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.

5 thoughts on “China’s troubled skies

    Mario Taccori says:

    Hello, I work with Airbus. As you wisely noted earlier – Hainan Airlines will be the one to watch. You have an excellent China business blog here and very well informed.

    Linda Johnson says:

    I agree with Mario. However, I often lack information about sources, for instance in this article:

    – “air traffic in China rose 15 percent last year”
    – “the government has decreed that China will develop an aviation industry”
    – “Chinese airlines have adopted the foreign technique of leasing”
    – “Current figures suggest that China’s flight schools may only be able to train 7,000 pilots…”
    – “The market between the two countries is growing by an annual 17 percent …”

    It would make the argumentation so much stronger, if there were sources or links to sources.

    Andy Scott says:

    Linda,

    Much of the source material came from this Shanghai Daily article, it should have been mentioned in the original article. It has now been corrected.

    ck says:

    I had the opportunity to try out Hainan Airlines recently in the domestic route. Definitely a little more progressive than the other 3 main airlines when I first step in the plane. Until when the plane start flying. It was so warm and stuffy inside (someone forget to turn on the aircon or poor aircon maintenance or trying to save fuel), the electonic device is for display only (did not turn on). Wonder why they install such expensive thing and do not let traveller use it. I was on over 2 over hours flight. Guess it another one of those thing in China where the top mgmt just want to spend money for their own benefit and not for customer use. At the end, I had to conclude it another same lousy airlines without regard for customers comfort. The reason these arirlines can still survive it sheer monopoly. Any real competition, any of these airlines would collapse.

    Warren Hamilton says:

    Is anybody really naive enough to think the Chinese government will allow foreign varriers to interfere with the lovely state monopoly on air transport? Also, the figures and underlying assumptions in this article are all sourced from the Chinese government itself! (Note all Chinese airlines are owned by the Chinese government.)

    Where are China’s Airbuses serviced? Where are Dragonair Airbuses serviced? Note this Shanghai/China Daily article makes no mention whatsoever of safety issues…..

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