China Eastern Airlines' strategic sales of equities to Singapore
Airlines have sharply focused attention on the restructuring of the
booming Chinese aviation industry to meet the rapidly growing
demand for global travel.
Outgoing airline passengers from China are seen to be increasing
at a faster rate than those on domestic flights. In July, for
instance, passengers on international flights increased 20 percent
year-on-year compared with 15 percent for domestic flights.
The trend is widely seen by aviation industry experts to have
touched off the race between domestic airlines to search for equity
partners to expand their global reach and to quickly lift the
standard of management and service to international levels.
Air China, the nation's largest carrier, forged a
cross-shareholding partnership with Hong Kong's Cathay Pacific last
year. The agreement between China Eastern and Singapore Airlines,
which is pending shareholders' approval, is simply a move in the
same direction by another major domestic carrier.
These alliances are the opening moves of what aviation experts
expect to be a grand restructuring of the airline industry. Some
analysts say Air China, with the most balanced route structure
among all the aviation companies, is likely to lead the industry
restructuring by merging other companies.
"Consolidation is an inevitable trend in the global aviation
industry, you can find examples in developed countries such as
Germany and the United States where only a few airlines have
survived," Air China Chaiman Li Jiaxiang recently said while
releasing his new book Route to Fly in Beijing.
"As one of the world's fastest growing aviation markets, China
needs an internationally competitive airline. That's Air China's
target. And that must be realized through consolidation," Li
said.
China has more than 40 airlines. Consolidation and restructuring
could avoid "redundant investment and excessive competition" in the
aviation industry, Li added.
Experts and analysts say domestic carriers should improve their
management and services and reduce the operating cost to alleviate
the rising cost of fuel oil.
Shanghai is one of the three largest aviation centers in China.
All airline companies have put a premium on Shanghai in their
future development strategies.
China Eastern Airlines takes the leading position in the
Shanghai market with 35 percent of the market share, followed by
Shanghai Airlines with 18 percent and Air China with 12
percent.
Wang Wanlong, director of communications of Shanghai Airlines,
told China Daily that the company so far has no plan to team
up with either domestic or foreign aviation companies.
In the coming year or two, Shanghai Airlines plans to expand its
flight routes from domestic cities to international business cities
by opening long-haul flight routes in major global business cities,
like Vienna, Hamburg, Zurich and Seattle, according to Gu Jiadan,
deputy manager of Shanghai Airlines.
Ma Ying, an analyst at Haitong Securities, says the fast-growing
domestic aviation market calls for an industry conglomerate by
incorporating several domestic airline companies. "The country is
stepping up efforts to build its own super carrier with an
international competitive edge," Ma said.
Largely driven by strong passenger demand and the rising value
of the Chinese currency, the local aviation industry has shown
unprecedented growth momentum in the past year.
Statistics from the Central Administration of Civil Aviation of
China show the industry developed quicker than ever before. In the
first six months of this year, the customer to seat ratio of the
whole industry averaged at 73.9 percent, up 1.6 percentage points
from a year earlier.
The combined turnover from the main business in the industry
reached 85.9 billion yuan, up 19 percent and the aggregate profit
notched up was 1.5 billion yuan, up by 3.9 billion yuan from last
year's loss.
In these first six months, five listed aviation companies posted
an aggregate turnover of 79.9 billion yuan, up 16 percent from a
year earlier. Despite a 15 percent increase in costs resulting from
the surging oil prices, these companies found their average gross
profit rising from 12.7 to 13.6 percent.
(China Daily November 9, 2007)
