Air China, the world’s largest carrier by market value, will consider a merger with China Southern Airlines to fend off Singapore Airlines and other overseas carriers adding flights into the country.

Air China’s president, Cai Jianjiang said, ‘We don’t exclude this possibility.’ The Beijing-based carrier will also examine tie-ups with other airlines.

Air China generates about half of its sales outside the mainland and needs to bolster its domestic network as the government allows more flights by overseas carriers. Singapore Airlines is set to buy a stake in China Eastern Airlines to tap surging demand in the world’s second-largest aviation market.

Christopher Wong, who helps manage $25 billion at Aberdeen Asset Management in Singapore, said, ‘The cooperation between Singapore Airlines and China Eastern will be a potential threat to Air China. There is also a trend of consolidation, as China has agreed to open its skies to overseas airlines.’

Air China’s president, Cai Jianjiang said Air China’s merger plans are in line with the government’s policy of consolidating the country’s aviation industry. China formed its three biggest carriers by combining a number of smaller airlines.

A tie-up with China Southern, the country’s largest carrier, would give Air China a base in Guangdong, the richest province and a manufacturing hub. ir China has already expanded outside of Beijing by setting up a base in Shanghai and investing in Shandong Airlines, a regional carrier. It has also built up a 17.5% stake in Cathay Pacific Airways, Hong Kong’s largest carrier. Cathay owns a similar-sized stake in Air China.

U.S.-China flights will more than double to 23 a day by 2012 under an agreement which gives sort of ‘open skies’. According to the U.S. government full ‘open skies’ will come in 2010.
Source: International Herald Tribune

Hainan Airlines has applied to operate a non-stop flight between Beijing and Seattle in the United States starting next June. After the application is approved, the airline will become the fourth Chinese carrier for flights between China and the United States. The other three are Air China, China Eastern Airlines and China Southern Airlines.

(The privately-owned Hainan Airlines did a pretty good job garnering publicity for its flight to Lhasa from northwest China’s Xi’an. The 137 passengers on the inaugural flight received iconic Tibetan welcomes featuring butter tea and Hada. The flight attendants entered into the spirit of the act as seen in our illustration.)

The application follows a recent agreement between China and the United States on doubling the number of passenger flights between the two countries by 2012. Hainan Airlines, China’s fourth largest carrier, has applied to operate the Beijing-Seattle route using Airbus A330 planes.

As an interim measure the Airbus airplanes will probably be leased until Hainan Airlines takes delivery of new Boeing widebody jets. In 2005, the company ordered eight 787 Dreamliners and the first plane is scheduled to be delivered in June 2008. Currently there are no non-stop flights between Seattle and Beijing.

The transportation agreement allows 23 daily round-trip flights between China and the United States by 2012, up from the 10 flights at present. There is a mad stampede on among the American airlines to take up their share. This is not true in China.

The problem is that the profitable percentage of passengers will mainly be American and, by and large, Americans prefer to fly on their own carriers. It can be debated whether an American airline provides a better flight experience than a Chinese airline. Many frequent fliers who do have allegiance to either country think a plague on both their houses. Neither American nor Chinese airlines are up to the standards set by, say, Cathay Pacific, Singapore Airlines, British Airways, Emirates or even Qantas.

In 2010, the two countries are set to begin negotiations on an ‘open skies’ agreement, which will lift restrictions on commercial air traffic. Unless China’s airlines have lifted their game so that they offer a passenger experience the equivalent to, say, Cathay Pacific, then that agreement will mainly benefit the airlines of the United States rather than the airlines of China.
Source: China Daily

Air Transport World reports that China’s civil aviation authority has conceded that the country’s commercial air transport industry is developing ‘a bit too fast.’

China’s aviation authority reported the collective profit of Chinese air carriers topped RMB900 million ($118 million) in the first four months of 2007, reversing a loss of four times that amount a year earlier.

The group acknowledged the industry was developing too fast, pointing out carriers had added 45 aircraft in the first four months of the year and they are expected to take delivery of a total of 150 aircraft in 2007 and another 140 new aircraft in 2008, 160 in 2009, and 140 in 2010.

Meanwhile, US carriers Continental Airlines, Delta Air Lines, Northwest Airlines and US Airways launched formal bids to operate new services to China. The new services will become available under an expanded aviation agreement between the US and China.

Continental wants to fly daily service between Newark and Shanghai (originating in Cleveland). Delta has applied to serve Shanghai from Atlanta and daily to Beijing. Northwest wants to serve both Beijing and Shanghai from Detroit. And US Airways, which previously applied to operate a Philadelphia-Shanghai route, has expanded its application to include daily Beijing service from Philadelphia (originating in Charlotte).

That means that there will be an immense number of seats to be filled. And China’s airlines are not as experienced nor as expert as American airlines in doing this.
Source: Logistics Today

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

A long and extremely well written article in The Economist —its articles are the best-edited in the world — concerns the future of aviation in Asia with special attention been give to China. What follows is the gist of part of the article regarding China. It is well worth looking up the full article using the URL at the end.

According to Naverus, the Seattle-based firm that installed the Required Navigation Performance (RNP) system at Linzhi in Lhasa conventional ground-based aids do allow precise enough navigation to the airport, which sits 9,670 feet above sea level. So it combines the avionics in a modern jet airliner with GPS to guide pilots along a narrow path to the airport. (Note that Aviation Week has the most excellent article on doing a landing using this system. It gives you some idea of the problems involved. If you know anything about flying this article is a serious ‘must-read.’)

China is planning to install scores of such systems, not just where landings and take-offs are difficult but also at congested airports. Already China has announced that from November the vertical spacing between aircraft will follow world standards which effectively doubles the air space in China.

Travelers in China are already getting fed up with airport queues and flight delays and these moves will help eliminate them.

In China last year airline passengers took 179m trips in China (135m on domestic services and 44m on international ones). The government says the numbers are increasing by around 15% a year, with a huge boost expected next year because of the Beijing Olympic Games. By 2010 they are likely to reach 270m — though that will still be only a third of America’s total last year.

China’s Civil Aviation Administration says it will spend more than RMB140 billion ($17 billion) in the next three years on building more than 42 new airports and upgrading others. China will still end up with only around 200 commercial airports, compared with some 20,000 (including many small ones) in America, which has barely one-quarter of China’s population. The potential for China’s aviation market is huge.

China leads the world in the introduction of electronic ticketing, which offers huge savings. Last year 95% of tickets issued in the country were electronic, up from 10% in 2005.

China is also investing heavily in new aircraft. Officials say that mainland carriers plan to double the size of their fleets to a total of more than 1,500 aircraft by 2010, reaching 4,000 aircraft by 2025. China already builds some small regional airliners and has announced plans to challenge Boeing and Airbus in the market for big jets by 2020.
Source: The Economist