Southern Air cargo venture shelved

PUBLISHED : Monday, 27 April, 2009, 12:00am
UPDATED : Monday, 27 April, 2009, 12:00am

China Southern Airlines, the largest Asian carrier by passenger volume, has put a planned cargo joint venture with Air France on hold because of falling demand and slumping freight rates, airline chairman Si Xianmin said.

'We deeply regret postponing [the venture] after two years of tough negotiations,' Mr Si said. 'It is a pity that it happened at a time when the deal is close to completion.'

Air France chairman and chief executive Jean-Cyril Spinetta announced the postponement in Guangzhou on March 23, Mr Si said. Air France's decision was understandable since the airline had parked some of its freighters in the desert in the light of declining freight rates on air cargo services, he added.

'We always keep our door open while Air France also agrees to resume talks with us once the global economy recovers,' he said, adding that there was no timetable to restart talks.

The setback came after the global economic downturn thwarted other deals in various segments in the transportation sector. Shanghai International Port Group, the operator of the mainland's largest port, postponed talks with Maersk, the largest shipping company in the world, on the acquisition of a 40 per cent stake in a Belgian port last week.

'It would not be a bad thing to put the [airline] deal on hold when the market condition is adverse,' said Kelvin Lau, transport analyst at Daiwa Institute of Research.

'Airlines should rein in unnecessary investments during hard times.'

International air freight traffic declined 23 per cent in the first two months of the year from a year ago and might dip 13 per cent for the full year, according to the International Air Traffic Association, which tracks the figures of over 230 member airlines.

On the mainland, air cargo volume dropped 23 per cent in the first two months of the year from a year earlier, while international cargo dropped 28 per cent.

China Southern has been developing cargo business to expand its income stream. It has a cargo base in Shanghai and added a route to Amsterdam last year on top of the routes to the United States.

The carrier is also looking at Guangzhou, Shenzhen and Tianjin to establish a cargo base.

This year the airline plans to take delivery of two to four B777 freighters, and may delay delivery of another two to next year from this year depending on negotiations with manufacturer Boeing.

Although the cargo business is still affected by the downturn, passenger traffic has shown a glimmer of recovery. In the first three months of the year, mainland carriers flew 18.7 per cent more passengers on domestic routes.

Mr Si said China Southern's passenger traffic was expected to increase by double digits this year and the industry would rebound as early as in the second half of the year.

The carrier has delayed some of its expansion plans for Europe and the US because of slowing demand. However, China Southern would expand its international business over the long term, he said.