Hainan Airlines, China’s fourth-largest carrier, begins nonstop service from Seattle (in our illustration on the left) to Beijing on June 9. Northwest Airlines will follow with a daily nonstop service between Seattle and Beijing in March 2009. These are moves which will make a lot of Microsoft executives very happy.

The new Northwest Airlines service will use Airbus A330-200s equipped with 32 business-class seats and 211 economy-class seats.

Joel Chusid, North American general manager for Hainan Airlines, whose new Seattle-Beijing service begins next month, said, ‘This just validates the fact that Seattle has become a major gateway to the Pacific. Competition is competition, but we understand it. It just speaks to the vibrancy of the market.’

Last year, about 69,000 passengers flew between Seattle and China, not including passengers connecting through Seattle from other cities. By 2009, that number is expected to nearly double.
Source: The Seattle Times

Under the 2004 bilateral agreement China opened its air hubs and major coastal cities to US airlines. From this year, under a new, more extended bilateral agreement it will open its central hinterland (effectively all of China) to US carriers.

As a result Chinese airlines will feel the heat of competition. US carriers can now fly to provinces such as Anhui, Hunan, Hubei, Jiangxi and Shanxi.

According to Li Lei, an airline analyst with Zongxin Investment the new deal will open up all provincial capitals to US carriers. Restrictions on air cargo flights between the two countries will be lifted by 2011. This means, notes Li Lei, ‘potential cargo routes reserved for Chinese operators will be taken away by powerful US cargo airlines.’ The use of that word ‘powerful’ suggests that Li Lei may not be totally without bias.

Under the deal, US carriers will be able to operate 23 daily round-trip flights by 2012, up from 10 currently. China will have the right to fly the same number of flights to the US.

US carriers are eager to expand their flights after using up their quotas under the 2004 deal while Chinese carriers have still not utilised more than half the flights permitted. The reason is simple. To make a quid out of the airline business you need two way traffic. Passengers and cargo there, passengers and cargo back. Flying empty planes is a way to lose serious money.

From China to the US it is not a major problem getting a full load. The other way around is seriously difficult. US passengers, by and large, tend to book on US airlines.

According to the Civil Aviation Association of China the new deal offers an additional 13 flights for both sides, but as the Chinese side has no capability to use these flights, only the US operators will benefit.

This is true. Which means the Chinese operators are going to have to rethink the way they operate. To survive costs have to be cut, service improved, loads made more profitable. This is not easy, as airlines all over the world have discovered.

Tian Baoping, chief of the China Civil Aviation Management Institute, said Chinese operators need to work harder for self-preservation, which could be achieved faster by joining aviation alliances. He said, ‘Only internationalisation can uplift local airlines and airports and strengthen the civil aviation chain.’

China carriers have already started making moves to join alliances. China Southern is expected to become a member of the SkyTeam alliance by November; Shanghai Airlines may join the Star alliance by year-end; Air China has also expressed its interest in joining the Star alliance; and China Eastern Airlines is preparing for accession to the Oneworld alliance.

Membership in the alliances can help fill Chinese passenger and cargo aircraft as well as cut costs because of discounts achieved through the joint purchase of fuel, parts and freighters by the alliance members.

Another method of boosting international flights for Chinese carriers is to invite foreign operators to form joint ventures such as the Lufthansa-Shenzhen Airlines joint venture of Jade Cargo. China Southern is currently in talks with Air France-KLM on a joint cargo venture, while China Eastern is close to clinching a deal to sell a 25% stake to Singapore Airlines.

The airline business is tough and is about to get tougher. There will undoubtedly be casualties.
Source: CargoNews

American airlines squeal like stuck pigs at apparently unfair competition from the European carriers and positively demand open access to China so that it will be a flat playing field. They claim some airlines are subsidized by the governments. They suggest that other countries are frightened of fair competition.

Oddly they never mention the anomaly of Chapter 11. And yet this is central to the way they operate. Four of the top seven U.S. airlines filed for Chapter 11 protection in the post-9/11 crisis.

With Chapter 11 you sort of enter bankruptcy. Sort of, because the airlines cannot be dunned for the money they owe but can still continue operating.

Then, when the situation improves, you seek approval to emerge from bankruptcy. Meanwhile, hiding behind court protection you have kept operating and seriously cut costs.

That this is blatantly unfair competition is well known but it keeps the American airlines flying.

Now Northwest will emerge from Chapter 11 where it ducked for shelter in late 2005 on the same day as Atlanta-based Delta. And, in an odd coincidence, Delta left the bankruptcy court three weeks ago.

Once a company emerges from court protection, its shares begin trading again.

‘They’re going to be in a very strong position,’ airline industry consultant Mike Boyd said. ‘They have a strong vision of what they want to do. If you’re going to bet on an airline, I’d bet on them.’ He notes that Northwest will be able to build its growth around a global hub in Detroit for access to China.

Understand these are the airlines of the United States who have been complaining bitterly about the no-fair policies of other countries, China being one.

It is like murdering your parents and then throwing yourself on the mercy of the court because you are an orphan.

In coming out of bankruptcy Northwest will be offering Chief Executive Doug Steenland $26.6 million in stock and options once the company emerges. It also gives the outgoing chairman, Gary Wilson, $2 million as well as medical and dental insurance for life and up to $75,000 a year to keep an office.

Soon they will be flying to China. Easy to spot. They are the ones with the hungry looking cabin crew.
Source: AjC