[photopress:aircraft_waiting_at_airport.jpg,full,alignright]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.