Finding solutions
Desperate to increase load factors, domestic airlines have now started wooing passengers with aggressive price cuts.
For example, ticket prices on popular routes, like the Beijing-Shanghai route, are 55 percent lesser on online travel portals like Ctrip.com and eLong.com. For many other routes prices have been cut nearly 75 percent.
"In the past we had only about 10-15 percent of the seats on one flight sold for a special price of 99 yuan. But now we are increasing this to 30-40 percent of the total seats to maintain our load factor," said Zhang Lei, spokesman of Spring Airlines, a Shanghai-based private low-cost carrier. Although the airline has not seen big drops in load factor, the price cuts have resulted in profits falling nearly 70 percent, Zhang said.
State-owned airlines are also seeking government cash injection to rectify the high debt-to-asset ratios.
Parent companies of China Southern Airlines and China Eastern Airlines recently, respectively, received a 3 billion yuan infusion from the government. The two airlines will issue both A shares and H shares to their parents to obtain the funds.
That is the first time over the past five years for the government to directly inject cash into airlines.
Shares of the two carriers surged on the news yesterday. In Shanghai trading, China Southern and China Eastern both jumped 9.9 percent. Their Hong Kong-listed H shares rose 44 percent and 42.7 percent respectively.
Air China, the nation's flag carrier, is reportedly waiting for a 10 billion yuan injection from the government. Hainan Airlines is also seeking cash injection from the local government.
"The cash injection is not likely to create a drastic change in airlines' businesses or pull them back to the black. It could only temporarily improve their debt-to-asset ratio," said Yu Jianjun, an analyst with Huatai Securities.
The debt-to-asset ratio of China Southern, the country's largest airline by fleet numbers, exceeded 83 percent by the end of the third quarter. The cash injection is expected to lower the ratio by 2.5 percentage points, analysts said.
China Eastern's debt-to-asset ratio is even higher at 98.5 percent and the ratio could be lowered to 94.7 percent with the infusion, Yu said.
"The ultimate factor that affects businesses is still traffic demand," Zhang said.
"There might be some improvement next year given the government's massive stimulus packages, which would spur economic activities," Zhang said.
The State Council recently announced plans to invest heavily on a wide array of national infrastructure and social welfare projects. These projects are expected to trigger an overall investment of up to 4 trillion yuan until 2010.
(China Daily December 12, 2008)
