Air China HR Management Challenges

Air China Human Resources Management Monday, 8 May 2006 Bader Al Sagri Contents 1Introduction3 2Context of the industry3 3Air China Business Challenges and Strategies4 3. 1Business Challenges4 3. 2Business Strategies4 4Analysis5 4. 1Recruitment & Selection5 4. 2Training6 4. 3Compensation8 4. 3. 1Current policy8 4. 3. 2Issue identification9 5Human Resources Recommendation10 5. 1Recruitment and Selection10 5. 2Training10 5. 3Compensation10 5. 3. 1Short-term10 5. 3. 2Middle term recommendations:11 5. 3. 3Long-term recommendations:12 References13 Introduction

Air travel plays a significant role in today’s world, not only for leisure passengers, but also for business passengers. Air travel has become an important form of transport for many and is no longer viewed as a service only for the elite, which is apparent when considering two billion airline passengers are transported annually.

(ATAG, 2005) This in turn provides benefits to global economies, especially developing countries such as in the Asia Pacific. Air China is an example. In this report we will begin briefly by an Airline industry analysis.

This is followed by Air China’s Business Challenges and Strategies, in which we will look into its HR Policies, and align it with Air China’s Overall Strategy.

Then conclude with recommendations. Although, Air China has focused on 2 aspects of Human Resources Tools, one was of improving their employee evaluation system. We have chosen 3 HR tools, which does not include the employee evaluation system, not because its lack of importance, but its difficulty in finding appropriate information to develop a accurate analysis and recommendations on the topic.

Our 3 topics are: – Recruitment & Selection Training Compensation Context of the industry It’s amazing to know that 900 airlines are in operation that contributes to 22,000 aircrafts, flying over several million kilometers.

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(ATAG, 2005) In 2004, passenger traffic jumped 14% overall, 16% in international service from the previous year. (Rolls Royce, Donoghue, 2005) Although, there are 900 airlines, we only hear about the top airlines and their powerful brands.

With 900 airlines, the airlines industry is an extremely competitive. Although, Chinese airlines have not emerged as global brands, with the exception of Cathy Pacific Airlines, they are now looking into the future, especially after Chinas induction into the World Trade Organization. Chinas economy is forecasted to grow by 8 percent a year through the year 2010 and an aviation market growing at rates above the world average. China is experiencing tremendous strain on its aviation and airport infrastructure.

Over the next twenty years, China predicts that its air transportation passenger volume is expected to grow by an average of 8 percent annually, become the world’s second-largest aviation market, and will need to acquire an additional 2,600 aircraft to handle the volume. (US Commercial Service, 2005) Air China Business Challenges and Strategies Business Challenges One of the most challenges faced by Air China is that how to differentiate its service characteristics and value from competitors.

Because of its current ownership (government owned), Air China with an outmoded and rigid management system lacks flexibility to advocate service quality and management model innovation (Efendiog and William 2003). As a result, Air China only copies other players’ training programs and management model without obvious competitive advantages to cope with imminent international and fiercer domestic competitions. Another challenge is China’s induction into the World Trade Organization (WTO), which has an agreement; four air transportation services should be opened among the member countries (Ahmed et al. 003). That means China Airlines will face significant challenges that will come from international airline players in the next five years. These international airline players have cutting-edge management model with advanced training technologies and facilities. While they have built good reputation with high-quality service and worldwide brand image. Business Strategies The Goal of Air china is to become not only the airline of choice within China but also one of the world’s most competitive airlines. Air China Limited, 2005) Air china aims to achieve this by enhancing their existing strengths, providing excellent passenger and cargo services and by implementing the strategies mentioned below. Strengthening the Beijing hub and expand Air China’s route network To meet the increasing market demand and strengthen its leading position in China, Air China plans to increase their fleet deployment in the Beijing Hub and optimize flight connections and improve ground services. Air China is also expanding its presence in Shanghai, which will provide a base for its international flights to Europe, the United States and Japan.

