Home' Asian Aviation : AAV March 2010 Contents both tr ying to complete the final piece of the puzzle.
China Economic Review predicts 2010 will see the
alliances of Chinese carriers switch as commercial
reality sets in. For its part, China Southern has joined
Air France and Delta Air Lines in their SkyTeam group.
China Eastern, meanwhile, has yet to sign up with
any alliance. Despite being in less than the rude financial
health normally demanded of prospective Oneworld
memb ers (in contrast to Star Alliance’s g eographical
completist tendencies), China Eastern has been actively
courted by Oneworld.
The airline currently op erates domestic flights within
China on behalf of American Airlines and code-shares
with Cathay Pacific, British Airways, Qantas Airways
and Japan Airlines, although its own international
presence is relatively small. However, China Ea stern a lso
shares its codes with four SkyTeam carriers.
But loss-making Shanghai Airlines wa s a Star Alliance
member prior to the merger with China Eastern,
while Star member Sing apore Airlines has strong ties
to the Shanghai carrier – although the Singaporean
government investment arm Temasek Holding s
refrained from taking a stake in the middle of last year
as the crisis deepened.
China Eastern also code-shares with Korea’s Asiana
Airlines and Japan’s All Nippon Airways . China Ea stern
mana ging director Ma Xulun had previously set the first
quarter of this year as a deadline to decide which alliance
to side with, but the merger is likely to delay this.
Even without alliances, China aviation analysts expect to
see more code-sharing deals in 2010 between Chinese
and Western carriers. The Centre for Asia Pacific
Aviation (CAPA) says this year may be the year China
Eastern and Air China are forced to choose between
code-share partners and alliance membership. There
will be realignment, the consultancy says.
Hong Kong is not the only market CNAC is eyeing.
Air China has also raised its stake in the Macanese carrier
Air Macau, primarily because the former Portug uese
colony retains its own international air traffic rights,
which could become valuable as Beijing Capital
International Airport gets more crowded.
Shanghai is emerging as a credible alternate entry
point. The China Eastern merger with Shanghai Airlines
gives the new partnership over 50 percent of the capacity
at the city’s main Pudong airport. This brings the merged
carriers in line with Air China and China Southern, who
each control over half the traffic at their hubs in Beijing
and Guangzhou respectively. The airport authorities
have announced a brace of new routes linking Shanghai
to central and southern Chinese cities such as Nanchang ,
Hefei, Nanjing , and Ningbo.
Of even more interest, perhaps, is the freight market.
Pudong has 24-hour cargo operations, and part of Air
China’s deal with Cathay Pacific is to j ointly set up
China’s biggest carg o joint venture in Shanghai this year.
Not to be outdone, China Eastern and Shanghai
Airlines will integrate their airfreight subsidies –
China Cargo Airlines and Shanghai Airlines Cargo
International – into one new carrier, while China
Eastern Airlines is in talks with the shareholders of two
independent freight carriers op erating out of Pudong .
This activity is sure to please Li. One of his first acts
as CAAC chief was to push for Air China to acquire
the assets of regional carrier East Star Airlines. East Star’s
former president, the charismatic billionaire Lan Shili,
had been detained on suspicion of trying to flee the
country amid mounting debts.
The airline was forced into receivership in March, and
its acquisition by Air China was fast-tracked to save the
carrier’s Wuhan hub.
East Star had been grounded from 15 March,
after failing to pay leasing fees to General Electric
Commercial Aviation Services (GECAS), to whom it
owed US$8.8 million. Total debts amounted to 500
million yuan (US$73 million) the newspap er Nationa l
Business Daily rep orted.
East Star was the highest-profile recent collapse of
an airline in China, but officials at the CAAC fear a
string of similar regional airline failures if the large,
government-backed carriers do not act to take them
under their wing .
Air China , China Eastern and China S outhern have
all benefitted from government assistance to stave off the
ravages of the global financial crisis last year, exposed as
they were t o int ernationa l traffic downturns. Purely
domestic airlines, on the other hand, were not given a
Earn ing s figures for 2009 show that the big three
each recorded profit, but only just. Despite the legacy
of the credit crunch continuing to haunt the airline
industry, Chinese carriers performed well compared to
their internationa l peers. China’s economy is predicted
to grow by about 7-8 percent this year, and this will be
reflected in continued growth of air travel demand.
However, there are black spots on the horizon: at
the start of 2010 fares on some domestic trunk routes
tumbled by as much as 80 percent, following the launch
of China’s third high-speed rail line from Zhengzhou to
Xian on 6 February. Other lines will follow in the next
few months, including a link from Beijing to Shanghai
that may undercut the most profitable routes for both
Air China and China Ea stern.
China Southern has already faced the same battle,
after the rail link between Guang zhou and Wuhan
opened. The rail ministry aims to spend 700 billion yuan
on rail this year and add more than 18,000km (11,185
miles) of high-speed track by 2020. As in Europe,
Chinese airlines will have to face the uncomfortable
truth that for journeys of less than 800km, travellers
genera lly prefer taking trains to flying.
The effect is hitting yields on already precarious services.
Domestic traffic rose by 8.22 percent during the first six
months of 2009 for Air China, yet revenues fell by 1.48
billion yuan to 19.24 billion y uan and turnover fell by 10
percent to 23.11 billion yuan in the same period.
Despite taking away passengers through its rail
network expansion, China’s central government is
still keen to help the country’s biggest carriers. Both
China Eastern Air Holding s and China Southern
received large capital injections from Beijing as part of
a stimulus package. China Eastern had poorly hedged
its fuel costs, requiring a US$290 million bailout
when oil prices dropped in the first quarter of 2009.
Meanwhile, China Southern received US$440 million
from the government at the tail-end of 2008 to help with
But despite this, and with China Eastern now more
Asia nAviation | MARCH 2010 21
Air China’s and Cathay Pacific Airways
plan to jointly set up China’s biggest
cargo joint venture in Shanghai this year.
7/03/10 12:09 PM
7/03/10 12:09 PM
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