Chinese airlines experience boom year

China’s airlines are experiencing a surge in domestic and international travel demand that will more than double their profits this year

1st Sep 2010


According to statistics released by the Civil Aviation Administration of China (CAAC), Chinese airlines recorded a 36 percent increase in international traffic for the 12 months ended 30 June, while domestic carriers saw 18.6 percent growth.

The gains come thanks to China’s booming economy, the increasing number of affluent Chinese, demand for travel to the Shanghai Expo, which is being held from 1 May to 31October, and the global rebound in air travel. The country’s economy grew 11.1 percent in the first half of the year and is projected to expand 9.2 percent in 2010.

CAAC Deputy Director Wang Changshun says the airline industry is beating performance expectations and has tremendous potential for continued growth.

The CAAC has predicted that Chinese airlines’ combined profit will surpass 18 billion yuan (US$2.65 billion) in 2010. Last year, the airlines posted a profit of 7.4 billion yuan, a stark contrast to their 31.8 billion yuan loss in 2008.

Domestic carriers reported profit of 5.2 billion yuan for the first half of this year, while the result for international carriers was still being finalised as Asian Aviation went to press.

China’s four largest carriers by fleet size – China Southern Airlines, China Eastern Airlines, Air China and Hainan Airlines, in that order – expect their profit for 2010 to more than double. The appreciation of the yuan against the US dollar is expected to reduce the airlines’ debt.

China Southern operates a fleet of 400 aircraft, with a network of 150 domestic and 40 international destinations.

Rationalised market

Wang says that after a series of mergers and acquisitions over the past five years, China’s market is being served by fewer, but much stronger, airlines. The carriers are also in the process of expanding fleets, while enhancing their in-flight product to compete with global rivals.

Air China Senior Vice-President He Li says the airline is investing significantly in its in-flight offering, as passengers are getting very choosy. This investment will cover catering, seat comfort and in-flight entertainment.

“We have to invest, as there is still a difference in service quality between China’s airlines and international carriers,” he says. The carrier hopes that service improvements will help boost its premium-class market share.

London-based research firm Skytrax awards China’s three largest carriers three-star ratings (out of a possible five) for in-flight service.

Air China is planning to increase fleet capacity by 12 percent this year to meet increasing travel demand. The airline has firmed up plans to order 20 Boeing 737-800s, ten of which will be assigned to the carrier’s wholly-owned subsidiary, Shenzhen Airlines. Deliveries are scheduled to take place from the first quarter of 2013 through to the third quarter 2015.

The aircraft will be deployed on domestic and regional routes to South Korea and Japan. Air China currently has another 130 Boeing and Airbus aircraft on order. The Chinese flag-carrier operates a fleet of 269 aircraft, covering 258 domestic and international routes

After failing in 2008 to secure Singapore Airlines as a strategic partner, China Eastern is hoping it will be successful this year in teaming up with a profitable airline. The carrier’s chairman Liu Shaoyang says he is interested in a successful carrier that could offer management expertise.

Liu does not rule out the possibility of establishing a partnership with another SkyTeam member. China Eastern will officially join the SkyTeam global alliance in June 2011.

Liu acknowledges that although China Eastern is financially more stable than in 2008, it still needs a strategic investor to enhance competitiveness internationally.

Aircraft orders

China Eastern, which ordered 16 Airbus A330-200s in March to expand its international network, will take delivery of the aircraft from the first quarter 2011 through to mid-2014. The jetliners will be deployed on services to Europe and Australia.

The carrier reported a profit of 540 million yuan (US$79.85 million) last year, and predicts a four-fold increase in 2010. It merged with Shanghai Airlines early this year to strengthen its position in Shanghai and Beijing.

China Eastern will set up a new joint-venture airline in Kunming with the Yunnan provincial government as part of the carrier’s plan to tap the booming south-western market. The Shanghai-based carrier will hold a 65 percent stake in the new venture, with the remaining 35 percent held by the Assets Supervision and Administration Commission (ASAC) of Yunnan province.

The airline will have start-up capital of 3.66 billion yuan, with China Eastern providing 700 million in cash and 1.68 billion yuan in kind. The new carrier, which will be based at the Kunming Wujiaba International Airport, will start operations next year using a fleet of single-aisle Airbus A320 aircraft.

China Eastern entered the province in 2003 after acquiring Yunnan Airlines as part of the restructuring of the Chinese aviation industry.

Meanwhile, privately-owned Spring Airlines has secured CAAC approval to operate international flights. According to company Chairman Wang Zhenghua, the carrier has yet to decide when it will launch the services.

“It will take quite some time for us to firm up the date, as there is a lot of planning to do, including acquiring more aircraft,” Wang said. Spring Airlines is planning to begin flights to Hong Kong, Macau, Japan, South Korea and Russia.

 

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