Research On The Cost Control Of Chinese Civil Aviation Industry

As one of the newly developing service industry, the civil aviation industry holds an important strategic position in the national economy. Since the series of revolution in the 1980s, the Chinese civil aviation industry has been developing in leaps and bounds by making use of the favorable national macroscopic policy and the rapid developing economy. China has become a large country in world civil aviation soon. But we can find a strange phenomenon, namely the high growth and low profits. Facing the opportunities and challenges brought by China's WTO entry and the competition from railway and highway transportation, the Chinese civil aviation industry has not only the problem of"high growth and low profits"but also the basic existential problem. The fundamental way out for the Chinese civil aviation industry lies in the effective control of cost. The cost control can increase the chance of an airline to gain profits, correspondingly reduce the transportation price, enhance the competitive power of production and further enlarge its own flow of passengers and freight and increase the market possession rate, which helps form an increasingly beneficial virtuous circle. And then it can enhance the long-term competitive power of the Chinese civil aviation industry and promote its sustainable development and realize the transformation from a large country to a strong country in civil aviation. Therefore, this thesis is divided into four parts discussing the cost control of the Chinese civil aviation industry.The First part is a theoretical summary of the concept of civil aviation industry, technology and economic characteristics, cost theory and the market structure and cost composition of the Chinese civil aviation industry.In this thesis the civil aviation industry only confines to the public aviation transportation industry referring to the industry that uses the civil air vehicle to transport passengers, luggage, goods and mails for the commercial purpose. Both the technology and the economic characteristics of the civil aviation industry have influences on its cost. Some factors will reduce the cost while others will make it rise. In a broad sense, the aviation operating cost consists of three parts, the variable direct operating costs, fixed direct operating costs and indirect operating costs. The cost structure of each airline is not the same. At present the cost of the domestic aviation companies has two major uses, host business service cost and period expense, among which host business service cost is composed of direct operating cost and indirect operating cost. According to its characteristics, the cost of the airline companies can be divided into fixed costs and variable costs; according to the airline's controllable degree of the cost, it can be divided into controllable cost and uncontrollable cost.Many scholars has pointed out that the monopoly industries, such as the Chinese civil aviation industry, not merely have one kind of monopoly form, the natural monopoly, but also have many other kinds of monopoly forms such as the administrative monopoly and economic monopoly. But in a sense, the origin of the Chinese civil aviation industry monopoly is mainly the administrative monopoly. In the whole industry chain of Chinese aviation transportation, the plane, air material, aviation gasoline suppliers and the airport services are totally in a monopoly position at the upper reaches. The airline companies'ability on negotiating prices is so weak that they can only passively accept the cost change given by the upper reaches. In the lower reaches, the passenger and freight transportation market is anther oligarch competition market pattern.The second part analyzes the current cost situation of the Chinese civil aviation industry.The cost of Chinese airline companies is composed of the gasoline cost, plane possession and maintenance cost, airport taking off and landing fees, etc. After a comprehensive analysis, we can learn that the income level of the three major airlines does not have much difference and the reason for the enormous differences in profit is the cost. By comparing the costs of domestic and the international airlines, we can sum up the existing cost problems of the Chinese civil aviation industry in three aspects: First, the external uncontrollable factor. Chinese airline companies cannot control international gasoline price level, the price of planes and air materials purchased from other countries, etc. Second, the problems caused by lack of thoroughness in the civil aviation system reconstruction. Chinese government's regulation system and policies about civil aviation industry are not perfect. At the upper reaches of the aviation transportation industry, the supply of air materials and aviation gasoline is in the monopoly position and there lacks competitive mechanisms, which causes the cost of Chinese civil aviation industry to remain high. As the administrative responsible institution appointed by the State Council, CAAC still has great power over the plane purchase, personnel management and so on. It can also restrict the unified price and air line entering in the industry. The market competition of the civil aviation industry is still not sufficient. The emergences of aviation gasoline price problem, airport taking off and landing fee problem, personnel's salary problem, the problem of traditional airline's lacking motive forces in cost control, etc. are all related to that. Third, the self management and administration skill level of Chinese aviation companies is low, which directly causes the air material cost control problem, fleet structure and air line structure cost problem and the high plane maintenance cost problem.The third part is mainly about investigating and using the experience and lessons of the developed countries civil aviation industry for reference.The practice of European Union civil aviation industry liberalization indicates that the civil aviation industry, especially aviation passengers and freight transportation, is a field can totally be competed for. In this competitive field, to give play to the role of market mechanism is the best choice for promoting its development, but the liberalization of the aviation market is not contradictory to the government supervision. Although there is monopoly in the foreign aviation gasoline market, there is also competitive mechanism, which has cut down the aviation gasoline cost of the airline to a great extent. This is the developing direction of aviation gasoline supply reconstruction in our country.At present, transnational and trans-regional alliance and cooperation among the airlines of developed countries have already become an important choice to enhance their competitive power. One of the important motivations of airline alliance is to reduce cost through scale economics, share and specialization. In order to improve its competitive power and profit possibility constantly, airlines of developed countries make great efforts to control the internal cost, such as optimizing fleet, popularizing electronic ticketing as well as strengthening the internal management and controlling service cost etc. The fourth part proposes the countermeasures and suggestions about the cost control of the Chinese civil aviation industry.1. Creating a favorable external environment for the cost control of civil aviation industryGovernment correspondingly provides policy environment: First, make a clear plan on national aviation industry development and give corresponding policy and financial supports to the industry. Second, implement the open policy to the regulation of the industry. Third, break the aviation gasoline and air material monopoly and introduce competitive mechanism to lower costs. Fourth, implement zero tariff and value-added tax in imported plane and air materials. Reduce or remit the value-added tax of planes and air materials in the links of sending them abroad to get repaired. Reduce or remit the import duties of aviation fuel and lubricating oil etc. Fifth, coordinate the interests of both the airports and the airlines. Accelerate the existing airport charging system reconstruction and reduce properly the taking off and landing fees.Utilize effective combination of producing, learning and researching. Encourage the airlines and airports to integrate vertically. Devote more efforts on popularizing the electronic ticketing and promote the cost reducing and the long-term development of the Chinese civil aviation industry.2. Encouraging to develop various forms of airline strategic allianceDomestic airlines need to strengthen the cooperation on air material storing and air line resources, etc and introduce joint purchase mechanism and set up a strategic purchase alliance. They should quicken their steps in the overall "code share" and join the international aviation alliance as soon as possible. They should also try to reduce the cost and increase the survival possibility to further enhance their international competitive power.3. Improving the cost control ability of domestic airlinesWhen there cannot be any change in external environment, the magic weapon that can help the airlines gain profits is to proceed from itself and control the cost. This thesis provides seven levers which can lower the costs thoroughly. Finally, according to the current situation of the cost control of the Chinese civil aviation industry, the thesis proposes several measures which still need improving: Improve the way of hedging and lock the aviation gasoline cost. Perfect the oil-economizing measures. Strengthen the cost control of air material. Optimize fleet and air line structure. Perfect SOC construction and reduce costs while increase profits.This thesis discusses the cost control of the Chinese civil aviation industry from easy to difficult, from the surface to the essence and from macroscopic to microscopic. With the constant improving of external environment and the constant growth of the industry itself, the Chinese civil aviation industry cost problem will be solved and the viewpoint of this thesis will also be verified and perfected.