A booming tourism market will lead China's aviation industry to
a peak in the next few years thanks to big events such as the 2008 Olympic Games in Beijing and the 2010
World Expo in Shanghai.
The two events will undoubtedly draw more visitors to the host
cities. Five million overseas visitors and more than 120 million
domestic travelers are expected to visit Beijing next year,
according to the organizer of the Beijing Olympic Games.
The Shanghai World Expo is expected to draw 70 million visitors,
the city's officials have said.
The events will benefit the host cities' aviation industry as
well as neighboring cities, which will profit from a spillover
effect.
The country is expected to be the most popular tourism
destination in the world in 2015, when domestic airports will
handle 450 million passengers annually.
In the third quarter of this year, domestic carriers flew 52
million passengers, a rise of 15.3 percent year on year, according
to the General Administration of Civil Aviation.
A rising passenger volume and a strong yuan led profit to rise
66 percent in the third quarter of this year to 9.1 billion yuan
(US$1.23 billion), the administration said.
The appreciation of the yuan is another key fact that secures
profit for the carriers. The yuan has climbed more than 10 percent
against the US dollar since a peg was scrapped in July 2005, which
cuts the repatriated value of US dollar-denominated debts for the
airlines.
China's swelling trade surplus has triggered pressure from the
United States and European countries for the yuan to appreciate
even more.
Stephen Green, a senior economist at the Standard Chartered Bank
(China) Ltd, expects the yuan will appreciation aggressively
against the US dollar next year.
"We revised our forecast to 7.4 by the end of this year and 6.84
by year end of 2008," Green has said.
However, the industry isn't free from the impact of surging oil
prices.
The spike in fuel prices is expected to add US$14 billion to the
global aviation industry fuel bill in 2008, driving it up to US$149
billion (based on an average price of US$78 per barrel), the
International Air Transport Association said in its latest
financial forecast.
The association sharply revised downward its profit outlook for
2008 to US$5 billion from the previously forecast US$7.8 billion.
The broadening impact of the credit crunch is expected to slow
revenue growth to 4.7 percent and traffic growth to four
percent.
But an increase in fuel surcharges on the mainland will cover
part of the added expense. The CAAC has allowed domestic airlines
to increase fuel surcharges on domestic flights by as much as 25
percent from November. The passenger fuel surcharge was raised from
50 yuan to 60 yuan per passenger for flights under 800 kilometers.
For long-haul flights, the fee was raised from 80 yuan to 100
yuan.
Potential mergers and acquisitions will also bring dramatic
changes to the domestic aviation industry next year.
The battle among China Eastern, Air China and Singapore Airlines
is still grabbing headline.
Singapore Airlines Ltd and its parent Temasek Holdings Pte
signed an agreement last month to buy 24 percent of China Eastern
Airlines Corp at HK$3.80 a share.
However, before the deal was made, Air China's parent considered
pairing with Hong Kong's Cathay Pacific Airways to bid for a stake
in China Eastern although Cathay has since abandoned the plan.
The US$926-million deal with Singapore Airlines and Temasek
still needs approval from China Eastern's minority shareholders,
including Air China.
"Air China's decision may reshuffle China's aviation industry,"
said Shenyin and Wanguo Securities analyst Li Shurong.
"Shanghai Airlines will be the next acquisition target for
carriers that want to grab the Shanghai market," Li said.
Grand China Airlines, the nation's fourth-biggest, was
inaugurated on November 29 after the merger of four air carriers,
including Shanghai-listed Hainan Airlines, to compete with the top
three national players in a market that continues to boom.
Meanwhile, major domestic carriers are stepping into
international aviation alliances to expand overseas networks.
China Southern Airlines joined SkyTeam in November. Air China
and Shanghai Airlines jointed Star Alliance in December. China
Eastern Airlines is in talks to join British Airways Plc and AMR
Corp's American Airlines in Oneworld.
(Shanghai Daily December 27, 2007)
