China’s troubled skies

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China’s airlines are losing their place in the global competition for air travel. While air traffic in China rose 15 percent last year due largely to the rising affordability of air travel and an increasingly wealthy population, China’s top three airlines, Air China, China Southern Airlines and China Eastern Airlines, have seen a combined decrease in profits. With jet fuel prices constantly and universally rising – more than quadrupling between 2001 and 2006 – and a reluctance to raise domestic fares, Chinese airlines have no way to compensate for the increasing expenses of air travel.

There are also other problems, as the one industry where China cannot out-do the rest of the world with a numerous and cheap labor force, the aviation industry has remained quite small. While the government has decreed that China will develop an aviation industry to rival the U.S and EU, Chinese carriers today are forced to import the majority of their planes, rendering it a pricy business.

To compensate, Chinese airlines have adopted the foreign technique of leasing rather than buying their Boeings and Airbuses – it is easier to lease new planes for short periods of time rather than buying them and then constantly refurbishing and upgrading to keep them up-to-date.

The carriers have also found that hiring pilots is becoming more expensive as well. According to the Shanghai Daily, current figures suggest that China’s flight schools may only be able to train 7,000 pilots by the end of 2010, falling short of the estimated need for 9,000.

Competition for passengers for international routes is also set to intensify as U.S. move into the market under the U.S.-China “open skies” agreement that will see the combined number of weekly flights to China double to 112 by 2009 according to the U.S government.

The market between the two countries is growing by an annual 17 percent and Chinese carriers fear that they will be unable to compete in terms of flight frequency – Chinese carriers only operate six of the available 10 daily flights – and market share – CargonewsAsia reports that Chinese carriers carry less than half the current passenger traffic.

China and the United States are scheduled to hold the third Sino-US Strategic Economic Dialogue, at which the U.S. will push for complete open skies between the two nations, making it that much harder for China to protect its still relatively weak airline industry.