To gain additional market share Air China has also commenced with code chare arrangements and acquisitions/investments in other airlines. (Air China Limited, 2005) Enhance the effectiveness of our sales and marketing efforts Air China aims to achieve this by intensify the sales and marketing efforts at business travellers and by further developing existing government and corporate relationships. Air China also plans to broaden the rewards offered by the frequent flyer program and also enhances their interactions with travel agencies to promote their routes and travel packages to attract more leisure passengers.

Air china also plans to increase the use of low-cost distribution channels such as electronic ticketing and online sales with the aim of strengthening their direct sales efforts. Being the official airlines partner of the 2008 Beijing Olympics also will help to promote the brand name of the airline. (Air China Limited, 2005) Improve our service quality Air China understands the need to improve and maintain their safety standards and on time performance and provide customized services.

Air China plans to reconfigure its first-class and business-class cabins by installing larger and more comfortable seats and upgrading the in-flight entertainment system. Air China is also emphasising the need to improve to improve overall cabin service by emphasising the need for training and enhancing the communication skills of our flight crews. (Air China Limited, 2005) Improve the employee evaluation system Air China has emphasised the need to improve employee performance by providing systematic training, establishing concrete performance goals and implementing a comprehensive evaluation system for its employees.

The introduction of performance based rewards systems to the top-performing employees has led to the development of a customer-focused service culture. (Air China Limited, 2005) Analysis Recruitment & Selection Due to a growing concern for safety, ever-increasing consumer expectation to excellent service and severe competition, a well-developed human resource management system is crucial for the airline company to assist to obtain competitive advantage.

According to a research conducted in aviation industry, hiring the right people was one of the single most important issues in human resource management (Appelbaum and Fewster, 2002). Therefore, recruitment and selection processes are two of the most important human resource functions, being aimed at recruiting and selecting the best person to fulfil the organizational goal. Both processes should be designed to ensure equal employment opportunity and anti-discrimination legislation and policies, and at the same time, should align activities with corporate strategy (Appelbaum and Fewster, 2002).

After the reform program in 2002, the new Air China reconstructed the strategy: take the safety and security as the foundation; take the market as the guide; keep on the spirit of safety first and customers highest, concentrate on satisfying the customers and making them feel relieved, satisfactory, comfortable and moved, aim at both national and international markets, target to compare with famous global airlines by 2010 in terms of securities, services and products (Air China, a).

To realize the goal, Air China is endeavouring to attract and select talented employees for the positions of flight attendants. Mainly, Air China utilizes multiple sources for recruitment, such as internet, search firm, employment agencies, schools, newspaper ads, organization publication, an so one. According to its latest recruitment ads, the essential requirements are: age (no older than 23), height (limited between 164 cm to 170 cm), eyesight (rectification 0. 7 up), English ability (equivalent to college English level) and education level (no lower than college).

When presenting application forms, applicants are ask to have a preliminary physical check in terms of age, height, eyesight, weight. During the selection process, the first interview is held for physical recheck, and an exam of written and spoken English. The applicants who passed the first interview can attend the second interview, which consists of 10 minutes of speech, involving self-introduction, explaining self-understanding of the position and related responsibly, and answering the questions raised by the interviewer group (Air China, b).

The multiple methods of recruitment ensure the attraction of interested applicants, and the requirements are basically based on the requirement of corporate strategy, especially, the essential needs of English ability as well as relatively high education level are in line with the target of entering international market and providing advanced service. Moreover, during the second interview, the process that the applicants are asked to describe their understanding of the job and liability as well answer the questions instantly is good to hire staffs with better understanding of the job and quick reaction.

However, some basic requirements are probably too strict to constrain the broad choice. For example, all the applicants should be younger than 23 and have college above educational level. In china, students are at the age of 21-22 when graduate from college normally, therefore, a big amount of talents are excludes. In addition, it seems that Air China takes appearance seriously rather than inner beauty and calibre. There is no requirement and no test of personality and the ability of working well in a team environment, which are crucial conditions of providing qualified service.

