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Air industry needs super-carriers
2001-03-24
China Daily
To beef up the civil aviation industry ahead of the expected entry into the World Trade Organization (WTO), China should consolidate small domestic airlines into super-carriers in order to relieve the threat of massive competition from foreign counterparts, said an article in China Business Times.
Civil aviation is one of the industries which have enjoyed an extremely fast growth rate since China adopted its reform and opening up policy. But for years, the competition was at a low level because of the small and fragmented industrial scale, high operation costs and obsolete management mechanisms.
China now has 34 civil aviation enterprises which have around 500 aircraft - fewer than most foreign flagship companies boast individually. Such a highly fragmented management situation raises the operating costs of the aviation companies, says the article.
And redundant staff and technological backwardness also have to be blamed.
For example, in Northwest China's Gansu Province, China's Northwest Airlines has only eight aircraft, with 946 seats, but has a staff of 1,212. The ratio of employees to seats is 1:0.78, compared with the international standard of 1:1.
Also, China is still weak in using modern information technology to manage its airlines, the article pointed out.
So far, China has not developed its own advanced airline management system, including computerized seat reservations and profit management. The core technologies of these systems still rely on imports.
Nonetheless, with the further opening of China's aviation sector, the industry is loaded with unprecedented opportunities.
In 1994, the Civil Aviation Administration of China (CAAC) promulgated its policy on opening the civil aviation industry wider to the outside world.
Under the principle of reciprocity, China participated in flight code sharing with foreign airlines to reduce costs and expand its overseas transportation network.
In late 1997, China Eastern Airlines Co, one of China's three aviation giants, signed a code-sharing agreement with a US company.
Now, Eastern Airlines has expanded its routes to six US cities and sells over 4,000 high-priced tickets a year through the sales network of its US partner.
But China still faces some difficulties because of the small scale of the industry in China, noted the article.
According to international practice, the number of overseas flights to China should be equivalent to the number of Chinese flights to foreign countries.
But China actually suffers losses because of low transport volume and low density of flights. For instance, China and the United States agreed to open 27 flights to each other. But China has only been able to open 12 flights. Foreign airlines attract many customers away from Chinese airlines, which are less competitive in ticket sales and service quality.
To sharp its competitiveness, China should follow the global trend of building larger airline companies, urged the article.
With the impending entry into the WTO, the Chinese economy will gradually integrate itself with the global economy, and the air transport sector should follow the trend. During the past few years, aviation transportation has enjoyed fast development in China.
According to Boeing's market forecast, China's air transportation volume will continue to grow at an average annual rate of 9 per cent in the coming 20 years, which is significantly higher than the projected world growth rate.
The company predicted that within 20 years China will become the second largest international commercial airfreight market in the world, second only to the United States.
However, the industry is still young in China and faces an increasing threat from foreign airlines.
Late last year, United Airlines gave Chinese students studying in US universities airfare discounts.
Northwest Airlines and Air France also promised to offer discounted packages.
Large aviation companies from the United States, Canada, Germany, the UK and Finland also form alliances to be more competitive.
Facing the severe challenge from foreign companies, mergers are necessary for the survival and growth of China's aviation industry, suggested the paper.
The Civil Aviation Administration of China has already decided to establish three major airline groups by building on the present three major carriers - Air China, China Eastern Airlines and China Southern Airlines.
After completing mergers with smaller rivals, each of the three biggest carriers will have almost 50 billion yuan (US$6 billion) in assets.
This move will also allow the creation of three major airport hubs, with China Southern based in Guangzhou, China Eastern in the commercial hub of Shanghai and Air China in Beijing, the capital of the country.
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