In this case, all the state-owned corporations in China were consolidated in the three main airline groups which include the China Eastern Air Holding group, the China National Aviation Holding Corporation and the China Southern Air Holding Corporation. The consolidation led to the liberalization of the three organizations from the CAAC and increased its competitive edge in the international markets.
Also, Chow and Tsui (2017) demonstrate that due to the privatization and the deregulation of private corporations, Hainan Airlines made a number of mergers and acquisitions through the U.S. public stock offering and the investments. Later, Hainan Airlines opened its first global route to Seoul by a private aviation company in 2001. Additionally, the Chinese government signed a contract with the U.S. known as the “Sino-US Expansion of Aviation services”. This led to stimulation of the China aviation industry to international aviation organizations.
In 2012, Huang and Wang (2017) assert that the government of China introduced the new international travel policy (“Opening up Policy”). The aim was to improve the operation of airlines entry and exit to the South and Eastern Asian countries. The policy led to the liberation of the international aviation industry between the ASEAN countries (Association of the Southeast Asian Nations) and China. Besides, the recent introduction and implementation of Belt and Road initiative (BRI) increased the functional proximity of regions and reduced the geographical temporal constraints between the involved states. Additionally, Dai, Guo and Luo (2019) highlight that the BRI increased the global connection and facilitated global international air travel to a great extent.
Figure 3: New foreign cities development in the China Aviation industry; (Chow and Tsui, 2017)
Currently, Su et al., (2020) show that there is an increase in intentions of Chinese Citizens to travel abroad for business and leisure activities (shopping, family visits, and tourism). This is because of the increase in purchasing power and the urbanization in the country. This has led to an increase in the number of potential passengers for the global aviation market in the country. Also, as a result of the “Opening up policy”, the global air routes and airports increased from 135 to 739.
Figure 3: The development of China’s global aviation industry from 1990 to 2016; source Huang and Wang (2017)
CHAPTER THREE: METHODOLOGY
This chapter discusses the research methodology that will be used in the study. The research methodology discussed is aimed to achieve optimal data for the investigation. This will allow for extensive research which aims to fill the existing knowledge gap in the opportunities and challenges as a result of the development of Business Jets in china. For this reason, the best research design choices for the study is the Onion Research design. Sunder’ research onion strategy consists of different layers that guide on the suitable methodological approach based on the scope of the research.
Figure 3: Onion research; Source: (Keraminiyage, 2013)
According to Sahay (2016), the research onion consists of five different layers which include Research philosophy, research approaches, and the research strategies, Time Horizons and Data collection Methods.
Research philosophy
Melnikovas (2018) shows that the research philosophy refers to a set of beliefs that concerns the reality being investigated. This is the fundamental knowledge in an investigation. It is conducted in terms of epistemology and ontology. Ontology is the authenticity of the data and how the investigator understands its existence. On the other hand, Carins et al., (2016) show that epistemology refers to the existence of valid data required for the investigation and how the researcher can obtain the data. In this case, the philosophical positions include interpretivism and positivism assume that the knowledge is independent of the subject being studied. Position investigations are more scientifically, unlike interpretivism investigations. In regard, the investigation will use an interpretive approach since the available data, and the investigation variables are dependent on each other.
Research approach
Research onions suggest the best research approach based on the philosophy chosen for the study. In this case, research onion suggests two types of research approaches which include: inductive and deductive approaches (Sahay, 2016). Deductive approaches consist of specific study hypotheses. The investigator gradually tests the hypothesis to confirm a particular phenomenon. On the other hand, the inductive approach uses observations to develop new pheromones. In this regard, the investigation will use an inductive approach to investigate the opportunities for the development of opportunities and challenges that have resulted from the Business Jet establishment in China.
Research strategy
Research onion suggests five different strategies for investigation. Carins et al., (2016) indicate that interview, surveys, action research, surveys, case study, and experimental research are major research strategies for research onion. Or a systematic review. In this study, a case study will be used based in China to investigate the opportunities and the challenges for the development of Business Jets in China.
Research Methods
The research onion suggests different research methods for investigation. This includes mono-method, multi-method, and mixed-method (Keraminiyage, 2013). The mono method comprises only one methodological approach while the mixed and multi-methods comprises two or more methodological approaches, respectively. In this regard, the study will adopt a mono-method approach. The study will adopt a qualitative methodological approach only.
Time Horizons
Time horizons refer to the time frame for an investigation. Research onion suggests two-time horizons which include the longitudinal and cross-sectional (Melnikovas, 2018). The Cross-section study is used when the investigation is only for one particular time while the longitudinal is used when an investigation is carried out for a long time and correction of data is through a series of different time frames. In this case, the study will use a cross-section approach.
Data collection and analysis
This is the final layer of the research onion. Carins et al., (2016) demonstrate that this layer consists of the techniques and procedures used for data collection. In this case, both primary and secondary data collection methods will be used. In addition, based on the research philosophy and research method that the study adopts, the investigation will use qualitative data collection method. Interviewees will be conducted to the professionals in the aviation industry. The interviewees will be administered online due to the current world, Covid-19 pandemic. Additionally, a systematic analysis will be conducted from various databases to obtain secondary data on the opportunities and challenges of business Jet development in China.
Research ethics
This is aimed to collect data based on the requirements of the research ethics form. During the investigation, it’s the responsibility of the investigator to maintain the integrity of the data as well as maintain an ideal data collection procedure which will result in high reliability and validity of the data. In this case, the respondents will sign documents that will confirm a willingness to give truthful information based on the variables for investigation for the study.
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