According to a poll of “2005 Best Airliner” implemented by Civil Aviation Resource Net of China, evaluating the quality of service in terms of the flight attendants’ working status and friendliness, Air China is not within top three (Civil Aviation Resource Net of China). Assumably, the flight attendants of Air China are not as elegant as customers expect. Training As the third largest carrier in China, Air China has experienced dramatic changes in both international and domestic market. Air China emphasizes Total Quality Management Model and customer-oriented service philosophy to compete with other strong rivals in airline industry.

Although Air China invests heavily in both infrastructure and technology, it still understand that staff is the crucial factor for the organizational development. Therefore, Air China adopts a complete and holistic method to develop its human resource management, in particular concentrating on improvement of its employee training. There are two types of training programs adopted in Air China: function training program and general management training program. Function training is to provide specific skills to jobholders in order to cultivate their competence and confidence at specific skills.

Function training includes a few core parts: cabin service, aviation operation, business training, IT, security, airport service training and engineering. General management training includes teamwork management, resource management, customer service management, etc. According to its’ customer-oriented service philosophy, Air China pushes a series of training programs to advance inside service skills and quality, such as customer service, amenity and proprieties, service skills, marketing strategy and customer psychology (Air China Website, 2006).

In addition, Air China out sources advanced training and management model from other countries. For instance, Air China sent seventy employees to Korean Air to accept on-the-job training for one year during the past years. These training programs improve Air China service quality and advance its competitive competence in a fast changing competition environment. Moreover, Air China makes use of employee surveys and customer feedback to gain valuable information for future improvement and development of employee training. Furthermore, Air China considers that customer complain rate is a key index for evaluating individual performance.

The demand of domestic market for air service is growing remarkably in China because of fast economic development. For example, people prefer to travel rather than stay at homes during holidays. In addition, attracted by the huge potential business market in China, many international companies invest in China. These companies’ business travel composes a major part of the demand for air service (Ahmed et al. 2003). Facing the growing demand, Air China utilizes itself advantages to seize new customers and retain old customers as well.

For instance, Air China carried out a customer service questionnaire before Spring Festival Holidays. Air China gain many valuable suggestions and feedback from key customers through the questionnaire, and then Air China organized an intensive service quality training for employees focused on relevant problems, including service attitude, business skills, purchasing environment and post-purchase service, etc. As a result, Air China’s service gains more and more recognition from new and old customers. Furthermore, China successfully won the bid to host the 2008 summer Olympics Game.

This also drives Air China to differentiate between its service philosophy and competitors in order to increase its market share. Air China should understand how to employ itself resources to compete with powerful competitors in future. Compensation Chen (2005) reported that the total rewards in China Airline include salary, incentives, and benefits. Due to the diversity and expatriates of the staff, China Airline’s rewards system was designed in international human resource management. Current policy Chen (2005) reported the total rewards strategy of China Airline provides the link between business strategy, motivation and job satisfaction.

We define the issues in six categories: taxation, insurance, inflation, allowance, equalization of performance appraisal, and citizenship. Taxation issues include 3 aspects. They are eligibility requirements for benefits under each country’s social security system, the superannuation and pension benefits, and the problem with double taxation. And the recommendations are tax-equalization, totalization treaties, out-sourcing, and early planning Insurance issues include death, sickness insurance, property insurance, third countries risk and diseases risky.

The recommendations of insurance are using international insurances, early planning and check out local health situation to set stand. Allowance issues contain hardship or site allowance and cost-of-living allowance. They usually turn up incomplete allowance, and overlapped allowance. Equalization of performance appraises issue means the problem of internal inequity. And the recommendations are establish a clear allowance policy, good communication channels with employees, ensure the competitiveness of expatriate and repatriate package, ensure the program is cost-effective, Out-sourcing, base salary plus benefit packages.

The issue with inflation is coming with the issue of the value of compensation, which would be influenced dramatically by the inflation. The solution is to use a CPI indexation. Citizenships issues include Illegibility of citizenship (children and adult) and ‘bandits’ problem. And the solutions are sign contract before leaving, repatriation planning and career improvement and development, standardized treatment and construct proper balance sheet. Issue identification Short-term issues/ problems: In the short term, there are mainly issues with the taxation and insurance.

For the tax issue, one of the main problems identified is the eligibility requirement for benefits under each country’s social security system. Along with the contribution of taxes, individuals may also become subject for social security fund in both countries. The cost largely varies between countries, and sometime there is two fold cost (Sparrow, 2000). Another problem identified is double taxation and who is responsible for the extra liability. The problem of double taxation occurs when a taxpayer depart from his/her home country to work in a foreign country, and becomes ubject to the taxes system in both countries on the same income (Stone, 2002). Long-term issues/ problems: There are long-term issues in three aspects. The first one is equalization of performance appraisal; Problems of internal inequity can arise. For example, A Chinese manager based in Hong Kong will be paid less than a US, Japanese, Singaporean or local counterpart. The organization’s point of view can be explained very logical, but it generally does not sit well with employees who find themselves in this position. In long-term, dissatisfaction will occur in the organization.

The second area is about expatriates and their families’ citizenships. There are two issues arises with the expatriate’s citizenship or residence status. The first one is because of some residence requirements of both the host country and the home country, the expatriate can’t come back after finishing the overseas assignment. The other situation is both of the host and home country want the expatriate to be their own citizen, the expatriate meets both of the two countries’ residence requirements, and because the lack of talent of the two countries, they want the expatriate to stay in their own country.

The last one is still about the insurance. If the employee at overseas been handicapped or dead in the host country, it will cause long-term problems. If an employee dead, that will be lost of the company and lost of his/her family. They will lose him/her forever. If the employee was handicapped, he/she will lose the health body forever. That’s terrible, the company should carefully consider about this. Human Resources Recommendation We conclude with recommendations for Air China’s human resources tool that will help it accelerate its strategies and its competitive advantage.

Although, Air China’s competitive advantage can be also developed in other areas other than Human Resources; Human Resources is still a vital part of its strategic direction and should not be overlooked lightly. Recruitment and Selection There are three recommendations regarding recruitment and selection. First of all, a good advertisement will include sufficient information on the job and organization (Dessler et al 2004), therefore, put more detailed job requirement on ads instead of several basic requirements.

Second, convert the focus from appearance into internal calibre. Third, align more selection techniques with interview; for instance, work sampling measures, EQ tests, aptitude tests, and personality tests. Training For differentiating between its service philosophy and competitors in order to increase market share in future, Air China needs to understand that training, as a powerful tool, develops employees’ skill sets and associates employees with its’ culture, mission, vision and expectations.

Through learning and utilizing modern management model and training technology to improve service quality, Air China must emphasize on these training policies in order to achieve its objectives and goals: a) providing more hours of training to different levels employees, b) spending more per employee on training, c) spending more budgets on technology training, d) using outside training providers and spending less on outside training providers, f) engaging more often in human performance practices, and g) concentrating on different training programs for different job-holders. Appelbaum and Brenda 2004) Compensation Short-term For the taxation, the first recommendation is to use tax equalization. This agreement is a type of income tax reimbursement approach that provides relief from double social security taxation. In this strategy, employee stays on the home payroll system (Krupp, 2003). Changes in conditions such as housing are compensated through extra allowance. An estimated tax on these allowances is deducted in the home country to pay in the host country (Krupp, 2003).

Secondly, airlines can also use bilateral income tax and Totalization treaties to protect both itself and international employees from double taxation and problems in social security fund. There are a number of these treaties exists throughout the world, designed to eliminating or minimizing double taxation, as well as social security coverage ((Krupp, 2003). Thirdly, it might also be practical to use outsourcing strategy. Taxation and civil law systems are high detailed and differ between countries.

Since the internal human resource management team can concentrate more on core activities and project management, administration cost might reduce with increase in efficiency (Krupp, 2003). For the insurance issues, the managers need to give particular allowance of health insurance for the particular overseas employee. This allowance happens when the employee’s own country’s health insurance is higher than the host country’s. As it said before, the manager couldn’t ensure the employees won’t die or get sick in the foreign country.

They should consider before send people overseas, and give the employees insurance plans. Although it can’t help all, while the employee gets sick or die, he/she at least can get compensation from the insurance program. The insurance should be planed based on the particular employee. They should consider the insurance policy in the foreign country and also the home country. Even sometimes they need to consider the peculiarity of the employee. For example, if he/she have some particular health problem. Middle term recommendations:

For the inflation issues, CPI Indexation is the way to avoid this problem. By doing this, the compensation will be recalculate by Consumer Price Index in host country. Amartya Sen (1999) said CPI Indexation is a way to avoid the loss in inflation for international organizations. For the issues with allowance, Stone (2002) has given a dynamic way to solve the allowance problem. The allowance is complex, but most potential problems can be minimized if HR managers: * Establish a clear allowance policy that reflects organizational and HRM objectives and culture and that has the support of top management. Communicate the policy to both the employee and spouse * Ensure that the employees’ packages are competitive * Give the same care and attention to international compensation and benefit program that are given to the home-country program * Ensure that the international compensation and benefit program is cost-effective. For the insurance, the employer should consider giving the employees in overseas the property insurance. The employer also should consider buying own country’s insurance or host country’s insurance. (International money marketing, Sep 2004)

At the health risk point, the company should give allowance to the employees who are working in the third world country. For those employees, company should cover more insurance on health problems. And before the employee go to that country, the company need to investigate if the country is too dangers (about health) to work. (Employee benefits magazine, Sep 2004) Long-term recommendations: For the equalization of performance appraisal, According to Sparrow (2000), in developing an Equalization of performance appraises, HR managers should consider:

Outsourcing, using the organization’s international talent bank for international assignment. Verify the difference between the additional benefits according to international standards such as PPP, but base salary unchanged. Establish an elite cadre of international executives who see their careers as being in international management For the issues with citizenships, for the legal issue of citizenship of different countries, the company should know the legal requirements of different countries of keeping a citizenship or residence.

Most countries require their citizen to come back to the home country periodically; otherwise the expatriate may lose their citizenships. Also, if the expatriate’s child was born aboard, and the expatriate hasn’t been in the home country for a certain period, their child may loss the citizenship for the home country. For the long-term issue of insurance, death and disable issues are the most significant issues. If the employer wants to be no risk at all, he/she should buy the host country’s insurance for their employees. Because the employees are working at overseas, if something happened, that’s all at overseas.

As the in the group case, it tells us the employers have to buy insurance for employees in the host country until they have returned. References Ahmed et al. 2003. Working Paper Series: SWOT Analysis for Air China Performance and its Experience with Quality. May http://www. bradford. ac. uk/acad/management/external/pdf/workingpapers/2003/Booklet_03=11. pdf (Accessed 3 May 2006) Air China 2003a. Foundation of Air China. http://www. airchina. com. cn/en/zj/1_1. htm [Accessed 1 May 2006] Air China 2003b. Recruitment information. http://www. airchina. com. cn/buttom/zp_1. tm [Accessed 1 May 2006] Air China Limited. 2005. Global Offering. http://www. airchina. com. cn/en/tz/pdf/152Dec1N%20AsPrinted%20-%20NoBan. pdf. (accessed May 7, 2006) Air China Website. 2006. http://www. airchina. com. cn/zx/NewsDetail. jsp? subtype=airchina&id=20060329102309 [Accessed 3 May 2006] Appelbaum, H. S. and Brenda, M. F. (2004), “Safety and Customer Service: Contemporary Practices In Diversity, Organizational Development and Training and Development in the Global Civil Aviation Industry”, Management Research News, Vol. 27, p. 15. Appelbaum, S. H. Brenda M Fewster. (2002). Global aviation human resource management: Contemporary recruitment and selection and diversity and equal opportunity practice. Equal Opportunities International. 21(7). p. 66. ATAG (Air Transport Action Group). 2005. The economics & social benefits of air transport. September. http://www. atag. org/files/Soceconomic-121116A. pdf (accessed 7 December 2011) Chen Xiaoming (2005). China airline annual report 2005. China Corporation Association Staff. (2005). China corporation association annual report 2005. Civil Aviation Resource Net of China. 2005 Best